What happens if I can’t afford to liquidate?

If your company is facing liquidation, insolvency fees may be worrying you. You may also be feeling anxious about your personal finances and your income moving forward. This is perfectly natural for most directors. Please don’t feel alone, we can help and there are several options that may be available. There are ways to place your insolvent company into voluntary liquidation without you paying for it personally and in most cases, it won’t be as stressful as you think.

If your business is struggling to pay its debts on time and the money is running out it’s imperative that you take advice early. Your business may need to be placed into a voluntary liquidation which will bring the formal end of the company and all unsecured debts will be written off.

Creditor’s Voluntary Liquidation 

A Creditor’s Voluntary Liquidation means voluntarily closing your company, rather than waiting for creditors to initiate this process for you. There are several benefits of taking this course of action, including showing you understand and comply with insolvency rules regarding creditor interests and preventing allegations of any wrongful trading. As a director you have certain duties when your company becomes insolvent and failing to seek insolvency advice could be seen as a breach of these directors responsibilities.

One of the challenges many directors face is how are they going to pay the cost of liquidation. The cost to liquidate a small company in the UK will start from £4,000 + VAT.

It’s highly likely that the company finances are under significant stress and there could be very little left in the business account, which poses the question “How are you going to pay for the liquidation?”

Hopefully we are going to answer that question for you now.

Pay the liquidation fees from the company assets

During the liquidation process, all company assets, including stock, machinery, and vehicles, are sold to raise as much money as possible to repay any creditors.

The insolvency practitioner appointed to handle your company’s closure will also become a creditor, meaning their fees will eventually be paid from the sale of assets as we’ve just described. This means that, as a company director, you won’t be required to use personal funds to cover these service costs. If there is cash still left in your business account when you make the decision to liquidate then you can also use that to pay the liquidator’s fees as well.

In both the above cases you will not have to use your personal funds to pay the liquidation costs.

However, if selling your company assets doesn’t yield enough funds to cover your liquidations fees, you may have to use personal funds to up your liquidation fees. In this case, it’s worth discussing your individual financial situation with your insolvency practitioner, as it may be possible to negotiate a plan to spread the shortfall into more manageable payments.      

Receiving a redundancy payment

Most directors that we speak to are registered on their company’s payroll and if they have been registered on it for over 2 years then they should be entitled to director redundancy.

The money is paid from the National Insurance Fund (NIF). If you find yourself struggling financially personally, this may prove a much-needed lifeline for you and your family. 

To be considered as an employee, you must be able to prove that:

  • You’ve worked for a continuous period of two years under a written, oral or implied employment contract.
  • Worked at least 16 hours per week.
  • Held a practical role within the company
  • Received a salary via PAYE.

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.

Paying for the liquidation fees personally

If a director cannot make a claim for redundancy and the business does not have any cash or assets, then the director could decide to pay the liquidation fees personally. Many directors want to bring an end to the company as soon as possible.

Is it possible to liquidate the company myself? 

No, the only way that a company can be closed in the UK is to appoint a licensed insolvency practitioner.

Historically, the process for liquidating a company was considered admin-heavy and required numerous face-to-face meetings. However, due to new modes of communication, the process has been streamlined and is now much easier to navigate and can be done without you ever physically meeting your insolvency practitioner.

What Will Happen If I Don’t Do Any of The Above?

There are cases where a company has no money, no assets, and the director can’t claim redundancy and they don’t have any ways of paying the liquidators fees personally. Eventually, your company will be wound up by one of the company’s creditors and the business will be forced into compulsory liquidation. This option is not ideal for anyone involved as your company’s creditors will not stop enforcement action until the debt is paid or the business is placed into liquidation.

Dealing with compulsory liquidation  

If this is the only option available to you then you may want to let your creditors know that you have no means to pay for liquidation and invite them to start the process of winding up your company. In this scenario, the associated costs will fall to the petitioning creditor. However, you may have a more challenging time convincing the court-appointed insolvency practitioner or official receiver that you adhered to your legal responsibilities.

If any director misconduct is unearthed or evidence of unlawful trading leading up to insolvency found, you could face disqualification as a company director for between two and fifteen years. You could also face financial penalties and be personally liable for your company’s debts

If your business is struggling to make an inquiry, we are here to offer free and independent advice to business owners who don’t know where to turn. Book a call here.

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