If your company is insolvent, then you are likely to be concerned about the costs of liquidation. The cost of a liquidation depends on the complexity of the case. These are the factors on which it is based:
- 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.
What a Liquidation Costs and Why
Generally, the costs of a creditors voluntary liquidation (CVL) 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.
Be wary of websites saying they can do it for £1500 or so – this is for sure, too good to be true. The cost 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.
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, 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
- 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
The cost of voluntary liquidation – excluding the initial fee – is charged according to time spent, usually over a period of five years.
When Should I Consider Voluntary Liquidation?
Creditors 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. The first is a Members’ voluntary liquidation, which occurs when the company has enough assets to cover its debts and the directors make a declaration of solvency. The second is a Creditors’ voluntary liquidation, which is a popular method for closing down insolvent businesses, and 75% of creditors must agree with the liquidation proposal.
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 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.
How Do Companies Pay for Liquidation?
Proceeds from the sale of the company’s assets usually pay the costs. However, the costs associated with the liquidation will be paid before any money owed to creditors or shareholders. 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, and 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.
