Can I sell my company's assets prior to a liquidation

22 June 2011

Can I sell one company’s assets to another of my companies and then put the former into liquidation.

This sounds tempting, especially if you sell them at a knock down price to the other company. But this action may be a breach of s238 of the Insolvency Act 1986 – Transactions at Undervalue.

It sometimes happens that directors overlook or even fail to disclose all the company’s property to a liquidator. Consequently, the Insolvency Act 1986 gives a liquidator wide powers to assist his/her investigations into a company’s affairs in order to maximise creditor’s interests.

s238 section applies in the case of a company where -

(a) the company enters administration or (b) the company goes into liquidation and "the office-holder" means the administrator or the liquidator, as the case may be.

Where the company has at a relevant time (typically 2 years if a connected party and 6 months if an unconnected party) entered into a transaction with any person at an undervalue, the office-holder may apply to the court for an order under this section, the court shall, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction. So the COURT can reverse that sales or movement of assets. This is what is known as an “antecedent transaction” i.e reversible.

Secondly, this could lead to a negative report to the DBIS and possible wrongful trading.

So how can I sell assets to another company and ensure that any transaction is not reversed?

In order to avoid a claim that you have transferred the assets at an under value then you need to get them valued professionally. It is best to get a RICS approved valuer who will value the assets, assuming a forced sale, and then you can bank the consideration so as to maximize the return to creditors.

If you are interested in selling assets as a result of creditor threats then have a look at our partner site.

Make sure that you keep careful records of any such transactions and ideally ensure that it was approved at a board meeting.

Carrying out these steps will leave you less open to claims of wrong doing

What if you cannot afford to buy the assets?

We suggest that you put the company into liquidation and then offer to buy the assets over time (deferred consideration) from the liquidator.

If you are worried that selling assets to connected parties or other companies that you might control then get in touch and we can help advise you on the matter.