Can Directors Sell Company Assets Before Liquidation?

Business people shaking hands after finishing a deal

In the UK, a director’s ability to sell company assets before liquidation is regulated by the Insolvency Act 1986 and the Companies Act 2006. These acts define the circumstances under which a director can sell company assets and the legal obligations that must be met before any sale can take place.

If a company is facing financial difficulties and is at risk of insolvency, a company director may be able to sell company assets, but they must do so in accordance with their legal duties as set out in the Companies Act 2006. The Act requires directors to act in good faith and in the best interests of the company, taking into account the interests of its creditors and shareholders.

Under the Insolvency Act 1986, if a company is insolvent or likely to become insolvent, the director’s duty of care shifts from the shareholders to the creditors. This means that before selling company assets, directors must ensure that they have taken reasonable steps to explore all possible options to minimise the loss to creditors. If a director fails to meet this legal obligation, they may be personally liable for any losses suffered by the company or its creditors.

The sale of company assets before liquidation must also comply with the relevant legal procedures. If the sale is part of a formal insolvency process, such as a Compulsory Liquidation or a Creditor’s Voluntary Liquidation, the sale must be approved by the insolvency practitioner appointed to oversee the process.

How Can Directors Sell Company Assets Before Liquidation

The following are some of the steps that directors should take once the decision to sell company assets before liquidation has been made:

Obtain professional advice: Directors should seek advice from insolvency practitioners, accountants, or lawyers to assess the company’s financial position and explore all available options before deciding to sell assets.

Conduct a valuation of the assets: The directors should have the assets valued by a professional valuer to ensure that they are sold at a fair market price.

Identify the assets to be sold: The directors should identify the assets that are to be sold, taking into account the company’s financial position and the interests of its creditors.

Consider the impact on creditors: Directors should consider the impact of the sale on the company’s creditors and ensure that the sale is in their best interests.

Obtain shareholder approval: If the assets to be sold represent a significant proportion of the company’s business or assets, the directors should obtain shareholder approval before proceeding with the sale.

Advertise the sale: The directors should advertise the sale of the assets to ensure that they are sold at a fair market price.

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