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Understanding business assets and how they are affected in insolvency
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What is deemed a business asset in an insolvency procedure?
An asset can simply be described as resources or an item of value which is owned by a company. This can encompass numerous things; however, for an average business its assets will typically include items such as:
- Land and/or property
- Machinery and/or plant equipment
- Stock (either finished or raw materials)
- Fixtures and fittings
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Intangible items – those which are non-physical in nature - are also classed as business assets and can include things such as the company’s website, patents, goodwill and intellectual property depending on the type of business involved.
During the liquidation of an insolvent company, the appointed insolvency practitioner will aim to sell – or ‘liquidate’ – any valuable asset and distribute the proceeds realised through the sale to any outstanding creditors of the company. Any creditor holding a secured charge will get preference when it comes to distributing the funds raised through this process; unsecured creditors will get a portion of anything which remains. The funds obtained through the sale of company assets is also typically used to cover the fees charged by the insolvency practitioner for liquidating the company rather than the director having to pay these from their own personal resources.
In order to be sold as part of an insolvent liquidation, the asset must be owned by the company and used principally for business purposes. This means a property which is owned and is the primary residence of the company director cannot and will not be seen as an asset of the business and therefore cannot be sold in order to repay outstanding creditors. This is because a limited company is granted limited liability status, meaning the company is seen as its own entity rather than an extension of its directors. Any debts belong to the company, and the company alone is responsible for paying them back.
Is your company insolvent?
If your company is insolvent you have a number of legal responsibilities that you must adhere to. Taking steps to protect creditors from further losses by contacting a licensed insolvency practitioner can help ensure you adhere to these duties.
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It is important to know the difference between how personal assets are treated with limited companies and with sole traders. Personal assets are protected only for those operating as limited companies. If you are a sole trader and fall behind on your payments to creditors then your own assets can be seized in order to repay those you owe money to. This is because there is no distinction between yourself and your sole trader business. As a sole trader any debts you accrue, even if these are in the course of your work, remain your responsibility.
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If your company is struggling financially and you would like to know more about company liquidation, and what will happen to your business’s assets during this process, contact Real Business Rescue today. You can arrange a free no-obligation consultation with a licensed insolvency practitioner during which you can understand more about the options open to you and your company and choose the best route forward. Call us today.
Further Reading on What is deemed a business asset in an insolvency procedure?
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