When a company becomes insolvent or a business person becomes bankrupt, their assets are usually seized or sold to pay off creditors. This means that valuable IP owned by the company or person (or their guarantors) could also be lost, including, your businesses branding, domain names, patents, trade marks, customer/client lists, etc.
IP is often irreplaceable. If you’ve spent countless hours and money developing IP, then losing ownership of it could be much more damaging than losing replaceable assets.
However, you can minimise this risk by having your IP owned by a different entity to that which owns your trading operation. The purpose being to ensure that if the trading entity becomes insolvent, the IP is protected by virtue of it being owned by a separate legal entity and therefore out of reach of any claim against the trading entity.
To facilitate this type of arrangement working, typically there would be a licence agreement between the IP entity and the Trading entity, such that the IP entity would licence the use of the IP to the trading entity. This licence agreement should be structured so that it automatically terminates if Trading Pty Ltd becomes insolvent otherwise you won’t have the right to regain control of the IP.
This approach is principally designed with the risk of insolvency/bankruptcy in mind. Insolvency/bankruptcy is a risk of being in business and can be triggered by seemingly routine business issues such as slow paying debtors when you have a significant loan to repay.
We recommend you at least undertake an assessment of the ownership of your IP to ensure you understand who or what owns it, and then you can assess the pros and cons of any possibilities for change in ownership.