Making the decision to liquidate your limited company can be tough, but if you’re struggling with your finances then it may be the best option for you and your company. Of course, if you’re worrying about finances then it’s natural that you may be thinking about how you will be able to pay for liquidating your company.

Liquidation fees

If you’ve got to the point of researching the costs of liquidation then you’re probably fairly certain that company closure is the right choice for you. You may have been worrying about money for a while and these stresses may have had an impact on your mental and physical health. This is not uncommon and the best advice we can give is to seek free, confidential advice early. No one ever comes off the phone to us thinking “I wish I hadn’t made that call”

The process of voluntary liquidation is fairly straightforward, the variables are how many creditors you have, are there any assets to realise, and how many staff are to be made redundant to give just a few examples. This means there is no one-size-fits-all when it comes to the cost of a liquidation. When thinking about the pricing of your voluntary liquidation, it is worth noting that there are various ways that you can fund your liquidation.

How much does it cost to liquidate a company?

The exact liquidation cost will depend on the size of your company and the position you are in, a small liquidation is likely to cost around £4000 to £6000 + VAT. A voluntary liquidation for a small business is typically one where only a handful of company creditors are involved such as the bounce back loan and HMRC. The more creditors involved in your liquidation process, the higher the overall cost due to there being more work for the insolvency practitioner to carry out.

When entering a company voluntary liquidation, you will need to appoint a licensed insolvency practitioner. Insolvency practitioners are responsible for dealing with a company’s creditors, selling your company assets, if there are any, and distributing any funds raised to creditors. They are also going to be reviewing the director’s conduct leading up to the point of liquidation.

Before you select a licensed insolvency practitioner, make sure that you work with them to understand if you have an overdrawn directors loan and if they believe there have been any preference payments made prior to liquidation. Then get everything down in writing from them including what the cost to liquidate will be, this is called the statement of affairs fee and if there are any overdrawn loan accounts, intercompany loans or preference payments that have been uncovered, how is the insolvency practitioner going to deal with them. It is always best to have these difficult conversations upfront so there are no nasty surprises down the line. Remember, make sure that you negotiate a settlement with an insolvency practitioner before you appoint them.

Why you should be wary about cheap liquidation costs

At 1st Business Rescue, we often receive questions from company directors around various quotes they’ve received for the costs of liquidation. Some quotes are lower than the average and others can be much higher. In the past, we’ve advised company directors who have significantly overdrawn director’s loan accounts who unfortunately have chosen to appoint the liquidator with the lowest cost. This has led to further issues and the director being personally pursued for the whole loan account.

We would advise you to be wary of cheap liquidation costs and also ensure that your liquidator has looked into any potential issues that could arise, such as an overdrawn director’s loan, intercompany loans or preferential payments. Before entering liquidation, we aim to assess these factors so that there are no nasty surprises further down the line. This is all included in our no obligation advice.

What’s included in liquidation pricing?

  • The collection of important financial information and relevant paperwork throughout the process
  • Production of liquidation papers
  • Organisation of a creditors meeting
  • Creditors are informed of the liquidation
  • Staff are made redundant
  • All creditors and queries will be dealt with
  • An investigation into the director’s conduct will be completed
  • Any money will be distributed to creditors
  • Reports will be prepared and issued
Using a bounce back loan for wages

How can I pay for my liquidation?

If you’re already struggling financially, chances are you are probably already worrying about how you will be able to afford a liquidation, but don’t panic, there are pricing options available. A Creditors Voluntary Liquidation (CVL) involves you initiating the liquidation rather than being forced into it. Your director’s responsibilities require you to seek insolvency advice as soon as your limited company becomes insolvent. If you choose to close your limited company through a CVL, these are your payment options:

Company funds – any money left over from your company.
Company’s assets – the sale of any company assets including equipment and other items. Alternatively, you may be required to sell personal assets.
Personal savings – a director may choose to cover the costs of liquidation themselves to avoid legal action and reduce the chances of the company being forced into liquidation by creditors.
Director redundancy – if you are eligible for director’s redundancy pay, you may use this. The average pay out is £9000 which will definitely help towards your liquidation.

What to check before entering a liquidation

Before you enter a liquidation, it is important that you are fully aware of your financial position and anything that may cause issues for you.

A directors loan account

All company directors will have a loan account, the thing to understand is whether it’s in credit or debit. Most directors choose to top up their income through dividends. This is not usually a problem providing that your business is making a profit. If your company is failing to make a profit, then you’ll end up with an ‘overdrawn director’s loan account’.

Do not wait and hope that the insolvency practitioner won’t notice because they will be required to check during their liquidator’s investigations. Your required repayments will be assessed based on your personal circumstances. Do not appoint an insolvency practitioner until you have established the facts.

Preference payments

Preference payments include paying one creditor and not another when both are owed money from your business. If you have an insolvent company and you have continued to make preferential payments, you may be subject to disqualification and additional costs. We advise you to look through your company statements carefully before you choose an insolvency practitioner.

Do not bury your head in the sand, ensuring that you have all of this information before you liquidate your company means that you will have access to the worst case scenario which will really help further down the line.

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