Even though we are now out of an economic downturn, it is still useful to look at what lessons learned during the downturn could give better protection for business owners including how key assets are owned.
While there are laws that prevent the transfer or disposal of assets to avoid liability to creditors, solvent businesses should consider whether to rearrange how their key assets are owned.
It will often be preferable for key assets (for example land, capital plant and intellectual property) to be owned by related entities and leased or licensed to the trading entity, rather than being owned by the trading entity itself. This is particularly useful where the trading entity is operating in an environment that is risky or where litigation is common and expensive. It can also be useful when liability insurance is not obtainable or financially viable. While a creditor of the trading entity would still have access to that company's assets to meet any claim, those assets would not include key assets owned by related entities and leased or licensed to the trading entity. This can also give more options for the re-establishment of a new business in the event of a failure of the trading entity arising from an economic downturn or creditor claim.
It is as important as ever to protect key assets and to consider how those assets should best be owned given the business environment your business operates in. We are always available to assist with that process.
Published: 11 June 2015