Unfortunately, creating a company from scratch is a tedious and time-consuming process at the best of times - and the current state of the world has only exacerbated matters. With this being the case, many entrepreneurs may look for short cuts that could allow them to get down to business as soon as possible.

One possible shortcut that you may consider if you are in such a situation is acquiring an insolvent company. While this course of action may speed things up considerably and get your business up and running in no time, it is in no way a simple process or a step that should be taken lightly.

There are both benefits and risks when buying insolvent companies that you need to be aware of before you start considering doing so. Insolvency is a complex subject, and there are many crucial details that you need to take into account before dealing with it. In order to stay on the safe side, a consultation with experienced debt management professionals like the London insolvency practitioners Hudson Weir may be in order before you get into it.

What is Insolvency in a Nutshell?

In short, insolvency is a financial state of a business in which it is not able to pay its debts. Businesses can arrive at that point in many different ways, and there are courses that a company can take to extract itself from that state. However, as a whole, it is not a good place to be in, as the only way to get there is to have significant debts that can't be satisfied.

Entrepreneurs need to keep in mind that healthy companies don't end up insolvent. If a company is insolvent, there are probably deep-rooted problems with it. Maybe it landed in dire straits due to bad management, perhaps its business plan is no longer commercially viable, or it failed to break out onto the market in the first place.

The main point here is that an insolvent company will invariably have serious problems attached to it. If an entrepreneur plans to buy one, they need to do some serious due diligence and figure out where the issues lie and how to deal with them.

When Is It Viable to Buy an Insolvent Company?

As a rule, you should never buy an insolvent company unless you have a plan for its recovery. You need to be aware of all its problems, and how said problems could be fixed.

Regardless of whether you plan to actually incorporate the company's assets into your new business, it would be best if you had a solid recovery plan as well as a good exit strategy.

Even if you plan on just using the company as a shell for your own business, there will be many difficulties along the way. You must be ready to pay the price for expediency in cash.

How to Buy an Insolvent Business?

Finding an insolvent business to buy may be easier than you think. The crises of 2020 have seen many businesses fall by the wayside - and many of those could serve your needs just fine.

Usually, a cursory internet search for things like "insolvent business," "insolvent company," or "selling company" may be able to give you some ideas. Some accountants or law firms may also be able to point you in the right direction. However, the best possible move if you want to buy an insolvent company would undoubtedly be to consult professional insolvency practitioners. Such firms are in the know and will be able to provide you with all the information you need to get started, as well as help you figure things out along the way.

And you will need to figure out a lot of things to even get started. You need to familiarize yourself with the ins and outs of the company that you wish to buy if you don't want to bite off more than you can chew. You need to be intimately familiar with the company's books, its assets, its obligations, cash debts, as well as all its relations to other companies. Only when you've sure that you can deal with any problems pertaining to all of the above should you finally decide to buy an insolvent company.

Once you've reached that decision, you should observe all the legal requirements to acquire the business in question. Doing so is not easy, but it could be manageable and quick if you play your hand right and have good counsel.