What happens to vehicle leases after liquidation?

Once a company is put into liquidation, leasing agreements will normally be broken and vehicles returned. However, there may be ways to keep them if required for a new business.

If a company has leased vehicles (either cars, vans or other commercial vehicles), when it is liquidated payments for these will stop.

The agreements with the leasing company will be broken and the vehicles will have to be returned.

However, where the directors of the company plan to start a new business or have created a phoenix company, then they may wish to keep all or some of the vehicles.

This would often be a far cheaper option than having to buy new.

Offer to purchase

If a leased vehicle is returned to its owner company (in effect repossessed), it will be generally sent straight to auction.

The lease company will receive a small return but will usually be out of pocket. It will of course put in a claim for the shortfall to the company’s liquidator, but as an unsecured creditor expect to receive little or nothing back.

One option open to the directors of the new business is therefore to simply make an offer to buy the vehicles from the lease company.

If the offer at least matches or is better than the expected auction price, a deal could well be done. This would give a significant benefit to the lease company as they do not have the costs associated with collecting the vehicles and putting them into an auction.

Take over lease

If the funds are not available to buy the vehicles outright, a new company could offer to take over the lease agreements. However, this is not always straightforward.

Generally a lease cannot simply be transferred to another business and a whole new agreement has to be set up.

The new business may not have a sufficiently good credit history to allow a lease to be agreed on the same terms. As a result, the monthly payments could end up being higher than those that were paid by the old company.

Depending on the length of time the agreements have to run, one solution to this is for the new business to simply continue to pay the old lease. In this way, the lease company continues to be paid and vehicles are not repossessed.

Personal guarantees

One important area for the directors of the liquidated company to consider is personal guarantees.

If a personal guarantee has been given that the lease will be paid, once a vehicle is repossessed, the lease company will wish to call in this guarantee.

In these circumstances, the best solution is for the lease to be taken over or maintained by the new company. If this is not possible, the directors in question will have to make their own arrangements for payment of the outstanding debts.

If you are considering liquidating your company, you need to be aware that any leased vehicles will be returned to the leasing company unless arrangements are made to avoid this.

If your objective is to close the company and walk away, the leasing company will simply become an unsecured creditor with no further redress unless a personal guarantee has been given.

However, if you are looking to start a new business which will require the use of the vehicles, the best way of achieving this needs to be planned for.

For more information visit http://coopermatthews.com/company-liquidation.html

Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.

Cooper Matthews specialise in Company Debt Rescue providing straight forward insolvency advice for business owners with business and personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.

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