What happens to company assets during liquidation? Where do the proceeds from the sale of these assets go?
Whether you’re an entrepreneur, an investor, or simply curious, this blog post will help you uncover the answers to these questions and navigate the complex world of liquidation.
By the end, you’ll have a comprehensive understanding of the liquidation process and the fate of company assets during this challenging time.
Understanding the Liquidation Process
Liquidation is the process of concluding a company’s operations and disposing of its assets to settle debts. In the UK, there are three types of liquidation processes.
The two procedures for insolvent companies and a solvent liquidation process, Members’ Voluntary Liquidation (MVL), are included.
The primary responsibility of a liquidator is to sell business assets for the benefit of creditors, which is a key component of the liquidation process.
The proceeds generated from the sale of a company’s assets during liquidation are allocated to satisfy the company’s outstanding creditors.
So, how does the liquidation process unfold? First, a company must determine which type of liquidation applies to its situation – insolvent or solvent.
Insolvent liquidations include compulsory liquidation, initiated by a winding-up order from the court, and creditors’ voluntary liquidation, initiated by the company’s directors.
On the other hand, solvent liquidations, or MVLs, occur when a company is financially sound but decides to wind up its affairs for various reasons, such as retirement or a change in business direction.
Regardless of the type of company’s liquidation, the liquidator’s role remains the same: to identify, value, and sell the company’s assets to repay creditors. The following sections will provide a closer look at the different types of assets and their valuation process.
Identifying and Valuing Company Assets
During the liquidation process, insolvency practitioners are responsible for identifying and valuing company assets, which can include both tangible and intangible assets.
They may enlist independent valuers for tangible and intangible assets to ensure accurate valuations.
Let’s take a closer look at these two types of assets and their valuation processes.
Tangible assets refer to physical assets that possess a tangible form and can be perceived through sight or touch, such as land, buildings, vehicles, furniture, and equipment.
These assets are reported on a company’s balance sheet as current and long-term assets. The valuation process for tangible assets typically involves determining their fair market value, which is the price that a willing buyer and seller would agree to in an arm’s length transaction.
With a proper valuation in place, the disposal of tangible assets during liquidation can commence.
Generally, these other assets are sold and disposed of through either an auction or a private sale. The proceeds from the sale of tangible assets are then allocated to creditors in accordance with the priority of their claims, with secured creditors receiving the highest priority.
Intangible assets, on the other hand, refer to non-physical assets, such as patents, trademarks, copyrights, and goodwill.
These assets can take the form of brand recognition, goodwill, and intellectual property, and may be difficult to value. However, they can be a substantial component of a company’s total value.
During liquidation, intangible assets are treated differently than tangible assets. If you wish to purchase assets from a dissolved company, you must contact the Treasury Solicitor at the Bona Vacantia Division (BVD).
The BVD is responsible for managing the intangible assets of dissolved companies and ensuring their proper disposal.
It’s important to note that the valuation and disposal process for intangible assets can be more complex than for tangible assets, as it involves determining the value of non-physical assets like intellectual property.
However, the ultimate goal remains the same: to ensure that the proceeds from the sale of these assets are distributed to creditors in an orderly fashion.
Asset Disposal Methods
The method of asset disposal during liquidation can vary depending on the type of asset, the need for immediate funds, and the form of liquidation the company is undergoing.
Assets can be auctioned off or retained by directors, with proceeds used to pay creditors in an orderly fashion.
An independent third party is typically appointed by the liquidator to evaluate and dispose of all the assets due on their behalf, after which the funds are allocated to creditor classes in a specific order.
Directors may wish to retain some or all of the company’s assets, provided that the purchase is at the going market rate established by an independent valuer.
Existing directors may have the opportunity to purchase assets from the liquidator. A professional valuation must be provided previously for that purpose.
In cases where the Crown relinquishes its interest in an asset, a disclaimer is issued, particularly for leasehold land or any onerous property or contract.
Affected parties will be notified, and the asset will typically be sold at full market value, either to someone with prior connections to the company or on the open market.
Distribution of Proceeds to Creditors
As mentioned earlier, the proceeds generated from the sale of a company’s assets during liquidation are allocated to satisfy the company’s outstanding creditors.
The preferential creditors of an insolvent company are typically the employees of the company and HMRC.
The liquidator will send a final report to creditors at the conclusion of the liquidation process, containing further information regarding the assets that have been sold, the price received, the distribution of funds, and the liquidator’s costs and remuneration.
The order in which creditors are paid from the proceeds of asset sales is determined by the prescribed order.
Secured creditors, such as banks or other lenders with a security interest in the company’s assets, are paid first.
Next in line are preferential creditors, which include employees owed unpaid wages and HMRC for certain taxes.
Finally, unsecured creditors, like suppliers or business customers, receive a payment if any funds remain after the company owes secured and preferential creditors have been paid.
It’s important for creditors to understand their rights and the order in which they will be paid during the liquidation process.
While it can be a complex and challenging time for all parties involved, having a clear understanding of the process can help ease some of the stress and uncertainty.
The Role of Companies House and Insolvency Practitioners
Although Companies do exist, they are still in business. House does not have direct involvement in liquidation proceedings, but they do receive documents from insolvency practitioners and maintain records of companies that have undergone liquidation.
Insolvency practitioners play a crucial role in the liquidation process, as they are responsible for identifying and valuing company assets and ensuring that creditors receive their due payments.
In some cases, a shareholder or director may wish to restore a dissolved company. The process for this is known as administrative restoration and involves applying directly to Companies House.
This can be a complex procedure, and it’s essential to consult with a licensed insolvency practitioner or legal professional for guidance and assistance.
Dealing with Remaining Liabilities and Debts
After the sale of assets and distribution of proceeds to creditors, there may still be some remaining liabilities and debts.
Recent case law has clarified the status of land owned by dissolved companies, but shares and intellectual property remain subject to the Bona Vacantia Division (BVD) rules.
Intellectual property held by a dissolved company passes bona vacantia and is then managed by a limited company, by a court order of the BVD.
If you’re interested in acquiring intellectual property owned by a dissolved company, you must submit an application to the BVD, specifying the particulars of the dissolved company, the prior owner, the type of intellectual property, the purpose for the acquisition, any current or past disputes related to it, and any other entities utilizing it.
The BVD does not provide any guarantees or warranties in connection with the intellectual property.
When a dissolved company is restored to the Companies Register, the associated shares are reinstated to the company.
This can be a complex process, and it’s essential to consult with a licensed insolvency practitioner or legal professional for guidance and assistance.
In conclusion, the liquidation process can be a complex and challenging time for all parties involved.
Understanding the different types of liquidation, the roles of insolvency practitioners and Companies House, and the processes for identifying, valuing, and disposing of company assets is crucial for navigating this difficult period.
By familiarizing yourself with the various aspects of the liquidation process, you can better understand the fate of company assets and the order in which creditors are paid.
Whether you’re a business owner, investor, or simply curious, this knowledge can help you make informed decisions and better prepare new business for the uncertainties that may arise during liquidation.
Remember, it’s essential to consult with licensed insolvency practitioners or legal professionals for guidance and assistance throughout the liquidation process.
They can provide invaluable expertise and advice to help you navigate the complexities of real business rescue this challenging time.
With a clear understanding of the liquidation process and the treatment of company assets, you can face this difficult period with confidence and the knowledge necessary to make informed decisions that protect your interests and those of your creditors.
Frequently Asked Questions
What Happens to Assets when a Company is Liquidated?
When a company is liquidated, the appointed liquidator will typically take over and sell all assets belonging to the business.
The proceeds of these sales are then used to pay off creditors in order of priority. Any remaining funds will be returned to shareholders if applicable.
How are Assets Sold in Liquidation?
In a liquidation process, assets are typically sold at an auction to the highest bidder. All potential buyers are required to submit bids and the winning bid is decided by the creditors or court-appointed administrator.
When a company goes through a liquidation process, its assets are typically sold at auction to the highest bidder.
This process is overseen by a court-appointed trustee or other third-party administrator, who facilitates both sealed and open bidding depending on the situation.
Can I sell my Company Assets Before Liquidation?
It is possible to sell your company assets before liquidation, however, it is important to understand the potential implications this could have.
In particular, if not done correctly, you may be exposed to personal liability, director disqualification, and financial penalties.
It is therefore best to ensure you are aware of any obligations you may have towards creditors.
Can a Liquidated Company Sell Assets?
Yes, a liquidated company can sell assets; it is the liquidator’s role to manage this process and use sales proceeds to repay creditors.
This is often the best way to ensure creditors receive full repayment, as it allows them to recoup more than if the company were simply dissolved.
The liquidator will typically advertise the assets for sale and invite bids from interested parties.
The liquidator will then assess the bids and decide which offer is the most advantageous to the creditors. The sale of assets can be a lengthy process.