Evaluating the intangible assets of an
organisation during an insolvency is a tricky business. Having
intellectual property rights that could be sold on as part of these
assets can be a tremendous help to a firm and its creditors
– yet intangibles are seldom discussed.
Intellectual property protects a person or organisation's
rights to particular information and ideas, as well the way in
which they are expressed. Insolvency practitioners (IPs) may not
always understand the quality and value of the intangible assets
being disposed of as part of a sale from insolvency, while
creditors may question the value realised unless the intellectual
property value is robustly assessed. The buyer of assets out of
administration also needs to understand the value of the
An asset class
Intellectual property is becoming a prominent asset class but is
still underrepresented on balance sheets. Just like other assets,
intellectual property can be valued, bought, sold or leased.
Administrators in an insolvency case need to check if any
intangible assets are likely to be material and what their value is
as it could be considerable. In insolvency, intellectual property
may be the only asset.
Intangible assets such as brands now contribute by far the
greatest shareholder value in many sectors and many organisations
consider their brand to be their most important asset.
Since the end of 2005 all larger quoted firms have had to adopt
the International Financial Reporting Standards (IFRS). The
legislation specifies that any intangible assets obtained through a
business acquisition should be valued independently of the auditors
and that this value should be identified on the balance sheet of
This seems excellent in principle. However, even if the assets
have been included on a balance sheet, intellectual property is
often not valued accurately, and information provided may not be
detailed enough to be useful.
One of the issues is that identifying the intangible assets
within the business may not have been straightforward. For example,
if a company co-owns rights with someone else, there can be tricky
issues to resolve even with expert help. Some products are also
likely to involve a 'bundle' of different assets, where the
finished product may be more valuable than individual assets.
The valuation needs to rely upon sound data, information and
expertise, which are not always readily available. We believe that,
although it is a good thing to be recognised as being valuable and
as a boardroom issue, it is really important to arrive at a fair
market value in an independent valuation. This requires robust
consideration of all the factors involved and assessment of the
risks as is accepted practice by regulatory authorities and
Valuation specialists use a number of different ways to assess
brand and other intangible values. Examples include the cost
approach, the market approach, and the income approach.
The issue of intangible assets should be considered at an early
stage, as a great deal of the value often resides not just in the
patents, trademarks, copyright, designs, trade secrets and so on,
but in other intellectual assets (know-how, processes), and
intellectual capital (reputation, relation - ships ,contracts).
When key employees leave, their knowledge may leave with them.
Dealing with this kind of insolvency scenario from an IP
perspective can sometimes be a race against the clock, as rights
can be lost or diluted if not taken care of in a timely manner.
An administrator should establish what intellectual assets the
company owns, and whether they are live and valid. Valuation
challenges sometimes arise when patents have been registered by
earlystage companies for products or inventions which do not yet
produce income or royalties, as it is more difficult to assess
Increasingly, insolvency practitioners are turning to
intellectual property specialists to provide an independent
valuation to determine when an insolvent company has patents, trade
marks/brands, copyright or domains that may be of value. These
specialists need to have expertise in valuing intangibles inside
businesses within an administrators' budget and the tight
timescales often essential to concluding a fast and satisfactory
sale of the assets.
There are many examples to show how intellectual property can
realise significant value in insolvency. Whether it is sold with
the core business and assets or separately, those involved in
administration can work successfully with intellectual property
experts to deliver maximum value for creditors and the success of
any business going forward.
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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