What Are the Costs of Liquidation?
The cost of liquidating a company usually varies depending on the type of liquidation required, the size and complexity of the company, and the assets involved. Liquidation usually falls into three main categories, and the cost of each liquidation depends on the type of liquidation your company is going through.
Creditors’ Voluntary Liquidation (CVL)
The average cost for creditors’ voluntary liquidation typically ranges between £4,000 and £6,000 + VAT for a clear-cut liquidation. Costs will come at a higher price point if the liquidation involves many creditors, legal disputes, or the business has significant assets that need to be sold.
Members’ Voluntary Liquidation (MVL)
A members’ voluntary liquidation usually comes in at a lower price point, costing between £1,500 and £3,000 + VAT, as the company is solvent and the process is typically more straightforward. Larger companies with more shareholders receiving distributions, and more work involved, will cost more to liquidate.
Compulsory Liquidation
This process typically begins with a court order with the initial fee costing around £1,600, there is also a deposit of around £2,600 to be paid to the insolvency practice. Further costs will likely be incurred as the court-appointed liquidator handles the process, which will be paid from the company’s assets.
The Risks of Trying to Liquidate Your Company Cheaply
When you are thinking about liquidating your company, it might be tempting to try and do the process on a budget. However, trying to cut costs can come with serious risks that cause long-term problems and cause you more financially down the line.
- Legal Issues: Trying to cut corners to save on costs can lead to legal trouble, including personal liability if you fail to comply.
- Asset Loss: Opting for cheap liquidation may mean that your assets are undervalued, meaning you may lose more money than necessary.
- Reputation Damage: A cheap liquidation can mean that the process is rushed or corners may be cut, meaning creditors might receive a reduced return. This can harm your reputation, making it harder to work with creditors and partners in the future.
- Employee Issues: A budget liquidation process may rush the process and leave employees unpaid or without proper compensation, leading to potential legal disputes.
What Is Included in the Cost of Liquidation?
Several components are involved in the cost of voluntary liquidation. These elements will depend on the specifics of the case and what is required to liquidate the business, however, these often include:
- Liquidator’s Fees: This is the payment for the service of the professional liquidator who will be handling the process.
- Accounting Fees: This includes all the expenses for accounting services, from preparing financial statements to final accounts.
- Legal Fees: These are the costs associated with any legal advice and services you will require, including drafting legal documents and compliance with regulations.
- Asset Valuation Costs: The fees for assessing the value of the company’s assets that are to be sold.
- Tax Liabilities: The fees for any potential taxes that may arise during the liquidation process.
- Administrative Costs: The cost of any administrative expenses incurred during the winding-up process.
Who Pays the Liquidation Fees?
Each type of liquidation involves different cost implications and responsibilities, which is why it’s essential that you understand your situation and consult an insolvency practitioner.
Creditors’ Voluntary Liquidation (CVL)
CVLs happen when the company is insolvent and can no longer pay its debts. The directors choose to wind down the company “voluntarily” and the assets are sold and used to cover the liquidation costs and pay the creditors in a legally defined order of priority.
Members’ Voluntary Liquidation (MVL)
MVLs happen when a company is solvent, but shareholders or directors choose to close the business for various reasons, mainly for tax-saving purposes. The liquidation costs are typically paid for by the company itself, using its available funds, before the remaining assets are distributed.
Compulsory Liquidation
Compulsory liquidation typically occurs when an outstanding creditor issues a county court judgment (CCJ) for money owed. This results in a winding-up petition that involves a formal insolvency process, to forcibly close down the business. The liquidator sells off the company assets and uses any cash held in the company’s bank account to repay the creditors.
What if I Can’t Afford to Pay the Cost of Liquidation?
If a company has no assets or funds to pay for the liquidation, then the responsibility to pay for the liquidation falls with the directors. This might involve using your personal funds to cover the costs of liquidation. If you cannot afford to pay the full fee upfront, it might be possible for you to negotiate paying the liquidation fees on a contingency basis.
How Can I Pay the Company Liquidation Fees?
When it comes to paying for the cost of liquidation for your company, there are several methods that you can consider as a business owner.
- Tangible Assets: This includes the physical assets that your business has that can be sold to cover liquidation costs. Things that fall into this category can include property, machinery, vehicles, and equipment.
- Inventory: Any stock your business has, whether that be unsold goods, products, or materials, can be used to generate funds for liquidation costs.
- Cash Reserves: This includes any available cash your company has in its bank accounts.
- Accounts Receivable: If your company has any outstanding payments owed to it by customers or clients, this can be collected and used in the liquidation process
- Intellectual Property: From patents and trademarks to copyrights owned by the company – these can all be sold to raise money for liquidation fees.
- Shares and Investments: If your company owns any shares in other businesses or has financial investments elsewhere, these can also be sold to help pay off fees.
- Business Contracts: Depending on the type of business, some companies will have contracts of value, which can be sold off to third parties to provide additional funds.
Can I Liquidate My Company for Free?
Liquidating a company free of charge is usually unlikely as there are inherent costs involved in the liquidating process, however, there are sometimes exceptions that will incur more minimal costs.
If your company does not have any debts owed to creditors and can be closed without the need for formal liquidation, you might be able to avoid paying for an insolvency practitioner. Taking this route would mean that instead you could dissolve your company, and have it struck off at Companies House.
However, if your business is struggling and can’t afford to pay its debts, taking this route will not be an option, and you will need to contact an insolvency practitioner who can help you with the liquidation process.
The Importance of Early Consultation for Liquidation
Speaking to an insolvency practitioner early on in the liquidation process can be beneficial for you and your business in several ways professionally, financially, and emotionally.
- Expert Guidance: Working with an insolvency practitioner from the start gives you a point of contact, who has specialised knowledge and experience of navigating liquidation and its complexities. This allows you to streamline the liquidation process, putting a plan in place that is tailored to your company.
- Reduced Costs: Speaking to a consultant early on can help you identify the best approach to your company’s liquidation, minimising the costs of the process.
- Avoid Personal Liability: Speaking to a professional early on in the process can help you understand your actions to avoid any personal liability for debts.
- Maximising Asset Value: Early collaboration with an insolvency practitioner can help you to maximise the value of your company’s assets, to sell them for the best profit available.
- Avoiding Mistakes: Speaking to an insolvency practitioner from the get-go can prevent you from making any mistakes that could complicate or prolong the liquidation process.
Emotional Support: The process of liquidation can be a stressful and emotional experience, and having a professional to guide you through the process can help to alleviate your worries.
