Risks Of Purchasing Assets From Insolvent Company

[Displaycentreuk]

When a comapny becomes insolvent it must cease trading. I presume, however, that it can sell assets or recach agreements as regards the transfer of assets as long as it uses the funds received to pay-back its creditors?

But given that paying back creditors is unlikely to be uppermost in the mind of those with a stake in the business, what is to stop them selling assets and keeping the money for themselves (assuming no IP)? In this case would the purchaser of the assets have secure ownership - just wondering whether creditors could claim that the stakeholders who sold the assets had no right to do so and clawback the ownership.

 

[Gyumri]

- just wondering whether creditors could claim that the stakeholders who sold the assets had no right to do so and clawback the ownership.

I can't see any issue that could be raised against an innocent purchaser of a company's assets. I mean if he has bought items in good faith why should he suffer? But it would be worth checking the law rather than relying on an opinion.

The directors would have been able to give good title to the goods being sold so it's not the same thing as buying stolen goods when the seller never has good title to sell property.

 

[JEREMY HAWKE]

I think we have previously discussed favorable payment of invoices and I believe this maybe under the same law
It might be possible that the new owner may not have legal ownership

 

[WaveJumper]

Are we thinking along the lines of a possible company phenix by any chance

 

[ChrisCallaghan]

Are we thinking along the lines of a possible company phenix by any chance

This is important question. I think a bit more context is required to fully answer OP's questions.

@Displaycentreuk is the potential buyer a connected party to the insolvent company?

Even if the director's of the insolvent company don't instruct a liquidator, the creditors may still petition for the company to be liquidated. Any liquidator will then look at asset sale, and may pursue the purchaser if the assets were sold at under value. They may also pursue the directors for selling the assets at undervalue, and may pursue them for treating creditors in preference depending on how they spend the money.

Much easier and safer for the directors to instruct a liquidator. Also much safer for the asset purchaser to buy them off the liquidator. Depending on the value of the assets, the directors of the insolvent company may not have to pay for the liquidator's services - the funds from the asset sale can be used to cover the costs of the liquidation.

Myself or any of the other insolvency advisors here on UKBF would be happy to offer all parties involved a free and confidential consultation.

 

[Displaycentreuk]

Guys, that is all very helpful. Many thanks

 

[Frank Wessely]

When a comapny becomes insolvent it must cease trading. I presume, however, that it can sell assets or recach agreements as regards the transfer of assets as long as it uses the funds received to pay-back its creditors?

But given that paying back creditors is unlikely to be uppermost in the mind of those with a stake in the business, what is to stop them selling assets and keeping the money for themselves (assuming no IP)? In this case would the purchaser of the assets have secure ownership - just wondering whether creditors could claim that the stakeholders who sold the assets had no right to do so and clawback the ownership.

Hi Displaycentreuk

No, an insolvent company needs to find the best solution. It does not automatically mean it must cease to trade.

From your narrative there are a number of remedies that creditors may have (directly or indirectly) and clawing back the assets or obtaining a proper market value for them are just two aspects. There are also potential risks for you personally.

As @Chris Callaghan says, take professional advice.

Free consultations are available.

I hope this is helpful.

Thanks.

 

[UKSBD]

Is this a similar principle to buying a 2nd hand car?

 

[Mark T Jones]

Is this a similar principle to buying a 2nd hand car?

Yip. 'He cannot give good title who does not have good title'

Other than insolvency law - of which I know little - the 2 big risks I perceive are

1. They don't actually own the assets (either subject to finance or covered by liens/charges)

2. They have been poorly maintained/abused

(Pretty much every car I've repossessed has been in an appalling state - other than where the customer was in prison for fraud)