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Worried Director What Will Happen To Me After Liquidation?

How Much Does It Cost To Liquidate A Company?

If your company is insolvent, then you are likely to be concerned about the costs of liquidation.The cost of liquidation depends on the complexity of the case.  This is based on factors such as;Whether the company is trading or not. Number of employees Number of creditors, and how much it owes them Value of its assets, including money it is owed by debtors Director and shareholder profile The quality of the financial information available.How Much Does A Liquidation Cost? Generally, the costs of liquidation start at around £4000 + VAT. This would be for liquidating a company with a single creditor, such as having an unpaid Bounce Back Loan (BBL) or HMRC. For more than one creditor issue, we would expect the fee to be approximately £4,000 - £6,000 plus VAT. For more complex issues including companies who have landlords, employees, BBLs and supplier debts we will provide a written quote after our meeting with the directors to discuss the company’s options. Do get in touch to discuss your company’s liquidation, don’t delay and hope the problem will go away!Be wary of websites (not actual insolvency practitioners) saying they can do it for £1500 or so - this is for sure, too good to be true. The cost of the liquidation may be lower but the risk to you personally is very high, especially if you owe the company any money. Additionally, you will probably end up dealing with all the creditors and will find it difficult to move on.  Liquidation is heavily regulated and there are no shortcuts.   You may also be asked to sign personal guarantees.Here, we’ll explain how much voluntary liquidation costs, so you know exactly what to expect if you’re in a situation where you need to consider it. When Should I Consider Voluntary Liquidation? Voluntary liquidation is when a company’s directors choose to close the company down and disband. The process is quite straightforward:First, the company appoints a licensed insolvency practitioner as the liquidator, Then, control of the company is handed to the liquidator and the business ceases to trade, The liquidator sells all of the company assets, The liquidator removes the company from the Companies House register.There are two core types of voluntary liquidation, so it’s important to understand which one your company is facing.Members’ voluntary liquidation – This occurs when the company has enough assets to cover its debts. The directors must make a declaration of solvency before proceeding. Creditors’ voluntary liquidation – This is a popular method for closing down insolvent businesses. 75% of creditors must agree with the liquidation proposal put forward at a creditors’ meeting.It is important that directors assist their liquidator in all areas. They must hand over company assets, records and paperwork, and agree to interviews if requested.In a creditors’ voluntary liquidation (CVL) it’s important to remember that the liquidator acts in the interest of the creditors, not the directors. If the liquidator finds that a director’s conduct was ‘unfit’, the director could face fines, or even disqualification for 2-15 years. What’s Included in the cost of voluntary liquidation? This covers the cost of hiring an insolvency practitioner to act as liquidator and organise the creditors’ meeting. It also includes the preparation of the statement of affairs and section 98 reports.Further liquidation costs will accrue as the process moves forward. This is because the liquidator will perform a wide range of duties during this time, which include:Advising directors of their duties Settling legal disputes or outstanding contracts Making people redundant and processing their claims Collecting debts, including those owed by company directors Meeting deadlines for paperwork and keeping the relative authorities informed i.e. Companies House, HMRC, Insolvency Service and Department for Business, Energy, Innovation and Skills Investigating transactions prior to the liquidation to check for discrepancies and obvious preferences/undervalued transactions Alerting creditors to progress every 12 months and involving them in decisions where necessary Valuing and realising assets Distributing monies to creditors and accounting for themThe cost of voluntary liquidation – excluding the initial fee – is charged according to time spent, usually over a period of five years. How do companies pay for voluntary liquidation? Proceeds from the sale of the company’s assets usually pay the costs for three different areas:The cost of voluntary liquidation Money owed to creditors Shareholder debtsHowever, the second and third tier only receive funds after payment of the cost associated with the previous tier. Therefore, as the process continues, it could become increasingly unlikely that shareholders will receive the full amount owed to them.Sometimes, the cost of voluntary liquidation cannot be met through the sale of assets. In such cases, liquidators will require payment in advance.When this occurs, or directors require a more efficient process, directors often pay for liquidation out of their own funds.The cost of voluntary liquidation can be daunting, but this process is the correct way to close an insolvent company and stop the position getting worse. It can help protect directors from wrongful trading accusations, stop the risk of personal liability, ensure all staff are paid compensation quickly and perhaps most importantly spare the director time to get on with their life.

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How Much Does It Cost To Liquidate A Company?

Business Asset Disposal Relief

What is Business Asset Disposal Relief​? Business Asset Disposal Relief which allows you to pay less capital gains tax, at 10% on gains of all qualifying assets which are sold. It is applied when you sell your business, and usually in a Members Voluntary Liquidation (MVL).  Capital Gains Tax is the tax on profit when you are selling something which has increased by value.  Am I eligible for the relief? To qualify for Business Asset Disposal Relief , you must meet one or more of the following criteria:You must be disposing all or a part of a business, where you were a sole trader or business partner. Even if you dispose of the assets after, you are still eligible. However, you must own the business for over a year before you sell it and if you are closing the business, the assets must be sold within 3 years. You have at least 5% shares, securities or voting rights within the company being sold. You are also eligible if you have had the chance to buy your shares at least a year before the sale. For this, you must have been an employee of the firm for at least a year, and the company must be one which focuses on trading, instead of those which involve little trading, for example, those who focus purely on investment. You lent an asset to the business and it is being sold. This only applies if your assets were used for a year before the shares were sold, or if you have already sold 5% of your part of the business or shares. You’re selling shares which you got through an Enterprise Management Incentive scheme, after the 5th April 2013.How do I work out the tax I will have to pay?Work out the gains of all the qualifying assets Add all the gains together (deduct any losses) to get the total taxable gain available for Business Asset Disposal Relief Deduct any tax-free allowance You will pay 10% tax on what is left.How do I actually claim for Business Asset Disposal Relief ? To claim for Business Asset Disposal Relief  fill in Section A of the Entrepreneurs’ Relief Help sheet here https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet , or you can do it via your Self-Assessment tax return. During your lifetime you can claim up to £1 million relief, with no limit on how many times you can claim for it.Following the first Labour Budget it has been it has been confirmed that the relief remains but from April 2025 the rate will go up to 18% from the current 10%

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Business Asset Disposal Relief
helpful advice for trading whilst insolvent

Trading Whilst Insolvent – Worried Directors Guide

Trading whilst insolvent is a legal term used to describe a business which continues trading when it cannot pay its debts and its liabilities are greater than its assets.  It can lead to a breach of several provisions of the Insolvency Act 1986 which can result in the directors being held personally liable

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Trading Whilst Insolvent – Worried Directors Guide
value word highlighted

What Is A Transaction At An Undervalue?

A transaction at an undervalue is when an asset is transferred for no payment or sold at below their true value.  The transaction becomes a problem if the company is insolvent, as any transfer at an undervalue is in effect depriving the creditors of money owed to them.  This is outlined in s238 of The Insolvency Act 1986. 

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What Is A Transaction At An Undervalue?

Common Mistakes Struggling Businesses Make and How to Avoid Them

When your company is struggling it is important not to make mistakes as that could lead to failure.  In addition, if your company does fail then some mistakes can lead to personal liability, directors disqualifications and even criminal sanctions.  So, if a company director doesn't act properly they can be made liable for the company debts and be disqualified from being a director.  The Company Directors Disqualification Act 1986 has far reaching powers to ban "unfit" directors for being involved in running a company.Below are the most common mistakes that directors make that can lead to insolvency.  Of course, there are many reasons why a business fails but we are talking about becoming insolvent as opposed to not being successful and having to close down. Common MistakesNot managing cashflow regularly.  This is the most common problem. Directors often are brilliant at doing deals, winning business etc but the boring numbers bit not so much!  Too much work can cause insolvency in what is known as overtrading.  You take on work pay lots of workers/suppliers etc and then suddenly run out of cash before the job is finished.  Or simply the directors do not realise that cash is going out of the door.  Companies with poor financial controls are sometimes the target of fraudsters and thieves! "Robbing Peter to Paul"  If you find yourself moving money around the company or between companies/departments then you are depriving parts of your company of cash.  This should set alarm bells ringing. Ignoring legal threats.  This is an obvious one but any legal threat against a company must be taken seriously especially if it is a demand for money or compensation. Taking unnecessary legal action.  We do find a number of our clients have taken legal action ruled by their hearts and not their heads.  In the end they have either lost or not had costs awarded in their favour.  The other problem about legal action is it can take up huge amounts of management time so you need to be pretty sure you are going to win or just cut your losses and move on. Not making redundancies when needed.  It can be really difficult to make people redundant but it is necessary sometimes.  It is in fact possible to get a loan from the government to cover the costs of redundancy if it can be shown that it would save other jobs by doing so and avoid insolvency. Trying to borrow yourself out of trouble.  This is very common. This sometimes happens with overtrading where you can borrow money in the event of a big uptick in business, but be careful and make sure you have some reserves Giving too much credit to a long time customer.  Ask yourself why are they suddenly giving you loads of work but not paying on time? Taking on premises that are too flash/expensive for the business.  This is also very common and is a result of over confidence. Appreciate it isn't always possible but try and negotiate break clauses in leases or just sign up short term. Warring directors often leads to issues and problems.  If the directors cannot agree then strategy and cost controls are hard to control.Serious mistakes that can get you in trouble personally. Any of the below mistakes can land you with personal liability problems, disqualification or criminal sanctions.Taking deposits for new work when you know you do not have the resource to do the work and feel "something will come up" This could be construed as what is termed "wrongful trading"  If it can be proved then it is likely that the directors will be personally liable for the debts and will face disqualification. It is quite rare for directors to be found guilty of wrongful trading but nonetheless directors need to be careful. Moving assets from one company to another without due consideration.  This is in breach of the Insolvency Act 1986 and is called a transaction at an undervalue.  If the company goes into liquidation or administration then the insolvency practitioner can get this reversed.  If the transaction cannot be reversed then the directors will be ordered to make up the difference. Paying off a friend/relative at the expense of other creditors such as HMRC.  As above this can be reversed by a court.  The test here is the desire to make someone better off. Just paying one loud creditor ahead of another is not the same thing. Taking out excessive monies from the company when you know or "should have known" that the company was insolvent.  This is an obvious one really and may well lead to disqualification and personal liability issues, especially if a large amount of tax is owed. Borrow money from the company to fund your lifestyle.  This means that you owe the company money and if it does go into an insolvency process you will be required to pay this back and that can even lead to bankruptcy.  Read more on overdrawn directors loan accounts here Setting up a new company with the same/similar name with a view to carrying on the business of a liquidated company.  Doing this is actually a criminal offence, believe or not, as it is deceptive and can cause confusion with customers and creditors.  It can be done with the leave of the court or with the liquidators permission. Not acting in the best interest of creditors.  This covers a multitude of actions including all of the above but think if your actions are putting your business at risk and making the creditors situation worse.  If a company is insolvent the directors have a duty to act in the best interest of the creditors not the shareholders! Not filing accounts or registering for VAT.  This can lead to disqualification and finesHow do you avoid these mistakes? The best advice is to TAKE ADVICE from professionals!  A great deal of initial advice is free and accountants and insolvency/turnaround practitioners will know much more about cashflow, money, insolvency than most directors and will be able to spot problems. Remember they have heard hundreds of directors say everything is going to be fine, my business is profitable and will survive etc.  What have you got to lose? If I recognise that the company has a big problem what will they advise? Accountants will advise close monitoring and reporting of cashflow to keep a check on the situation.  Remember Cash is King.  You can be making profits but running out of cash.  If there is a lot of pressure from creditors then Turnaround Practitioners or Insolvency Practitioners will be able to help by doing scenario planning and their main skill is being able to negotiate with creditors to give your company a breathing space.If you need to go down a formal insolvency process then there are 3 main options.A Company Voluntary Arrangement which allows all or part of the debts to be packaged up and spread over a long period of say 3-5 years. Directors remain in controlAn Administration that can lead to the sale of the business is a more radical solution. It can save jobs and allow the business to continue even if the company doesn't.A Liquidation means the immediate end of the company and debts are written off.  But it is possible to restart the business by buying the assets at a fair price.

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Common Mistakes Struggling Businesses Make and How to Avoid Them
disqualified tag

Will I Be Disqualified As A Director If My Company Goes Bust

If disqualified, a director may not act as a director or manager in the disqualification period, if he/she does so, that is a CRIMINAL offence! The penalties are: conviction; imprisonment for up to 2 years, a fine or all. Plus the possibility of personal liability for ALL relevant debts of the company.

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Will I Be Disqualified As A Director If My Company Goes Bust