Navigating a company liquidation is a process fraught with both legal and emotional complexity. One of the most frequent points of contention is the recovery of company-owned assets.
In the SME sector, the line between a director’s personal life and their corporate entity is often blurred. Company assets, particularly motor vehicles, are often perceived as the director’s personal property. When a liquidator is appointed, this often leads to difficult conversations about the factual reality that the asset belongs to the company and will be realised for the benefit of the creditors.
This does not mean that all is lost. A director may be able to purchase the asset back from the liquidator; it is worthwhile understanding the decision-making behind this, to ensure that the director has the best possible chance of reaching a pragmatic resolution.
The Doctrine of Separate Legal Entity
It is first important to understand and clarify a fundamental misunderstanding of the company structure. Many SME directors operate their businesses as "incorporated sole traders", viewing the company’s bank account, equipment, and other assets as their own. However, the law draws a very sharp line between the person and the entity.
When a company is incorporated, it is granted the legal capacity and powers of an individual. As such, in the eyes of the law, the company becomes a distinct “legal person” entirely separate from its directors and shareholders.
Given this, when an asset is purchased in a company’s name, that asset belongs to the “legal person” associated with the company, regardless of who uses the asset or who taps the company card.
The Liquidator’s Role and the Assessment Process
When a liquidator is appointed over a company, the responsibility for the company’s assets vests with the liquidator. The liquidator’s role and obligations are multifaceted, but most relevantly, the liquidator is obliged to secure the company’s assets and realise its value, if it is commercially viable to do so.
The latter part is key for an appointed liquidator – the realisation of an asset must be commercially viable. A liquidator will not automatically send every asset to auction, rather they will complete a commercial assessment of the assets, seeking to answer a very simple question – will selling this asset result in a net gain for creditors?
The assessment process is simple and broadly consists of three steps:
Valuation – the liquidator will obtain a valuation of the asset to determine the auction realisable value / forced sale value.
Registered Security Check – a search will be completed of the PPSR to determine whether the asset is secured and under finance. If the amount owed under the registered security interest is more than what the asset is worth, a liquidator will usually “disclaim” the company’s interest in the asset (being the legal process of relinquishing the company’s rights and obligations associated with the asset). In turn, the financier will then directly deal with the asset (and any guarantor).
The Math – the costs of realising the asset are subtracted from any equity in the asset after accounting for any secured creditor debts.
At the end of the assessment process, if the final number is negative, a liquidator will not pursue the realisation of the asset on the basis that it is not commercially viable to do so. In the alternative, a liquidator will proceed with the realisation of that asset.
Buying the Asset
Can you keep the company’s vehicle? The short answer is yes, but it requires purchasing the asset from the liquidator on commercial grounds. To make this process as simple as possible, consider the following:
Understand the Asset Value:
Don’t guess the process – obtain an understanding of the asset’s value via online searches or enquiries with valuers.
Understand your funding:
Ensure you understand where the funds for purchase will originate from, and if relevant, whether there will be restrictions on funding that will impact your offer for purchase (i.e., will instalments be required). Liquidators typically prefer "cash-on-completion" and may be wary of long-term instalment plans.
Consider GST:
Be clear whether the offer amount is GST inclusive or exclusive. This small detail can often affect whether your offer is viable for the liquidator to consider.
Submit a Written Offer
Send a written offer of purchase for the specific assets to the liquidator, preferably as soon as possible. A liquidator’s costs (such as insurance and storage) increase over time. A quick, clean, and transparent offer is often more attractive than a higher offer burdened by conditions and delays.
The liquidator will seriously consider any offer that is comparable or otherwise provides a better net return to the liquidation when compared to collecting and realising the asset, which often carries additional costs such as professional fees, labour costs, agent commission, and the like.
Liquidation is a high-stress environment, and the potential loss of a vehicle or essential equipment only adds to that pressure. However, by understanding that the process is governed by commercial logic rather than personal sentiment, directors can navigate the situation effectively.
If you have any questions about this article, don’t hesitate to get in touch with any of our expert staff members.
