How does Scottish voluntary liquidation law handle intellectual property?
In a creditors’ voluntary liquidation (CVL) in Scotland, a licensed insolvency practitioner will take over control of a company and ‘liquidate’ its assets, turning them into cash for the benefit of the company’s creditors. While you might immediately think of tangible assets like buildings, vehicles, machinery and stock, there can also be a number of valuable intangible assets, such as company debtors, domain names and intellectual property.
When a company ceases to trade, all of its assets tend to diminish in value. This is particularly the case with intangible assets like goodwill, contracts and intellectual property. Thankfully, at least for the company’s creditors, a CVL typically take places over a relatively short time period, some of this value can be saved.
What constitutes intellectual property and how is it treated?
Intellectual property is a complicated asset to deal with that requires specialist valuation. However, it can add a considerable boost to the creditor returns on liquidation, so it’s essential it is included. There are a number of different types of intellectual property and each needs to be dealt with in a different way.
Patents are potentially one of the most valuable forms of intellectual property. In a Scottish CVL, the liquidator will need to verify the company’s ownership of a patent and determine whether the patent has been granted or is pending. The age of the patent will also need to be established as those granted more recently often have greater value.
In some cases, the company’s financial struggles may mean the patent was not renewed. In this instance, if the cost of renewing the patent is likely to be less than will be made from its sale, the insolvency practitioner may apply to have the patent restored so it can be sold on.
A company’s trademark is closely aligned with its brand. If registered, a trademark can become a high-value asset. However, in the event of a creditors’ voluntary liquidation, as the business will no longer be trading, any trademark associated with the business will lose its value.
Ownership of copyright can be difficult to establish as it cannot be registered in the same way as a patent or trademark. If ownership can be proved, high-value assets like creative works, art, computer programmes or literature can be sold by the liquidator for the benefit of the creditors.
Designs, domains and databases
If registered, design rights for commercial purposes will be in place for 25 years and can add significant value to a company’s intellectual property portfolio. Databases and domain name rights can also add value to the creditors’ pot if ownership can be determined beyond doubt. These are all assets the liquidator can sell in a CVL for the benefit of the company’s creditors.