Asset liquidation is simply the process of selling a company’s assets and turning them into cash. When this is done as part of a liquidation process, the proceeds are then used to pay creditors, shareholders or both, depending on whether the business is solvent or insolvent.
In a solvent liquidation, it’s often part of a well-planned exit and extracts the value of the assets in the most tax-efficient way possible. In insolvency, it’s about damage limitation and making sure creditors are treated fairly. Either way, understanding how asset liquidation works helps you make better decisions and protect your position.
When is asset liquidation necessary?
There are two very different scenarios where asset liquidation takes place:
- Solvent liquidation – You’ve decided to close a company with significant retained profit (usually at least £25,000). This might be because you’re retiring, restructuring, or no longer need the company. Assets are sold to release value, and shareholders receive the proceeds after tax. This is done as part of a Members’ Voluntary Liquidation.
- Insolvent liquidation – Your company can’t pay its debts as they fall due, or its liabilities outweigh assets. Assets are sold to repay creditors in a set order. This is done as part of a Creditors’ Voluntary Liquidation.
How assets are valued and sold
A licensed insolvency practitioner will arrange for professional, independent valuation of the company’s assets. This ensures sales are transparent and fair, protecting directors from later accusations of undervalue transactions. Sales can be handled in different ways:
Public auctions are often used for plant, machinery and stock to achieve a fair market price quickly
Private treaty sales involve direct negotiations with potential buyers, common for specialist equipment or intellectual property
Online auctions and marketplaces are increasingly popular for speed and wider reach
There may be scope for directors or shareholders to buy assets back, provided the sale is at fair market value and properly documented. In insolvent cases, it’s the insolvency practitioner’s job to manage any such transactions so that creditors’ interests are protected.
How proceeds are distributed
The order of payment in insolvency is fixed by law:
- Secured creditors with fixed charges, typically banks with charges over specific assets
- Preferential creditors, including certain employee claims and HM Revenue and Customs
- Secured creditors with floating charges
- Unsecured creditors, trade suppliers, HMRC for some debts, contractors
- Shareholders, which is rare in insolvency
In solvent liquidations, once all liabilities are settled, the remaining funds are distributed to shareholders as capital. This is where tax efficiency comes into play.
The director’s role and obligations
In both MVL and CVL, you have duties as a director to:
- Hand over complete and accurate records
- Disclose all assets and liabilities
- Cooperate fully with the insolvency practitioner’s requests
- Avoid any transactions that might reduce the value of assets available for sale
In insolvency, failing to do so can lead to being held personally liable for company debts or director disqualification.
Preparing for asset liquidation
Even before a formal process starts, there are steps you can take to protect value:
- Keep accurate, up-to-date asset registers
- Maintain assets in good working order
- Gather paperwork for titles, warranties, IP registrations and leases
- Talk to your accountant or a licensed insolvency practitioner early if you’re considering closure or if you see signs of distress
Why early advice on asset liquidation matters
Whether you’re winding down a solvent company or closing an insolvent one, early engagement with a licensed insolvency practitioner gives you more options and more control. You’ll have a clear picture of the likely proceeds, the tax position and any risks to you personally.
We help directors navigate both solvent and insolvent liquidations every day, with a focus on protecting value, ensuring compliance and making the process as smooth as possible.
If you’re considering closing your company, or think insolvency might be on the horizon, get in touch for confidential, no-obligation advice.
