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How much does it cost to close or liquidate a limited company?
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How much does it cost to liquidate a company?
The exact cost to liquidate an insolvent company via a Creditors’ Voluntary Liquidation (CVL) varies according to the company’s individual position, however, a figure of £4,000-£6,000 can be used as a guideline. If the company is solvent, you may choose to close your company using a Members' Voluntary Liquidation (MVL) or apply to have it struck off or dissolved at Companies House
There is no set cost for liquidating a company with fees varying between cases depending on the complexity and how much time is spent on closing the business. Company liquidation can only be carried out by a licensed insolvency practitioner – who will act as the company’s liquidator – and it is this professional input that determines much of the overall cost. More complex cases mean more time is spent on the case, therefore resulting in increased fees.
However, as a ballpark figure, expect to pay around £4,000 - £6,000 + VAT for a straightforward liquidation of an insolvent company with minimal debtors, few assets, and no ongoing litigation action via a Creditors’ Voluntary Liquidation (CVL). More complex cases are likely to result in higher fees accordingly.
The price of a Members’ Voluntary Liquidation (MVL) – which is used to close solvent companies – is typically lower than that of a CVL, but again this will vary depending on the amount of work required.
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If your company does not have any debts and relatively few assets to distribute, you could opt to close the company using the strike off method. This involves applying to have the company dissolved at Companies House. The cost for closing a limited company using the strike off option is just £8 if the application is done online; however, you need to ensure your company meets the requirements before applying to have the company dissolved.
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Voluntary liquidation is paid for by the company going into liquidation. In instances of compulsory liquidation, the fees would be footed by the party who is petitioning for the winding up the indebted company.
If your company in insolvent you could cease trading and wait for your company to be forced into compulsory liquidation by one of your creditors. Bear in mind that if your company is insolvent you have a legal obligation as its director to stem any further losses and not do anything which could worsen the position of your creditors.
Allowing the company to continue trading when you know it is insolvent is a breach of your duties as director and could see you facing a number of penalties. You could be made liable for company debts or be disqualified from acting as a director in the future.
Quite simply, if your company is insolvent, you must take appropriate action and seek the advice of an insolvency practitioner for expert help and guidance as per your situation.
As part of the liquidation process, it is part of the liquidator’s role to locate company assets, arrange for them to be valued, before realising these funds for the benefit of outstanding creditors. The liquidation fee will typically be taken from these company assets.
It is important to realise that assets are not just limited to the cash reserves held by the company, but also physical assets such as property, vehicles and machinery, as well as intangible assets such as any outstanding yet recoverable debtors. Just because your company does not have money in the bank does not mean that there are not sufficient assets elsewhere in the business to cover the costs of liquidation.
The designated order of payment is set out by law and this must be followed by the liquidator when distributing assets. As the professional input of an insolvency practitioner is necessary in order to place the company into liquidation, the payment of his or her professional fees is regarded as a necessary outlay and therefore they are the first ones to get paid from company assets.
For solvent liquidations, payment from company assets is not usually a problem, as the company will have significant cash reserves from which this money can be taken. However, for insolvent companies, there are instances where the company has insufficient assets to fully meet the cost of the liquidation.
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If a company has no funds or assets with which to pay for the liquidation, it then falls to the directors to foot the bill, or top up the shortfall, on the company’s behalf.
You may be able to negotiate paying the liquidation fees on a contingency basis if you cannot afford the full fee up front, however, this will have to form part of the conversation with the liquidator during your initial discussions.
It is important to remember that any outstanding overdrawn director’s loan will be classed as an asset of the company and it is the duty of the appointed liquidator to collect this from you as part of the liquidation process.
An overdrawn director’s loan represents money that you have taken out of the company which has not been registered as either a salary or dividend payment, and therefore you will be asked to repay this money back into the business bank accounts once the company enters liquidation just as any other outstanding creditor would.
You may be able to come to an arrangement with the liquidator that the money you pay back towards the overdrawn director’s loan is used as payment for the liquidation fees. The appointed insolvency practitioner will be able to discuss whether this is a possibility based on the level of your overdrawn director’s loan and your ability to repay this to the company.
As the director of a limited company, you may also be classed as an employee if you take a regular salary from the business through the PAYE system. If so, there is a good chance that you could be entitled to a redundancy payment if your insolvent company enters liquidation. This could provide a much-needed boost to your funds during a financially stressful time.
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If you are considering closing your limited company – whether solvent or insolvent – you need to take specialist advice at the earliest possible opportunity. A consultation with a licensed insolvency practitioner will help you understand your options and also your legal duties and responsibilities as the director of a limited company. They will be able to assess your business, talk you through the available options, and suggest the most appropriate way forward.
You can arrange a free no-obligation consultation with a licensed insolvency practitioner at any one of our offices, alternatively call our expert team today.
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