Firstly – What Are Aged Debts? Aged Debts, and debtors, are your customers and clients that owe you money, following the delivery of goods or services and production of an invoice.
If you operate any kind of accounts system, such as Xero, QuickBooks etc, then you ought to be able to see a picture of what your business is owed at any given time.
If you’re selling your business via a share purchase, then the aged debts will almost always stay in the Company and the new owner will probably get the benefit of recovery / payment as and when it hits.
Sometimes in share purchase agreements, where a deal is based on a target net asset position, there will be completion accounts provisions in which aged debts may be written off at a certain age.
In this scenario, the Seller may say that they are getting nothing for the aged debt but the Buyer may benefit, which is unfair.
It’s possible then for the aged debts to be assigned to the seller to recover. An assignment of debt needs to be in writing, for the whole of the debt, and the debtor must be given notice of the assignment for it to be valid. That is, you’ll need to write to your customer to say that you personally (or a new company) now hold the debt and payment should be made to you.
The other thing about aged debts is that there are usually warranties within the SPA regarding them. Warranties are statements which you as seller are saying are true, and if they’re not true, you can be sued for damages.
Warranties on aged debts will cover matters such as:
- debts have not been factored
- debts will be paid within 3 months
- no deals have been done on debt
- no disputes or right to set off
It’s therefore always important to ensure the warranties are correct and that you disclose against them in a disclosure letter if there’s any debts you’re concerned about.