Sell Company Assets Pre-Liquidation?

Sell Company Assets Pre-Liquidation? Author: John A. Waller. Consultant. Reviewed: June 27th, 2024.

Directors wishing to sell Company Assets Pre-Liquidation? – YES BUT! Reliable, assured written legal advice is required.

Upon appointment of the Liquidator, they must investigate potential wrongdoing or fraud by the directors before their appointment. Therefore, selling assets MAY fall foul of the Insolvency Act 1986.

If you sell assets and appreciate what happens when a company goes into liquidation, it’s crucial to do so with extreme care.

Directors may overlook assets or not disclose them. If assets remain sold or transferred undervalued, therefore, to the disadvantage of creditors, an application to the courts to void the sales may be made.

Moving assets between companies.

Again, considerable care is required. A Director may do this, but the same applies to selling to a third party. Furthermore, the Liquidator will investigate any movements before the appointment. The Director’s obligations to creditors, therefore, remain the same.

Selling your assets to another company requires a considered path:

  • ENSURE all board members agree.
  • ENSURE an independent RICS-qualified surveyor values assets.
  • TAKE NOTE: Disposing of assets at undervalue is unacceptable, as is transferring assets from one company to another at undervalue.
  • All transactions favouring one creditor above others or, in some way, disadvantage creditors risk being reversed.
  • Therefore, any previous director decision that the Liquidator believes was underhand may then be reviewed, and if transferred at undervalue, the Court can overturn it.
  • Once activated, a Winding-Up Petition stops directors from selling or transferring assets.

Sell Company Assets Pre Liquidation – Avoid accusations.

  • If you plan to sell assets to raise cash before Liquidationarrange a board meeting, then ensure all members agree, establishing essential director protection.
  • IMPORTANT: Ensure that an independent RICS surveyor values the assets and, if possible, conducts the sale.

Sell Company Assets Pre-Liquidation – Undervalue transactions?

Licensed Insolvency practitioners can examine a company’s affairs before it enters Liquidation or Administration. If a director’s old assets are undervalued, the transaction may be reversed through the Courts.

Directors who fail to act in the best interest of creditors may then be subject to severe penalties.

The penalties given may be:

  • Fines;
  • Personal liability for part or all company debts;
  • Disqualification as acting as a director. Max 15 years;
  • A criminal conviction.

Creditor interest is a priority.

However, the directors are responsible for representing the company in the best possible way. Therefore, when a company faces liquidation, the creditor’s position should always be a priority.

Therefore, a director must do what’s best for all parties associated with the business. This may be considered a preference if perceived as preferring a creditor over another.

THEREFORE, THEN ENSURE YOU UNDERSTAND WHAT BEING A DIRECTOR ENTAILS. NOT KNOWING IS NO DEFENCE

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