A business with debts may still be saleable, but debts must be handled carefully. Sellers should understand what is owed, whether the business is solvent, what liabilities transfer, and when professional insolvency, legal or tax advice is needed.
Quick Answer
Yes, a business with debts can sometimes be sold — but the approach depends on the structure of the sale, the amount and type of debt, whether the business is solvent, and whether the transaction is structured as an asset sale or a share sale.
If the company cannot pay its debts as they fall due, or if debts exceed the value of assets, there may be insolvency concerns that require professional advice before any sale is attempted. GOV.UK guidance is clear that directors of insolvent companies have ongoing duties and responsibilities. Do not sell assets, take deposits or move money to avoid creditors without taking proper professional advice first.
Contents
What types of debt matter in a business sale?
The word "debt" covers a wide range of liabilities, and not all of them have the same significance in a sale. Understanding exactly what your business owes, to whom, and on what terms, is the starting point for any sale involving liabilities.
Debts and liabilities that commonly arise in a business sale include: bank loans and overdrafts, bounce back loans and other government-backed business loans, asset finance and hire purchase agreements, vehicle and equipment leases, supplier arrears, rent and service charge arrears, HMRC arrears across VAT, PAYE, National Insurance and Corporation Tax, credit card balances, director loan accounts, customer deposits not yet earned, gift vouchers and credit notes outstanding, unpaid wages or holiday pay, pension contribution arrears, ongoing or threatened legal claims, charges registered at Companies House, and personal guarantees given by the directors.
Each of these carries different legal and commercial implications for how the sale is structured, what needs to be disclosed, and what can or cannot transfer to a buyer. A buyer will want to understand the complete picture before making an offer, and their solicitors and accountants will investigate all of these as part of due diligence.
Solvent debt vs insolvency risk
Having debts does not automatically mean a business is insolvent. Many profitable, well-run businesses carry loans, asset finance, supplier credit and overdraft facilities. These are normal features of business finance and do not of themselves create a problem for a sale.
The concern arises when the debt load becomes more than the business can service — when it can no longer pay bills as they fall due, or when the total debt exceeds the total value of assets. At that point the business may be approaching insolvency, and the legal situation changes significantly.
Signs that a business may be approaching insolvency include: an inability to pay bills when they fall due; HMRC arrears that are not subject to an agreed payment plan; persistent failure of cash flow to cover operating costs; creditors threatening legal action; County Court Judgments; winding-up threats or petitions; using customer deposits to pay historical debts; selling assets quickly to raise immediate cash; and an inability to meet loan repayments.
GOV.UK guidance is explicit that a company is insolvent when it cannot pay debts as they become due, or when debts are larger than the value of its assets. Directors of companies in or approaching insolvency have specific duties, including minimising losses to creditors. Acting in breach of those duties — including by selling assets at undervalue or moving money in a way that prejudices creditors — can create personal liability.
If you have any doubt about whether your business may be approaching insolvency, take advice from a licensed insolvency practitioner or solicitor before attempting a sale.
Asset sale vs share sale when debts exist
The structure of the transaction — whether it is an asset sale or a share sale — has a significant bearing on how debts are handled.
In an asset sale, the buyer purchases specified assets of the business rather than the company itself. In principle, the seller retains the company and its liabilities unless specific liabilities are explicitly transferred as part of the deal. This can make an asset sale more attractive to buyers when debts are present, because the buyer can acquire the trading assets without inheriting the full liability profile of the company.
However, this does not mean that sellers can simply strip out valuable assets and leave creditors unpaid. If the business is or may be insolvent, an asset sale at undervalue — below what the assets are worth — can be challenged by creditors or an insolvency practitioner. And even in a straightforward asset sale, certain liabilities may transfer whether or not the seller intends them to: staff under TUPE, customer contracts with ongoing obligations, and assets subject to finance agreements that cannot transfer without lender consent.
In a share sale, the buyer purchases the shares in the company and the company continues with its existing liabilities. The buyer effectively takes on the full liability profile of the company — including all debts, arrears, contingent liabilities and potential claims — unless the sale agreement provides specifically for price adjustments or seller indemnities to address them.
Buyers considering a share sale of a business with significant debts will conduct detailed due diligence on the full liability position and will typically seek warranties and indemnities from the seller covering undisclosed or underestimated liabilities.
What buyers will ask about debt
A serious buyer and their advisers will want comprehensive information about the business's liabilities. Be prepared to answer — and to provide evidence for — the following:
What debts and liabilities exist, and who is owed money? Are payments up to date, or are there arrears? Are there HMRC payment plans in place, and if so, are payments being maintained? Are there any loans secured against the business's assets — is there a debenture or floating charge registered at Companies House? Are there personal guarantees, and if so, on what amounts? Are any assets subject to hire purchase or asset finance that would need to be settled or novated at completion?
Are there unpaid wages, outstanding holiday pay or pension contribution arrears? Are customer deposits held, and if so, can they be accounted for? Are there any outstanding legal claims, warranty claims or customer complaints that could result in a liability?
Will any debts be cleared before completion, or will the price be adjusted to reflect them? How does the seller propose to handle the debt position as part of the transaction structure?
Buyers will check Companies House for registered charges, CCJs and director history. They will request VAT returns, payroll records and bank statements. They will ask for a complete debt schedule. Being prepared with clear, honest answers — and supporting documents — demonstrates that you are a credible seller who has thought through the transaction properly.
How debt affects valuation
Debt reduces the net value available to a seller in various ways. The most direct is a straightforward deduction from enterprise value: if the business is valued at £300,000 but has £80,000 in outstanding bank loans that need to be cleared at completion, the effective price to the seller is £220,000.
But debt affects valuation in more subtle ways too. High debt levels increase buyer risk — the buyer needs to assess whether the business can service the remaining debt, whether any of the debt might crystallise in unexpected ways, and whether there are liabilities not yet identified that could emerge after completion. Risk-averse buyers will reduce their offer to compensate for that uncertainty.
Specific types of debt attract particular buyer concern: HMRC arrears, because HMRC has preferential creditor status in insolvency proceedings; rent arrears, because a landlord may have the right to forfeit the lease; unpaid wages, because employee claims have legal priority; and unresolved legal claims, because the potential liability is often unquantifiable.
A profitable business with transparent, manageable finance may still be highly attractive to buyers who will factor the debt into their offer and structure the deal accordingly. A business where the full debt picture is unclear, contested or potentially more significant than initially presented will be treated with much greater scepticism.
HMRC, VAT and PAYE arrears
HMRC arrears require specific attention because they carry additional legal weight compared to most commercial debts. HMRC has preferential creditor status in insolvency proceedings, meaning it ranks ahead of unsecured commercial creditors. HMRC also has significant powers to pursue recovery — including making directors personally liable in certain circumstances involving fraudulent or negligent conduct.
If the business has arrears of VAT, PAYE, National Insurance, Corporation Tax or any other HMRC liability, disclose the full position to your advisers before listing. You should know the exact amount owed, whether a time-to-pay arrangement has been agreed with HMRC and whether payments under that arrangement are up to date, and whether HMRC has registered any charges against the company.
Buyers will ask for VAT returns, PAYE records, HMRC correspondence and accountant confirmation of the tax position. Gaps, inconsistencies or unexplained arrears in any of these will create significant concern.
The VAT registration threshold is currently £90,000 (from 1 April 2024). VAT position — including whether the business is VAT-registered, whether a TOGC (Transfer of a Going Concern) election is available on the sale, and whether there are any outstanding VAT liabilities — should be reviewed carefully with your accountant before listing.
Do not assume that tax arrears can be ignored, passed to a buyer without their knowledge, or addressed informally. They require professional advice and transparent handling.
Asset finance, leases and secured debt
A common point of confusion in business sales is whether assets are genuinely owned by the business or are subject to outstanding finance agreements.
Check every significant asset in the business to determine whether it is owned outright or subject to hire purchase, lease financing, chattel mortgage or other finance arrangement. Vehicle finance, equipment hire purchase and machinery leasing are particularly common. Assets subject to finance are not freely transferable — the lender's consent is typically required, and settlement of the outstanding balance is usually needed before or at completion.
Check Companies House for registered charges against the company. A debenture or floating charge gives a secured lender broad rights over the company's assets, and the lender will need to be involved in any transaction where those assets transfer.
Check for any retention of title clauses in supply agreements — some suppliers retain title to goods until they are paid for, which means stock on the balance sheet may not be legally owned by the business.
Check whether any personal guarantees have been given by the directors for business debts. These do not transfer to a buyer but need to be understood in the context of the transaction — if the underlying debt is remaining or being treated in a particular way, the personal guarantee position needs to be considered.
A buyer who discovers at a late stage that assets they expected to acquire are subject to undisclosed finance agreements will renegotiate the price, delay completion, or walk away entirely.
How to present debt honestly
The approach of most professional advisers is consistent: disclose known debts and liabilities to buyers at the appropriate stage rather than allowing them to be discovered during due diligence.
A buyer who finds an undisclosed debt during due diligence will immediately ask what else has not been disclosed. Trust is very hard to rebuild at that stage, and many deals collapse not because the debt was unmanageable but because the lack of disclosure was unacceptable.
A good approach to presenting debt in a listing or early conversation acknowledges that finance and liabilities exist, notes that a detailed debt schedule and supporting documents are available to serious buyers and their advisers following screening and NDA, and confirms that professional advice is being taken on the sale structure and completion treatment.
A poor approach is to say nothing about debts and hope the buyer does not find them, or to actively misrepresent the position.
A constructive way to address debt in a listing:
The business has existing finance arrangements and supplier balances that form part of the sale structure. A full debt schedule and supporting documents are available to serious buyers and their advisers after screening and NDA. The seller is working with professional advisers on the appropriate completion treatment.
This is honest, professional and does not over-disclose sensitive financial detail to unscreened enquirers.
Seller debt checklist
Complete list of all debts and liabilities prepared.
HMRC position checked across VAT, PAYE, Corporation Tax.
Supplier arrears listed and amounts known.
Asset finance and hire purchase agreements listed.
Bank loans, overdrafts and Bounce Back Loans listed.
Companies House charges reviewed.
Personal guarantees identified.
Customer deposits accounted for.
Staff liabilities (wages, holiday pay, pensions) checked.
Outstanding legal claims identified.
Insolvency risk assessed — professional advice taken if necessary.
Sale structure understood (asset sale vs share sale implications).
Debt treatment at completion agreed with advisers.
Listing wording is honest, controlled and appropriately staged.
FAQs
Can I sell a limited company with debts?
Yes, in many cases. If the company is solvent and debts are manageable, the sale can proceed with the debt position either cleared at completion, adjusted in the price, or specifically addressed through warranties and indemnities. If the company is or may be insolvent, professional advice from a solicitor, accountant or licensed insolvency practitioner is essential before any sale is attempted.
Can I sell the assets and leave the debts in the company?
Not freely, and not where insolvency is a concern. In a straightforward solvent asset sale, some liabilities remain in the seller's company. But if the business is approaching insolvency, transferring assets while leaving creditors unpaid may constitute a transaction at undervalue or a preference under insolvency law, creating personal liability risk for directors. Take professional advice.
Do I have to disclose debts to buyers?
Material debts and liabilities should be disclosed at the appropriate stage of the buyer engagement process. Failing to disclose known liabilities can result in legal claims post-completion, deal collapse at due diligence, and damage to the seller's professional reputation.
Will debts reduce what I receive for the business?
Almost always, yes — either through a direct deduction from the agreed price, a warranty and indemnity structure, or a price reduction negotiated when the buyer discovers the liabilities. The clearer and more transparently debts are handled from the start, the more control the seller retains over how they are treated.
When should I speak to an insolvency practitioner?
If the business cannot pay its debts as they fall due, or if total debts exceed total asset values, you should seek advice from a licensed insolvency practitioner before taking any further steps, including listing the business for sale.
Key takeaways
Debt does not automatically make a business unsaleable, but it must be handled with care and transparency. Understand exactly what is owed, to whom, and under what terms. If insolvency is a concern, take professional advice before attempting a sale — director duties apply and missteps can create personal liability. In an asset sale, certain liabilities may not transfer, but insolvency rules still apply. In a share sale, the buyer effectively inherits the full liability profile unless the agreement addresses this. HMRC arrears require specific professional attention. Disclose debts to buyers honestly and at the right stage — discovery of hidden debts destroys trust and deals.
Related resources
Important disclaimer
Buy a Business Ltd is a marketplace, not a broker, corporate finance adviser, M&A adviser, law firm, accountant, tax adviser, insolvency practitioner, lender, valuation firm or investment adviser. Information, guides, checklists and examples on this site are for general guidance only and do not constitute legal, tax, financial, insolvency, investment, lending, valuation, employment, data protection, brokerage, corporate finance, M&A or regulated advice.
If your business has debts, arrears, cash-flow problems or insolvency concerns, you should seek advice from a qualified accountant, solicitor, licensed insolvency practitioner or other appropriate professional before selling, transferring assets, taking deposits or continuing to trade.
Sources and useful references
GOV.UK: Director duties upon insolvency
GOV.UK: Liquidate your limited company — what happens to directors
GOV.UK: VAT registration and deregistration threshold changes
Companies House: Get information about a company