The answer to the question Can I Buy The Assets Of My Company If It Goes Into Liquidation? is yes you can. However, it has to be done in a fair and transparent way to ensure the position of creditors is safeguarded and strictly in accordance with the relevant regulations.
Upon a company going into Liquidation, an Insolvency Practitioner is appointed as the Liquidator. He or she has a fundamental duty to realise the company’s assets. Ultimately the assets have to be sold to somebody. Often the only person interested in acquiring the assets is a former Director.
A concern may be held that Directors of companies that go into Liquidation will in effect drop the creditors, buy back the assets and carry on trading in a new company vehicle. This potential perceptional concern may come from the fact that a Director often appoints a Liquidator in a Creditors Voluntary Liquidation, who will often be confirmed by the creditors, who then sells the assets back to the Director at the start of the Liquidation.
This has been a form of concern with the Pre Pack Administration process when the sale of assets back to the former management is planned ahead of the Administration process with no external marketing campaign.
It is perhaps inevitable that creditors may be concerned about such situations. However, there are strict regulations (Statement Of Insolvency Practice Number 13) in place to ensure that assets purchased by Directors are done in a fair and transparent way to attempt to alleviate such possible concerns.
Purpose Behind A Liquidation
The purpose behind Liquidation generally is to undertake an orderly winding up of the company’s affairs so that a distribution can be made to creditors after the costs of Liquidation have been taken into account.
A Liquidator also has a duty to investigate the affairs of a company to understand why creditors have suffered a loss. There would otherwise be no need to appoint an independent Insolvency Practitioner regulated under the Insolvency Act 1986 to oversee the Liquidation.
Whilst the law provides for allowing insolvent companies to go into insolvent Liquidation such as Creditors Voluntary Liquidation and Compulsory Liquidation this does not come without safeguards so that Director comply with their Director’s duties and act properly. A Director cannot for example sell assets to themselves at undervalue as that would deprive creditors (or shareholders) of their rightful returns.
Factors To Take Into Account When Selling The Assets
The following are factors for a Liquidator to take into account when selling the assets of a company in Liquidation:
- The sales price.
- The period over which payment is to be received for the sale of the assets.
- An independent agent’s report on the value of the assets.
- Who the assets are sold to.
A Liquidator will attempt to realise the assets for the best possible price. That does not always mean they are sold for the highest price. There might be other considerations to factor in such as the time period over which payment is made. The longer payment terms for the assets are spread over, the overall benefit for creditors might be reduced if the costs are higher through keeping a Liquidation open for a longer period of time whilst collecting in the payments. The longer a Liquidator is kept open the greater the costs because each year compliance duties require a progress report to be prepared. There are also a whole range of other regulatory and statutory duties that need to be undertaken.
Instruction Of A Valuation Agent
In order for a Liquidator to determine what the likely best price might be for the company’s assets they will usually instruct a professional valuation agent to provide a report on the same.
The nature of the assets being sold will determine the basis of valuation. Commonly plant and machinery will be valued based on comparables information for example only. However, other assets such as Goodwill which might be unique could have its valuation based on its income generating potential.
Ultimately the value of the assets is resolved by what someone is prepared to pay for them. Generally, a valuation agent’s report although a very important and useful guide, can normally be more important than a value ascertain from exposing the assets to the market through a proper marketing exercise. However, for a small company, the costs of a marketing exercise such as advertising assets might be prohibitive meaning that it can be commercially justified for a Liquidator to sell the assets based on an independent valuation report instead. It will ultimately depend on the facts of the case. It is a commercial decision for the Liquidator to take and if called upon later, to justify.
Who Can The Assets Be Sold To?
Who the assets are sold to can be an important subject but it should not really matter so long as the best realisation for them is obtained.
There is no barrier to the purchaser being a former Director or shareholder of the company going into Liquidation.
It is important for the process of selling the assets to be fair to all potential purchasers. This will ensure that no preference is shown towards any purchaser. Not only is proper but it will also enable the best price to be obtained.
