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Directors can sell company assets prior to liquidation, however, there are strict regulations that need to be followed if assets are sold. If the liquidator sees potential wrongdoing or possible fraud they have the power to investigate further. Any actions you take may fall foul of the Insolvency Act 1986 if you do not seek professional advice
If you do wish to go ahead with selling assets, it’s important to be very wary. Sometimes directors overlook certain assets or even forget to disclose assets. The Insolvency Act 1986 gives liquidators the powers to investigate into company affairs and get the maximum repayment for creditors. If it is felt that assets have been sold or transferred at under value, and consequently to the disadvantage of creditors, application can be made to the Courts to void (ie overturn or reverse) the transaction.
If you are unsure about the best way to proceed, get in touch with Wilson Field today and talk to one of our experienced, impartial advisors on the best way to move forward.
Can I move assets from one company to another?
Directors must tread very carefully when it comes to moving assets from one company to another. Although assets are able to be transferred, such transactions will come under scrutiny from the liquidator. A director has an obligation to do what is best for the company’s creditors, so disposing of assets prior to a liquidation at undervalue goes against this principle. If you do want to go ahead with selling your assets to another company, everything has to be done in the correct way. Firstly, you must make sure that all board members are of the same opinion and all valuations undertaken professionally by a RICS qualified surveyor
Just as selling assets at undervalue is unacceptable, so too is transferring assets from one company to another at undervalue. In fact, any transaction which either favours one creditor above others or in some way disadvantages creditors (for example pledging assets as security) can be challenged. Any director decision which is seen as suspicious by the liquidator, will be investigated further and if an asset is seen to have been transferred at undervalue, it can even be overturned if a liquidator applies to the Court
Legislation prevents directors from transferring assets when a winding up petition has been issued, if directors do so, they could be in serious breach of their own duties.
How to avoid accusations of selling assets at undervalue
If the directors made the decision to sell assets prior to a liquidation, then a best practice to follow would be to hold a board meeting to discuss proposed sales. This would provide individual directors with some protection as it shows they wanted to gain board approval.
Most importantly a RICS qualified surveyor should be hired to accurately value the assets in question and oversee the actual sale.
If you are having concerns about selling your company assets, or are unsure about what you are legally able to do, get in touch with us today and we can help guide you on the best way to deal with company assets before a liquidation.
What are the ramifications for directors making transactions at undervalue?
Insolvency practitioners have the power to investigate all the company’s affairs, before it proceeded into liquidation or administration. If an insolvency practitioner finds that a director has sold assets undervalue, the transaction may subsequently be reversed following an application to the Court.
Directors could face severe penalties if they do not confine to do what is in the best interest of the creditors.
Penalties can range from heavy fines, personal liability for some or all company debts, disqualification as a director for up to 15 years or sometimes even a criminal conviction.
Creditor interest should always take priority
When going through the process of selling your assets prior to a liquidation, the directors responsibility should always be to represent the company in the best possible manner. When a company is facing liquidation, it is the creditors interest which will always take priority.
A director has a duty to do what is best for all parties involved with the business and if they are seen as prioritising one creditor over another, this could be considered a preference.
Whilst it is possible to sell company assets before liquidation, it is always advised you take advice to ensure you stay within the law when doing so. Failure to value the assets at the correct market value, could result in the director(s) being held personally liable, which could result in severe penalties, fines or criminal conviction.
How we can help
If you are looking to sell your company assets, or transfer them to another limited company before liquidation, we can make this happen. Our licensed insolvency practitioners are experienced in ensuring you obtain the right value and comply with regulations.