What Happens To Assets When A Business Closes?

There are many different reasons that a company may be wound-up. Whilst many companies close down due to financial difficulties and becoming insolvent, this isn’t always the case. Directors of a solvent company may choose to voluntarily wind up the affairs of the company if it has run its cause, or if they have alternative business ventures prioritised. There are a lot of different components involved in winding up a company correctly whether that’s through a liquidation (MVL or CVL) or a company strike off. One of the most important questions that you may have is ‘what happens to assets when a business closes?’. 

When a company is officially closed down it is removed from the Companies House register so that it no longer exists as a professional entity. In addition to this, all assets and liabilities must be dealt with. This means that all assets must be liquidated. What does this mean for all parties involved?

When discussing what happens to assets when a business closes, it’s important to emphasise that priority is placed on repaying outstanding debts to creditors. When we talk about assets being liquidated, we mean that they are sold in order to raise as much money as possible to repay creditors. In the case of solvent liquidation, where there may be funds leftover, the money raised will be distributed to shareholders.

How Are Assets Sold?

The sale of assets is organised and facilitated by the appointed insolvency practitioner in the liquidation process. They will collect and make a list of company assets, conduct the sale of the assets, and then organise the distribution of the money raised to the relevant parties. 

When talking about what happens to assets when a business closes, in most cases they will be sold to unrelated third parties, who may include competitors. However, in some cases where the company is solvent, directors may be allowed to purchase assets back for personal use. For example, directors may like to use them for a future business prospect. This must be approved by the appointed insolvency practitioner.

What Happens After Assets Are Sold?

As we mentioned a little earlier on, the question of what happens to assets when a business closes is ultimately determined by repaying creditors as a priority. So, naturally, once the assets have been sold, the money that has been raised is used to pay the company’s outstanding debts. Repayments are made in the following order:

• Secured Creditors (Fixed Charge)
• Preferential Creditors
• Secondary Preferential Creditors
• Secured Creditors (Floating Charge)
• Prescribed Part – Unsecured Creditors
• Unsecured Creditors

If there are still funds remaining once all creditors have been repaid in full, these can be distributed amongst shareholders. 

For more information on what happens to assets when a business closes, or to discuss the options for liquidating your company (solvent or insolvent), please don’t hesitate to get in touch with our experienced team of insolvency practitioners at My Liquidation.