# Why it pays for companies to hold physical assets in separate limited companies Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-10-12 Category: BUSINESS Category URL: https://financedigest.com/category/business Meta Title: Asset Protection in UK Recession: Advice from Turner Little Meta Description: Learn how to safeguard your physical assets against the threat of liquidation or administration with expert advice from Turner Little. Don't risk losing URL: https://financedigest.com/why-it-pays-for-companies-to-hold-physical-assets-in-separate-limited-companieshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/graphicstock-closeup-of-bus-1736815044332-compressed.jpg) In light of the developing economic uncertainty and potential UK recession, asset protection and company formation specialist, Turner Little, advises on how companies can protect their physical assets against the threat of administration or liquidation at a future date. James Turner, Director at Turner Little, says: “Companies are well within their rights to [protect their physical assets by owning them through separate limited companies](https://www.financedigest.com/5-ways-to-protect-your-company-from-cyber-security-threats.html "5 Ways to Protect Your Company From Cyber Security Threats") and ‘renting’ or ‘leasing’ them back to the main trading company. This protects the [assets should the main trading](https://www.financedigest.com/rambus-unveils-vaultify-trade-for-secure-transaction-and-storage-of-crypto-assets-on-blockchain.html "Rambus Unveils Vaultify Trade for Secure Transaction and Storage of Crypto Assets on Blockchain") company go into administration or has a winding up order served. However, for this to be legal, this needs to be done before either of these events happen. “It also isn’t as easy as simply [selling assets](https://www.financedigest.com/uks-cineworld-to-not-sell-assets-individually-denies-talks-with-amc.html "UK’s Cineworld to not sell assets individually, denies talks with AMC") on to a new limited company if the main trading company is in trouble. If a company is trading as insolvent and [sells their assets](https://www.financedigest.com/exclusive-repsol-agrees-to-sell-alberta-oil-assets-to-cppib-backed-teine-energy-sources.html "Exclusive-Repsol agrees to sell Alberta oil assets to CPPIB backed-Teine Energy -sources") at a below market value, this can still be investigated and ‘reversed’ by those appointed to investigate. “The Insolvency Act 1986 [gives liquidators the powers to investigate company](https://www.financedigest.com/closing-a-limited-company-three-alternatives-to-liquidation.html "Closing a limited company: three alternatives to liquidation") affairs and get the maximum repayment for creditors. If a liquidator feels that [assets have been sold or transferred at an undervalue and consequently to the disadvantage of creditors](https://www.financedigest.com/bahamas-regulator-holds-ftx-assets-pending-delivery-to-customers-creditors.html "Bahamas regulator holds FTX assets pending delivery to customers, creditors"), an application can be made to the Courts to void (i.e., overturn or reverse) the transactions. “The best advice is to [set up separate companies](https://www.financedigest.com/italys-eni-sets-up-sustainable-transport-services-company.html "Italy’s Eni sets up sustainable transport services company") very early on in the process. Company A can [hold all assets such as property](https://www.financedigest.com/brexit-and-the-property-market-what-does-the-future-hold.html "Brexit and the property market: what does the future hold?") and equipment. Company B is the main trading company. By setting up the companies early on, it mitigates any [risk of falling foul of the regulations around selling on assets](https://www.financedigest.com/analysis-watch-out-risk-assets-the-rout-in-bonds-is-coming-your-way.html "Analysis-Watch out risk assets, the rout in bonds is coming your way") if a company gets into trouble.” **Case study: Are the owners of Worcester Warriors guilty of illegal asset stripping?** The [owners of Worcester Warriors could be in trouble from a legal perspective with their handling of the rugby club’s](https://www.financedigest.com/owner-of-leading-discount-dining-clubs-tastecard-and-gourmet-society-appoints-new-chairperson.html "Owner of leading discount dining clubs tastecard and Gourmet Society appoints new Chairperson    ") assets during HMRC’s winding up order. “If reports surrounding Worcester Warriors and the actions of the owners are correct, the sale of the training pitches in June 2022 would be perfectly legal. However, if it is correct that they went on to [sell the club car](https://www.financedigest.com/3-tricks-to-get-a-better-price-when-selling-your-car.html "3 Tricks To Get a Better Price When Selling Your Car") parks the day after the winding up notice, then this could be viewed as illegal asset stripping and are currently being investigated by appointed administrators, Begbies Traynor ,” comments James Turner. “However, matters become more complicated if the club has been [trading as insolvent for some time](https://www.financedigest.com/how-to-use-algorithms-to-save-time-and-make-money-when-trading-currency-crypto-shares-etc.html "How to use algorithms to save time and make money when trading (currency, crypto, shares etc)"). This is likely given that they [owe nearly](https://www.financedigest.com/sales-revenue-of-tpms-battery-market-to-soar-in-the-near-future-owing-to-growing-consumer-adoption.html "Sales Revenue of Tpms Battery Market to Soar in the Near Future Owing to Growing Consumer Adoption") £6m in unpaid taxes over the last two years. Selling on assets – even pre a winding up order – at less than they are worth can be investigated. Worcester Warriors Sixways site – including the training facilities and car parks – has been [reported as valued at almost](https://www.financedigest.com/new-global-cybersecurity-report-reveals-cybercrime-takes-almost-600-billion-toll-on-global-economy.html "New Global Cybersecurity Report Reveals Cybercrime Takes Almost 0 Billion Toll on Global Economy") £17m. The owners sold the training facilities for £350,000 and the [car parks](https://www.financedigest.com/over-a-third-of-brits-would-be-put-off-a-property-by-the-cars-parked-outside.html "Over a third of Brits would be put off a property by the cars parked outside") for £50,000. This can raise further questions, of which may end with a full investigation by HMRC and the liquidators. Roger Hutton, Senior Partner at Clarion Solicitors, provides further clarification [around company](https://www.financedigest.com/around-40-of-german-companies-expect-output-decline-in-2023-iw-institute.html "Around 40% of German companies expect output decline in 2023 – IW institute") directors duties in relation to obligations to creditors “Where a company is or may be about to become insolvent, then the duties of the Directors change significantly. In these circumstances, a director’s duty to the creditors overrises all other duties. The company’s [assets must be managed](https://www.financedigest.com/french-watchdog-fines-h2o-asset-management-executives-over-tennor-investments.html "French watchdog fines H2O Asset Management, executives over Tennor investments") to give priority to the creditors. These principles have been set out repeatedly in the case law and in the insolvency legislation, the starting point for which is The Insolvency Act 1986. If a company is insolvent, then the director’s duty is owed to all creditors, not just one or more specific creditors. The directors cannot dispose of any of the assets of the [company or make any payments](https://www.financedigest.com/payment-security-compliance-declines-only-1-in-3-companies-globally-make-the-grade.html "Payment security compliance declines – only 1 in 3 companies globally make the grade") to shareholders, if the provision for the interests of the creditors has not been made. If the company is indeed insolvent then in reality, such provision will not be possible and therefore those types of [payment should not be made](https://www.financedigest.com/nearly-half-the-nation-believe-all-payments-will-be-made-in-app-by-2022.html "Nearly half the nation believe all payments will be made in-app by 2022"). “A failure by the directors to obey that overriding duty can give rise to a number of [claims against them by an insolvency practitioner acting](https://www.financedigest.com/left-out-of-a-loved-ones-will-you-may-be-able-to-claim-under-the-inheritance-act.html "Left out of a loved one’s Will? You may be able to claim under the Inheritance Act") as liquidator or administrator, if the company does go into some kind of formal insolvency procedure. The officeholder may bring a claim against the directors for misfeasance which essentially are [claims for breach](https://www.financedigest.com/billion-dollar-economic-cost-from-new-zealand-earthquake-as-insurance-claims-breach-15000-according-to-aon-catastrophe-report.html "Billion-dollar economic cost from New Zealand earthquake as insurance claims breach 15,000, according to Aon catastrophe report") of duty. “The insolvency legislation also [provides for possible claims by an officeholder against directors who have been guilty of wrongful trading](https://www.financedigest.com/raiffeisen-chooses-igtb-to-provide-digital-trade-finance-platform.html "Raiffeisen chooses iGTB to provide digital trade finance platform"). Many directors fall foul of this provision of the Insolvency Act because they believe (unrealistically) that the company can [trade out of its difficulties](https://www.financedigest.com/over-80-of-businesses-forsee-difficulties-in-european-trading-when-the-uk-leaves-the-eu.html "Over 80% Of Businesses Forsee Difficulties In European Trading When The UK Leaves The EU"). The legislation provides that once a director concludes there is no reasonable prospect of the company avoiding insolvent liquidation, the directors then have a duty to take every step which a reasonably intelligent person would take to minimise the [potential loss to the company’s](https://www.financedigest.com/factbox-companies-potentially-affected-by-italys-election.html "Factbox: Companies potentially affected by Italy’s election") creditors.” For more information on how to protect business assets and correctly setting up companies from the start, contact experts Turner Little at [www.turnerlittle.com](http://www.turnerlittle.com/) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---