{"id":7832,"date":"2020-10-20T14:24:31","date_gmt":"2020-10-20T06:24:31","guid":{"rendered":"http:\/\/alexchanglaw.com\/?p=7832"},"modified":"2024-11-29T18:19:54","modified_gmt":"2024-11-29T10:19:54","slug":"going-concern-or-scrap-ting-bee-ren","status":"publish","type":"post","link":"https:\/\/alexchanglaw.com\/index.php\/going-concern-or-scrap-ting-bee-ren\/","title":{"rendered":"Going concern or scrap"},"content":{"rendered":"\n<p><a href=\"https:\/\/alexchanglaw.com\/index.php\/going-concern-or-scrap-chinese\/\" target=\"_blank\" rel=\"noreferrer noopener\">\u4e2d\u6587\u7248<\/a><\/p>\n\n\n\n<p><strong>Why is it more worthwhile to sell the company as a going concern rather than selling the assets as scrap?<\/strong><\/p>\n\n\n\n<p>To discuss this question,\nwe need to know what sale of going concern and sale of assets are as well as\nhow these two different with each other. <\/p>\n\n\n\n<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Going concern is a business which is\nstill operating. According to the <strong><em>Malaysia Guide on Transfer of Business\nas a Going Concern<\/em><\/strong>, transfer of business as going concern (TOGC) may\ninvolve the transfer of a whole or part of a business as a going concern, and\nin the case where only part of the business is transferred, that part of the\nbusiness must be able to operate on its own.&nbsp;\nThe <strong><em>Malaysia Guide on TOGC<\/em><\/strong> also illustrates that a mere\nsale or transfer of capital assets which does not result in the purchaser\ntaking over the business of the seller does not come within the definition of\nTOGC. In <strong>Abdul Aziz bin Abdul Majid &amp; Ors v Kuantan Beach Hotel Sdn Bhd\n&amp; Ors [2012] MLJU 1788<\/strong>, the judge cited a UK Supreme Court\ncase law (<strong>Melon v Hector Powe Ltd [1981] 1 ALL ER<\/strong>) in which Lord\nFraser stated that <\/p>\n\n\n\n<p><em>\u2018the essential\ndistinction between the transfer of business or part of a business, and a\ntransfer of the physical assets is that in the former case the business is\ntransferred as a going concern so that the business remains the same business\nbut in different hands\u2026 whereas in the latter case, the assets are transferred\nto the new ownership to be used in whatever business he choose.\u2019<\/em><\/p>\n\n\n\n<p>Here are what the buyer can usually obtain\nthrough a TOGC, but not limited to these:<\/p>\n\n\n\n<ul><li>tangible assets; (e.g.:\npremises, goods, facilities)<\/li><li>intangible assets and (e.g.:\ncompany brand names, trademarks, patents and customer loyalty)<\/li><li>future profitability<\/li><\/ul>\n\n\n\n<p>A TOGC can benefit the buyers\nmore than transfer of mere assets. Sometimes, going concern is sold because it\nis not making profit due to improper management or wrongful investment\nstrategy. So, some changes and improvements to the management level or business\nstrategy can save the company and revive it. Since going concern always has\nwell-established organizational structure, the effort to be put in to rebuild\nit is comparatively small. Now, we will look at each part of the transaction\nand how they are going to advantageous the buyers.<\/p>\n\n\n\n<p><strong>1. Reputation<\/strong><\/p>\n\n\n\n<p>The going concern might have earned the\nsociety\u2019s awareness alongside its business operation since establishment. This\nreputation and society\u2019s awareness are transferred to the buyer when buying the\ngoing concern. In order to build up reputation, one needs time and excellent\nadvertising, which can cost a lot. In a TOGC, the value of company\u2019s reputation\nshould be included in the selling price. Transfer of assets will not benefit\nthe buyer in this way, so price should be lower considering the reduced value.<\/p>\n\n\n\n<p><strong>2. Trading Record<\/strong><\/p>\n\n\n\n<p>Buying an existing business, one can\naccess to the company\u2019s trade secret, its business networking and trade\nhistory. The information is widely applicable not only on the purchased\nbusiness, but also other companies which the buyer might have owned. <\/p>\n\n\n\n<p><strong>3. Customer Loyalty<\/strong><\/p>\n\n\n\n<p>Long-established brand might have had groups\nof loyal customers already. This is different from the company\u2019s reputation,\nloyal customers are those who keep coming back and consume, they are different\nwith those who have heard of the company\u2019s name only, this group of people are\nalmost the guaranteed future income for the going concern even after\ntransaction.<\/p>\n\n\n\n<p><strong>4. Skilled Workers<\/strong><\/p>\n\n\n\n<p>A competent team of employees is important\nto a company. Well-trained workers are assets of company because they make\nprofit to the company and are used to the daily operation mode of the company.\nThey can work and solve problems by their own even boss is away. To be\nrealistic, if a company is compelled to be sold, there must be some problems\ninside the team, however to make correction on a mature group is much easier\nand more efficient than training all the newbies.<\/p>\n\n\n\n<p><strong>5. Complete and Established Business\nOperating System<\/strong><\/p>\n\n\n\n<p>This is the most valuable part of a going\nconcern as it allows the buyer to continue operate the business without\nhesitation and that there is a successful track record for the buyer to make\nreference to. What is worth noting is that the TOGC puts the purchaser in a\nposition of owning business (<a href=\"https:\/\/advance.lexis.com\/api\/document\/collection\/cases-my\/id\/5SFC-HXT1-JJYN-B21G-00000-00?cite=ALAM%20VENTURE%20SDN%20BHD%20%26%20ANOR%20v%20ABDUL%20AZIZ%20BIN%20ABDUL%20MAJID%20%26%20ORS%20%5B2015%5D%204%20MLJ%20270&amp;context=1522468\"><strong>ALAM VENTURE SDN BHD &amp;\nANOR v ABDUL AZIZ BIN ABDUL MAJID &amp; ORS&nbsp;[2015] 4 MLJ 270<\/strong><\/a>),\nnot simply possessing an asset. &nbsp;For cases\nof sale of assets only, the buyer needs to figure out how to make use of these\npiecemeal assets and if they want to use them to run a different business, they\nwill have to transform it to a new status. Many assets were set up for specific\nfunctions only, for example the railway track, some machines and plants, it is\nrather troublesome to do the transformation while in a TOGC, these assets can\nbe put in service immediately.<\/p>\n\n\n\n<p>Another benefit of buying\ngoing concern in Malaysia is the waiver of GST.&nbsp;\nSince the TOGC is neither a supply of goods nor a supply of services,\nhence nobody needs to bear the GST cost in a TOGC. Even though this does not\ndirectly increase the value of going concern, it still provides discount to the\npurchaser of going concern. Thus, it is worthwhile to both sides as no\nadditional money goes to a third party in the form of GST.<\/p>\n\n\n\n<p>When buying a going\nconcern, everything comes together, meaning that not only the good name, the\nsoft power among the business ecosystem and the complete operational system,\nthe company\u2019s debt liability, the contracts that formed prior to the\ntransaction and even ongoing unprofitable business activities are included.\nOnce taking over, the buyer is liable to every of the company\u2019s issues as a\nlegal owner <strong>(<\/strong><a href=\"https:\/\/advance.lexis.com\/api\/document\/collection\/cases-my\/id\/5RC8-RCF1-F81W-2468-00000-00?cite=LAM%20SHES%20TONG%20%26%20ORS%20v%20LAM%20KEE%20YING%20SDN%20BHD%20%5B1973%5D%201%20MLJ%20203&amp;context=1522468\"><strong>LAM SHES TONG &amp; ORS v\nLAM KEE YING SDN BHD&nbsp;[1973] 1 MLJ 203<\/strong><\/a>).\nIf the liability is not transferred, that means the entire business is not\ntransferred because the liabilities cannot be separated from a going concern <strong>(<\/strong><a href=\"https:\/\/advance.lexis.com\/api\/document\/collection\/cases-my\/id\/5RC2-MT21-FFFC-B0YP-00000-00?cite=DJ%20Auto%20Components%20Manufacturing%20Sdn%20Bhd%20v%20Fbk%20Systems%20Sdn%20Bhd%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%5B2016%5D%20MLJU%201260&amp;context=1522468\"><strong>DJ Auto Components\nManufacturing Sdn Bhd v Fbk Systems Sdn Bhd&nbsp;[2016] MLJU 1260<\/strong><\/a><strong>).<\/strong><\/p>\n\n\n\n<p>As analyzed above, going concern value is typically higher than the sum of value of all assets. The difference of these two is known as goodwill. The goodwill makes it more worthwhile to be sold as a going concern than as assets, especially when the company\u2019s market value is high. To evaluate a going concern value, we need to take into account all the elements listed above. The reason why selling the company as a going concern is more worthwhile than selling the assets as scrap is that going concern value are equal to the sum of the assets plus the goodwill.<\/p>\n\n\n\n<p>Ting Bee Ren<br>University of Leeds <\/p>\n\n\n\n<figure class=\"wp-block-image size-medium is-resized\"><img loading=\"lazy\" src=\"https:\/\/alexchanglaw.com\/wp-content\/uploads\/2020\/08\/Ting-Bee-Ren-300x300.jpg\" alt=\"\" class=\"wp-image-7768\" width=\"228\" height=\"228\"\/><figcaption>Ting Bee Ren<\/figcaption><\/figure>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u4e2d\u6587\u7248 Why is it more worthwhile to sell the company as a going concern rather than selling the assets as scrap? To discuss this question, we need to know what sale of going concern and sale of assets are as well as how these two different with each other. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Going concern is a business [&hellip;]<\/p>\n","protected":false},"author":1805,"featured_media":11656,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[109,69,46],"tags":[106],"_links":{"self":[{"href":"https:\/\/alexchanglaw.com\/index.php\/wp-json\/wp\/v2\/posts\/7832"}],"collection":[{"href":"https:\/\/alexchanglaw.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/alexchanglaw.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/alexchanglaw.com\/index.php\/wp-json\/wp\/v2\/users\/1805"}],"replies":[{"embeddable":true,"href":"https:\/\/alexchanglaw.com\/index.php\/wp-json\/wp\/v2\/comments?post=7832"}],"version-history":[{"count":3,"href":"https:\/\/alexchanglaw.com\/index.php\/wp-json\/wp\/v2\/posts\/7832\/revisions"}],"predecessor-version":[{"id":9545,"href":"https:\/\/alexchanglaw.com\/index.php\/wp-json\/wp\/v2\/posts\/7832\/revisions\/9545"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/alexchanglaw.com\/index.php\/wp-json\/wp\/v2\/media\/11656"}],"wp:attachment":[{"href":"https:\/\/alexchanglaw.com\/index.php\/wp-json\/wp\/v2\/media?parent=7832"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/alexchanglaw.com\/index.php\/wp-json\/wp\/v2\/categories?post=7832"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/alexchanglaw.com\/index.php\/wp-json\/wp\/v2\/tags?post=7832"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}