A liquidator may decide to trade-on a business if he or she believes that the business may be able to be sold as a going concern and a sale of the business would provide creditors with a better return. To justify the decision to trade-on the liquidator would need to do an assessment to confirm that the value of the business as a going concern would exceed the value of the assets if they were sold individually. In doing this assessment, the liquidator should determine if trading losses may be incurred whilst the business is prepared for sale or other substantial costs would need to be incurred to prepare if for sale. If trading losses are likely to be incurred, then the liquidator should notionally deducted these from the expected sale price of the business and compare the net expected sale proceeds to the break-up value of the assets. This analysis is critical because any trading losses could erode the net return to creditors. The liquidator has a duty of care to the company and to the creditors, so in order to discharge that duty a liquidator must act in the creditor’s best interests.
If the liquidator needs to trade the business for longer than 3 months (in order to sell it as a going concern) then court approval would be required.
If you would like to discuss to circumstances in which a liquidator can trade-on a business whilst the company is in liquidation, call the company liquidation experts on
1800 731 155.
The information provided in this site is general in nature and should not be relied upon for your specific circumstance. Call us on 1800 731 155 for a free initial consultation to discuss your specific issues.