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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 complete 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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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