LES NewsXchange: January 2012
For those of us that are involved day to day with IP issues it is self-evident that IP underpins every aspect of a business. It may therefore be sometimes surprising to us that many organisations are still not protecting or maximising the value of their intangible assets. An area that is particularly neglected is IP in relation to bankruptcy or insolvency, that, unfortunately is all too common in these difficult times.
Insolvency practitioners need to have a good understanding of the value of the assets remaining in a company. Administrators or liquidators will need a omplete and detailed list of all the assets in the business that they may have to dispose of it. Preserving these in advance of that is therefore vital. Having IP rights that could be sold on as part of these assets can help the company and its creditors in such a situation.
However, identifying the intangible assets may not be straightforward. For example, if a company facing insolvency co-owns IP rights with another company there can be tricky issues to resolve even with expert help. Few insolvency practitioners are experts in IP and may not understand the quality and value of the intangible assets being disposed of as part of a sale before or after insolvency, meaning that creditors may question the value realised unless the IP value issue is robustly dealt with. The buyer of a business in insolvency needs to know that they will be acquiring all the valuable IP available.
While intellectual property rights are normally viewed as assets, this might not in reality be so. There may be a requirement for ongoing registration and prosecution costs, perhaps in more than one jurisdiction, to retain the value of patents and trademarks. The organisation in administration might have contractual obligations for example to maintain a patent or trade mark according to an existing licence.
The IP issue needs to be considered at an early stage, as a great deal of the value often resides not just in the IP (patents, trademarks, designs, trade secrets and so on) but in the intellectual assets (know-how, processes), and intellectual capital (reputation, relationships and contracts). Once key employees leave, this knowledge may leave with them. If at all possible the business should be kept from insolvency if the hidden assets of the business need to be kept intact.
Dealing with this kind of scenario from an IP perspective can actually sometime s be a race against the clock, as IP rights can be lost or diluted if they are not taken care of in a timely manner – the rights could be lost forever.
Whatever the situation, there will be a need for due diligence to determine to what extent the intellectual property is actually owned or licensed by the insolvent company and whether it has value.
However, sometimes it is not possible to rescue a business and it is placed into
administration. Whilst the business is no longer able to trade viably, it may still have intangible assets with material value; in some cases, these may form the dominant component of value. This value needs to be recognised within the consideration for a trade or direct sale, in order to properly satisfy and safeguard the interests of creditors.
Such insolvency practitioners normally want to work with IP specialists who have expertise in valuing intangibles within insolvent businesses which is within the administrators’ budget and can be delivered within the tight timescales often essential to concluding a fast and satisfactory sale of the assets. The approach should be based on recognised IP valuation methods and meet the standards required for dealing with businesses in administration.
There are many examples to demonstrate that IP can realise significant value in insolvency. Whether sold with the core business and assets or sold separately, those involved in the insolvency can work successfully with IP experts to design strategies that extract maximum value from these assets.