What happens if I can’t afford to liquidate my company?
Knowing when it’s time to close your company takes courage. If you’re wondering what happens if I can’t afford to liquidate my company, then it’s likely that you’re struggling financially. We’re here to help you and provide you with the most commonly used solutions.
We often speak with directors who are full of worry about liquidation and company closure. Some have buried their heads in the sand and hoped that the problems might go away; others have spoken to the wrong people and only been given information about the worst-case scenario.
There is so much information around regarding company closure. It can be hard to cypher through it and find what’s relevant to you. Many directors end up struggling mentally with the pressure of company closure. It’s hardly surprising for those who are dealing with creditor pressure too.
What does it cost to liquidate a company?
The cost of your liquidation depends on many factors. These can include how much company debt you have and how many creditors you have. For a small insolvent company with minimal creditors, you should expect to pay around £4000 (plus VAT).
A licensed insolvency practitioner must be appointed before you enter liquidation. You should ensure that they have assessed all aspects of your business. This means checking for things like an overdrawn directors’ loan account. This is very important as finding it later down the line could land you in trouble.
It’s a good idea to get all liquidation costs in writing too. This can help to protect you from extra costs. All licensed insolvency practitioners should be able to assess your company’s financial position and provide you with costs before you begin the liquidation process.
I can’t afford to liquidate my company and pay an insolvency practitioner
If you’re a director wanting to close a limited company due to financial problems, you’ve probably searched long and hard for every option that you could use. There are also a few options for paying for the liquidation. You may not be eligible for all of them, but hopefully, just one could help you liquidate a company.
Claim director redundancy pay
Most people are aware of employee redundancy pay, but many directors are unaware that they could get a director redundancy payment too. There are some criteria that you must meet to be eligible.
- You must have worked in the company for at least two years (under a contract of employment)
- You must have worked a minimum of 16 hours per week in the company
- You must be owed money by the company, such as unpaid wages through PAYE
You may be asked to provide evidence of a monthly wage through pay slips or an employment contract.
The average director redundancy claim in the UK today is £9,000, which is more than enough to cover any liquidation fees and should still leave you some money in your pocket. We can help you understand if you qualify for a redundancy claim and assess the value of the claim before you make any decisions on your company’s future.
The amount of director’s redundancy pay that you receive depends on a range of factors, including how old you are, how many years you’ve worked at the company and how much you’ve earned.
This payment is claimed in the same way that an employee would claim, through the National Insurance Fund, a government scheme set up for people who are made redundant.
Selling company assets
A liquidation process requires your company’s assets to be sold. Your insolvency practitioner will take care of this. You may be required to use an independent valuation company to assess the value of each business asset. This means they are being sold at a fair market value. This process is often referred to as company asset realisations, and it is commonly used by directors who cannot afford to liquidate a company.
Some directors land themselves in trouble by selling assets at a different price than what they are really worth. You should avoid this as it will be identified, and you may end up being personally liable to pay back the money.
Your company assets can include money in the bank, stock, machinery and other things owned by the business. Some directors choose to use a pre-pack liquidation process. This involves buying back the assets for a new phoenix company.
Paying for the liquidation using personal funds
This is certainly not an option for everyone entering liquidation. Some company directors may have the ability to use their own money to fund the liquidation.
Alternatively, you may be able to borrow the money from a close friend or family member. You need to ensure that they are happy with this arrangement.
What are my liquidation options?
If your business is struggling financially, you can only select an insolvent liquidation procedure. This means you won’t be able to strike off the company or enter a member’s voluntary liquidation.
Creditors’ voluntary liquidation process
A creditors’ voluntary liquidation is initiated by the company directors. There are several benefits to taking this course of action. It shows that you understand and comply with insolvency rules regarding creditor interests and helps to prevent allegations of any wrongful trading.
As a company director, you have certain legal responsibilities when your business becomes insolvent and failing to seek insolvency advice could be seen as a breach of your directors’ duties.
A creditor’s voluntary liquidation is often the more favoured approach for a formal insolvency liquidation procedure. This formal process shows that you are adhering to the director’s duties by seeking advice. If you are advised to liquidate the company, you need to act quickly. Seeking advice and then waiting six months to take action is not conforming to your responsibilities.
Compulsory liquidation
If you are not eligible for directors’ redundancy pay, you have no cash at the bank, no company assets, and no ability to pay; eventually, you will be forced into liquidation. We would never recommend that you wait for a compulsory liquidation to be enforced, but there will be so many directors who do end up waiting for the inevitable to happen.
A compulsory liquidation begins when one of your creditors, who is owed money, sends demand letters. A creditor could be the bank, HMRC or even a supplier. Usually, in compulsory liquidation, they’ll have tried to recover the funds and been unsuccessful. When this happens, they’ll issue your insolvent limited company with a winding-up petition.
When a winding-up petition is presented, you will be given a court date. If you cannot find the money to pay the debt back, the court will wind the company up and appoint the official receiver.
There are some disadvantages that you’ll need to consider before waiting for the compulsory liquidation process to begin. These include:
Lack of control – you don’t get to choose who is appointed to liquidate the company or the timescale.
It reflects poorly on you as a director – a director’s investigation will be completed. If it is found that you have made your creditor’s position worse, you may face ramifications.
It’s usually best to avoid compulsory liquidation. But, if you have behaved appropriately as a director until this point and have no way of paying for liquidation costs, it might be the only option.
Wrongful trading
You must also ensure that you are not accused of any wrongful trading. Wrongful trading involves anything that could make the position of your creditors worse. This includes things like preference payments and fraudulent trading.
If any director misconduct is unearthed or evidence of unlawful trading leading up to insolvency is found, you could face disqualification as a company director for between two and fifteen years. You could also face financial penalties and personal liability for company debts.
I can’t afford to liquidate, can I close my limited company myself?
Even if you’ve got a company with no money, it is not possible to liquidate a company without appointing a licensed insolvency practitioner. They are responsible for assessing your role in the company and attempting to find the money to pay back your creditors. At the end of a formal liquidation procedure, your business will be removed from the register at Companies House. After this, you don’t need to worry about the company anymore.
What do our liquidation fees cover?
When you pay an insolvency practitioner to close your limited company, your liquidation fees will cover the following tasks:
- All the relevant information about your company will be collected
- Your liquidation papers will be produced and sent to you
- A creditors meeting is set
- All your creditors are informed of the pending liquidation
- Staff will be made redundant
- The insolvency practitioner will deal with all creditors and handle any enquiries
- Money will be distributed to creditors of the company if any funds are realised
- Director conduct reports prepared and issued
- Creditors’ reports prepared and issued
It’s important to act if you are worried about your company’s future and if you believe you can’t afford to liquidate. The earlier you seek professional advice, the more options you will have available. Our friendly team are always happy to offer confidential advice. We’re passionate about supporting you as a director.
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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