Understanding Asset Values in Liquidation: A closer look at the process

When a company enters liquidation, one of the most important aspects of the process is how its assets are dealt with. But what’s often misunderstood is the structured, regulated approach that liquidators are required to follow when handling company assets.

This article aims to demystify that process and also explain some of the factors that impact the realisable value of assets, both positively and negatively, in liquidation scenarios.

Written by Sam Pryor, Aurelia Pereira and Matthew Watkins, Worrells Executive Analysts

Step One: Identifying and Securing Assets

Liquidators, by virtue of their role, must act quickly.  The role includes identifying and taking control of all company assets, ranging from physical assets such as plant and equipment, stock, and vehicles, through to intangible assets like intellectual property, trademarks, and goodwill.

Assets are secured where appropriate — physically and/or legally — to ensure their value is preserved for the benefit of creditors, pending further assessment and valuation.

In many cases, assets are left on site at the company’s premises, usually leased and in arrears. Landlords are often keen to retake possession and begin preparing the space for a new tenant. Delays in vacating can lead to rising occupancy costs and legal pressure to hand back the site. This ticking clock adds urgency to every decision made by the liquidator from day one.

Step Two: Valuing the Assets

A critical element of realising an asset is understanding its realisable value. Valuations are typically carried out by licensed professionals which will include:

• Market Valuations: The estimated amount the asset would reasonably achieve in an open, competitive market, between a willing buyer and seller at arm’s length.

• Auction or Liquidation Value: The estimated amount an asset might realise when sold under time or market constraints, such as through a public auction or liquidation process, following an advertising campaign. While these sales are often conducted on an "as-is, where-is" basis, it’s worth noting that auction results can sometimes meet or exceed market valuations due to strong demand for unique or specialised items. Conversely, assets can often be sold at below their ascribed market values, although liquidators typically set a reserve price when sold at auction.

Valuations serve as an important tool prepared by independent professionals to help appointees assess the realistic value of assets. These valuations are often shared with creditors after the sale of assets has occurred (unless commercially sensitive) and assist in evaluating the acceptability of offers received, especially when selling assets through a private treaty process. It’s important to understand that valuation outcomes reflect prevailing market conditions at the time, which may differ from book values or personal expectations of stakeholders.

Step Three: Determining Equity

In many cases, the asset is subject to a valid and enforceable security interest under the Personal Property Securities Register (PPSR) framework.

In these instances, the liquidator assesses whether there is any equity in the asset by comparing its estimated liquidation value against the amount owed to the secured party.

If the secured debt exceeds the asset’s value, the liquidator will generally disclaim the asset, effectively stepping aside to allow the secured creditor to take possession or otherwise deal with the asset as they desire. This is because if the liquidator realised the asset, there would be no surplus available (after paying out the valid secured debt) to be collected for the benefit of creditors.

Step Four: Deciding Whether (and When) to Sell

Once the valuation and security position is clear, the liquidator must consider whether it’s in the best interests of the liquidation to sell an asset, and if so, how and when.

Sales may occur:

• Via auction

• Through specialist brokers or agents

• In bulk or as part of a business sale

• Or, where appropriate, back to directors or other third parties (subject to transparency and market testing)

Each decision is made with careful consideration of the commercial realities involved, which are often numerous and complex. These factors can vary significantly depending on the nature of the asset, market demand, and external pressures.

Some of the key constraints include:

• Holding Costs: Time is money. Every extra day liquidators retain control of premises or assets can incur substantial costs, including rent, warehouse fees, insurance premiums, security services, etc.

• Landlord Pressure: Commercial landlords understandably want to regain control of their property as soon as possible. Liquidators often face pressure to vacate quickly to avoid litigation, lease breaches, etc.

• Lack of Funds: In most liquidations, there is no cash to fund repairs, relocation, or storage. Assets often need to be sold “as-is, where-is”, and buyers adjust their offers accordingly.

• Disruption to Value Chain: Buyers are wary of standalone assets with no warranty, documentation, or support systems, particularly in industries with specialised machinery.

• Legal Disputes and Ownership Challenges: Assets may be subject to ownership disputes, retention of title claims, or even allegations of improper transfer, which can stall or, if valid, derail sale efforts entirely.

• Logistical Complexities: Disassembling, relocating, or transporting large-scale assets can be prohibitively expensive or practically unfeasible, especially without site access or cooperation from key stakeholders.

In this environment, generally speaking, auction sales or competitive tenders are frequently the most efficient and commercially sound approach.

Asset Sales – Market Variables and Other Complexities

It’s natural for stakeholders to compare asset realisation values with historical or book values. However, there are several reasons why the actual sale price often differs:

• Auction Sale Conditions: Selling under auction or distressed conditions can lead to a wide range of outcomes. While buyers may anticipate discounts in the absence of a continuing business, auctions can also generate strong results, especially when there’s competitive bidding or specific demand for unique assets.

• Market Size and Demand: Niche or specialised assets may have a limited pool of potential buyers, which can restrict achievable value. However, in some cases, scarcity or specialist interest can drive up prices.

• Obsolete or Overvalued Equipment: Book values may not reflect true market value. Equipment may be outdated, poorly maintained, or simply no longer in demand, especially in fast-evolving industries like tech or manufacturing.

• Seasonality and Timing: Certain assets—like retail inventory or agricultural equipment—may fetch significantly lower prices if sold at the wrong time of year or during market downturns. Conversely, higher prices might be achieved if sold during peak season.

• Incomplete or Unverified Asset Records: Without manuals, maintenance records, or warranties, buyers apply discounts for risk.

• Costs of Sale: Realisation values must also account for the costs of the sale itself, such as auctioneer fees, transport, storage, and commissions, which can significantly reduce net proceeds.

Liquidators must weigh all these factors in seeking to extract the best possible value in the circumstances, not just the highest price on paper.

Final Thoughts

Liquidations are rarely straightforward, and asset realisation is one of the most complex aspects of the process. While creditors naturally hope for strong returns, it's important to recognise the practical challenges and commercial limitations that arise once a company stops trading.

The Insolvency Practitioner has a duty to maximise the value of the company’s assets for the benefit of creditors. This involves obtaining accurate valuations and seeking professional assistance in the realisation of assets. Despite these efforts, the company’s financial situation, external market conditions, and other commercial realities can significantly impact the overall outcome.