For directors in financial difficulty, it’s a common question to wonder whether a company can be liquidated for free. When the company is already in debt, 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.
How to Liquidate a Company with No Money
How can you liquidate a company with no money?
Most directors will be aware that liquidating a company commonly costs between £4000-7000 for a typical small business.
Most liquidations can be paid for via the sale of company assets. These pay for the insolvency pracitioners fees, therefore costing the directors nothing.
If the company has no money in the bank, and no assets of note, however, its hard to see where the funds are going to come from to pay the liquidators.
“But I’ve Read that it’s Possible to Liquidate a Company for Free?”
While the internet is awash with advice which suggests this is possible, this is misinformation and you should due your due diligence carefully.
You cannot liquidate for free since all liquidations need to be carried out by licensed insolvency practitioners who charge for their services.
Rather, where the company has no assets of any kind, directors may have to find the funds themselves.
Don’t be tempted by internet firms which suggest you can either strike off with debts, or use redundancy payments.
HMRC has always made it clear that dissolving a company with debt is something they do not allow, and 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.
Equally, insolvency pracitioners’ are specifically not allowed to use redundancy payments. 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. Clearly, there is a conflict of interests for an insolvency practitioner to put in a redundancy claim which will be used to cover their own fees.
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.
Closing a Company When there are no Assets or Funds for a Liquidation
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. Then have a conversation about your situation and the options available to you.
Insolvent companies with debt must be closed via liquidation under UK law.
If I Can’t Afford to Liquidate, What Will Happen?
Some directors do opt to wait until compulsory liquidation is forced by a creditor out of a concern that they will not be able to find the necessary funds themselves to choose the voluntary liquidation process themselves.
Remember that all liquidator’s have a mandatory responsibility to investigate the actions of directors in the period preceding insolvency so, if you’re considering this course of action, you should be very clear on your legal responsibilities. Paying any creditor in priority over another, or taking any salary yourself, subsequent to having become aware of insolvency could lead you open to charges of wrongful trading.
We suggest giving us a call if you’re in financial difficulty for a calm, informed conversation about your situation, with no strings attached. We’re here to help.