Phoenix Companies - Acquisition of Assets from a Failed Company
The three methods of valuation - Procedure to be followed
A professional valuation is the key to having a legitimate sale of assets from one company that is being liquidated to another company - often known as a phoenix company. The sale of assets to the phoenix company should be at a Chartered Surveyors market valuation.
There are various classes of assets to be valued not only the physical fixed assets owned by the company.
Apart from the fixed and current assets of the business, you must also consider:
- the value of intellectual property
- the value of goodwill.
The above intangible assets are not so easy to value and must be carefully considered by Chartered Surveyors or other qualified professionals before any sale transaction takes place. In March 2010 The International Valuation Standards Council (IVSC) published its updated guidance note (GN4) on the valuation of intangible assets. GN4 identifies the principal techniques that are recognised for the valuation of such intangible assets as brands, intellectual property and customer relationships. It gives guidance on how these techniques are applied. It is of particular relevance when applying IFRS 3, Business Combinations. GN4 is effective from 1 March 2010 and is available at www.ivsc.org
An International Standard ISO 106668 on Brand Valuation - Requirements for monetary brand valuation - has also been published. This standard is short being only ten pages long.
Additional guidance on valuation of intangible assets might be found from IAS 38 Intangible Assets.
Each and every one of the physical assets of the company are usually valued by the Chartered Surveyors on the following three three bases:-
1. Forced sale value (otherwise known as the Estimated Restricted Realisation Price or ERRP)
2. Market value
3. Value to the business (Otherwise known as the in situ valuation)
A forced sale valuation is one which estimates the expected realisation of the assets if there were to be an auction.
A market valuation will in most cases derive a higher valuation than a forced sale. A market valuation provides the expected realisable value for the assets if they did not have to be sold quickly and instead time was available to test the market for the best price.
If a director of the old company wishes to sell the assets of that business to a successor phoenix company it must be at the higher in situ valuation - and it is best to have the transaction either confirmed by creditors consent or have the sale conducted by the liquidator.
Having said that, the third method of valuation called "value to the business" must be considered. If that figure is higher than open market value. No sale should take place unless it is at that higher figure.
With proper advice in many instances it is possible to have such a pre-packaged asset sale to a phoenix company even prior to the liquidation creditors meeting thus safeguarding jobs, your future and maximising returns to creditors.