Why You Should Be Wary Of Cheap Liquidation Costs
It’s natural for people to shop around for the best deal in any given situation, but when it comes to placing your company into liquidation, you need to be very wary about going with the cheapest quote you are offered. In this blog, we’re letting you know why you should be wary of cheap liquidation costs.
When shopping around for quotes to place your company into liquidation, you could end up with quotes ranging from £2,000 – £20,000. These quotes may come from different insolvency practitioners for essentially the same job. Every insolvency practitioner in the UK has to be licensed, and they are all governed and regulated by the Insolvency Service.
When researching insolvency practitioners, it’s important to understand that it’s not like buying a second-hand car or a conservatory. We have all experienced sales presentations where the price starts high, and if you sign up today, you get 50% off the RRP. The world of insolvency is not like that, there are no salespeople, no deal of a lifetime and no discount for signing up on the day.
Most people do a Google search, see someone on social media, or get a referral from their accountant. They then make an enquiry or call the licensed insolvency practitioner and ask for more information on how to place their company into liquidation or if they have any other options that they haven’t yet considered.
Most insolvency practitioners will give you a free consultation, listen to your situation and offer some advice on what they believe would be the best solution for you, your insolvent company, and, most importantly, your company’s creditors.
How can 3 different insolvency practitioners quote 3 different prices for a liquidation?
The problem for most directors who have never been in this situation before is they don’t know what questions to ask or what other concerns they should have aside from the cost of liquidation.
I’m going to share with you a recent example that I experienced personally at 1st Business Rescue.
We received an inquiry from a company director who was shopping around for quotes for voluntary liquidation. His business had become insolvent, and the company had no hope of recovery.
He had already collected 2 quotes, with his first quote at £3,000 and the second one at £6,000. This was a relatively straightforward liquidation with just a handful of creditors and very few company assets. Only three staff needed to be made redundant, and the directors of the insolvent company had signed no leases or personal guarantees.
With a voluntary liquidation of this size, you should expect to be charged £4-6,000 for your cost of liquidation. The cost of liquidation is not all you need to know to make an informed decision. You need to be aware of ALL costs that you are likely to face as a result of placing your company into voluntary liquidation.
These additional costs may include an overdrawn directors’ loan account or hidden company debts.
Supporting struggling directors
We aim to help a director uncover everything at the start. It’s easier to get any potential problems on the table and discuss them from the off, so there are no surprises for the director down the line. We always review director loan accounts, preference payments, and potential wrongful trading and see if any of the company’s assets have been sold undervalue before we send a proposal to a client.
Now back to our example of the director who called us after getting two other quotes. When we reviewed the director’s loan account, it was clear that the director had accrued quite a large overdrawn director’s loan of £130,000. This was an issue in our eyes as if he placed the limited company into voluntary liquidation, the licensed insolvency practitioner would have to chase him personally for the £130,000.
An overdrawn director loan account is seen as an asset of the company, and it is the liquidator’s duty to recover funds to distribute to the company’s creditors. No one else from the previous insolvency practitioners had even mentioned an overdrawn director loan to him.
After assessing the director’s personal financial situation, his ability to repay the money, and speaking with one of the insolvency practitioners, it was agreed that the director would need to pay back just over £70,000 in respect of his overdrawn director’s loan. The money needed to be paid within six months of the limited company being placed into a creditors’ voluntary liquidation.
The liquidation fee in this scenario is almost irrelevant; it’s just the headline figure and is not something that anyone should be basing their decision on when choosing an insolvency practitioner.
How much does an insolvent liquidation cost?
So there you have it: 1 company liquidation, 3 quotes, £3,000, £6,000 and £70,000. Can you guess which one the director chose?
Yes, of course you can, he sadly chose the £3,000 quote from the cheapest liquidation company. When we suggested that he may have more to consider than just the cost of liquidation, he assured us that when he called the other firm after our conversations, they said, ‘don’t worry about that, we will deal with it down the road’.
It did get dealt with down the road by the insolvency practitioner, and we received an email from the director three months later. He was being pursued for £134,000 and wanted to know if we could help.
When placing a limited company into a creditors voluntary liquidation with a handful of creditors, things like a bounce-back loan, HMRC etc., you should be charged anywhere from £4,000- £6,000 for the liquidation fees, but this is not all you need to consider. Make sure you ask the insolvency practitioner to look at any potential overdrawn director’s loan accounts and preference payments before you appoint them, and insist on getting a full proposal in writing from them before you make a decision.
Going with the cheapest creditors’ voluntary liquidation quote can cost you a lot more money in the long run.
I’d like to finish on this point…
If, however, you have very few creditors, no company assets to disperse, the insolvency practitioner has confirmed you have no overdrawn directors loan accounts, have made no preferential payments, and they won’t accuse you of wrongful trading, then maybe the cheapest quote for voluntary liquidation is the one for you.
We always think it’s a good idea to do some due diligence on the insolvency practitioner that you are using too. For example, do they have a Trustpilot or online review page where you can read about how other company directors in your position have found their voluntary liquidation service?
After a successful company liquidation, your company name will be removed from the Companies House register. There are other types of liquidation available depending on your circumstances, including members’ voluntary liquidation (used by solvent companies) and compulsory liquidation. The cost to liquidate will vary depending on the liquidation process used.
I hope you have found this blog on voluntary liquidation costs useful. If you have any questions or would like to talk to someone about your business’s future, please get in contact with us for some no-obligation advice on liquidating your company.
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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