Legal tips M&A – buying oil & gas assets from insolvent companies For companies with an appetite for strategic business growth rather than divestment, buying assets from insolvent companies is a particular avenue of opportunity. For example, in the current market, there may be opportunities to purchase oil & gas assets from companies that have not been able to survive the prolonged low oil price. Set out below are some key points to remember for purchasing assets from, in this example, an English administrator of a company:
– – Role of the administrator – an administrator has a general duty to act in the best interests of creditors as a whole, especially in any sale of a company’s business and assets, but in practice will be liaising heavily with any secured creditors – – First-mover advantage – insolvency practitioners often approach a range of potential purchasers and those buyers who are able to move quickly are at an advantage – – Due diligence – the business will have been through tough times so its records may not be in the best state – therefore access to information combined with the administrator’s lack of background knowledge may hinder buyer due diligence – – Risk allocation – a key difference to a normal sale is essentially that the buyer must either accept the risk or factor it into the price. Administrators will limit liability as much as possible and be keen to have cash which won’t be subject to future claims. The selling company is unlikely to give warranties or indemnities and any given are of limited value bearing in mind the financial state of the seller. The buyer will, therefore, be especially keen to ensure that assets are acquired free and clear of all security, claims, and encumbrances which means due diligence has an even more significant role to play if there is time available to carry it out
– – Consideration – the administrator will often elect to deal with whoever is in a position to give them the best cash deal up front, even if it is not the highest aggregate bid, particularly where subsequent payments are not guaranteed (eg if performance related). It is not unusual for the administrator to require, at an early stage in negotiations, evidence that the purchaser has the purchase price readily available – – Consideration – the desire of the administrator to complete a cash sale quickly combined with often limited time available for due diligence will oftenmean the final price is substantially lower as compared to an arms length solvent sale – – Title to PSC or Licence interests is key – but an administrator will transfer whatever right, title and interest is held by the selling company – so if it is subject to challenge or void that is what the buyer gets. This may be affected by the impact of the seller’s insolvency on the relevant agreement. If such agreements do remain intact post insolvency, they will need to be novated and/or assigned to the purchaser, normally with the consent of the government/regulatory body. PSC language on insolvency and termination rights is often vague and open to interpretation so it should be reviewed carefully
11
Made with FlippingBook Annual report