Written ByKeith Steven
Turnaround Director
Keith is the Managing Director of RMT KSA Insolvency Practitioners which has been established for 25 years. The company has undertaken more CVA led rescues than any other firm. Read our case studies to see how.
If your law practice has severe cashflow problems and creditor or HMRC pressure is growing, it’s time to get support and advice on your options. Act now before the SRA takes action.
Its free to get initial advice from experts in turnaround, insolvency and liquidation such as KSA Group who own this website. We have been rescuing, restructuring, liquidating and selling law firms since 2003. Talking to experts (free) helps you understand this complex option and you will find it takes a lot of weight off your mind.
If the law practice is not viable or cannot be made profitable after aggressive restructuring, downsizing, turnaround or perhaps through a company voluntary arrangement for law firms or by using a pre pack administration then voluntary liquidation may be the most practical solution.
Where the directors, or designated members of an LLP, have decided that the company has no viable future or purpose then a decision may be made to cease trading and wind up the company. Clearly such a decision should not be taken lightly and we would recommend that all other options are carefully considered by the directors. You should take advice from us on all options before making decisions of such huge importance and finality.
Above ALL else, before the liquidation process starts it is vital to speak to the SRA and get it involved. The SRA’s primary concern won’t be for the company or LLP, but for the clients, the client files and the client monies. The SRA will want to know that you have a plan for all three client issues BEFORE you go down the liquidation path.
There are two basic ways that the company or LLP can be wound up: the creditors petition and commencing a creditors voluntary liquidation.
A creditor can petition to wind up the company if debts of more than £750 are outstanding. This leads to compulsory liquidation by the Court. SRA will almost certainly intervene if a winding up petition is advertised and there is no plan to protect the clients. Speak to us URGENTLY if you have any threatened winding up petitions by creditors or by HMRC.
Creditors Voluntary liquidation: caution do not go down this path unless you have already taken advice from insolvency practitioners.
The liquidation process for in depth reading see our experts guide to creditors voluntary liquidation here
Once appointed the tasks of the liquidator are to
Common sense dictates that allowing creditors to initiate compulsory liquidation proceedings indicates to creditors and the liquidator that the directors have failed to act in the best interests of the body of creditors as a whole. Clearly the regulators will be unimpressed too!
As a law firm you MUST inform the SRA if any winding up petition is served, or if you plan to enter into CVA, pre pack administration
If you fail to act or involve the regulators, then SRA will certainly intervene in the process and remove the clients files and seize the trust accounts. It is vital to discuss the plans to liquidate the company with the SRA at the earliest opportunity.
Before deciding to liquidate please review all the contents of this site and take advice from expert insolvency and turnaround practitioners who know the problems which law firms face. Call us on 0800 9700539. Or email us with your basic details and we will call you back at an agreed time and in confidence. help@ksagroup.co.uk
Free and confidential advice from insolvency practitioners.
Our initial advice is always free. However, in advance of any meeting and issuance of engagement letters our regulators and the Insolvency Service (part of HM Department of Trade) require all insolvency practitioners to obtain know your client (KYC) and anti-money laundering (AML) identification documents for all directors and shareholders holding >25% of the shares to allow us to proceed to advise the company. We will require up to date ID information including a photographic ID, such as a passport or driving licence PLUS a home utility bill or bank statement for each person.
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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Compulsory Liquidation & What It Means For Companies
Compulsory liquidation is a court led process where a judge orders that a company be liquidated as it cannot pay its debts and is insolvent.
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Liquidation Myths and Untruths
Below are the most common reasons why people are discouraged from taking necessary action to liquidate their company. In some cases actually trying to avoid liquidation by selling the company. Reputational damage If you do not pay your creditors you will suffer reputational damage whether you have sold it to another company or liquidated it formally. You may not be able to get business insurance and your current insurance may not be renewed if you have another company. This is completely untrue. We liquidate companies all the time and the directors do not have this problem. They might have issues getting cover if they do it more than once. Some very riskaverse insurers might turn you down but there are literally thousands out there. There may be a tiny increase in the premium and you may have to answer a few more questions for the insurers piece of mind. You won't be eligible for any business finance or loans from banks or other lenders Again this is simply not true. All banks and lenders recognize there is some risk in running a business and a failure of a start up or a liquidation is not going to be a problem. It will be if there appears to be a pattern of multiple liquidations though. Even then it will not have any affect on your personal credit rating. Company credit scores are totally separate. You will be disqualified as a director if the company goes into liquidation This is completely wrong. Only if you have been fraudulent or deliberately misled creditors knowing the business is going to fail will you face disqualification or be personally liable for the debts (note that if you have personally guaranteed loans then yes you will be liable ). This worry tends to make directors “freeze up” and take no action out of sheer panic. You can’t be a director again if the company fails Completely wrong again (see above). You may not be able to obtain another VAT registration. If you do, HMRC may require you to pay a significant deposit. If you owe the HMRC a substantial amount of VAT then they will wind the company up with a petition, so it will be liquidated anyway. The former directors during the time the money was owed will be on their radar. It is better to do a voluntary liquidation in these circumstances. Yes you may need to provide a deposit in a new company but probably only if you owed them substantial sums. Large companies and local authorities wont grant tenders to directors of liquidated companies What is actually being said here is that large companies won't give tenders to insolvent companies! Well of course they wouldn't. A previous liquidation by a director will not preclude them. There is no mention of any such exclusions in the The Public Contracts Regulations 2015. The NHS will not employ anyone who has liquidated a company Err no.The one area where liquidating a company can have some personal issues is if you are going to work in very sensitive finance areas and perhaps national security. This is mainly because they worry that a creditor could apply pressure on you or you could be more easily bribed if you have lost a lot of money in the past. However, avoiding voluntary liquidation may well result in a compulsory court liquidation process that is likely to lead to even worse outcomes.
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Secured And Unsecured Creditors – What Is The Difference?
I am confused about secured and unsecured creditors. What is the difference? As a director of a company that is doing well and making money you may have no real understanding about the important differences between certain types of creditors. The only time it really comes up is if you apply for a loan for the business and the lender talks about security and the loan being secured etc. Secured Creditors A secured creditor is a creditor that has security over an asset or assets of the company. So, if the company can't pay then they have the right to the proceeds of the sale or proceeds of the asset. This is enabled by a legal document called a charge or debenture. There are two kinds of charge; A Fixed Charge and a Floating Charge. The difference is quite hard to explain in a few words so we have a dedicated page on the differences. Have a read here on fixed and floating charges. A fixed charge is essentially a charge on a very specific asset whereas a floating charge is across a range of assets or asset that can change.A charge is a bit like a mortgage on your house. If you fail to keep up your payments then the bank can effectively force the sale of the asset and reimburse themselves. In a company situation if the secured lender is owed money then they can "force" the company into the hands of administrators who will pay them having sold the assets. This description is simplistic and is more akin to the old system of receivership but it illustrates the principal. Unsecured Creditors These are essentially creditors that have no security over the assets. This can be a trade supplier, HMRC, a utility company. Banks will often lend without security but they will charge a higher rate of interest to offset the risk they can't get their money back.Be aware though that some creditors are called secured as they have a personal guarantee from the director and they may use terminology like "secured against the directors personal assets" In insolvency law they are not secured and so come after the secured creditors that have a "charge" over the company's assets when money is paid over in the event of a terminal insolvency event like liquidation. What about defacto secured creditors? These are creditors that do not have any security over the company's assets but they have control over the company in that they can shut it down. An example might be the creditor that runs their proprietory software, or their means of payment (this happens when Amazon have lent the company money to develop their online shop) such creditors are more properly referred to as "ransom creditors". Ransom creditors are more important if the company is insolvent but could be rescued and so need to continue to trade. So they need to be kept happy!In a liquidation scenario they would be behind a secured creditor that had a charge over the stock for example.For a more detailed explanation of the priority of creditors in an insolvency situation then please look at our page on creditor priority. There is even a handy infographic on there too.
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How to Liquidate A Company With No Money
Dissolution as a way to close a company with no money If the company has no money and it needs to close down then, providing that it does not owe creditors substantial sums, it can seek to be struck off or dissolved. This process is known as dissolution and is governed by Sections 1003 to 1008 of the Companies Act 2006 (formerly Section 652 of The Companies Act 1985)However, bear in mind that dissolving the company (removed from the Companies House Register) can only happen if the following conditions apply:The company has not traded for three months; there must be a genuine cessation of trade. The company has no assets, property or cash at the bank. The creditors are informed, requesting their permission for the company dissolution. Creditors are given three months to consider the request to dissolve the company and can reject such a request. The company has not changed its name during this period. The company has not disposed of any property or assets (this may include land and buildings, plant and equipment, debtors and other assets).If the company does have debts, say about £5000+, then really the company needs to be liquidated. A company that is insolvent will need to be liquidated using either a Creditors Voluntary Liquidation (CVL) or the creditors themselves will petition the court, using a winding up petition, to force the company into a court led process also known as a compulsory liquidation.So, if the company has no money and the directors do not have the funds to go down the route of a CVL then they will need to brace themselves for the compulsory process. This is risky for them personally and is not a pleasant process. What is more it can take about a year to be completed stopping the directors from moving on with their lives. This will be the consequence of running down all the funds in the company.Even if you do manage to dissolve the company with debts then it can actually be resurrected up to 3 years later and wound up by court with the directors being investigated. This is covered by the The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act. What about using directors' redundancy to pay for the liquidation? Beware companies telling you this. Directors will need to show that they were legitimately employed i.e. being paid a proper salary via PAYE for the work they have done. Being paid for holidays and having a proper contract. The Redundancy Payments Office (RPO) are routinely rejected directors claims as they see their "salaries" often as just extracting sums from the company in their capacity as office holder. If they are working all hours on the business but only paying themselves £700 a month on PAYE then that is below minimum wage so they are not actually "legally employed" Can I liquidate the company myself? No you can't. It is true that only its shareholders can start the process but a licensed insolvency practitioner has to actually do the liquidation.
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