Can I Sell Assets of My Company before liquidation?
Company directors may decide to sell assets of the company before entering liquidation. However, strict regulations need to be followed if assets are sold. If the liquidator identifies potential wrongdoing or possible fraud, they have the power to investigate further. Any actions you take may foul the Insolvency Act 1986 if you do however not seek professional advice.
If you wish to sell company assets, it’s essential to be cautious. Company directors may overlook certain assets or forget to disclose assets. However, the Insolvency Act 1986 provides liquidator powers to investigate company affairs in every liquidation to obtain the best outcome for creditors. Suppose the liquidator believes assets have been sold or transferred at undervalue and consequently to the disadvantage of creditors. Therefore, the liquidator must submit an application to the Courts to void (i.e. overturn or reverse).
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Transferring assets from one company to another?
Directors must maintain directors duties and responsibilities when moving assets from one company to another. Although assets can be transferred, the liquidator however investigates such transactions. A director must do best for the company’s creditors, so disposing of assets before liquidation at undervalue goes against this principle. If you want to sell your assets to another company, everything must be done correctly. Firstly, you must ensure that all board members have the same opinion and all valuations undertaken professionally by a RICS qualified surveyor.
Transfer of company assets between companies at undervalue remains unacceptable, as with selling them at undervalue. So transactions favouring one creditor above others or disadvantaging creditors (for example, pledging assets as security) can therefore be challenged. Any company director decision regarded as suspicious by the liquidator choose to then be investigated further.
Suppose an asset is considered transferred at undervalue.?
Therefore, should a liquidator have concerns about the previous transactions, they may apply to the courts and overturn them.
Legislation however inhibits company directors, from transferring assets of a limited company, while subject to a winding-up petition. Should a director do so, they may therefore breach their director’s duties.
How to avoid allegations of selling company assets at undervalue
Suppose the directors decide to sell company assets before a liquidation. In that case, if more than one director exists, they should agree. This protects individual directors with some protection, as it demonstrates they gained board approval.
Directors should consider selling company assets through third party services of an RICS qualified surveyor. They independently assess the assets to be sold, along with carrying out the sale.
What’s the implications for directors who make transactions undervalued?
Licensed Insolvency practitioners remain empowered to investigate all the company’s affairs before it proceeds into liquidation or administration. Suppose an insolvency practitioner finds assets, sold by a director at undervalue. In that case, the transaction may therefore be reversed following an application to the Court.
Directors of companies face severe penalties if they fail to act in the interests of creditors.
Directors risk severe penalties:
- Substantial fines;
- Personal liability;
- Disqualification for up to 15 years;
- Possible criminal action.
The Interest of Creditors.
When selling company assets before the liquidation, the directors’ responsibility should always be to represent the company in the best possible manner. When a company faces liquidation, creditors’ interest always take priority.
A director must do their best for all parties involved with the business. If considered prioritising one creditor over another, this could be viewed as a preference.
Company directors must understand directors duties and responsibilities.
While it remains possible to sell company assets before the liquidation, you always need professional advice in writing. Should directors sell assets without such guidance, risks stepping outside the law? Failing to value company assets at the correct market value could lead to the director(s) being held personally liable, resulting in severe penalties, fines or criminal convictions.