Moving assets between companies under the same ownership can look like a routine business decision. There may be sound commercial reasons for doing it, from reorganising operations to securing investment or bringing valuable intellectual property together.
However, directors must look beyond the overall benefit to the group. They need to consider the interests of the individual company giving up the asset, what it receives in return and the effect on its financial position.
A recent High Court decision demonstrates how serious the consequences can be when those questions are overlooked.
A £2.034 million warning for directors
In Garden House Software Limited v Timothy John Marsh & Ors [2026] EWHC 2184 (Ch), the court considered a transfer of software intellectual property by Serisys Limited to another company within the same group.
Serisys received no cash payment. Instead, it was granted a limited licence to use the intellectual property. The court found that the licence had no meaningful value to Serisys, while the rights it surrendered were worth £2.034 million.
The company was already unable to pay its debts. The directors argued that consolidating the intellectual property would support the group’s commercial plans, but the court found that the transfer did not properly benefit Serisys.
The court also found that the transaction was intended to place the asset beyond creditors’ reach. Two directors and the recipient company were ordered to pay £2.034 million.
The practical message is clear: shared ownership does not make an asset transfer automatically acceptable.
Why the individual company’s interests matter
Directors’ responsibilities include acting in good faith to promote the success of the company for the benefit of its members as a whole. Section 172 of the Companies Act 2006 requires them to consider matters including the longer term consequences of decisions, employees and relationships with suppliers and customers. It also expressly preserves rules requiring consideration of creditors’ interests in certain circumstances.
For a proposed asset transfer, this means asking a more precise question than whether the arrangement helps the business group overall.
How does the transaction benefit the company that currently owns the asset?
A wider group advantage may be relevant, but directors should identify how it translates into a genuine benefit for that company. A general expectation that investment will arrive, trading will improve or another group company will provide support needs careful examination.
What is a transaction at an undervalue?
Section 238 of the Insolvency Act 1986 allows an administrator or liquidator to challenge certain transactions entered into before a company’s insolvency proceedings.
A transaction may be at an undervalue where the company gives away an asset, receives nothing in return or receives consideration worth significantly less than what it provides.
Where the statutory conditions are met, the court can make an order to restore the position. The provision is subject to rules about timing and insolvency, so not every discounted asset sale falls within it.
For directors, the important starting point is understanding the value exchanged on both sides. Describing a transfer as part of a restructuring does not answer that question.
Can a commercial purpose protect the transaction?
Section 238 contains protection where the company entered the transaction in good faith to carry on its business and, at the time, there were reasonable grounds for believing it would benefit the company.
Both elements matter. A sincere belief in the group’s future does not, by itself, establish reasonable grounds for believing that a particular company will benefit from surrendering its assets.
Directors should therefore be able to explain the commercial reasoning and identify the evidence supporting it before approving the arrangement.
A licence or promise needs proper scrutiny
Payment does not always have to be cash. A proposed transfer might involve a licence, debt release, contractual entitlement or another form of consideration.
The practical question is whether the company receives something it can actually use or realise.
For example, directors considering a licence should ask:
• Does the company have an operating business that needs it?
• How long does the licence last?
• Can it be terminated, transferred or restricted?
• Does it allow the company to earn income?
• How has its value been assessed?
• Is the counterparty able to fulfil its obligations?
These are due diligence questions. The answers will depend on the documents and the company’s circumstances.
How financial difficulties change directors’ responsibilities
The Supreme Court’s decision in BTI 2014 LLC v Sequana SA and others [2022] UKSC 25 explains how creditors’ interests become relevant as financial difficulties intensify.
The duty can arise when a company is insolvent or bordering on insolvency, or when insolvent liquidation or administration is probable. A mere risk of future insolvency is not enough.
As the financial position worsens, creditors’ interests carry greater weight. If insolvent liquidation or administration becomes inevitable, those interests become paramount.
This remains a duty owed to the company, rather than a separate duty owed directly to each creditor. The court also confirmed that shareholder approval cannot cure a breach of the relevant creditor duty.
Businesses facing overdue liabilities, funding uncertainty or persistent cash shortages should obtain advice before committing to an asset transfer.
Directors must exercise their own judgement
Section 174 of the Companies Act 2006 requires reasonable care, skill and diligence. The standard considers both what can reasonably be expected of someone performing the director’s functions and the director’s own knowledge and experience.
In practice, directors should question assumptions, request missing information and understand the documents they are approving.
Pressure to complete a deal quickly is a reason to identify the unresolved issues clearly. It should not replace that assessment.
Practical steps before approving a transfer
A useful review should cover the following areas.
Confirm ownership and restrictions
Establish which company owns the asset and whether charges, finance agreements, contracts or third party rights affect the proposed transfer.
Assess the financial position
Review current liabilities, realistic cash flow forecasts and the effect of the transaction. Distinguish confirmed funding from hoped for investment.
Obtain appropriate valuations
Consider the value of the asset and everything offered in exchange. Specialist assets may require specialist valuation advice.
Record the company’s benefit
Explain the expected benefit to the transferring company, the assumptions behind it and the alternatives considered.
Check approvals and conflicts
Ask advisers to identify the approvals, disclosures and decision making procedures required for the particular arrangement.
Take advice before signing
Legal, accounting and insolvency advice should inform the structure before the company becomes committed.
Concerned about a company asset transfer?
Asset transfers can become contentious when directors, shareholders or creditors disagree about ownership, value or the reasons behind a transaction.
If a dispute arises, preserve the relevant agreements, valuations, accounts, board minutes and correspondence. Those records can help establish what was known and decided at the time.
KMC Legal & Finance can discuss your circumstances and the options available where a company asset transfer has led to a civil or commercial dispute.
Call 0800 9494 667
Email hello@kmc-legal.co.uk
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This article provides general information on the law in England and Wales. Advice on a particular transaction will depend on its facts.
