A Guide to Understanding What Happens to Company Assets During Liquidation

As a company director, it is essential to know what happens to your company’s assets during the liquidation process. Liquidation is a process of selling off all company assets to pay off debtors or creditors. The process can either be voluntary or involuntary, and it is usually initiated when a company can no longer pay its debt. In this blog post, we will explore what happens to a company’s assets during liquidation.

Valuation of Company Assets

Before the company’s assets can be sold, they must be independently valued to determine their worth. This is important, since funds raised from the sale of company assets can be used to pay creditors, and any liquidator or administrator will need to demonstrate they have achieved the best outcome for the company’s creditors.  Often a period of marketing is carried out in order to identify interested parties, with assets then being sold via an auction or bidding process.

Assets can be categorised into tangible assets and intangible assets. Tangible assets include machinery, land, buildings, inventory, and office equipment. Intangible assets are things like trademarks, patents, copyrights, and goodwill.

The Process of Selling Assets

Assets are usually sold by the appointed Liquidator or Administrator.  However, sometimes they can be sold by the company’s directors prior to the insolvency proceedings commencing.  In this scenario it is vitally important formal valuations have been obtained to confirm directors haven’t sold these “on the cheap”.  Liquidators or administrators can sell the assets by public auction, private treaty sale, or to a third party.  It is also possible to sell assets back to the directors or shareholders, providing they are offering the best price for them.

The money realized from the sale is used to cover the costs of the insolvency and pay creditors.

Tax Implications

The sale of assets during the insolvency process can have tax implications. Taxes, such as capital gains tax, stamp duty, and value-added tax (VAT), may apply to different assets and in different ways. These taxes must be paid by the Liquidator or Administrator before any net proceeds are used to cover insolvency costs or paid out to creditors.

Conclusion

In conclusion, as a company director, understanding what happens to company assets during liquidation is essential. Knowing the assets’ valuation, prioritisation of liabilities, the process of the asset sale, and tax implications can help company directors make better decisions during the liquidation process. Engaging a professional liquidator can help directors navigate the complex liquidation process, ensuring compliance with the law and maximising the value of company assets.