The sale of company assets after liquidation
As mentioned above, this article will outline what company insolvency means for your assets.
Selling the assets
The primary aim for all insolvency practitioners (IP) is to recoup as much money as possible for the creditors of your company. As such, the company assets will often be sold to third parties, or even in some cases, your competitors. They will be sold at the going market rate, established by an independent valuer. The proceeds will then be distributed in the order of repayment, as outlined below.
Similarly, it’s possible that a director may wish to retain some company assets. If so, the director can purchase the assets from the insolvency practitioner, but at the same rate as the market value.
It’s important to note that, regardless of who does purchase the company assets, the proceeds will go to paying off your outstanding company creditors. In layman’s terms, a business is deemed insolvent when their liabilities exceed their assets. Therefore, even once the company assets are liquidated, it’s likely the business will owe more out than what they have in the bank.
Priority of creditor payment
As mentioned above, the IP must follow the hierarchy of payment when recouping losses for creditors. The hierarchy is as follows:
- Secured creditors: The secured creditors are first in line and are those with a registered charge against a company asset. For instance, their company assets, typically, include property and machinery etc. The secured creditors can then be further divided into two categories: fixed and floating charge holders.
- Fixed charge holders: Generally, banks or lenders, lease hire purchases also fall into this group. Their charge is over a fixed asset.
- Preferential creditors: This class usually involves employees of the business, recouping losses for unpaid wages etc.
- Floating charge holders: This typically refers to charges over moveable and tradable assets, such as stock. While floating charge holders likely receive most of their losses, they are placed below that of preferential creditors.
- Unsecured creditors: Unfortunately, this large pool of creditors are the ones left with the highest losses during company liquidation. Examples include suppliers who have not received money for their goods etc.
You can find more information on secured and unsecured creditors, as well as their subsequent hierarchy of payments, here.
Selling prior to company liquidation
It is possible to hold an asset sale prior to company liquidation. In most instances, this is hugely tempting to directors that can offer the transfer of company assets at knockdown prices. However, you must be aware of breaching the Insolvency Act 1986 with transactions at undervalue.
If it is found that your company assets were sold at undervalue, or simply transferred without consideration to their overall value, it’s highly possible the transaction will be set aside, or the directors will be personally liable for the losses incurred. Steps may then be taken to restore your company to the position prior to the assets sale.
When closing a limited company, transactions carried out in the 2 year period before company insolvency can be challenged. Therefore, you must prove that adequate consideration was made before the transfer of company assets.
To avoid all of the above, the best solution for your company is to seek insolvency advice. You can also get your company assets valued professionally, so you can maximise the returns for your creditors.
Of course, selling company assets is certainly not an option to be taken lightly, and there are other factors to consider. For instance:
Bona vacantia assets
Prior to company dissolution, the assets owned by the business must be transferred out of ownership. However, those assets still owned by the company will pass onto the crown as ownerless property, thus becoming bona vacantia assets.
The company assets the Crown will, typically, take responsibility for include:
- Property and land
- Intellectual property: trademarks, registered designs and patents
- Outstanding debts
Referring a dissolved company asset
Referring, or buying, a dissolved company asset may be possible by contacting the Bona Vacantia office. However, where you ask depends on where the company registered, with different processes for England and Wales, and Scotland. You can refer an asset if:
- You’re the leaseholder of the property where the dissolved company owned the freehold.
- You want to buy the land owned by the former business.
- Your land is affected by the closing of a limited company.
- You would like to buy other assets of the company, such as trademarks etc.
When it comes to insolvency advice, you should always seek expert opinion at the earliest possible stage. The longer you ignore your financial difficulties, the more likely the worst case scenario, which can include personal liability for the company debts. Similarly, you must speak to independent professionals before selling your company assets to avoid the risks of transactions at an undervalue. Our business rescue experts can provide the best possible solution for your next steps, providing free, confidential, initial advice.