Assets vs shares in an insolvency deal
~95% of UK distressed acquisitions are asset purchases. Here's why the structure matters, when a share deal still makes sense, and the tax difference between the two.
Buy specific assets free of Oldco liabilities. TUPE transfers staff. TOGC for VAT. Step-up asset base for CT.
Only where regulatory licences, non-transferable contracts, or property SDLT make asset sale impractical.
Side-by-side comparison
| Aspect | Asset purchase | Share purchase |
|---|---|---|
| Liabilities | Buyer takes only listed assets | Buyer inherits everything |
| TUPE | Applies (reg 4) | Doesn't apply (same employer) |
| VAT | Usually TOGC — outside scope | Exempt (share sale) |
| Stamp/SDLT | SDLT on property only | 0.5% stamp on shares |
| Contracts | Novated / assigned individually | Automatic — but change-of-control clauses may trigger |
| Regulatory licences | May need fresh application | Retained by the company |
Related
Frequently asked questions
Why do distressed deals use asset structures?
Because the buyer wants the trading business without the company's liabilities. In an asset purchase, HMRC arrears, unpaid trade debt, historic litigation, warranty claims and pension deficits all remain in the insolvent shell (which is later liquidated). In a share deal all of that comes with the company.
Can shares even be sold when a company is in administration?
In principle yes — the shares are still held by the shareholders, not the administrator. But the administrator controls the business. Buyers rarely want to buy shares because the target company still owes everything it owed the day before appointment.
When does a share deal make sense?
Rare cases: (a) the company holds a non-transferable regulatory licence (FCA, gambling, care home CQC registration), (b) the company owns freehold property where SDLT on an asset sale would be prohibitive, (c) the company's contracts are largely non-assignable and a change-of-control is preferable to novation.
What's the tax difference?
Asset purchase: buyer gets step-up in asset base, VAT can be zero-rated as a TOGC if conditions met, SDLT on property. Share purchase: no step-up in asset base (goodwill is inherited at book value), 0.5% stamp duty on share consideration, no VAT.
How does a Newco structure work?
Buyer incorporates Newco (a fresh limited company), Newco enters into the APA with the administrator, Newco pays cleared funds on completion. The insolvent company (Oldco) is left to be liquidated. TUPE transfers employees from Oldco to Newco.
Do I keep the old company name?
Under CDDA 1986 s.216, directors of the insolvent company cannot re-use a similar name for 5 years without court permission or the s.216 exception (Rule 22.4 IR 2016). Third-party buyers can use the same name subject to trademark rights held via the APA.
What about VAT — is this a TOGC?
Usually yes. Under VAT Act 1994 s.49 and article 5 SI 1995/1268, the transfer of a going concern is outside the scope of VAT if (a) the buyer is or will be VAT-registered, (b) the assets are used in the same kind of business, (c) no significant break in trading. TOGC saves the buyer working capital.
Do I inherit the target's VAT number?
No — a new Newco needs a fresh VAT registration. The old VAT number remains with Oldco. Plan for the 2–4 week VAT registration gap by using Newco's payment terms and cashflow buffer.
What about intellectual property?
Trademarks, patents and copyrights are specifically listed and assigned in the APA. Domain names transfer at registrar level with account credentials. Goodwill and brand name transfer as intangible assets. See our IP transfer guide.
Can shares be sold cheaply enough to make sense?
In theory yes — a nominal £1 share deal where the buyer accepts full liability exposure. In practice this only happens where the buyer is a related party trying to preserve a specific asset. For third-party buyers, the risk-reward is almost never right.