How are intangible assets treated in insolvency and restructuring?

Full Explanation

Intangible assets in insolvency present unique challenges because their value is often context-dependent and drops significantly when the going-concern assumption is removed. Key considerations include: forced-sale vs orderly liquidation value (in a fire sale, intangible assets may fetch 10-20% of their going-concern value; in an orderly liquidation with time for a structured sales process, 20-40% is more typical), separability (some intangibles like patents and registered trademarks can be sold independently; others like customer relationships and assembled workforce may only have value as part of a going-concern sale), buyer universe (the pool of potential buyers for specific intangible assets may be very narrow, particularly for niche technology or industry-specific customer relationships), and priority of claims (secured creditors may have security interests in specific intangible assets, affecting the distribution of proceeds). In UK insolvency, the administrator or liquidator may sell intangible assets through: a pre-pack administration (selling the business and its intangibles as a going concern to a pre-arranged buyer), a hive-down (transferring assets to a new subsidiary for sale), or individual asset sales (selling patents, trademarks, domain names, and customer data separately). For secured lending against intangible assets, the insolvency scenario informs the loan-to-value ratio — lenders typically apply larger haircuts to intangible collateral than tangible collateral due to the greater uncertainty and lower liquidity in distressed disposals.

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