What Are The Costs Of Liquidation?
Voluntary liquidation is an efficient method for shutting down an insolvent business. Directors may be deterred by the costs of liquidation, but inaction will cost you more in the long run!
The cost of liquidation is dependent on the case’s complexity. This is a result of;
- Whether or not the company is trading.
- Number of employees
- Number of creditors and amount owed to them
- Value of its assets, which includes money owed to it by creditors.
- Profile of directors and shareholders
- The quality of the available financial data.
Typically, liquidation costs begin at about £3500 plus VAT. This would be for dissolving a single-creditor company, such as one with an unpaid Bounce Back Loan (BBL) or HMRC. For many creditor issues, we anticipate the charge to be between £4,000 and £6,000 + VAT. For more complex circumstances, such as companies with landlords, employees, BBLs, and supplier debts, we will provide a formal price after discussing the company’s options with its directors. Contact us immediately to discuss the liquidation of your firm; don’t wait and hope the situation will go away!
Be aware of websites (that are not legitimate insolvency practitioners) who claim they can do it for around £1500; this is obviously too good to be true. Although the cost of liquidation may be smaller, the risk to you personally is extremely significant, especially if you owe money to the company. In addition, you will likely end up dealing with all creditors, making it impossible to go forward. There are no shortcuts in the liquidation process, as it is strictly regulated.
Also Big Warning!
There are a number of websites saying that they will buy your insolvent company meaning that you there is no come back on you. This is completely false and misleading. As the new owners are not going to pay the debt then the companies will eventually be wound up by a creditor, such as the bank that is owed money for a bounce back loan. They will not get their money back from the government unless it goes into an insolvency process. When it is wound up by the court, then the official receiver will look at what happened to the money and previous directors are responsible. Resigning/selling makes no difference! It is likely that you will owe the company money unless you made no drawings at all over 3 years. That will mean that the official receiver ( who has unlimited resources) will pursue you for the debt and disqualifications could follow if you have been guilty of misfeasance. If you move assets out of the company then the receiver can reverse the transaction. Why take the risk and stay awake at night? Yes it is possible that if the debt is very small there will be no come back but if you owe more than £10k in total then it will come back to you. Remember you are believing a company that (often gives few details of who they are ie profiles/names etc) are UNREGULATED and who are taking your money. Also remember that directors have little protection in law from scams as they are deemed to be sophisticated and informed and Caveat Emptor applies.
Here, we’ll outline the fees associated with a voluntary liquidation, so you’ll know exactly what to expect if you find yourself in a position to pursue it.
When should I consider voluntary liquidation?
The voluntary liquidation of a company occurs when its directors decide to close it. The procedure is quite simple:
- Initially, the directors appoint a licenced insolvency practitioner to serve as liquidator.
- The company is then handed to the liquidator, and business operations end. The powers of the directors cease.
- The liquidator sells every asset of the company.
- The company is removed from the Companies House register by the liquidator.
There are two fundamental types of voluntary liquidation, therefore it is important to understand which one your company is facing.
Members’ voluntary liquidation
This occurs when the company’s assets exceed its liabilities. Before proceeding, the directors must provide a declaration of solvency.
Creditors Voluntary Liquidation.
This is a common way for shutting down insolvent firms. 75% of creditors must approve the liquidation proposal presented at a meeting of creditors.
It is essential that directors provide assistance to their liquidator. They must turn over company property, documents, and records, and they must agree to interviews if needed.
In a creditors’ voluntary liquidation (CVL), it is essential to keep in mind that the liquidator represents the creditors, not the directors. If the liquidator determines that a director’s behaviour was “unfit,” the director could be fined or disqualified for 2 to 15 years.
What is included in the voluntary liquidation price?
This accounts for the cost of employing a professional insolvency practitioner to act as liquidator and organise the creditors’ meeting. It also includes the drafting of the financial statement and section 100 reports.
As the process progresses, additional liquidation expenses will occur.
This is due to the fact that the liquidator will perform a variety of activities during this time, including:
- Advising directors on their responsibilities
- Resolving legal problems and unfulfilled contracts
- Making people redundant and processing their claims
- Debt collection, including liabilities of the directors
- Meeting procedural deadlines and keeping the relevant authorities informed, i.e. Companies House, HMRC, the Insolvency Service, and the Department of Business, Energy, and Skills
- Examining prior-to-liquidation transactions for discrepancies and clear preferences/undervalued transactions
- Notifying creditors of progress annually and involve them in essential choices
- Appraising and selling assets
- Distribution of funds to creditors and accounting for these transfers
- Excluding the initial fee, the cost of voluntary liquidation is levied according to time spent, often over a period of five years.
How do companies pay for voluntary liquidation?
Typically, the sale of a company’s assets pays for expenses in three distinct areas:
- The price of voluntary liquidation
- debt due to creditors
- Shareholder debts
Occasionally, the cost of a voluntary liquidation cannot be covered by the sale of assets. In such situations, liquidators will want advance payment.
When this occurs, or when directors want a more efficient procedure, directors frequently pay for liquidation with their own money.
Voluntary liquidation can be expensive, but it is the best method to end an insolvent company and prevent the situation from worsening. It can safeguard directors against allegations of wrongful trading, eliminate the possibility of personal liability, expedite the payment of compensation to all employees, and, probably most crucially, allow the director to move on with his or her life.
If you believe that voluntary liquidation may be the best option for your business, contact us immediately.