What to do with assets when closing a business

What to do with assets when closing a sole trader or partnership  

If you run a sole proprietorship or partnership, what you choose to do with the assets is completely up to you. As there’s no financial separation between the business and yourself, you may need to sell the assets to cover the business’s debts. On the other hand, you might choose to keep the assets if you think you’ll need them in the future or sell them to extract the profit that remains in the business.  

If you decide to sell the assets, business asset sales specialists can value, market and sell the assets on your behalf. You’ll pay Capital Gains Tax on any profit, and you may be eligible for Business Asset Disposal Relief which will reduce the tax you pay. In a partnership, the proceeds must be distributed fairly among the partners according to their ownership stake.  

What to do with assets when closing a limited company

Dealing with business assets when closing a limited company is not so straightforward. In this case, the company owns the assets, and you must consider your legal and financial obligations when deciding what to do with them. The right approach will depend on the business’s financial position and the closure method you use. 

Dealing with assets when closing a solvent company

If your company can afford to pay all its debts, the two main ways to close it are via Strike Off or Members’ Voluntary Liquidation (MVL).

• Strike Off

Strike Off is a procedure you apply for and administer yourself. As part of the process, you must sell or transfer the business’s assets before striking it off the Companies House register. If you don’t, ownership of any remaining assets will pass to the Crown.

In Strike Off, you can either sell company assets and distribute the proceeds among the shareholders, or transfer them in their current form to another individual or business. If you transfer an asset, known as a ‘distribution in specie’, you should always get a professional valuation to ensure a fair distribution among the shareholders.

In Strike Off, you pay Capital Gains Tax on shareholder distributions worth less than £25,000 but Income Tax on anything over that amount. That can make Members’ Voluntary Liquidation a more tax-efficient way of closing a solvent business.

• Members’ Voluntary Liquidation (MVL)    

In a Members’ Voluntary Liquidation, you must appoint a licensed Insolvency Practitioner to liquidate the company on your behalf. As part of the process, they will value and sell the company’s assets and use the proceeds to repay its debts before distributing the profit among the shareholders.

Getting a professional asset valuation is an important part of the process as it establishes a fair market price. The Insolvency Practitioner will usually sell the assets at a specialist liquidation auction or to a third party such as a competitor. It’s also possible to transfer the asset to a shareholder in its physical form if it has sentimental value, is difficult to sell or the shareholder wants to use it again.  

One of the key differences between Strike Off and an MVL is that, in a Members’ Voluntary Liquidation, all the proceeds from the sale of assets are treated as a capital gain. You may also be eligible for Business Asset Disposal Relief, which reduces the rate of CGT you pay.   

Dealing with assets when closing an insolvent company

If your company cannot repay all its debts, you must use an insolvent liquidation procedure to close it. You can do that voluntarily using a Creditors’ Voluntary Liquidation (CVL).

• Creditors’ Voluntary Liquidation (CVL)

In a Creditors’ Voluntary Liquidation, you have no choice about what happens to company assets. Like an MVL, you must appoint a licensed Insolvency Practitioner to close the business on your behalf. They will value and sell the assets, but in this case, they will use all the proceeds to repay the company’s creditors as far as possible.

The secured creditors will be paid first, followed by the preferential creditors and then the unsecured creditors. It’s usually the case that the unsecured creditors do not receive all the money they are owed. As the business’s liabilities exceed its assets, there will be nothing left to distribute among the shareholders.

If your company is insolvent, you must be very careful when dealing with company assets. If you sell them for less than they’re worth, transfer them to a connected party or use them in any way that could disadvantage your creditors, you could face serious financial and legal penalties.    

Maximise the return from your business assets

At Eddisons Asset Auctions, we specialise in helping businesses of all sizes, including sole traders and limited companies, get the best price for their business assets. Find out more about asset valuations, asset sales, and insolvency and liquidation auctions and contact our team for a free appraisal.