What Are Liquidated Assets?
To get a better understanding of liquidated assets, it is necessary to understand liquidation. Liquidation is the process of winding up a company’s affairs by way of ceasing business operations, liquidating company assets, and distributing the proceeds to relevant parties in priority order. Liquidated assets refers to converting liquid and non-liquid assets into money by selling them.
What assets can be liquidated?
The easiest way to determine assets that can be liquidated is to think of tangible and intangible items which have monetary value. Below is a comprehensive list of common liquidated assets:
- Real Estate: Includes residential, commercial, or rural property along with vacant land.
- Motor Vehicles: Road, off-road, heavy-duty, earth moving, and factory transportation vehicles. This long list is made up of cars, vans, trucks, excavators, forklifts, bulldozers, pallet jacks, and more.
- Equipment: Common items are computers and software, telephones, copiers, and other electronic items such as audio accessories.
- Machinery: Appliances, instruments, heavy machines, robotics, hardware, and more.
- Furniture: Desks, chairs, cabinets, lounges, wall art, lighting, and other related items.
- Inventory: Any items, component parts, goods or raw materials that are used in the production or sales process.
- Essentials: Stationary, office supplies and day-today basics such as kitchen supplies.
- Tools: Hand tools, electric tools, and heavy duty tools.
- Financial Securities: Stocks, bonds, mutual funds, and any other marketable securities.
- Intangible Assets: Non-physical in nature and may consist of trademarks, patents, copyrights, and goodwill.
During the liquidation process all assets are sold and transferred to cash. Although assets such as stock and bonds are considered liquid, they are transferred to cash where possible as this allows for the most efficient distribution to creditors and shareholders.
How long does it take to liquidate assets?
There is no prescribed time limit on the time allowed to complete the liquidation process and this also applies to liquidating business assets. That said, a liquidator is legally bound to complete their responsibilities in both a timely and cost-effective manner. To carry out their duties effectively, a liquidator must:
- Find, protect, and realise the assets of the company
- Determine why the company is insolvent and report any offences of ASIC
- Hold creditors meetings
- Distribute the proceeds in priority order according to law.
Further details can be found in our Comprehensive Guide To Liquidation.
Liquidation of assets examples
The cost of liquidation and the time taken to liquidate assets will depend on the nature of the asset, its value, and level of liquidity. The examples below can be used as a guide.
Company ABC – Mobile Lending
- Assets: Three motor vehicles and a loan trail book that generates $5,000 per month.
- Liquidity: Motor vehicles and mortgage trail books are very liquid items. There are multiple marketplaces where these items can be purchased and sold. Determining the market value of a motor vehicle can be done in minutes and there are also trail book calculators which can accurately value the asset.
- Time: As the assets of Company ABC are in demand, liquidating business assets should not take more than a matter of weeks.
Company XYZ – Print and Design
- Assets: Industrial warehouse property in rural location 100km outside metropolitan area and two large industrial printing presses that are 15 years old.
- Liquidity: Land and real estate are generally considered non-liquid assets as they can take several months to be sold. In this case, the remote location of the premises creates a further obstacle in a potential sale. Similarly, it would be very difficult to find a buyer for the large industrial presses, especially if they need to be disassembled to be moved, not to mention transported more than 100km.
- Time: A realistic timeline here would be several months. If a buyer can not be found for the printing presses, they may have to be sold with the industrial warehouse to eliminate any storage and disposal costs.
As you can see, it is difficult to place a defined timeline with respect to liquidating assets. It can be a complicated process and the focus of the liquidator is to carry out their responsibilities in a reasonable time.
How are assets distributed after liquidation?
One of the most common questions is ‘who gets paid first when a company goes into liquidation?’. This is a focal point for all the parties involved and the liquidator must distribute the liquidated assets in priority order as listed below:
- The costs of liquidation (liquidator fees)
- Secured creditors
- Priority unsecured creditors (employees)
- Unsecured creditors
Any outstanding debts owed to each category must be paid in full before the subsequent category can receive any money from the liquidated assets. If unsecured creditors cannot be paid in full, they will be paid on a pro rata basis with any subsequent categories receiving nothing.
How do you liquidate a business asset?
It is not uncommon for the sale of business assets to occur prior to liquidation. This happens when directors are in fear of trading insolvent. In response, they will sell company assets to get an injection of cash flow that can be used to pay any outstanding debts. The following must be given great attention in these circumstances:
- Selling company assets is perfectly legal provided directors comply with legislation. This is especially the case when assets are being sold to a related party.
- When liquidating business assets, they must be sold at a price that represents the market value. Where required, directors should obtain an independent valuation from an external party.
- Trading insolvent is illegal and directors should also be aware that they may be personally liable if any unnecessary debts are accumulated while knowingly trading while insolvent. This may include any liabilities incurred during the process of liquidating assets that remain unpaid after the sale of the assets.
These intricacies are a key driver in getting expert advice with respect to liquidating assets and the liquidation process.
What happens to assets when a company is liquidated?
To begin the process of liquidating assets, company directors must first declare insolvency and appoint a liquidator who will then begin the liquidation process. Director responsibilities change once a liquidator is appointed. They lose control of the company, and their obligations shift to facilitating the needs of the liquidator. This includes advising the liquidator of company assets, providing up to date financial records, outlining daily company operations, and answering any other reasonable questions to the best of their knowledge.
When a company is liquidated, assets are converted to cash and distributed in priority order as outlined above. Once this has taken place, the liquidator will finish winding up the company and lodge the final documentation to ASIC. Three months after the necessary forms have been submitted, the company will be deregistered.
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