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What does it mean when assets are liquidated?

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Reviewed: 9th January 2018

If a company is experiencing financial difficulty, the directors may decide to liquidate one or more business assets to provide vital working capital with which to continue trading. Should the company have already entered insolvency, however, the appointed insolvency practitioner (IP) will liquidate the company’s assets to repay creditors.

Selling business assets for the benefit of creditors is fundamental to the liquidation process, and is one of the liquidator’s main roles. Assets could include plant and machinery, property, land, or fixtures and fittings, but essentially they’re non-cash items that belong to the company.

There are three types of liquidation process in the UK – two different procedures when a company is insolvent, and a solvent liquidation process called Members’ Voluntary Liquidation (MVL).

  • Compulsory liquidation: a creditor has been granted a winding-up order
  • Creditors’ Voluntary Liquidation (CVL): directors cease trading in order to put creditor interests first
  • Members’ Voluntary Liquidation (MVL): the solvent liquidation procedure

What happens when assets are liquidated in insolvency?

When business assets are liquidated, the method of sale can vary depending on the type of asset involved, the urgency for funds to be accessible, and the form of liquidation the company is undergoing.

In some cases, sale at auction is the most appropriate approach in realising the company’s assets; in others, an open market sale may be more suitable. Initially, however, the liquidator will identify all the assets held by the insolvent company, and ensure they’re professionally valued.

Different categories of creditor

The office-holder also establishes who is owed money by the company, and the ‘category’ of creditor in each case. Categories include preferential creditors, which are often members of staff, and unsecured creditors such as trade suppliers and HMRC. Once assets have been sold, the monies are distributed to creditor classes in a prescribed order.

A final report is sent to creditors at the end of the process, stating which assets have been sold, the price realised, and how the funds have been distributed. The report also includes details of the liquidator’s costs and remuneration.

Solvent liquidation of assets

If a company no longer serves a useful purpose, or a sole director is retiring, for example, and there is no-one to succeed them, a Members’ Voluntary Liquidation process may be used to close down the business.

All assets are liquidated in the same way as in an insolvent liquidation, with funds being distributed among members after all the solvent company’s creditors have been paid in full.

Again, a licensed insolvency practitioner is appointed to administer the process, and it’s their responsibility to realise the funds from company assets.

If you need further advice on liquidating your company’s assets, whether as part of a solvent or insolvent liquidation process, Real Business Rescue can help. We’ll explain your options and ensure you understand the implications of each procedure. With 75 Offices around the country, we can arrange a same-day meeting free-of-charge.

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