Role of Valuation in Asset Liquidation

The Role of Valuation in Asset Liquidation: Determining Fair Market Value

When an organisation finds itself falling on hard times and having to go into liquidation as a result there are a number of different steps that need to be followed. One of the main ones is that the assets of the company will be sold off in order to settle the liabilities which are owed to creditors. As such, valuation is clearly an incredibly important part of the liquidation process, but who gets to decide what assets are sold and determine how much they are worth? All will be discussed in the below article.

Who Is Responsible for the Liquidation Process? 

In the majority of cases, the creditors of the organisation are those who have the final say in what happens to the assets of the company. This is due to the fact it is the creditors who are owed money by the company and as such, they have a valid interest, given they are trying to recoup as much of the money they’re owed as possible. The creditors are usually responsible for hiring a liquidator and then that liquidator has to act in the interests of both the company which is being liquidated and the creditors. This liquidator will be responsible for taking charge and overseeing both the valuation and sale of the assets to get the best price possible.

There are certain situations where this isn’t necessarily the case and instead, shareholders can have a bit more of a say over how various assets or both are valued and sold. For instance, if the organisation in question is a publicly traded business then the shareholders of the business might need to approve asset sales. In other cases, the court might need to appoint a receiver to oversee the liquidation process and also make sure that various parties are treated fairly.

As such, though it isn’t likely going to be shareholders or the court who decide on what assets need to be sold in company liquidation and what their values are, those two parties can still largely influence the process. Depending on the circumstances, it may be that they are even able to block the sales of certain assets from taking place.

What Company Assets are Usually Sold During the Liquidation Process?

When a company initially goes into liquidation, it needs to sell off different assets in order to properly pay off its debts. There are several assets that these could be, including physical assets such as raw materials, machinery and buildings, as well as intangible assets like patents and copyrights. In other cases, the company name and logo will often be sold as a means to obtain various additional funds.

When these assets are sold, the proceeds are used to pay off the debts which are owed to creditors. If there are any remaining funds once these debts are paid then they are distributed to the shareholders. The liquidation process can be a relatively lengthy and complicated one and as such, it’s important that businesses are working with the right experts to make everything as straightforward as possible.

What Happens to a Business’s Assets When a Company is in Liquidation?

When an organisation goes into liquidation its assets are sold so that the company in question can pay off its debts. These sales include both the companies’ physical assets and intangible assets. The proceeds go to creditors and then anything left over is distributed amongst the relevant shareholders.

In some cases, the shareholders of the company might be responsible for some of the outstanding debts of the company. In other cases, it may well be the case that the creditors are able to claim for certain assets of the company so that they can recoup their losses. Regardless, the liquidation generally ends with the loss of the assets of the business.

Who Is Responsible for Valuing a Company’s Assets?

If a company does go into liquidation then it will be the job of the liquidator to value the assets of the company. The process of valuation can be incredibly complex because there are lots of different factors that can impact how valuable certain assets are, which include the likes of conditions of the market, how old the assets are and what other liabilities are outstanding.

The liquidator will be responsible for working with a team of different experts (usually RICS chartered surveyors) to appraise the assets and in turn, determine what their value is. Once these assets have been appropriately valued, the liquidator is going to be responsible for selling them off in order to pay off the debts of the company. Proceeds are used to pay back both shareholders and creditors, it depends on what asset has been sold.

Who Specifically is Paid with Proceeds?

The answer to this question depends largely on the type of asset that has been sold. For instance, if the asset is some real estate then the proceeds are going to be sent to the owner of the property or the charge holder. That being said, if the asset is a business then the proceeds are going to be paid out to the shareholders of said business.

The proceeds, in some cases, will also be paid straight out to the shareholders which depends ultimately on the arrangement that has been made between different parties and at what date the debt was incurred. Anything that has been put up as collateral for a loan needs to be sold for the loan to be paid back.

Do You Need Help with Asset Valuation and Sale?

As stated above, the liquidation process can be relatively complicated and as such, you should make sure you are working with expert liquidators such as Simple Liquidation who will be able to assist with the process. Our team will sit down with your business in order to better understand what your current situation is and subsequently provide advice on your best way forward in terms of both the sale and the valuation of various assets. If you have any questions or require any further information then do not hesitate to get in touch.