Insolvency and perishable goods – why you need to move fast

Insolvency and perishable goods: Why you need to move fast

If your business enters insolvency, there is a chance that it may have to be liquidated if no other viable options are available. This means that the business closes down following the sale of all its assets.

When perishable goods form part of the company’s value, it’s crucial to preserve that value for the benefit of creditors. Perhaps a creditor has petitioned to wind-up your company, which is why you’re facing liquidation, or maybe you and other directors have initiated a Creditors’ Voluntary Liquidation (CVL).

Either way, when perishable goods are involved, you need to consider the tight timeframe available to dispose of them before they deteriorate.

The liquidator’s appointment and perishable goods

Sometimes the Official Receiver (OR) is appointed as provisional liquidator, a role that involves the collection and protection of assets. Although the OR may be able to sell assets likely to deteriorate, one issue arising in these circumstances is that a winding up order may not ultimately be granted.

When a Creditors’ Voluntary Liquidation is the chosen route for directors and shareholders, preserving the value of assets is also of major concern. It’s a significant factor in maximising creditor returns, as perishable goods could make-up a considerable proportion of the company’s value.

Moving quickly to realise the value of perishable goods

When a liquidator is appointed before creditor approval has been obtained, sometimes known as a ‘Centrebind’ procedure, it expedites proceedings and helps to ensure creditor returns are maximised by preventing serious delays.

The liquidator can take the necessary steps to dispose of assets that might deteriorate whilst creditor approval is being sought, including perishable goods.   

Dealing with perishable goods without creditor approval

Perishable goods are deemed assets and need to be sold quickly to raise funds for creditors when a business has to be liquidated. During a ‘standard’ CVL, creditor approval must be sought by the appointed liquidator, but this naturally takes some time to obtain given the complex nature of company insolvency.  

Centrebind liquidation circumvents this issue by permitting the office-holder to deal with and dispose of assets without prior sanction by creditors, and without a court order. If a farm goes into liquidation, for example, the crops are valuable assets that could ultimately make up a significant part of creditor returns.

The liquidator is only able to dispose of assets that are deteriorating, however, unless they have sanction from the court.

The value of expediting a liquidation process

A liquidator must maximise returns, as far as possible, for creditors as a whole. To allow a significant part of a company’s asset value to diminish would go directly against this objective.

Centrebind liquidation originated in the 1960s when the company, Centrebind Ltd, won a court case that allowed the liquidator to act on appointment by the shareholders, but before sanction by company creditors.

Apart from the benefits of being able to preserve assets when their value would otherwise diminish, the Centrebind case also introduced a legal loophole into the liquidation process that could be exploited to the detriment of creditors. This loophole has now been closed, but the advantages remain of being able to move fast to secure funds for creditors in specific circumstances.

If you would like to find out more about insolvency and perishable goods, call one of our expert team at Real Business Rescue. We are turnaround specialists and can provide the professional assistance you need if your business is experiencing distress. We offer same-day consultations and operate from a network of 100 UK offices.