As Vee Bharkhada, Founder & Managing Director of Navigate Business Recovery Ltd, I frequently advise directors on their responsibilities when a company enters Administration. Over the course of my career, I’ve gathered extensive knowledge, particularly from dealing with countless financial restructuring scenarios, and a key area of concern is the proper handling of business assets.
It is a common misconception that once an Administrator is appointed, directors retain full control over company property. This is far from the truth, and acting on such a belief can lead to severe consequences.
The Unlawful Transfer of Assets
When a company enters Administration, a moratorium comes into effect. This means that, broadly speaking, no steps may be taken to dispose of or realise the company’s property without the Administrator’s approval or the permission of the Court. This restriction is clearly outlined in paragraph 43 of Schedule B1 to the Insolvency Act 1986.
Furthermore, section 234 of the Insolvency Act 1986 gives the Administrator significant powers to recover property belonging to the company. My work in financial restructuring and business recovery over the past 36 years has taught me that these provisions are robustly enforced. Any attempt to transfer business assets without explicit Administrator’s approval is considered unlawful.
Criminal Prosecution for Asset Diversion
The repercussions of such unauthorised transfers can be extremely serious. This is not merely a civil matter that can be resolved with a payment; it can result in criminal prosecution for asset diversion. For directors, especially those with a history of successful ventures or substantial personal wealth, such charges carry immense reputational and personal risk.
The authorities, including the Insolvency Service, will investigate thoroughly to determine intent and establish whether assets were deliberately moved to shield them from creditors or for personal gain. A conviction for asset diversion can lead to imprisonment, substantial fines, and mandatory director disqualification.
My Advice on Handling Company Assets
If your company is in Administration, or on the verge of it, here is my crucial guidance regarding business assets:
- Seek Approval: Always obtain explicit, written Administrator’s approval before undertaking any transaction involving company assets. This covers everything from sales to transfers or even significant changes in asset use.
- Full Disclosure: Be completely transparent about all company assets, including their location, condition, and any encumbrances.
- Do Not Dispose: Resisting the urge to sell, move, or hide assets without approval is paramount. These actions will inevitably be uncovered and will complicate your position significantly.
- Legal Counsel: If you are unsure about the ownership or proper handling of any asset, or if you are facing allegations, seek immediate legal advice.
Attempting to transfer business assets without the Administrator’s full knowledge and consent is a direct breach of insolvency law and can lead to extremely damaging criminal prosecution. Always prioritise transparency and compliance.
Disclaimer: This article provides general information and guidance only and does not constitute legal or professional advice. Each situation is unique, and you should seek specific advice tailored to your circumstances. Navigate Business Recovery Ltd accepts no liability for any loss incurred as a result of acting or refraining from acting on information contained in this article.
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