Summary
Buying a distressed business can present a compelling acquisition opportunity. A buyer may be able to expand into a new market, acquire valuable assets, add an established customer base or take on part of a competitor's operation much faster than would otherwise be possible.
Are you thinking of buying a distressed business – 8 Legal issues buyers should investigate
Could higher interest rates create acquisition opportunities?
The latest rise in UK interest rates could add further pressure to businesses that were already struggling with higher costs, squeezed margins and existing debt. As a result we could see an increase in distressed businesses and therefore a rise in demand for buying a distressed business.
On 5 November 2026, the Bank of England increased Bank Rate from 3.75% to 4%, the first increase since 2023. The Bank said the decision reflected growing inflationary pressure, with CPI inflation at 3.5% in September and now expected to rise to around 5% by the middle of 2027.
For a financially healthy company, that may simply be another cost to absorb. For a business already experiencing cash-flow problems, declining margins, significant debt, or difficulty meeting its financial obligations, however, further pressure on borrowing costs could compound existing problems. For some companies, these pressures may ultimately contribute to restructuring, administration or liquidation. For others, they could result in owners deciding that the time is right to sell all or part of the business.
A competitor experiencing financial difficulties may have valuable assets, an established customer base, skilled employees, intellectual property, or a market position that would take years to build organically. Buying the business, or selected assets from it, can therefore look particularly attractive. That can become interesting where a business has entered administration or liquidation, and its assets are available for sale at a lower cost.
However, acquiring a distressed business is very different from a conventional acquisition.
Transactions can move quickly, information may be limited, and buyers will receive far fewer contractual protections than they would normally expect. Insolvency practitioners will not typically offer warranties and indemnities, making the buyer’s own investigations particularly important.
Before taking further steps there are several areas buyers should consider carefully.
Buying a distressed business, understand exactly what you are buying
One of the first questions when acquiring a distressed business or indeed any business, is whether you are acquiring a company or particular assets of the business.
In an asset purchase, the buyer may be able to select particular assets, such as stock, equipment, intellectual property, customer relationships, and goodwill, rather than acquiring the corporate entity as a whole. A share purchase, by contrast, means taking control of the company together with its existing assets and liabilities.
The structure can therefore fundamentally change the risk involved.
Buyers should establish from the outset what they actually need from the target business and whether those assets can legally and practically be transferred.
Don’t abandon due diligence because the deal is moving quickly
Speed is often a feature of distressed acquisitions. An administrator may need to secure a sale rapidly to preserve value.
Then buying a distressed business it does not make due diligence less important. Arguably, it makes it more important.
Depending on the transaction, investigations could cover ownership of assets, existing security, litigation, employees, key contracts, regulatory issues, intellectual property, property interests, and outstanding liabilities.
The challenge for the buyer is finding the right balance between acting quickly enough to secure the opportunity and understanding the risks it is agreeing to take.
Identify outstanding liabilities
A distressed business may have significant unpaid liabilities, ranging from suppliers and landlords to lenders, employees, and HMRC.
Exactly what a buyer inherits will depend on how the transaction is structured.
Care is needed with a share acquisition because the company itself continues to exist with its historic liabilities. An asset acquisition can provide greater scope to define what is and is not being acquired, although it does not mean every potential liability automatically disappears.
Essential suppliers can also create a practical issue. A buyer may discover that continued operation depends upon suppliers that are owed substantial amounts by the distressed business and whose cooperation is needed immediately after completion.
Consider what happens to employees when buying a distressed business
Employment issues should be investigated early rather than left until the transaction is about to complete.
The Transfer of Undertakings (Protection of Employment) Regulations 2006, usually known as TUPE, may apply where a business or part of a business transfers to a new owner.
The position becomes more complicated in an insolvency. GOV.UK guidance explains that TUPE protection will normally apply where an insolvent business is being rescued and transferred, whereas employees are unlikely to receive the same protection where the business is simply closing.
The precise insolvency procedure matters. A buyer should therefore establish which employees may transfer, their terms, accrued rights, potential claims and what consultation obligations may arise before completing the acquisition.
Check the property position
Premises can be fundamental to the value of the business, but buyers should not assume that occupation can simply continue following the acquisition.
Where the business operates from leased commercial premises, the lease should be reviewed carefully. Issues such as assignment, landlord consent, rent arrears, guarantees, break provisions and existing breaches may all affect the transaction.
If property is central to continuing the business, uncertainty around occupation can undermine the rationale for the acquisition itself.
Establish who actually owns the intellectual property
A brand, website, software platform, database, or other intellectual property may represent a substantial proportion of the value a buyer is seeking to acquire.
But does the company actually own it?
Due diligence should identify relevant trademarks, copyright, domain names, software, and other intellectual property and establish whether ownership is properly documented.
Licences are equally important. If technology or intellectual property essential to the business is licensed from a third party, the buyer needs to establish whether that licence can continue or transfer after completion.
Review customer and supplier contracts
An attractive customer list does not necessarily mean those customers will transfer automatically to the buyer.
Key contracts should be checked for assignment provisions, termination rights, change-of-control clauses, and requirements for third-party consent.
The same applies to strategically important suppliers. A business may look attractive on paper but be considerably less valuable if important customers can walk away or essential suppliers refuse to continue trading following the acquisition.
Buyers should therefore distinguish between the apparent value of the customer base and the contractual ability to retain it.
Understand the protection you are actually getting
In an ordinary corporate acquisition, a buyer will typically seek warranties and, where appropriate, indemnities to protect against particular risks.
A distressed acquisition can be very different.
An administrator or liquidator will not provide the extensive contractual assurances a buyer might expect from the owners of a healthy business. Insolvency sales commonly provide no warranties and indemnities, meaning buyers can be exposed to problems discovered after completion.
The sale documentation, due diligence exercise and pricing of the transaction consequently become particularly important.
What if the company is already in administration or liquidation?
Buying assets from a company in administration or liquidation can present an opportunity to acquire useful assets without buying the entire company, but it also requires particular care.
A liquidator or administrator has powers to realise company assets for the benefit of creditors. Depending on the circumstances, a purchaser might be interested in the company’s equipment, stock, intellectual property, goodwill, customer information, or other assets rather than the insolvent company itself.
However, buyers need clarity about what the company owns, what the liquidator or administrator is entitled to sell and whether third-party rights exist over any of those assets.
It is also important not to treat all insolvency processes as interchangeable. The legal position, particularly in relation to employees and TUPE, differ very significantly depending on whether the seller is in administration, liquidation, or another insolvency procedure.
That distinction should be established before committing to the deal.
Opportunity needs to be balanced against risk
Distressed businesses can present compelling acquisition opportunities. A buyer may be able to expand into a new market, acquire valuable assets, add an established customer base or take on part of a competitor’s operation much faster than would otherwise be possible.
But a low headline purchase price does not necessarily mean a low-cost acquisition.
Hidden liabilities, problems transferring contracts, property issues, employee obligations, disputed ownership of assets and the absence of meaningful warranties can change the economics of the transaction very quickly.
Early legal advice can help a buyer assess the proposed structure, identify where the significant risks lie and decide which protections need to be put in place before proceeding.
If you are considering acquiring a distressed business, purchasing assets from a company in administration or liquidation, or exploring the acquisition of a competitor, Blake Turner’s corporate and commercial team can advise on the transaction, due diligence and the legal risks involved. If you would like to speak to a member of the Blake Turner team, please contact us.