Selling Company Assets in Times of Financial Distress

When a company faces financial difficulties, directors often look for ways to inject liquidity and manage cash flow. One common query we receive at Parker Walsh is whether a company in financial distress can sell its assets. The short answer is yes, but there are important considerations to ensure compliance with legal and financial regulations.

The Importance of Fair Value

A recent case we dealt with highlights these considerations; a decorator contacted us about his company van, which was owned outright by his business. Facing pressure from unpaid supplier invoices and unable to secure timely financing, he considered selling the van to generate cash. However, he was unsure whether this action was permissible.

We assured him that selling company assets is allowed, provided it is done for fair value. This means the asset must be sold for an amount reflective of its true market value. For example, selling a vehicle worth £20,000 to a friend for £7,000 would constitute a "transaction at an undervalue," which could have serious legal repercussions.

To determine the fair value of a vehicle or any other company asset, an independent valuation is strongly recommended. For vehicles, the process is straightforward: mileage, registration details, and photos are sufficient for an accurate appraisal. Similarly, other types of assets, such as machinery, can also be valued using detailed specifications and photos.

Selling Assets to Directors

Another frequent question is whether a director can purchase a company asset. The answer is yes, as long as the company operates as a separate legal entity from its director. In this case, the director must purchase the asset at fair value, and proper documentation is essential.

For example, a sale agreement or invoice should clearly outline the transaction, and the agreed-upon sum must be paid into the company’s bank account. These funds can then be used for company purposes, such as paying creditors.

In the case of the decorator, he purchased the van from the company at fair value, injecting much-needed capital into the business. This allowed him to pay off the supplier while continuing to use the van for work, now as his personal property. The transaction not only resolved immediate financial concerns but also enabled uninterrupted business operations.

Other Considerations for Selling Assets

While selling assets can be a viable solution during financial distress, there are a few key points to keep in mind:

1. Independent Advice: Engaging a professional to review the proposed transaction ensures compliance with relevant laws and avoids potential pitfalls.
2. Documentation: Proper records must be maintained to show that the sale was conducted transparently and at market value.
3. Impact on Trade: Assess whether selling an asset will affect the company’s ability to continue operations. In some cases, selling essential equipment might offer short-term relief but hinder long-term sustainability.

Consult the Experts

Selling company assets during financial distress is not a decision to be taken lightly. At Parker Walsh, we provide free, confidential advice to help you navigate these complex situations. Whether you need guidance on valuations, legal compliance, or alternative solutions, our team is here to assist.

If you’re considering selling company assets, give us a call. We’ll work with you to ensure your actions are not only compliant but also in the best interests of your business.

For more information or to speak with a specialist, contact Parker Walsh today. Let’s find the right solution for your company’s challenges.

‍^{Photo by Tima Miroshnichenko}

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