In recent months there has been a rise in the number asset sales by directors prior to liquidation.
These are not sales of the business or pre-packs, merely assets, but directors need to be aware that there are still potential risks in these transactions.
Prior to any formal insolvency procedure, the director remains in control of the business, however, being on the brink of insolvency radically changes their responsibilities.
Therefore, if a director is considering a sale of any of the company’s assets prior to liquidation, they should:
- Ensure that a proper market valuation of the goods being sold is obtained
- Undertake a proper marketing campaign
- Ensure that the fair market value is paid i.e. at least what an independent third party would pay
- Take proper professional advice
- Ensure transparency and keep a record of the thinking behind the decisions being made.
These actions are even more crucial if a sale is being made to existing management or a connected party.
A liquidator acts on behalf of the company’s creditors and undertakes a statutory investigation into the affairs of the company, including the conduct of the director prior to the date of liquidation.
Failure to complete a proper sale of the assets could leave any director open to the challenge of misconduct, which could expose the director to personal claims in order to “put right” the transaction.
The director can also face disqualification from acting as a director in the future.
However, all these problems and pitfalls can be avoided by seeking proper advice and engaging early with a potential liquidator.
They will often recommend that, instead of the process outlined above, the sale of the same assets is arranged to be completed on day one of the liquidation.
This will ensure that the transaction is undertaken properly with the right regard to creditors interests and thus any allegations of misconduct.
For more information on our Restructuring and Insolvency services please get in touch.