Dealing with Leased Equipment when Going Out of Business

A look at managing the legal details when auctioning off shop equipment: how do you handle leased machines? November 28, 2011

I'm shutting down my shop and just wondered if anyone had experience/knowledge with leasing companies and how they treat a default. Do they just come and take the machinery? Or are they amenable to me setting up an auction so the cost of moving it is removed from the equation? The numbers roughly: $160,000 in equipment leased in '06 (CNC, edgebander, compressor; three different leasing companies) of which 29,000 is still owed. All other shop equipment is paid off and was purchased at around $ 70,000 (dust/booth/forklift/timesaver/planer/etc.) in '06 dollars.

My thinking is that one auction at my site would defray the costs of moving the leased equipment which would add on to what I'm on the hook for with the leasing companies. Or would auctioneer fees just be a wash and it would be better for the leasing companies to take the equipment and go from there? I know none of this equipment is worth what I paid for it but feel I have a chance of at least being able to pay off the leasing companies. I've never done this before so any advice would be appreciated. (I don't need advice on continuing the operation, that decision has already been made).

Forum Responses
(Business and Management Forum)
From contributor B:
The amount owed is 18.125% of original price. I think you have a very good chance of somebody taking over the lease payments or buying out what you have outright which would take care of your liability on them and would satisfy the lessors. If you could pull that off and sell what you have left that would be nice. Lease companies are dealing with defaults on a daily basis. I bet they would let you put off one month payments to give you time to find someone to take over payments or buy them outright for the balance. You cannot auction off items you do not own.

From contributor S:
A lot depends on the leasing company and the contract. There are some companies, and I won't mention their names, that are bent on taking repossession of the equipment no matter what is owed. Leasing companies that are part of a machinery manufacturer or reseller don't want their used equipment flooding the auction and used machinery market.

That situation would only drive down their new machinery prices and sales. Then there are some that want to repossess your machinery so they can reap the equity you have already built up from paying the lease so far. I am not passing judgment on anyone, but that is just the way that it is. Trying to tell any of them that you are going to save them the cost of repossession is not going to get you anywhere. You need to dig out the agreement you signed when you purchases the machinery. There will be some clause or wording about default and when happens as a result. It doesn't hurt to give the leasing companies a call and ask what they are willing to do for you. Since you have paid back most of the leases and by doing so, built up some equity in the equipment.

I wouldn't let them just repo the machinery. If you can afford it, you might want to consider getting some sort of short term loan and paying off the machines. From the numbers you mentioned, there should be enough profit to cover the loan and make some profit off of the sale of the machinery. There are a few auction companies that also work a lot with the leasing companies. They you may be able to work a deal with them to sell the machinery at auction and from the proceeds pay what is owed. If all else fails there are some auctioneers that will pay off the loan before the auction and take their money back from the proceeds. It really depends what the machinery is worth at auction and what is owed.