What to do with company assets when closing a business?

Deciding what to do with assets when closing a business

When closing a company, what you need to do with its assets depends on its financial position. If your company can pay all its debts (it’s solvent), you can transfer the assets to the owners or sell them and distribute the proceeds among the shareholders.

On the other hand, if the company cannot pay its debts (it’s insolvent), the disposal of assets has more serious legal and financial connotations. In this case, the directors must prioritise the interests of the parties the business owes money to (its creditors). That means protecting the assets and not doing anything that could reduce the return for the creditors. A liquidator will then sell the assets, usually at auction, to raise money to repay the company’s debts.

What types of assets do companies dispose of when closing?

There’s a variety of assets that the directors or the liquidator commonly have to sell or transfer before closing a company. That includes:

• Physical assets - Commercial premises, land, vehicles, machinery, equipment, stock, tools, computers and office furniture. 
• Intangible assets - Intellectual property like websites, trademarks, patents and business databases, as well as brand reputation and goodwill.   
   

Any assets with a monetary value should be valued, sold and distributed among the creditors or shareholders before you close the company. Once any debts are cleared, you can distribute any assets you cannot sell to the shareholders in their current form. 

What to do with company assets when closing a solvent business

There are two main ways to close a solvent limited company: Strike Off and a Members’ Voluntary Liquidation (MVL). What you do with the company’s assets when closing a solvent business depends on which of these closure methods you use.

Disposing of assets during Strike Off

In Strike Off, a company voluntarily applies to be removed from the official register at Companies House. It’s usually the most suitable closure method if the company has retained profits and physical assets worth less than £25,000. That’s because you pay Capital Gains Tax on the first £25,000 you take out of a limited company that you strike off, and Income Tax, at a higher rate, on everything else. 

When you strike off a company, you need to dispose of the company’s assets yourself. You may sell them to a competitor or another third party, advertise in trade magazines or put them up for auction. Alternatively, you can transfer them to yourself or another shareholder in their physical form. That is known as a distribution in specie. 

Whatever route you take, you must document the asset transfer or sale and keep invoices, valuations and receipts for up to six years to safeguard against any disputes that may arise. 

It’s vital you dispose of the assets before you apply for Strike Off, as any assets that are still owned by the business or funds in company bank accounts will become the property of the Crown when it is struck off. You’ll then face a lengthy process to get them back.    

Disposing of assets during a Members’ Voluntary Liquidation (MVL)

Members’ Voluntary Liquidation is usually more tax-efficient than Strike Off if your company has valuable assets or significant retained profits. That’s because you pay Capital Gains Tax (CGT) on all the profit you take from the company, not just the first £25,000. You may also be eligible for Business Asset Disposal Relief, which will reduce the rate of CGT you pay. 

You must appoint a licensed Insolvency Practitioner to administer a Members’ Voluntary Liquidation on your behalf. They will value and sell the company assets and use the proceeds to pay any outstanding debts. They’ll then distribute the rest proportionately among the shareholders according to their shareholding. 

If you want to keep business assets after it closes, you can do so. However, you’ll have to buy them from the liquidator at a fair market price. That ensures all the shareholders receive a fair distribution of the assets. 

What to do with company assets when closing an insolvent business

A company with debts it cannot pay is insolvent. When a company is insolvent, you can liquidate it voluntarily through a Creditors’ Voluntary Liquidation (CVL), or your creditors can force it into Compulsory Liquidation. In both processes, control of the business and its assets is no longer in your hands. 

In a CVL, you must appoint a licensed Insolvency Practitioner to act as the liquidator and close the company on your behalf. A crucial part of their role is to sell the company’s assets, commonly at auction, to raise as much money as possible to repay the creditors. They then pay the creditors in a predetermined order before writing off any remaining debts. 

Strict rules determine how to handle company assets when your company is insolvent or nearing insolvency. The liquidator will scrutinise your actions closely, and any mishandling of company assets (in the ways we describe below) could lead to serious legal and financial consequences.

How must you handle company assets when closing an insolvent business?  

You have specific legal obligations when your company is insolvent, primarily focused on protecting your creditors’ interests. That includes safeguarding the company’s assets so they can be used to repay the creditors. 

For example, you must not sell assets at below market value, as that reduces the money available to the creditors. If you do, the liquidator can seek to reverse the transaction, and if that’s not possible, they can make you personally liable for the shortfall. Generally speaking, directors should also avoid transferring assets to themselves or other shareholders without authorisation from an Insolvency Practitioner. 

In theory, it is possible to sell assets before an insolvent liquidation, but if you do, you must:

• Call a board meeting to gain agreement from all board members and document the reasons for the decision in the minutes. 
• Keep detailed records of the sale, including a written asset valuation from a professional surveyor, invoices, receipts and any other information related to the sale.   
• Use a transparent and verifiable third-party sales service to separate yourself from the sales process.
• Seek approval from an Insolvency Practitioner before the sale to demonstrate your intent not to mislead or defraud and to ensure the sale takes place according to insolvency law.

Need advice?

We can provide practical advice and support if you want to close a limited company but are unsure what to do with the assets. Our Insolvency Practitioners will help you determine the most appropriate closure method, guide you through the process and ensure your legal compliance throughout. To discuss your circumstances, please get in touch for a free consultation or arrange a meeting at one of our 100+ UK offices.