Warranties and indemnities in a distressed deal
A UK administrator will not warrant the business you are buying. This guide names every gap in a distressed SPA and shows how buyers close the risk with synthetic W&I, targeted escrow, and pre-completion diligence.
Administrator sells on "as is, where is" — a title-only warranty is the ceiling.
Insurer signs the warranty schedule the administrator refuses. 3–6% premium.
Sch B1 para 3 IA 1986 — the office-holder acts for creditors, not you.
The "as is, where is" doctrine
Under Schedule B1 of the Insolvency Act 1986, the administrator's paramount duty is to the company's creditors as a whole (para 3). Giving warranties would create a personal liability that competes with that duty. Standard clauses you should expect:
- Exclusion of statutory implied terms under the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982.
- Personal exclusion of the individual administrators under Sch B1 para 99.
- Buyer takes subject to all third-party rights, including retention of title, HP, floating charge assets.
- No warranty as to condition, fitness, revenue, receivables, employees, IP or contracts.
Synthetic W&I — how to structure it
On distressed deals above roughly £5m enterprise value, a specialist W&I broker (Marsh JLT, Aon M&A, Lockton, Howden) will approach insurers with a bespoke synthetic policy:
- Buyer's counsel drafts full warranty schedule as if this were a solvent SPA.
- Underwriter reviews DD reports (legal, financial, tax, commercial, IP).
- Insurer signs schedule directly — administrator does not.
- Policy limit typically 20–40% of enterprise value; retention 0.5–1%.
- Premium 3–6% (double the solvent-deal rate); underwriter fee £25–50k.
Related
Frequently asked questions
Will an administrator give me warranties?
No. UK administrators sell on an 'as is, where is' basis. Their fiduciary duty under Schedule B1 IA 1986 is to creditors, not the buyer — signing warranties would expose the office-holder's personal position. Expect a bare-bones SPA with a title-only guarantee at most.
What is a 'title-only' warranty?
It confirms the administrator has power to sell (usually a Sch B1 para 14/22 appointment) and that the assets are not encumbered beyond disclosure. It does NOT warrant condition, revenue, IP validity, or contract enforceability. Everything else sits with the buyer.
Can I get W&I insurance on a distressed deal?
Rarely, and only via 'synthetic' warranties — the insurer, not the administrator, provides cover. Premiums run 3–6% of the limit (versus 0.8–1.5% on solvent deals) and DD must be rigorous. Underwriters (Liberty GTS, Aon M&A, Marsh JLT) will quote against a 5–10 business-day timeline.
What is synthetic W&I?
The buyer's counsel drafts a full warranty schedule the seller does not sign. The insurer signs it. If a breach later crystallises, the buyer claims on the policy, not against the administrator. Retention typically 0.5–1% of enterprise value.
How does escrow / holdback work if there's no warranty?
Escrow in a distressed deal is unusual because administrators need cash to distribute to creditors. Where retained, it's usually for a specific known risk (e.g. TUPE consultation claims). Amounts sit 3–10% of consideration and release inside 60–180 days.
What indemnities WILL an administrator give?
Practically none. Occasionally a specific indemnity for their own acts and a carve-out from personal liability under Sch B1 para 99. The 'sale' typically excludes even quiet-enjoyment obligations.
What about undisclosed liabilities post-completion?
In an asset sale, undisclosed liabilities stay with the old company, not you. The exception is TUPE-transferred employment claims (reg 4) and any secured creditor asset repossessions (retention of title, HP debt). This is why an ROT audit before completion is non-negotiable.
Can I sue the administrator personally?
Only in narrow circumstances — negligence in the sale process, breach of Sch B1 para 3 hierarchy, or fraudulent misrepresentation. Case law (Re Charnley Davies (1990)) sets a high bar. Practically: assume zero recovery route.
How do warranties in a pre-pack differ?
Even less. In a pre-pack the SPA is often signed by 09:00 on the day of appointment; there's no time for negotiated warranties. SIP 16 requires the administrator to justify the sale to creditors, not to negotiate on the buyer's behalf.
What's the practical risk mitigation stack?
1) Deep DD on receivables, contracts and IP. 2) ROT audit and stock count. 3) Legal opinion on transferring IP registrations. 4) Synthetic W&I on high-value deals. 5) Deal-speed insurance for TUPE consultation failure. 6) Escrow only where a specific known risk sits.