How Insolvency Practitioners work with Asset Valuers to maximise creditor returns.
One of the key functions of Insolvency Practitioners (IP) in a liquidation is to value the assets of the insolvent company to maximise any return to creditors. Getting accurate and timely valuations of assets is vital to this process, and we use specialist asset valuation companies for this work.
In this article, Kevin Counihan from the leading asset advisory and valuation company SIA Group answers some questions about how they work with Insolvency Practitioners. SIA provide valuations both pre and post appointment for Insolvency Practitioners and for the company at any stage of management’s strategic planning process. Kevin points out at all times that obtaining valuations early allows the directors and their advisors to make better informed decisions on the best course of action for all stakeholders.
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Is your main function with the likes of ABc to give accurate valuations so that they can maximise creditor returns?
“Yes, exactly. Whilst there are many methods of valuation, we provide valuations based on the RICS definition of ‘Market Value’ usually on a restricted time basis (30-90 days). Our valuations are provided on an In-Situ and Ex-Situ basis which effectively gives the IP/Company the necessary information of what the assets are worth in both a going concern scenario and terminal event such as a liquidation.”
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Is there any specific process that is followed when appointed by an Insolvency Practitioner or is each job different?
“There is a general list of information we require which does not change much from job to job, but each case will have its own nuances and contingent issues. Both the valuers and Insolvency Practitioner are often working with skeleton information when initially instructed and in many cases are unable to obtain much of the information required in due course.
Subsequently, wherever possible we try to attend the company premises and meet with the directors to get as good an understanding of the business and assets as possible in the short time available. For smaller, simpler matters where there are minimal assets or assets of a simple nature, a desktop valuation reliant on the information or asset register provided by the company is usually sufficient.”
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Do you manage the asset sales process, once valuations have been obtained, for Insolvency Practitioners?
“Yes, as independent agents we manage the process of any asset disposals / business sales on behalf of either the IP or in some cases on instruction of the directors’ pre-appointment where a quick asset sale strategy is deemed necessary for whatever reason. For example, it may be there a risk of distraint from the landlord for unpaid rent before the IP is due to be appointed or a machine that requires daily maintenance to keep it working and it is deemed necessary to sell/remove the assets from site immediately. Or there may be a special purchaser which requires an immediate sale of the assets to maximise the asset value.”
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Why are Intellectual Property (IPR) and digital assets growing in importance? What is the process in these areas that is different from more traditional assets?
“The UK is predominantly a service-based economy with a growing digital economy, a trend I personally see exponential growth in. Traditionally, there has been little appetite in the Insolvency profession to investigate the value of IPR for a number of reasons but primarily a lack of understanding and lack of appetite to incur costs where the value is subjective and there isn’t a guaranteed net realisation.
However, this has changed significantly over the last 10-15 years in the post dotcom era. We are seeing lenders happy to use IPR assets as security and there is far more comfort from ever increasing comparable evidence of IPR valuations and sales.
IPR Assets can incorporate a number of things, essentially anything that is considered an asset which is attributable to income generation and is of a non-physical nature. The most obvious ones would be Patents and Trademarks, brand/trading names extending into more difficult to quantify assets such as open-source software code/applications, technical know-how developed by extensive R&D investment and anything that would be classed as a unique invention of the mind such as a unique website build for example or striking artworks.
Essentially, if there a measurable economic benefit to it, it should be valued and recorded as an asset on the balance sheet although in reality most companies do not do this, and directors are often surprised when these assets are identified by the valuer.
Digital assets were traditionally captured under the umbrella of IPR/Goodwill but have become a sperate category in their own right in the last 10-15 years. The evolvement of the internet to Web 3.0, ever improving ecommerce and monetisation of websites/platforms/social media and of course the exponential growth in crypto have all evolved at a pace that outstrips any previous technology in human history. Subsequently, digital assets’ valuation is a rapidly developing area of valuation, not a one-time subject learnt from a book. It pays to use a specialist valuer that has a specific interest and passion in this area.
It has historically been too easy to assume there is no value in the various forms of intangible assets of a loss-making business without undertaking a proper valuation process and understanding the value of these assets included within a restructured business as opposed to the replacement cost of starting from scratch. Whilst this value more often than not contains an element of subjectivity, we are confident that our methodology and use of comparable evidence provides a valuation range that is fair, achievable and maximises stakeholders’ interests.”
Talk to us if you are concerned your company is heading towards insolvency
We are grateful to Kevin for his insight into the service SIA provides, especially to us as Insolvency Practitioners.
We share the same mantra of ‘seek advice early’ and agree with Kevin that obtaining a valuation of a business and its assets is an important part of this mantra. In our case, the earlier directors facing financial difficulties seek our advice, the more likely we are to be able to help a business turn itself around rather than a liquidation being the only outcome.
If you are concerned about the financial position of your company and, please contact us or call one of our offices for an initial free of charge, confidential and no obligation discussion.
Also, K&W Recovery, trading as Antony Batty and Company, Thames Valley:
