Selling Assets Before Liquidation

Selling assets before liquidation. Author: John A Waller, Consultant. Reviewed: June 27th, 2024.

What are the risks?

Under these circumstances, prudence is not just advisable. It is imperative when contemplating selling assets before liquidation. The weight of your decisions cannot be overstated, as disregarding specific assets or inadequacies and inadvertently disclosing them is too easy. According to the Insolvency Act 1986, a liquidator can investigate your company’s affairs, making careful consideration necessary.

The liquidators are appointed to secure the best possible repayment for the company’s creditors. They are vigilant in identifying malfeasances, potential fraudulent activities, or undervalued asset transactions and can challenge and reverse such actions through court petitions.

The penalties for engaging in transactions at undervalued amounts can be severe if they are not in the best interests of the creditors. The transactions could be nullified after a Court application, and guilt may lead to hefty fines, personal liability for some or all company debts, director disqualification for up to 15 years, or even criminal conviction and a custodial sentence.

If you are still deciding on the most reasonable course of action, we encourage you to seek free expert advice from our specialists at HBG Advisory.

Moving Company Assets from One Company to Another?

Although assets may be transferred, the appointed liquidator will examine Intercompany transactions. Directors remain obligated to ensure the best for the company’s creditors. Therefore, disposing of assets before liquidation remains dangerous and should only be done by the appointed liquidator. If you are not prepared to wait for an appointed liquidator, you must ensure all board members agree. Once the agreement is approved, valuations will be done by an RICS-qualified surveyor. As selling assets at undervalue remains unacceptable, transferring assets from one company to another at undervalue remains intolerable. A transaction which either favours one creditor or disadvantages creditors needs the challenge. Any direct decision seen by the liquidator as suspicious will require investigation. If they feel an asset remains transferred at undervalue, then overturned by applying to the Court.

The legislation does not allow directors to move or commence selling assets before liquidation once the issue of a winding-up petition issued. If directors attempt to do so, they could breach their duties.

Avoiding Accusations of Selling Assets Before Liquidation at Undervalue

If the directors decide to sell assets before a liquidation, a board meeting will be held to discuss and agree on any proposed sales. The directors individually may have some protection. This demonstrates that they wanted to gain board approval for such an action.

An RICS-qualified surveyor should then be hired to document and value the assets and oversee the sale accurately. This would prevent the sale of assets before liquidation to the detriment of creditors.

Company Assets. Can I Sell Them Before Liquidation? – Risks for directors making transactions at undervalue.

Insolvency practitioners remain empowered to investigate the company’s affairs before liquidation or administration. If a director sells assets undervalued, the transactions could be reversed following an application to the Court.

Directors, however, face penalties if they fail to ensure the best interests of the creditors.

Penalties may include fines, personal liability orders for part or all company debts, director disqualification for up to 15 years, or criminal convictions.

The interest of creditors should always be a priority.

When can I sell company assets pre-liquidation? Directors are responsible for acting on behalf of the company in the best possible manner. Once a company faces liquidation, the creditor’s interest retains priority.

Directors’ duties mean carrying out the best practices for all parties involved with the business. If they prioritize one creditor over another, this creates a preference.

Please read the Director’s Duties and Responsibilities for further information.

Selling Assets Before Liquidation In summary

Can I possibly sell company assets before liquidation? Yes, but always take advice to ensure you stay within the law. Failure to have the assets valued at the correct market value would make the director(s) personally liable.

For further Free Company Debt Help and Advice and selling assets before liquidation.

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