Can You Remove Assets Prior to a CVL?

When a company is facing insolvency or a creditors’ voluntary liquidation (CVL), there might be temptation to remove or dispose of assets from the business before the liquidation process commences. We’ve done a deep dive about CVLs that you can read here.

Now this begs the question, can you remove assets prior to a CVL?

Today we’ll explore what are the regulations surrounding asset disposal prior to a CVL, and what are the consequences if directors are found to have committed this act?

Regulations Around Asset Disposal Prior to a CVL

The shortest answer to the question, can you remove assets prior to a CVL is no. Once the decision has been made to enter liquidation, directors have a legal duty to protect the company’s assets for the benefit of all creditors. Intentionally removing assets to deprive creditors would constitute a breach of your duties and carry serious consequences.

The appointed liquidator has wide-ranging powers to investigate any affairs and transactions of the company they deem suspicious. If there is proof of assets improperly removed or disposed of prior to liquidation, the liquidator can take action to reverse this and recover the assets or their value.

Potential Consequences of Removing Assets Unlawfully

What are the consequences if someone is found guilty of removing assets prior to a CVL? For directors who remove or benefit from company assets sales after the point of insolvency, some of the consequences are:

Personal Liability

If assets are disposed improperly after the point of insolvency, directors may be held personally liable. Meaning they could be required to pay out of pocket to compensate for the value of the assets improperly removed.

Source: https://www.thegazette.co.uk/insolvency/content/103793

Criminal Charges

There are potential criminal charges if directors are found to have disposed of assets prior to a CVL. They can be charged with fraudulent trading or misfeasance, if there is evidence of this.

Source: https://harperjames.co.uk/article/creditors-voluntary-liquidation-explained/

Reputational Damage and Restriction of Entrepreneurial Activities

If found guilty, directors who have engaged in unlawful disposal could suffer professional reputation damage. With a tarnished reputation it will be difficult for them to engage in future business opportunities.

Exceptions and Professional Advice

There are very limited exceptions where certain assets may potentially be disposed of properly after insolvency.

One of them is continuing to trade the business for a temporary period if it could achieve a better outcome for creditors. However, this condition can be relatively complex, and advice should be sought from a qualified insolvency practitioner before attempting it to avoid potential penalties.

A professional insolvency practitioner can guide you through your strict responsibilities and duties as a director in an insolvency scenario. Proper insolvency advice ensures you remain compliant with legislation and regulations and mitigates your personal risks.

So, to answer the question, can you remove assets prior to a CVL? The answer is no. Attempting to remove or dispose of company assets without first obtaining qualified insolvency advice can be seen as an attempt to deprive creditors of their rightful claims over company assets.

If your company is facing insolvency or considering a CVL, do not attempt to remove or dispose of any company assets without first seeking professional guidance. The consequences as we have discussed above can be severe.

Reach out to our team of licensed insolvency practitioners for a free consultation. With extensive experience advising directors on their duties and obligations during an insolvency scenario. Let us guide you through the complex regulations around asset disposals and save you from unwanted complications.

More on CVL from Irwin Insolvency

What is a CVL

Pros and cons of CVL

CVL timeline

How much does a CVL cost

Can you change liquidators in a CVL

What happens to directors in a CVL

Can you stop compulsory strike-off by CVL