Asset Stripping
This can be also being call dismantle companies selling them for profit. It is when a group of corporate
raiders see a potential and attractive opportunity where they can benefit from the worse outcome. By
evaluating all their assets, breaking down the company bit by bit and receiving payment for the assets.
Technically this would be used to pay the creditors if the company goes into administration, where the
company deceases because it does not have enough money to operate, the assets will be sold to pay the
remaining of the debt the company owes. The safest way a company can borrow money, is to borrow
money against its assets.
A company can borrow money against its assets which is called a debenture interest, the definition of
debenture interest is a loan given to a company which is secured against a fixed asset, and if the
company goes in administration the creditor has the right to sell the fixed asset to receive the loan
repayment. An issue of debenture interest edges up equity.
An example of asset stripping, it can be easily understood. Let say for example, the company has three
distinct; the company holds aircrafts, luggage, and a truck. The company is valued at three million
pounds, and another company believes it can see its assets at the value of one hundred and fifty million,
the other company will purchase all the three components and sell them, this is an asset opportunity
exists.
There is a legal system which is in place to protect unlawfully activities. This is when a company removes
their assets to a different company which has only changed its trading name and imported all their
contacts, funds, assets to their new company. The reason an owner does this is because their liabilities
exceed their assets and the old company is facing administration. I shall give you an example, let’s say an
owner of an Airline's company which has been charged by the FSA for Fraud. A company was established
by issuing share capital of 1 million ordinary share of £1 each. This was used to market to the public
investment opportunities, principally as all over the world carrier for low cost airline. The company went
in to administration a few years later with debt over £2.0 million.
The owner immediately started trading under new company until he was named as the dormant owner.
This company started trading in the same industry same supplier and same contacts. The investors
realized nothing changed and the investor was out of funds with the investment they gave the old firm.
This is called phoenix where they start a new firm by putting their old company into administration. 'On
October 28, 2013, Joseph N. Galliano, 45, of Phoenix, was sentenced to 30 months in prison and order to
pay $2,903,010.26 in restitution by U.S. District Court Judge G. Murray Snow.
Corporate raiders can make enough money if the process is done legally and the above example is
avoided.
If you are interested in asset stripping, you can purchase a company where the assets exceed the
company’s liabilities then you will profit from the transaction. An example, I have taken Imperial
Tobacco. In the financial year of 2013, the company net assets are 28,418,000,000 and the company net
liabilities are 22,770,000,000 which equal 5,468,000,000. (Assets - liabilities = Ownership Interest)
DocuSign Envelope ID: EB356C75-A412-42CA-8F2F-2015CCD8061E
