Typically, when a company is in liquidation, the costs and fees of the process is paid for by the proceeds of the sale of its assets or any remaining cash. Creditors will receive some of their debt payment from these process proceedings. However, given that the company usually has liabilities far in excess of its assets, it is likely that creditors will receive only a few pence in the pound. The overall return that creditors receive will be in part dependent on the cost of the process, so they have a direct interest in the level of fees that the liquidator charges. If creditors are dissatisfied with the liquidators’ fees being applied, they have the right to a mechanism to fix this, as this guide explains.
What work do the fees cover?
- 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 ie 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 them.
Fees are charged for all liquidation processes, see our pages here :
What is a Liquidation Committee?
For voluntary or compulsory liquidations, creditors can appoint a liquidation committee, under their own right. This is a committee of 3-5 members of which monitor the liquidation process and approve the fees of liquidators – ensuring it is fair to all of those involved. They work closely with the appointed liquidator and tend to be chosen at the creditors meeting. After the first 6 weeks of appointment, a meeting among the liquidator and committee occurs, with this to be continued each 6 weeks unless a date is directed otherwise. The purpose of these meetings is to report the progress of the liquidation, with the committee then left pondering on this and the level of the liquidators fees.
To fix liquidators fees, rules 4.127-4.127B of the Insolvency Rules 1986 apply. They state that the remuneration should be fixed by reference to the time properly given by the liquidator and his staff in attending matters arising in the liquidation, as a percentage of the value of assets either realised or distributed, or as a set amount. If the remuneration is not fixed, for compulsory liquidations it will coincide with a scale set, whereas for voluntary liquidations, court will be involved, either reducing, changing or disallowing the cost. Creditors may use this when they see the remuneration of liquidators too high or inappropriate.
Liquidators can also apply for remuneration of themselves to be fixed, if they feel it is inappropriate. They can get the amount either reduced or increased, depending on their argument. In doing this, liquidators apply to court. They must give 14 days-notice of intention to the members of the committee, who may then represent at the court hearing. If there is no committee, the creditors will be sent the application and one of them will represent instead.
The cost covers preparation of statements of affairs, as well as vat, numerous reports and calling the creditors meeting. A rough estimate for the cost of proceedings is between £4,500 - £6,000 + VAT. For more information on costs, see our page here.
Members Voluntary Liquidations:
For Members Voluntary Liquidations, fees vary. It is a tax efficent way to distribute assets and profits of your company to shareholders. Proceeds from the process are distributed to shareholders. Unlike those discussed above, an MVL involves a solvent company, so the company is able to repay any liabilities, hence able to distribute funds to shareholders. For MVLs, disbursements are important to consider. These are additional costs, being 4 different notices in the Gazette (around £60 each + VAT), a small search fee (£3) and a bond with a varying premium that is dependent on the assets value.