Most businesses will accumulate a substantial amount of assets over time.
If your company is becoming insolvent, your assets will either be sold prior to the liquidation process or after the company is in liquidation. Primarily, company assets are sold to recoup as much money as possible for your creditors.
However, selling company assets is not something to be taken lightly, and there are a number of things to consider. So, when it comes to selling your company’s assets, it’s important that you are aware of any issues that could potentially arise.
What are business assets?
First things first, what are business assets? Business assets can either be tangible (for example, machinery or property) or intangible (for example, intellectual property and brand reputation). They can also be either current (assets which can be turned into cash within one year) or non-current (assets which are expected to provide value for more than one year, such as property or equipment).
Either way, to be classed as a business asset, they must have been purchased exclusively or primarily for business use.
Here are some important things to consider when selling company assets…
1. Consider your director’s duties
As a company director, you have certain obligations to your creditors, staff, and shareholders - especially when your business is under threat. In these circumstances, as soon as you know your business is insolvent, you should always put the interest of your creditors first. If your company enters a formal insolvency process, the conduct of the directors in the period leading up to insolvency will be considered and the company’s transactions will be investigated - so it’s really important that you seek the advice of an expert insolvency practitioner to carefully plan your next steps.
2. Fraudulent and wrongful trading
When selling company property, it’s important to be aware of the Insolvency Act 1986. If those running a company are found to have misapplied company property or money, carried out any business for a fraudulent purpose, or engaged in wrongful trading, court action might be taken.
Previously, wrongful and fraudulent trading actions could only be raised against companies that had already gone into liquidation. However, since October 2015, the Small Business Enterprise and Employment Act has extended the scope so action can also be taken against directors whose companies have entered the administration process.
As such, it’s essential that you enlist the help of an insolvency practitioner.
3. Don’t sell at undervalue
You also need to be aware of breaching the Insolvency Act 1986 with transactions at undervalue. Whilst it may be tempting to sell your assets as quickly as possible to pay your creditors, if it is found that your company assets were sold at undervalue or transferred without consideration to their overall value, the transaction might be set aside.
The directors will also be personally liable for any losses incurred. When closing a company, any transactions carried out in the two year period before the business was liquidated can be challenged - so it’s really important that you prove adequate consideration was made before transferring or selling company assets.
An insolvency practitioner can help to make sure your assets are valued professionally and ensure you don't sell under value.
4. Bona vacantia assets
Before your business is dissolved, all assets must be transferred out of ownership. However, any assets that are still owned by the company will pass onto the Crown as ownerless property and become bona vacantia assets. The company assets that the Crown will take responsibility for include:
- Property and land
- Intellectual property
- Outstanding debts
So it’s really important to ensure that your assets are sold before your company is dissolved.
5. Seek advice early
When it comes to dissolving a business, seek expert advice from insolvency practitioners as early as possible. The longer you ignore any financial difficulties, the worse things will become - and you could even end up becoming personally liable for company debts. Likewise, when it comes to selling company assets, it’s really important to speak to an expert in order to avoid the risks of transactions at undervalue.
At McAlister & Co, we are licensed insolvency practitioners who provide advice on business insolvency to Directors, Sole Traders and Partnerships. From obtaining a valuation of your business assets and dealing with your creditors to protecting your home and personal assets, our dedicated team will help take the stress out of this complicated time.
There’s no need to face financial difficulty alone - call us now for FREE initial advice.