Summary
Beyond the COVID-19 reset, recent economic shocks and high-interest rates, struggling businesses now confront the possibility of insolvency or liquidation. For those unable to meet their financial obligations, a formal administration process is an insolvency tool designed to help them regain financial stability and facilitate payments to the company’s creditors. Achieving the best possible outcome often relies on the sale of business assets. Here, intellectual property (IP) is vitally important as IP assets, such as redundant or underperforming brands, technical expertise and data, sometimes referred to as goodwill, can be sold to facilitate corporate restructuring or meet creditor’s demands. Accurate IP valuations strengthen a business’s position during administration.
Study
Consider the case of a well-established packaging manufacturer. The business was struggling with rising costs due to considerable supply chain disruption and declining revenue because of an overreliance on a single customer. The Management team engaged professional advisers to help explore possible restructuring options. Management considered the value of the specialist manufacturing equipment they had designed for customers over the years. Previously, they had filed a patent for an innovation which they collaborated on with a client. This prompted them to conduct a comprehensive review, a third-party IP audit, and valuation of its IP, in preparation for administration, or worse, liquidation. These reports identified extensive intangible assets and placed a value on the IP’s worth in the event of a highly accelerated M&A scenario – common in challenging financial situations.
Armed with this valuation, Management now had more confidence in possible restructuring solutions for the business when working with an insolvency practitioner.
Outcome
Prompted by the report’s findings, the manufacturer pursued a strategic reset, which meant reducing and reallocating capital expenditure. The business refocused its efforts on other customers and products to reduce their vulnerability to one large and important customer.
IP Valuations can inform decision-making during Insolvency.
This case highlights the critical role of IP audits and valuations in helping distressed businesses make informed decisions. By assessing its IP assets, the manufacturer established a clear strategy for the administration process, securing a credible asking price for the business and its IP assets to repay creditors. This assessment strengthened its negotiating position and facilitated its strategic reset. This demonstrates that IP audits and valuations can be powerful tools for businesses undergoing corporate restructuring, insolvency, or liquidation. Use our IP asset guide here.
