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As a Director, may I sell assets of my
Company before Liquidation?

YES BUT! Reliable legal advice is required.

Once a Liquidator is appointed, they must investigate potential wrongdoing or fraud by the directors, before their appointment. Therefore, selling assets MAY fall foul of the Insolvency Act 1986.

If you do sell assets, it’s crucial to do so with extreme care.

Directors may overlook assets or do not disclose them. If assets are sold or transferred undervalue and therefore to the disadvantage of creditors, an application to the courts, to void the sales, may be made.

Moving assets between companies.

Again, great care is needed. A Director may do this, BUT still the same applies as to selling to a third party. The Liquidator will investigate any movements before appointment. The Director’s obligations remain the same to creditors.

Selling your assets to another company requires a very considered path:

  • ENSURE all members of the board members agree.
  • ENSURE an independent RICS qualified surveyor values assets.
  • TAKE NOTE disposing of assets at undervalue is unacceptable as is transferring assets from one company to another at undervalue.
  • All transactions which favour’s one creditor above others or in some way disadvantages creditors will

be reversed.

  • Any previous director decision, which the Liquidator thinks is underhand, will be reviewed and if transferred at undervalue, will be overturned via the Court.
  • Once a Winding-Up Petition is active, no assets may be sold or transferred by directors.

Avoiding accusations.

  • If you plan to sell assets to raise cash before Liquidationarrange a board meeting, ensure all members agree, forming some essential director protection.
  • IMPORTANT ensure an independent RICS surveyor values the assets and if possible, conduct the sale.

Undervalue transactions?

Licensed Insolvency practitioners have the power to examine the company’s affairs before it entered into the Liquidation or Administration. If found that a director has sold assets at undervalue, then transaction may be reversed via the Courts.

Severe penalties may be issued to directors if they have not done what is in the best interest Creditors.

The penalties that given may be:

  • Fines,
  • Personal liability for part or all the company debts
  • Disqualification as acting as a director. Max 15 years
  • A criminal conviction.

Creditor interest are priority.

Directors responsibility is always to represent the company in the best possible way. When a company faces Liquidation, the Creditor’s position should always have priority.

A director must do what is best for all parties associated with the business, and if seen as preferring a Creditor over another, then this may be considered a preference.

ENSURE YOU UNDERSTAND WHAT BEING A DIRECTOR ENTAILS. NOT KNOWING IS NO DEFENCE

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