Leased Assets and Liquidation: Your Options
When a Liquidator is appointed to a company, their primary duty is to collect and realise the company’s assets for the stakeholders interested in winding it up.
However, these assets are often subject to leases, hire purchase or other finance that can slightly complicate this situation—especially when a Director has given a Personal Guarantee.
When does a Liquidator realise Leased Assets?
When a Liquidator identifies an asset subject to finance, they compare the asset’s realisable value in the current market to the total payout value of the finance owing on the facility (known as “equity analysis”).
In most cases, it gives the Liquidator two outcomes:
- Positive Equity. If the asset’s value exceeds the payout value of the finance facility, the item is considered to have positive equity. This equity is then classified as an asset, which the Liquidator can realise for the creditor’s benefit.
- Negative or Borderline Equity. If the facility’s payout value exceeds the leased asset’s value, the Liquidator won’t sell or deal with it because it wouldn’t benefit the creditors. Instead the Liquidator would disclaim any interest the Company may have in the asset.
How does a Disclaimer affect a Leased Asset?
Once a financier receives a disclaimer for a leased asset, the most likely outcome is to repossess and sell the item. However, this depends on a host of factors, such as:
- the financier’s relationship with the director
- the level of security available.
The guarantor will probably be charged for the collection and interest costs, as well as any shortfall after the asset is sold. Depending on the size of this shortfall, the guarantor may face bankruptcy and loss of personal property.
But if the financier is willing to negotiate with the guarantor about how they will honour the finance agreement, the financier will often allow them to retain ownership as long as they:
- make the monthly repayments
- adequately insure the asset.
If the guarantor can’t service this renegotiated facility, they can sell the financed equipment. But as before they’ll be responsible for any shortfall on the facility, and will need to pay out the remaining balance.
But it can get complicated. If you’d like to discuss a liquidation and lease scenario with us, get in touch and we’d be happy to explore your available options with you.