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Can I sell business assets before the company goes into liquidation?
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Disposing of company assets before entering liquidation
In theory, it is possible to sell business assets before your company goes into liquidation, but the Insolvency Act sets out the strict conditions by which to do so. Failing to meet these requirements can lead to accusations of misconduct or even fraud, and carries severe penalties even when you’ve not deliberately tried to deceive.
So why are these restrictions in place, and what steps do you need to follow prior to selling assets in this situation?
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When your limited company enters insolvency you’re obliged to place creditor interests first in order to minimise their losses. It might be tempting to sell one or more assets to generate funds for creditors, but unless you’ve followed strict protocol you risk allegations of misconduct.
The appointed liquidator looks into transactions that have been made prior to the liquidation – sometimes up to two years beforehand – and can reverse any they believe are against creditor interests.
So what type of transactions might they look for?
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If assets have been sold for less than their fair market value, the liquidator may decide to reverse the transaction through the courts. You could receive a hefty fine and/or disqualification as a director for up to 15 years, and if the liquidator suspects fraudulent activity a criminal prosecution is possible.
Preferential payments don’t just include repaying one creditor in preference to another. They can also involve the transfer of business assets - to a family member or another director, for example.
Any type of antecedent transaction or sale of business assets prior to liquidation could lead to personal liability for a proportion or all of the company’s debts, director disqualification, and heavy financial penalties.
So what steps should you take to avoid such accusations being made if you need to sell some business assets prior to liquidation?
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Call a board meeting
Obtaining agreement from all board members is vital prior to selling assets under these conditions. It shows you’ve carefully considered your actions, and have made careful minutes of the board meeting as proof.
Keep detailed records
Keeping comprehensive records of your thoughts and beliefs prior to the sale - the reasoning behind your actions and board meeting notes - helps to prove that you’ve acted in good faith.
You should obtain a full written valuation from a professional surveyor, and retain all documentation and information related to the sale in case the liquidator needs to see it, even if you feel it might not be relevant.
Obtain a professional valuation
This is a key element in protecting yourself from accusations of misconduct. Obtaining a professional valuation of the asset(s) from a qualified RICS surveyor (Royal Institution of Chartered Surveyors) shows you’ve tried to maximise the funds from sale, and kept your creditors’ interests in mind.
The surveyor should also supervise the sale - it’s this degree of separation from the process itself that can further protect you from misconduct allegations as a director.
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Seek professional insolvency advice
By seeking licensed insolvency help, it shows your intent isn’t to mislead or defraud. You’ll receive experienced advice on whether to sell these assets, and how to do so within the insolvency law.
Real Business Rescue is a major part of Begbies Traynor Group, the UK’s largest personal services consultancy. Please contact one of our partner-led team for more information on selling assets pre-liquidation. We can offer you a free same-day consultation, and work from offices throughout the UK.
Further Reading on Can I sell business assets before the company goes into liquidation?
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