For directors in financial difficulty, it’s a common question to wonder whether a company can be liquidated for free. With company coffers empty, the idea of having to find extra money to pay insolvency practitioners may seem like something you’d like to avoid.

In this article we’ll explore your options, and the challenges with this approach.

How to Liquidate a Company for Free

There are those who espouse a method known as the Sponge Bob approach, which has been popularised by the eponymous member of UK Business Forums who advocates dissolving a company with debt (assuming the debt is below a certain threshold) on the grounds that HMRC generally do not pursue small amounts.

HMRC has always made it clear that dissolving a company with debt is something they do not allow, but the recent spate of bounce back loan defaults has prompted them to tighten up the law even further in this area. A new bill gives HMRC powers to investigate rogue directors who abuse the dissolution process.

Can You Liquidate a Company for Free Using a Redundancy Claim?

Another widespread practice on the internet is insolvency practitioners advocating using redundancy claims to fund corporate liquidation. Of course for a stressed director the lure of unexpected money that could be used to close everything down is very appealing and, as such, the myth is propagated widely. Unfortunately, the Insolvency Service expressly forbid this, so while you may be entitled to redundancy, it cannot be used for these purposes. Be cautious about working with anyone who would suggest otherwise, and certainly don’t agree to any deal with gives a percentage of your redundancy fee to the liquidators themselves.

Here at Company Debt we advocate absolute fee transparency at all times, and we apply for directors redundancy on our clients behalf at cost only.

What’s the Cheapest Way to Liquidate a Company?

While the answers above may not be easy to hear, there is simply no way to sidestep due legal process. Of course you should find an insolvency practitioner you trust and who you feel underststands your situation and business sector. Ensure they are fully licensed and operate under a transparent fee structure.

Closing an insolvent company is undoubtedly a stressful and challenging situation for directors, but the best thing to do – and we recommend this based on having helped many 1000’s of directors through this situation – is to grab the bull by the horns, remain as organised as possible, and enter clear dialogue with a firm you can really trust. You’ll be surprised how quickly the process can move and how rapidly you can put the insolvency behind you and carry on with your life.