Written by: Will Thompson on 2nd October 2023
A liquidation auction involves selling commercial assets through an auction house. It commonly means that a company has become insolvent and needs to realise its assets so that some of the debts can be repaid.
A solvent business may also sell its assets at auction, but typically, they’re transferred directly to the company’s shareholders or directors, or to a different company. The selling process is the same whether it’s part of a solvent or insolvent liquidation procedure – it’s where the funds are distributed that’s markedly different.
When a company enters insolvent liquidation the assets it owns must be realised for the benefit of creditors. Insolvent liquidation means that a company cannot afford to pay its bills as they fall due, and/or that the value of its liabilities is more than its assets.
In a typical insolvent liquidation, business creditors might include HMRC, suppliers, employees, and customers. Substantial debts can develop very quickly when a business experiences a financial decline, however, and it’s unlikely that all creditors will be repaid from the proceeds of a liquidation sale.
Unsecured creditors commonly receive very little when a company is liquidated. They fall at the bottom of a statutory hierarchy for repayment and a sale of assets is typically their only hope of receiving a return.
Unfortunately, repayment may not be possible even though the appointed liquidator works firmly with creditor interests in mind and tries to maximise their returns as far as possible. The liquidator arranges for any assets of the insolvent business to be professionally valued and then sold at the liquidation auction, so what assets are included in this type of sale?
Liquidated assets commonly include office furniture, business machinery or equipment, computer hardware, and unsold stock. Liquidation auctions provide a way to dispose of these assets quickly and distribute the funds to creditors as soon as possible, or shareholders in the case of solvent liquidations.
Auction houses that deal with liquidated assets typically specialise in these types of sales and can subsequently develop long-term working relationships with insolvency practitioners in their area.
From a bidder’s perspective, a liquidation auction offers the opportunity to save money and buy quality items at a lower than average price. This can be extremely useful if they’re setting up their own business as they can acquire assets such as office equipment and furniture.
A liquidation auction works in the same way as a ‘standard’ auction. The assets of insolvent businesses, and solvent companies that are closing down, are sold to the highest bidder – and this can be in-person at the saleroom or online.
The assets are listed in an online catalogue, which provides a full description and images of each item to increase the chances of selling. If the auction is well attended and there are multiple bidders for the same item, assets can achieve a far higher price than anticipated.
It’s worth noting that companies in financial distress can also sell their commercial assets via an auction house to generate cash and prevent liquidation – this can be an effective way to halt financial decline and return to profitability.
A liquidation auction offers transparency of procedure when a company is closing due to insolvency, and the professional valuation of assets protects the insolvency practitioner from accusations of selling items below their true value.
About the author - Shaun Barton is a partner at Company Closure and boasts a wealth of experience in helping directors of distressed companies understand their options. A director-facing adviser, Shaun is often the first point of contact for business owners in financial distress, consistently delivering expert advice when it is needed the most.
Written by: Will Thompson on 2nd October 2023
Will is an auction surveyor at Pugh & Co, representing a wide range of vendors, including local authorities, charities, and corporate and private clients, on the disposal of all types of property and land. Will can provide advice on the value and disposal strategies of residential, commercial, and industrial properties/portfolios, as well as sites with development potential. He holds an MSc in Real Estate and is a member of the National Association of Valuers and Auctioneers.
