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Reviewed by
Chris Andersen
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Reviewed by Chris Andersen

Chris became an Insolvency Practitioner in 2014 and is currently regulated by the IPA.

He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.

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10th April 2024

It’s not uncommon to hear the phrase “the assets are being liquidated” in news stories about a company’s financial failure or even in a personal insolvency case. But what does that mean?

If a business is in financial difficulty and cannot pay its bills, it has several options. It could seek additional funding from investors or raise money.

Alternatively, the business owner could choose to sell a business asset that’s not essential to the running of the company to provide an injection of working capital. The act of selling that asset and turning it into cash is called ‘liquidating’ the asset.

Dangers can arise when selling assets if your business is already insolvent. If that is the case, you will need to be very careful, especially as you may have to justify the sale amount. Even more caution is needed where assets are sold to anyone related to directors or connected with business.

Before considering any asset liquidation in a situation where your business is in trouble, it is strongly recommended that you get experienced professional help and advice. We are highly experienced in helping small businesses in difficulties, so please do get in contact.

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Contents
  1. Liquidating Assets as a Result of Insolvency
  2. What’s the Process of Asset Liquidation?
    1. The Sale of Assets in a Members’ Voluntary Liquidation
  3. Need Advice on Liquidating Assets?
  4. FAQs on Liquidating Assets

Liquidating Assets as a Result of Insolvency

When a business becomes insolvent, i.e. it is unable to pay its debts when they become due, it is legally obliged to act in the best interests of its creditors (parties it owes money to). If there is no impending payment due and the business has no real hope of returning to solvency then it cannot continue to trade. Instead, the directors of the business should seek the advice of an insolvency expert.

At this point, it might be decided that the best way to maximise the return for the company’s creditors is to close the business down and liquidate its assets in a process called ‘liquidation’. In this case, an insolvency practitioner will be appointed to value the business’s assets and sell them to raise money that will be used to repay the business’s debts.

The assets can include everything from plant and machinery to property, vehicles, fixtures and fittings. Any money left after the creditors have been repaid will be distributed to the shareholders.

What’s the Process of Asset Liquidation?

The method used by the insolvency practitioner to liquidate a business’s assets can differ depending on several factors. These include the type of assets involved, the urgency with which the funds are needed, and the type of liquidation process.

If there’s no particular rush for the assets to be realised, then they will usually be sold for a higher price on the open market. However, it may be that an auction is more appropriate for specialist assets or if the funds are needed more urgently. Whatever the method of sale, the assets will always be professionally valued to get the best possible return for the creditors.

The Sale of Assets in a Members’ Voluntary Liquidation

What makes a members’ voluntary liquidation (MVL) different is that the business is not insolvent. Instead, the owners or directors no longer want to run the business, perhaps because they are retiring, so they choose to close it down.

In an MVL, the business’s assets are liquidated in the same way as an insolvent liquidation, and an insolvency practitioner is appointed to administer the process. If any creditors are to be repaid, they will receive their funds first, and the rest of the money will be distributed among the members (shareholders).

Need Advice on Liquidating Assets?

Whether you’d like to know more about liquidating assets or want to discuss the liquidation process in more detail, we are on hand to help. We’ll explain your options and make sure you understand the implications of each procedure for you and your business. Get in touch for your free, no-obligation consultation today.

FAQs on Liquidating Assets

Upon entering liquidation, the assets of a company are effectively under the control of the liquidator for the purpose of liquidation, but they legally belong to the company’s creditors. The liquidator acts on behalf of the creditors to realise the assets, meaning to convert them into cash, which is then used to repay debts in order of priority established by insolvency law.

In the UK, assets that can be quickly and easily converted into cash, such as inventory, marketable securities, and accounts receivable, are typically liquidated first. Fixed assets like property, plant, and equipment are also sold, but these may require more time to find buyers willing to pay a fair market value.

Creditors are paid in a legally defined order. Secured creditors, who have loans backed by collateral, are prioritised first. They are followed by preferential creditors, including employees for certain entitlements like unpaid wages and holiday pay, up to a statutory limit. Unsecured creditors are next in line, and if any funds remain after these creditors are paid, they may be distributed to shareholders.

If the sale of liquidated assets doesn’t generate enough money to cover all the company’s debts, the debts are paid in the priority order until the funds run out. Secured creditors may recover a portion of their loans, but unsecured creditors and shareholders risk receiving little to no repayment.

Yes, it is possible for directors, employees, or third parties to purchase assets from a liquidated company. These sales are carefully monitored to ensure they are conducted at fair market value and in the creditors’ best interest. Transactions are often scrutinised to prevent undervaluation or preferential treatment.