Hidden Extras when putting a company into liquidation

In this article, we’re telling you about hidden extras when putting a company into liquidation. We know what you’re thinking – what do you mean? 

If you’re considering putting your company into voluntary liquidation, you will be charged a fee to liquidate your business. Generally speaking, for a small business in the UK, the liquidation price will be between £4000 to £6000. If you’re closing a bigger company, your fees will increase to support that. 

In most cases, that’s not the only fee you will be charged when closing your business. 

When a client comes to us at 1st Business Rescue, we make sure that we outline all costs upfront. This means there are no surprises further down the line.

What are the hidden extras in a company liquidation? 

Directors loan accounts

Overdrawn Directors Loan Account 

If you’ve got an overdrawn directors loan account, your insolvency practitioner will attempt to get the money back from you to disperse to your creditors. This is the role of the insolvency practitioner, and they’re just doing their job. 

Don’t think this problem will disappear because it’s money owed to your own company. You should speak to your insolvency practitioner about your director’s loan account before you appoint them. 

Let’s say you owe your company £50,000. It might sound like a lot of money, but you’d be surprised how many directors owe their business money in a liquidation. When you enter your liquidation, they will ask for your £50,000, and they’re well within their rights to. 

The insolvency practitioner has the power to chase you through the courts and maybe even make you personally bankrupt if you don’t comply and pay the money back. 

So, you must discuss overdrawn director’s loans with your insolvency practitioner before appointing them. 

Preference payments 

Another hidden extra you may find later down the road is preference payments. A preference payment is when a director pays one supplier to the detriment of another supplier. This often occurs when directors have signed a personal guarantee on one loan and not another. 

Let’s say you borrowed £15,000 off your Dad, you owe HMRC £20,000, you owe your suppliers £20,000, and you owe your bounce back loan of £20,000. If you choose to pay your Dad back, you’ve preferred to pay them instead of everyone else, and they’ve all lost out. 

Preference payments are something you could be chased for personally after you’ve entered the liquidation process

Selling company assets below market value 

Everyone is feeling the pinch at the moment, we’ve had the pandemic, and now we’re dealing with inflation. This means some directors of insolvent companies may think about liquidating and starting a new company with a different name. This is perfectly legal if you follow the correct rules and inform the appropriate people.

If you’ve transferred the assets of your insolvent company to your new company undervalue, the insolvency practitioner will pick up on this once you appoint them. 

We’ve seen this happen before. A company had £100,000 worth of machinery, and the director sold these assets to the new company for £1000. Any insolvency practitioner will look at that transaction and think, ‘that’s not right’. 

Selling assets under value means that the insolvent company’s creditors miss out. Once you enter a liquidation, this can be reversed, and the new company will be chased to pay back the money. They may even chase you personally

The way to overcome this if you’re considering a pre-pack liquidation is to ensure that your insolvency practitioner is aware of this. A pre-pack liquidation allows you to transfer assets from one company to another at market value. 

An independent valuer will need to be employed to complete this for you. Make sure you get a sale and purchase agreement and keep your insolvency practitioner updated with what’s going on, especially if you sell the assets before you enter the liquidation. 

We hope that this has been useful. If you have any questions, please don’t hesitate to ask.

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I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.

I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors. 

I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here:

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