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If a company is liquidated due to an inability to satisfy its outgoings, you may be forgiven for thinking that this is the end for the business. However, this is not necessarily the case.
What is Liquidation?
Before we look into if a company can come out of liquidation, we will first of all explore what the process actually is. Liquidation means that all of the assets from the company are commonly sold at auction, once the liquidator has established a fair market value.
The proceeds from the sale of these assets are used to pay the firm’s creditors in either full or partial repayment of their debts. For more information about the company liquidation process, please check out our blog.
Can a Company Come out of Liquidation?
Now that we have covered the basics, it is time to discuss whether a company can come out of liquidation. The short answer to this is ‘no’, since the firm will no longer exist. It is possible, however, to buy back the assets of the company – whether they be stock, premises, client base or even the business name.
Sometimes directors of a liquidated company will want to start up a new venture and need certain assets to start up. Purchasing these items from their old liquidated company can be an extremely useful way to achieve this.
It is not just the directors of a liquidated company who can purchase these assets either. Competitors of the now defunct-firm can swoop in and buy anything they like the look of, as can anybody else who has a particular need for an asset.
How to Purchase Assets after a Liquidation
If you are wanting to purchase a company’s assets, your first port of call should be to contact the licensed insolvency practitioner that dealt with the liquidation process. They will then be able to direct you to what is usually a third-party agent that has been instructed to value and organise the sale of the company’s assets. It is important to note that there are strict rules when it comes to the reuse of an insolvent company’s name, so it is important to seek legal advice if this is something you are looking to do.
Timing is extremely important when it comes to purchasing the assets of a liquidated company. If the purchase is made before a liquidator is appointed, it is highly likely to be viewed as a transaction that has worsened the position of the firm’s creditors. The purchase must be controlled by the liquidator, who will ensure that a fair market value has been placed on the assets in question. This ensures that the interests of creditors are always placed at the highest priority, and the assets will realise the highest possible level of returns, and are not sold below their true value.
Why Buy Back Assets from a Liquidation?
The benefits of purchasing the assets of a liquidated company can be substantial. This is especially the case if you are the director of the now-defunct business and are looking to set up a ‘newco’ and have limited funds available.
By purchasing assets under the strict rules of insolvency, you can ensure that the start up phase of setting up a new company is a lot more straightforward. The fact that you used them in your old firm means that you already know their history, value to the business, and whether or not they represent good value for money.
Timing is Everything
The process of buying back a failed company’s assets is closely controlled, as there are strict laws in place that are intended to protect the firm’s creditors. This is why the liquidator is required to carry out an investigation into the directors’ conduct, to see if any untoward actions resulted in the firm’s failure.
As we touched upon earlier, it is essential that you wait until a liquidator has been appointed before you attempt to buy back the assets. If you do not, you will risk accusations of misconduct if the price you paid turns out to be below the true market value. These types of transactions are known as “transactions at undervalue” or “antecedent transactions”, and can be reversed by the liquidator upon appointment. The asset in question can also be recovered.
Additional Points to Consider
When purchasing the assets of a failed business, there are a few more points you should be aware of. These include:
- Finances: Be sure that you have the money or a funding source available to make the purchase. You should also prepare an asset/means report to prove to the insolvency practitioner that you are able to afford the transaction.
- Advisors: It is important to establish a list of advisors to help you, such as an accountant and solicitor. In certain circumstances, it may also be beneficial to speak to an insolvency practitioner to assist when dealing with the office holder
- Clear definition: You should quickly understand exactly what is available for purchase. Is it a deal to buy tangible assets or goodwill? It is also important to note that you can only buy what the company actually owns. Anything acquired on finance (such as hire purchases) will not be available.
Professional Advice is Essential
While purchasing assets from a liquidated company can be useful, the potential risks involved if done incorrectly are extremely severe. It is therefore essential to seek professional advice beforehand to ensure that everything is above board.
Inquesta are liquidation specialists and can offer independent, professional advice. We have amassed decades of experience and will leave no stone unturned when it comes to securing the best results for our clients.
We are also available to assist if you are looking to purchase the assets of a company that you did not previously manage. Our team will be happy to discuss your requirements, and maintain a database of interested parties should the right assets become available.
For more information about how Inquesta can help you, contact a member of our expert team today or request a free, no obligation consultation.