When a company enters liquidation, its assets do not automatically disappear or become the personal property of its directors. Machinery, vehicles, stock, furniture, tools, websites, domain names and other valuable items remain company assets and must be dealt with by the liquidator.

A director may still be able to purchase some or all of those assets, either personally or through a new limited company. However, there is no automatic right to do so. The purchase must take place through the liquidator, at a properly supported value and on terms that are in the interests of the company's creditors.

This is often referred to as "buying the assets back", although the assets legally belonged to the company rather than the director. The director or a new company is therefore purchasing them from the company's liquidation estate.

Molly Monks F.I.P.A of Parker Walsh, a licensed Insolvency Practitioner, regularly advises directors who wish to continue trading through a new company and are considering purchasing assets from a company entering liquidation.

This article principally considers the position in England and Wales.

What Happens to the Assets When a Company Enters Liquidation?

Once a liquidator is appointed, the directors no longer control the company or its property. They must provide information requested by the liquidator and hand over the company's assets, accounting records and other relevant documentation. (GOV.UK)

The liquidator will identify which assets belong to the company, secure them where necessary and consider how they should be sold. The money realised is paid into the liquidation estate and dealt with in accordance with insolvency law.

The liquidator acts in the interests of the company's creditors rather than the directors. Government guidance confirms that a liquidator takes control of the business, sells the company's assets and uses the funds to meet liquidation expenses and make payments to creditors where sufficient money is available. (GOV.UK)

The director cannot therefore decide that particular items should be transferred to them or to a new company. Any purchase must be agreed with the liquidator.

Can a Director or New Company Buy the Assets?

Yes. There is no general rule preventing a director, shareholder or newly formed company from buying assets from a company in liquidation.

A purchaser connected to the former company may sometimes be the most commercially sensible buyer. The director may understand the equipment, know the customer base and be able to complete a purchase quickly. A sale to a connected party may also avoid storage, transport and auction costs and could preserve part of the business.

However, the liquidator must consider whether the proposed transaction produces an appropriate outcome for creditors. The director's wish to continue trading does not take priority over the liquidator's duty to realise the assets properly.

Statement of Insolvency Practice 13 recognises that a connected-party transaction can be in the best interests of creditors. It also requires transparency and sufficient disclosure so that creditors can understand why the transaction was considered appropriate. The insolvency practitioner must act, and be seen to act, in the interests of creditors as a whole. (ICAEW)

You Do Not Have an Automatic Right to Buy the Assets

A former director does not receive a right of first refusal merely because they previously managed the company or originally chose and purchased the equipment on the company's behalf.

The liquidator may invite an offer from the director, but they can also approach other potential buyers, instruct an auctioneer or advertise the assets for sale. If another party makes a better offer, the liquidator may decide to sell to that party.

The director's offer should therefore be treated as a genuine commercial proposal. It should identify the proposed purchaser, the assets to be acquired, the price offered, the source of funds and any conditions attached to the purchase.

A vague statement that the director would like to "keep everything" will not ordinarily be sufficient. The liquidator needs to know precisely what is being offered and whether the purchaser is able to complete the transaction.

How Will the Assets Be Valued?

The assets will usually be assessed by the liquidator, an agent, an auctioneer or another suitably experienced valuer.

The appropriate value may not be the amount originally paid for the assets or the figure appearing in the company's accounts. Book value, replacement value and the amount obtainable in an insolvency sale can be very different.

The valuation may consider what the assets are likely to achieve at auction, through a private sale, in their current location or as part of a wider sale of the business. Removal, storage, transport, advertising and auction costs may also affect the likely net return.

The liquidator's objective is to obtain the best possible price for the assets and maximise the amount available for the liquidation estate. (GOV.UK)

In practical terms, this means the liquidator may consider more than the headline purchase price. An offer that can be completed immediately without removal or storage costs may produce a better net result than a slightly higher offer that is uncertain, conditional or expensive to complete. That assessment must be reasonable and properly recorded.

SIP 13 requires the insolvency practitioner to use professional judgement when deciding whether a formal valuation is necessary. Where a connected-party sale takes place, the office-holder should keep a detailed record of the reasons for the sale and the alternatives considered.

Will the Sale Be Reported to Creditors?

A purchase by a former director, shareholder, relative or new company associated with them is a connected-party transaction. It is not expected to be completed secretly.

The liquidator should provide creditors with proportionate and sufficiently detailed information explaining why the sale was undertaken and what alternatives were considered. Under SIP 13, the disclosure should normally be included in the next report to creditors following completion of the transaction.

This does not mean that a connected-party sale is automatically suspicious or inappropriate. It means the liquidator must be able to demonstrate why the transaction represented a proper commercial decision.

The greater level of disclosure protects creditors, the purchaser and the liquidator by creating a clear record of how the assets were valued and sold.

Can I Agree the Purchase Before the Liquidation?

A director can tell the proposed liquidator that they or a new company may be interested in purchasing the assets. This can allow information to be gathered, valuations to be obtained and the possible terms of a transaction to be considered.

However, before the formal appointment, the insolvency practitioner is acting as an adviser rather than as liquidator. They cannot make a binding sale as liquidator before they have been appointed, and there is always the possibility that a different insolvency practitioner could ultimately become the office-holder.

SIP 13 requires the practitioner to explain the nature and extent of their pre-appointment role. It also makes clear that the practitioner advising the insolvent company is not acting as adviser to the proposed connected purchaser, who should obtain independent advice. (ICAEW)

The proposed purchaser should therefore prepare a proper written offer but should not assume that the transaction is guaranteed to proceed until the liquidator has been appointed, considered the available options and formally agreed the sale.

Can I Take the Assets and Pay for Them Later?

A director should never remove, transfer or continue using company assets without the liquidator's knowledge and permission.

After appointment, the director has no authority to dispose of the company's property. Moving machinery to a new business, transferring a vehicle, taking stock home or continuing to use company equipment does not create ownership.

The purchase should be documented in a written sale agreement or invoice identifying the assets and the agreed consideration. Payment will normally need to be made to the liquidation estate before or at completion.

The liquidator is not required to provide the director or new company with credit. Payment by instalments may occasionally be considered where it offers the best available outcome, but the liquidator would need to assess the additional risk, the purchaser's ability to pay and whether security or other protections are required.

Until a sale has completed, the assets remain under the liquidator's control.

Can I Use the Old Company's Money to Fund the Purchase?

No. The buyer must have a genuine source of funds separate from the insolvent company.

Money held in the old company's bank account belongs to that company and forms part of the liquidation estate. It cannot simply be moved to the new company and then returned as the purchase price.

The purchase might instead be funded by the director personally, by investment into the new company or by appropriate third-party finance.

A director who is owed money by the old company should not assume that the debt can automatically be offset against the asset purchase price. Whether any set-off is legally available will depend on the nature and timing of the dealings and must be considered by the liquidator. A director's loan account in credit usually means that the director has a claim in the liquidation; it does not give them a general entitlement to take company property instead.

The safest course is to assume that the purchase price must be paid in cleared funds unless the liquidator confirms otherwise.

Can I Buy the Assets for £1?

A nominal sale may be possible where an asset genuinely has no net realisable value.

For example, old furniture or specialist equipment may have very little demand and could cost more to remove, store and sell than it is likely to realise. In those circumstances, a nominal offer that avoids disposal costs might be commercially reasonable.

However, assets cannot be sold for £1 merely because the director wants to retain them or believes they have little value. The liquidator must be able to support the decision by reference to the asset's condition, marketability, valuation and likely costs of alternative disposal.

Where an asset has a meaningful value, the purchaser should expect to pay an appropriate commercial price.

What Assets Can Be Purchased?

The proposed purchase can potentially include physical assets such as machinery, vehicles, office furniture, tools, computer equipment and stock.

It may also include intangible assets such as a website, domain name, telephone number, intellectual property, brand, trading style or goodwill. The liquidator will need to establish that the company owns the asset and that it is legally capable of being transferred.

Not everything used by the company necessarily belongs to it. Equipment may be leased or subject to hire-purchase finance. Stock may be claimed by a supplier under a valid retention-of-title clause. Vehicles could be owned personally by a director, while equipment at the director's home could still belong to the company.

The liquidator must take reasonable steps to establish ownership and consider valid claims made by finance companies, suppliers and other third parties. (GOV.UK)

A director claiming that an item belongs to them personally should provide supporting evidence such as the purchase invoice, bank statement, finance agreement or accounting records.

What Happens to Assets Subject to Finance?

The liquidator can only sell the interest that the company actually owns.

A vehicle subject to hire purchase, for example, may legally belong to the finance provider until the agreement has been completed. Machinery may be subject to leasing arrangements, while a bank may hold fixed or floating-charge security over company assets.

The liquidator will review the relevant agreement and contact the finance provider or secured creditor. Depending on the terms and the amount outstanding, the purchaser may be able to agree a settlement, take over an agreement with the lender's consent or purchase any equity that the company holds.

The new company cannot simply continue making the old company's finance payments and assume that ownership has transferred. Any continuation or replacement agreement must be approved and documented by the relevant finance provider.

Can I Buy the Company's Name and Goodwill?

A trading name, brand or goodwill may have value and can potentially be included in an asset sale. However, purchasing the name does not necessarily give the former director the legal right to use it.

Section 216 of the Insolvency Act 1986 restricts a person who was a director or shadow director during the 12 months before an insolvent liquidation from managing or being involved in a business using the same or a sufficiently similar name for five years, unless a statutory exception applies or the court grants permission. (Legislation.gov.uk)

The restrictions can apply to the company's registered name, trading names, brands and other names suggesting an association with the liquidated business. Breaching the rules can result in criminal consequences, director disqualification and personal liability for debts incurred while the prohibited name is being used. (GOV.UK)

One exception may be available where the whole or substantially the whole of the business is acquired under arrangements made with the liquidator and the required notices are given. The notice requirements include publication in The Gazette and notification to known creditors before the prohibited name is used and within the applicable statutory deadline. Buying only the name, or purchasing a small selection of assets, will not necessarily satisfy that exception. (GOV.UK)

Section 216 is technical and the consequences of getting it wrong can be severe. A director intending to continue a similar business should obtain specialist legal advice before registering, advertising or trading under any potentially prohibited name.

Can I Carry On the Same Type of Business?

A director is not automatically prevented from forming another company or operating in the same industry simply because a previous company has entered liquidation.

However, the new business must be genuinely separate. It should have its own bank account, contracts, invoices, accounting records and insurance. It must pay properly for any assets acquired from the liquidated company and comply with the restrictions on reusing the former company's name.

The new company should not use the old company's property, website, customer data, premises or other assets until it has obtained the necessary rights.

Customers and suppliers must also be told clearly which legal entity they are dealing with. Money owed to the old company for work completed before liquidation must not be redirected to the new company.

Starting again through a new company is not inherently unlawful, but the transition must be open, properly documented and commercially justifiable.

Will the New Company Inherit the Old Company's Debts?

Buying assets does not ordinarily transfer all the insolvent company's unsecured debts to the purchaser.

The old company's liabilities remain claims in the liquidation unless the purchaser expressly assumes a particular liability or the law provides otherwise. A new company may choose to enter into fresh arrangements with essential suppliers, landlords or customers, but this should be documented clearly.

The purchaser should also check whether acquiring particular assets creates associated obligations. A lease may require landlord consent, a licence may be non-transferable, a customer contract may require approval, and a regulated business may need new authorisation.

The purchase agreement should make clear what is and is not being acquired.

What Happens to the Employees?

Purchasing a collection of individual assets does not necessarily amount to buying the business. However, where the business or an identifiable part of it is transferred and continues operating, the Transfer of Undertakings (Protection of Employment) Regulations, commonly known as TUPE, may apply.

ACAS confirms that TUPE protection can apply where an insolvent organisation or part of it is rescued, transferred and continues in business. The type and timing of the insolvency can affect which employee liabilities transfer and which sums may be claimed from the Redundancy Payments Service. (Acas)

The purchaser should not assume that describing the transaction as an "asset sale" prevents TUPE from applying. The substance of the transaction and what happens to the business after the sale will be relevant.

Employment advice should be taken before completing a purchase where employees, ongoing contracts or an operating business may transfer.

What If the Assets Were Transferred Before Liquidation?

Directors sometimes transfer equipment, stock, vehicles or intellectual property to themselves or to a new company before consulting an Insolvency Practitioner.

This can create significant problems if the company did not receive proper value.

Under section 238 of the Insolvency Act 1986, a liquidator may apply to court regarding a transaction at an undervalue entered into before liquidation. The court can make orders intended to restore the position, including requiring property or money to be returned. (Legislation.gov.uk)

A transfer does not become acceptable simply because an invoice was created. The liquidator will consider whether the price was reasonable, whether it was actually paid, how the valuation was obtained and whether the transaction benefited the insolvent company and its creditors.

A director who has already transferred or removed assets should disclose this immediately to the proposed liquidator and provide all available records. Attempting to conceal the transaction is likely to make the position considerably more serious.

What Information Will the Liquidator Need?

The director should provide a complete and accurate list of the company's assets, including their location, condition and estimated value. The liquidator will also need details of finance agreements, leases, retention-of-title claims and any assets held by employees, directors or third parties.

Where the director or a new company wishes to make an offer, it should be submitted promptly and in writing. The offer should identify the purchaser, specify the assets, confirm the amount offered, explain how the purchase will be funded and state when completion can take place.

The proposed purchaser should also consider whether it requires the company's name, website, telephone numbers, intellectual property, stock, customer contracts or goodwill. Omitting an important asset from the agreement could prevent the new company from using it later.

Nothing should be moved, sold, transferred or used by the new company until the liquidator has given written authority and the relevant transaction has completed.

What If the Liquidation Has Already Finished?

There is an important difference between purchasing assets after a liquidator has been appointed and trying to acquire them after the liquidation has ended and the company has been dissolved.

While the liquidation remains open, enquiries should normally be made to the liquidator.

If the company has already been dissolved, an asset that was not dealt with may have passed to the Crown. Government guidance states that it may be possible to refer an asset to the body representing the Crown and ask to purchase it. This can apply to assets such as land, shares, trade marks and copyrights. (GOV.UK)

The process can be more complicated than buying from the liquidator, and restoration of the company may sometimes need to be considered. Directors should therefore raise any proposed purchase before the liquidation is closed.

Speak to Parker Walsh

A director or new company can often purchase assets from a company in liquidation, but the transaction must be handled properly.

The former director has no automatic entitlement to the assets and cannot simply move them into a new business. The liquidator must establish ownership, assess the value, consider alternative offers and ensure that the transaction is appropriate for creditors.

Additional issues may arise in relation to secured assets, finance agreements, employees, leases, intellectual property and the reuse of the company's name.

Molly Monks F.I.P.A of Parker Walsh is a licensed Insolvency Practitioner and provides clear, confidential advice to directors considering a Creditors' Voluntary Liquidation.

Parker Walsh can explain how the company's assets will be valued and sold, consider an offer from a director or connected new company and help ensure that the proposed transaction is transparent and properly documented.

FAQs

Can I buy my company's vehicle from the liquidator?

Potentially, yes. The liquidator will first establish whether the company owns the vehicle, whether finance is outstanding and what value or equity it has. The director or new company can then make a commercial offer.

Do I receive priority because I was the director?

No. A director can make an offer, but the liquidator must consider the interests of creditors and may accept a better offer from another purchaser.

Can I continue using the equipment while the purchase is arranged?

Only with the liquidator's express permission. Until the sale completes, the equipment remains a company asset under the liquidator's control.

Can I use my director's loan account to pay for the assets?

Not automatically. A director who is owed money by the company will generally have a claim in the liquidation. Any proposed set-off against an asset purchase requires careful legal consideration and the liquidator's agreement.

Can a new company buy the stock, website and equipment together?

Yes, provided the old company owns those assets and the liquidator agrees the price and terms. The agreement should identify every asset being transferred.

Can I buy only the company name?

The name or goodwill may be an asset, but purchasing it does not automatically allow a former director to use it. Section 216 restrictions must be considered before any same or similar name is adopted.

Is buying the assets through a new company illegal phoenixing?

No. A connected new company purchasing assets is not automatically unlawful. Problems arise where assets are transferred without proper payment, creditors are misled, the old company's money is diverted or the restricted-name rules are breached.

Will the liquidator tell creditors about the sale?

A connected-party sale should be disclosed to creditors with sufficient information to explain why it was undertaken and what alternatives were considered.

Can the liquidator refuse my offer?

Yes. The liquidator may refuse an offer that is too low, uncertain, unsupported by evidence of funding or less beneficial than another available method of sale.

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