Updated: 11th January 2021
If your company is struggling to pay the bills and you’re concerned about insolvency, you may be wondering whether it’s possible to liquidate a company cheaply. The straightforward answer to this is “yes” but there are a number of issues that you need to consider.
Liquidation is a complex process that must be carried out by a licensed insolvency practitioner (IP), so the procedure does incur professional fees. These fees may seem expensive at first glance, especially if you compare them with quotes from some unlicensed insolvency ‘experts,’ but it’s crucial not to appoint unregulated practitioners simply because it’s the cheaper option.
The consequences of doing so can be expensive in the long run, and not only in financial terms. Directors who fail to follow statutory process when their company is liquidated face sanctions on a personal level, and if creditors are adversely affected in the process, potential disqualification for up to 15 years.
It’s a common process for unlicensed and unregulated insolvency ‘specialists’ to charge you a fee and then simply refer you to a licensed IP to carry out the process, so essentially you’re paying twice.
In order to avoid problems in the future, you also need to be aware of other pieces of advice that are commonly offered by unregulated insolvency advisors, including:
Company dissolution only costs £10, but it’s highly likely that HMRC and/or other creditors will object to the application on the grounds that they’re owed money - rogue advisors are unlikely to tell you that the company can be reinstated to the register if creditors object.
Pre pack administration sometimes involves the directors of a failed company purchasing their business assets and setting up a new limited company without the debt. This is a heavily regulated procedure, however, and assets need to be professionally valued - the practice of purchasing your own business assets at undervalue is against the law.
So is there a form of liquidation that can be carried out cheaply whilst ensuring you meet your legal duties as a director, and if so, how much would a cheap company liquidation cost?
Creditors’ Voluntary Liquidation is a process that offers a number of benefits to directors, and also helps to minimise losses for creditors. Being able to voluntarily place the company into liquidation offers you more control as a director, and there’s no need to wait for a creditor to wind up the company.
So what are the other benefits of voluntary liquidation?
Voluntary liquidation costs around £4,000 on average, for businesses with relatively straightforward affairs, so how can you fund this cost when the company is insolvent?
Sale of assets
Business assets, including work-in-progress, are sold to repay creditors during the liquidation process and depending on the number and value of these assets, sufficient cash may be generated to also pay the costs of liquidation.
In some instances, directors may be able to fund the costs of company liquidation from their own personal finances. If you can fund the liquidation in this way it can help you avoid compulsory liquidation and a higher risk of personal liability.
As a director you may be able to claim redundancy pay and other entitlements such as arrears of salary and holiday pay. You must have worked for the business as an employee for at least two years, working a minimum of 16 hours per week in a role that’s more than just advisory.
The money paid out in redundancy could be used by you to pay for the liquidation process, and as the average director redundancy claim is £9,000.
If all other options have been exhausted with regard to voluntary liquidation – there are no assets of value to sell, you can’t afford to pay the cost of liquidation from your own personal funds, and you don’t qualify for director redundancy – being forcibly would up by one or more of your creditors may be your only option.
Compulsory liquidation costs nothing for your business in terms of professional fees and the process is handled by the Official Receiver - though many directors prefer to take control of the liquidation process from the outset; it is seen as a more responsible option for Directors to deal with the formalities of winding it up as opposed to doing nothing and allowing a creditor to wind it up. Another factor is the timescale of a creditor winding the company up which could take two to three months as opposed to a CVL which is two to three weeks. The quicker route of CVL will also allow employees to claim any entitlements more quickly (i.e. can only claim once in liquidation for the various entitlements).
Cheap company liquidation is certainly possible for limited companies, but it’s important to obtain advice that you can rely on from independent licensed insolvency practitioners. To find out more about cheap company liquidation and the steps you need to take, call one of our licensed IPs at Real Business Rescue.
We’re a major part of Begbies Traynor Group, the UK’s largest professional services consultancy, and specialise in corporate insolvency. We’re able to offer you a free same-day consultation, and operate from an extensive network of offices around the country so you’re never far away from professional help.
13th October 2021
The Bank of England has said it anticipates that rates of corporate insolvency will increase in the coming weeks following the removal of restrictions on winding up petitions.Read More