If you have to close your company how will you pay for it?
I keep coming across adverts online that are offering free liquidations and I’d like to point out that this really isn’t the case.
After months of lockdowns, restrictions, and tax reforms so many businesses are literally hanging on by the skin of their teeth. Many have been surviving on government support and as that tap gets turned off many will find themselves with no money in the bank.
An insolvency practitioner is going to need to be paid to place a company into liquidation which begs the question how can I pay anything when my company is broke?
Appointing an insolvency practitioner
Generally, your liquidation costs cover the insolvency practitioner fees. You should be wary of cheap liquidation costs as they generally mean not all aspects have been looked at or that your insolvency practitioner has spotted a problem and wants to make more money down the line.
For example, you may have an overdrawn directors loan account which has not yet been identified by the practitioner. This is why we urge all directors to get all information in writing before they appoint the insolvency practitioner.
You should also only be looking for a licensed insolvency practitioner. This way you know that the company will be closed correctly.
The role of the insolvency practitioner is to gather relevant company information, realise assets (if there are any), attempt to pay creditors money they are owed, and close the company down. You can find out who gets paid first in a liquidation?
How can I pay for liquidation?
Directors redundancy pay
Many directors are entitled to redundancy in the UK. If you have a claim, you can use this money to fund an insolvency practitioner. The average claim is £9k so there should be money left over for yourself too.
Applying for director redundancy pay is simple. You must meet specified criteria and then provide evidence to support your claim.
Selling company assets
Certain business assets such as stock, plant or machinery can be sold to realise more money. This money can then be used to cover the liquidation fees and give some money back to creditors. When selling company assets, all must be sold at a fair price.
Paying for it personally
While your business may be insolvent, you may also be able to find a way of funding the liquidation yourself. That means paying for it personally rather than through the company. In some cases, a liquidator might give you some time to pay it.
A small liquidation is generally a company with minimal creditors. On average, this is going to cost at least £4000 (plus VAT). This is lower for smaller companies as there is generally less work involved.
While this might sound like a lot of money given your company doesn’t have any, it may be a figure that you can cover through one of the methods mentioned above.
Dealing with a liquidation and company closure is tough and can often be quite a daunting experience. Our best advice is to slow down and make informed decisions about your liquidation.
While we advise taking your time in some cases, we would recommend acting quick enough to avoid a compulsory liquidation. Burying your head in the sand until the situation gets worse is asking for a compulsory liquidation.
This means you might end up in further trouble for not acting within your director responsibilities. You may also experience more scrutiny over your director’s conduct.
An insolvency practitioner is required to assess your conduct in the last three years before your liquidation. This allows them to spot any wrongdoing or other problems that could have led to the failure of the company.
As a director, entering a compulsory liquidation does not look great and will remain on your record should you start another company in the future.
A free liquidation might sound amazing but the truth is that it really doesn’t exist. Anyone telling you they can successfully liquidate your company for free is not telling the truth. There is no such thing as free liquidation.
I hope that has been helpful and if you have any questions please let me know,
All the best,