What claims require attention in an insolvency process?
The value of tangible assets such as plant and machinery, property, and company vehicles is a significant factor when considering a company’s progression through an insolvency process. Though easy to disregard intangible assets held by a company.
Within these contracts, patents and trademarks lie significant value that can underpin the outcome of Insolvency for the company. They contribute a significant increase to results for the companies unsecured creditors. Improving the chances of a dividend payout.
Intellectual property rights
Intellectual property (IP) represents a significant part of a company’s achievement. Common logos and advertising vogues strengthen consumer belief over time and enhance sales.
They can also significantly increase the overall value of a business in an insolvency situation. If the company is then sold as a going concern? The business acquired by a new company following a pre-pack administration can entice additional prospective buyers.
So what is intellectual property?
- Patents, trademarks, and copyrights, are examples of intellectual property;
- intangible assets that appear on the company’s balance sheet alongside ‘tangible’ assets such as plant and machinery.
Intellectual property includes:
- domain names,
- website content,
- artwork, and
- other creative works connected to the company.
When insolvency strikes, however, directors need to be aware of the essential value of an intellectual property. They remain required to prove the company’s entitlement to make use of them legally.
Verifying a company’s IP rights
Confirmation of a company’s claims to intellectual property isn’t always straightforward. The title can remain unclear, and it’s seldom likely to demonstrate beyond doubt, the company owns specific intangible assets.
Assume title to trademarks and patents exists in a public register. Therefore, ownership endures no challenge. However, the office-holder nevertheless wants to know which titles are valuable.
Company directors may not have recognised the significance of registering assets nor understand their worth to the company.
However, wanting to enforce the company’s claims to goodwill remains an area of issues possibly may occur while in an insolvency procedure.
An accurate appraisal of goodwill depends on:
- access to data on the company,
- its customers, and
- other critical confidential knowledge.
During Insolvency, the administrator examines contractual agreements made by the company. Contracts often include clauses granting the counterparty the power to terminate in the case of Insolvency automatically, or conversely, remain with the agreement.
However, the office-holder may determine to reject contracts considered ‘onerous,’ and not the most beneficial interests of the insolvent company.
Suppose onerous contracts continue disclaimed by the administrator.? Then the opposite party frequently becomes a creditor and claims. Then continuing the insolvent company’s contracts is a positive result.
Pre-pack administration involves the quick sale of an insolvent company’s underlying business to third-party buyers, or sometimes to the existing company directors. Haste is important with this procedure, and the business marketed before the appointment of an administrator.
In this case, contracts that add value to an insolvent company remain so to entice purchasers, who are assigned the contractual rights before the counterparty can terminate. The sale process begins as soon as an administrator is appointed, protecting value in the underlying business, and within the existing contractual arrangements in particular.
When a company pursues a compensation claim, if successful, the resulting payout can be significant. Should the company enter Insolvency during the litigation process, then the administrator may commence pursuing the claim on behalf of the company.
An issue can arise, however, if the case is lost, and the defendant has made an arrangement whereby they can reclaim their costs from the plaintiff. Then placing an extra burden on the company’s limited means, so the administrator may choose to terminate the claim and allow a third party to step in.
HBG Advisory provide comprehensive professional advice on all aspects of intellectual property and contractual rights in Insolvency.
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