What happens to a company’s assets after liquidation depend on the type of assets. This article will discuss how company’s assets are treated in a liquidation.
Each of the different types of assets a company are dealt with differently by a liquidator. We will explain in this article what happens to the cash, debtors, immovable property, assets that are financed, assets that are fully paid and hired/leased assets in a liquidation.
Who owns the assets?
Any assets that are registered in the name of the company are owned by the company. The directors and shareholders cannot own the assets of the company. In a liquidation, the only assets that are dealt with are the assets that belong to the company as the directors, members and shareholders’ personal assets are not affected by the liquidation.
Basic Liquidation Rule
The basic rule of liquidation is that the company’s assets cannot be sold or transferred without the liquidator’s permission six months before liquidation. After liquidation, the liquidator has control of the assets and the directors may not deal with the company’s assets. The liquidator must take control of all assets as soon as possible after appointment.
It is possible to keep company assets after liquidation. We know how to assist you with this as we can explain to you how to treat company assets so that you have the benefits of keeping them and using them after liquidation.
Different types of assets
Let us take a closer look at how the different types of assets are dealt with by the liquidator. Assets are referred to as immovable or movable property and movable property.
• Immovable property
Immovable property will be a house, flat, farm, plot, townhouse, commercial building.
The liquidator will sell the property on an auction or to a private seller (an individual or a company).
If there is a bond on the property, the bank gets the proceeds first as a secured creditor. If there is no bond, the proceeds go to the insolvent estate and are paid to creditors with valid claims.
Of course, the proceeds of the property are first paid into the new insolvent estate bank account opened by the liquidator.
• Movable property
The liquidation process treats movable property differently depending on its financing status: owned, paid, or rented. Let us explore how liquidation affects each type of asset.
Movable property is inter alia tools, machinery, office furniture, equipment, vehicles and more.
• Movable property that are fully paid
If a company fully owns assets, the liquidator can sell them to pay creditors.
Liquidation aims to realize assets and pay creditors.
Assets are valued at auction value, not the depreciation value in financial statements. Even fully depreciated assets still have market value, albeit low.
Directors can buy back assets from the liquidator after liquidation or it can be sold on an auction or to a third party.
• Movable property that are financed
Assets that are financed by a finance agreement (usually vehicles or machinery) will be returned to the bank when the company is liquidated. The reason for this is because liquidation will cancel the finance agreement. The company is not the owner of the asset, but the bank is, therefore the asset is basically being returned to the bank. (If there was personal surety, the director will be held liable for any shortfall after the vehicle was sold).
The financed asset can be returned to the bank before liquidation or afterwards by the liquidator.
The financed asset can be refinanced before liquidation so that it can be removed from the name of the company.
• Movable property that are hired/rented
Assets that are hired or rented do not belong to the company.
After liquidation the agreement with the supplier will be cancelled and the item returned.
If the director signed personal surety, they will likely be responsible for paying any cancellation penalties on the contract. If not, the debt will be written off.
The director can arrange with the company that the item is hired from to transfer the agreement to another entity or person.
• Debtors
If there are debtors that are recoverable, the liquidator may proceed to collect the outstanding amounts. If it is not financially viable, the liquidator will write the debtors off.
• Loan Accounts
Debit Loan Account
A debit loan account is created when a company lends money to a director or advances funds that are later converted into a loan. The loan is recorded as an asset in the books.
The liquidator will call up the loan and has to be repaid to the insolvent estate.
*If the loan account was created as an accounting entry to assist with reducing personal taxes for the director, please consult with us so that we can give you proper legal advice how to solve the issue.
Credit Loan Account
If the company owes monies to the director or another party, it is a credit loan account. This is in other words a debt of the company. The person who gave the loan is a creditor and must prove a claim against the insolvent estate and hope to receive monies. If not, the debt will be written off.
Conclusion
As we stated earlier, the liquidator will take control of the assets as soon as possible after his appointment. He will sell the assets and the proceeds will be paid to creditors.