If your business can’t afford to repay its debts or liabilities then it is legally insolvent. If you’re the director of an insolvent business that is no longer viable then you may need to liquidate your company.
Liquidation is the process of ‘winding up’ your company and the process needs to be completed by licensed insolvency practitioner (IP). Liquidation effectively means that the business is closed down and any assets are sold, with the IP distributing the proceeds to creditors.
In this blog post, we’ll explore how this process works so you can better understand what it means to practically liquidate an insolvent business.
Remember to contact a licensed insolvency practitioner if your business is in financial trouble, even if you think it is only temporary.
What is an asset?
A company asset is anything your company owns that has value.
There are different types of assets. Physical assets include things like vehicles, real estate, machinery, computers, office furniture, stock and fixtures and fittings, but assets can also be non-tangible, including your company’s website or any intellectual property it owns.
Any vehicles your company has on hire purchase agreements or any property that is heavily mortgaged does not count as an asset in this case. Hired goods will generally be returned to the leasing company while the mortgage company will be repaid through the sale of the property.
How much are my assets worth?
Asset valuation can be contentious. To try and realise the full market value of assets, they will be valued by an independent specialist auctioneer or surveyor.
Your IP has a responsibility to make sure they use the most appropriate method of sale in order to achieve the best price for an asset. However, because the process is generally fast-moving and the seller is in a weak bargaining position, company assets are generally sold below their market value.
Asset sales often take place through in-person or online auctions, or they may be sold by special arrangement by your IP or another business contact.
Detailed records will be kept of what is sold, to who and how much it was sold for. Creditors are then paid off in a set hierarchy, laid out in the Insolvency Act 1986.
If your company is insolvent then there won’t be enough money to pay back all creditors. Once the company is liquidated, however, any remaining debts will be written off unless they have been secured with a personal guarantee.
For more information about the sale of assets during insolvency and how it might apply to your business, speak to a member of the team. Call: 0800 611 8888.