Costs of Company Liquidation: A Guide to Liquidation Fees in the UK
As a general guideline, it costs between £4,000-£6,000 plus VAT to liquidate an insolvent company in the UK. These costs can vary substantially based on the size of the company, the complexity of the situation, and the amount of assets involved.
Larger companies with more assets or complex winding-up needs may incur total liquidation costs above £10,000-£15,000 or more in some cases. These fees are paid to licensed insolvency practitioners appointed to handle the liquidation process and tend to increase based on the amount of time and work involved
Our guide will go into much more detail and explain the typical fees for liquidating a company through solvent and insolvent procedures.
- How Much Does it Cost to Liquidate a Limited Company?
- Costs of Liquidation
- Who Pays the Costs of Liquidation?
- What do the Liquidation Costs Cover?
- How are the Liquidation Fees Paid?
- What if my Company Cannot Afford the Costs of the Liquidation?
- How Much Does a Solvent Liquidation Cost?
- Costs of Liquidation FAQs
How Much Does it Cost to Liquidate a Limited Company?
The cost to liquidate a limited company in the UK is typically £4,000 to £6000 or more for an insolvency practitioner’s fees, with additional legal, disbursement, and court fees. The exact amount depends on the complexity of the liquidation process and the size of the company.
Who Pays the Costs of Liquidation?
In a liquidation process, the costs of liquidation are typically covered by the company’s assets. Should these assets be inadequate, the directors or shareholders of the company may be required to pay the remaining liquidation costs, depending on the specific type of liquidation and the legal framework governing it.
There are two main ways the cost of liquidation can be paid:
- Company assets: The liquidator will sell the company’s assets, such as stock, machinery, and intellectual property, to cover the costs of liquidation.
- Director’s personal funds: If the sale of assets does not cover the costs, the director may be personally liable for the remaining balance. This is known as a deficiency.
Directors cannot use their redundancy pay to pay for liquidation costs. The Insolvency Service prohibits this because it creates a conflict of interest for insolvency practitioners, who would benefit financially from suggesting this course of action.
If you are facing liquidation, it is important to seek professional advice from an insolvency practitioner to discuss your options and minimize the financial impact on yourself and your business.
What do the Liquidation Costs Cover?
Liquidation costs cover the expenses incurred by the liquidator in the process of formally closing a company. These costs can include:
- Liquidator’s fees: The liquidator’s fees are typically charged on a fixed basis, but they may also be charged as a percentage of the assets realized.
- Creditors’ meeting costs: The liquidator is required to call a meeting of the company’s creditors to inform them of the liquidation process and to answer any questions they may have. The costs associated with organizing and holding this meeting are also covered by liquidation costs.
- Statement of Affairs preparation costs: The liquidator must prepare a Statement of Affairs document, which outlines the company’s financial position in detail. The costs associated with preparing this document are also covered by liquidation costs.
- Redundancy payments: If the company has any employees, the liquidator may be responsible for making redundancy payments to them. The costs of these payments are also covered by liquidation costs.
- Dispute settlement costs: The liquidator may need to settle any outstanding disputes or contracts that the company has. The costs associated with doing this are also covered by liquidation costs.
- Debt collection costs: The liquidator is responsible for collecting any money that is owed to the company. The costs associated with doing this are also covered by liquidation costs.
- Government authority notification costs: The liquidator is required to notify certain government authorities, such as HMRC, Companies House, and the Insolvency Service, of the liquidation. The costs associated with doing this are also covered by liquidation costs.
- Transaction investigation costs: The liquidator may need to investigate transactions that took place in the period leading up to the liquidation. The costs associated with doing this are also covered by liquidation costs.
- Asset valuation and realization costs: The liquidator is responsible for valuing and realizing the company’s assets. The costs associated with doing this are also covered by liquidation costs.
It is important to note that liquidation costs can vary depending on the size and complexity of the company, as well as the type of liquidation being undertaken. It is always advisable to consult with an insolvency practitioner to get an accurate estimate of liquidation costs.
» MORE Read our full article on Who Pays the Liquidator’s Fees?
How are the Liquidation Fees Paid?
There are a few different ways that liquidation fees can be paid:
- Immediately: The company may have enough cash on hand to pay the liquidation fees immediately.
- Over time: The liquidator may agree to spread out the payments over time.
- Contingency: The liquidator may agree to defer payment of their fees until the company’s assets have been sold and the proceeds distributed to creditors.
- Partial upfront payment: The company may make a partial upfront payment to the liquidator, with the remaining balance due once the company’s assets have been sold.
What if my Company Cannot Afford the Costs of the Liquidation?
If your company cannot afford to pay for liquidation, you will need to negotiate a payment plan with the liquidator or find another way to raise the funds to cover the costs. If you are unable to do either of these things, the liquidator may be forced to apply to the court to have your company wound up compulsorily.
Negotiating a payment plan with the liquidator
Some liquidators are willing to negotiate payment plans with directors who are struggling to pay their fees. This may involve spreading the payments out over time or making a partial upfront payment with the remaining balance due once the company’s assets have been sold.
There are a few ways to raise funds to cover the costs of liquidation:
- Use the company’s assets. If the company has any assets that can be sold, the proceeds from the sale can be used to pay the liquidator’s fees.
- Borrow money. The directors may be able to borrow money from a bank or other financial institution to cover the costs of liquidation.
- Use personal funds. The directors may be able to use their own personal funds to cover the costs of liquidation. However, it is important to note that the directors may be personally liable for the company’s debts if the assets are insufficient to cover all of the debts.
How Much Does a Solvent Liquidation Cost?
A Members’ Voluntary Liquidation (MVL) is a more affordable option than a Creditors’ Voluntary Liquidation (CVL) for companies with no unpaid creditors. Typical MVL costs range from £1,000 to £5,000 plus VAT, depending on the complexity of the case and the level of support required from the insolvency practitioner (IP).
The lower fees are due to the reduced investigative work required by the IP. Instead, the focus is on valuing assets, settling shareholder claims, and dissolving the company structure.
Basic MVLs start at around £1,000-£2,000, assuming that the directors handle most of the preparatory work, such as submitting final accounts and tax returns. If the IP needs to take on more tasks, such as asset disposal or shareholder negotiations, costs can increase to £3,000-£5,000. Complex MVLs with substantial assets or shareholdings may command even higher fees.
To get an accurate estimate of the total cost of your MVL, it is important to understand what services you expect the IP to provide. Our team can advise you if your situation seems outside the normal MVL fee range.
Costs of Liquidation FAQs
What Happens if the Company Cannot Afford to Liquidate?
If the company is insolvent and cannot afford the liquidation fees, a compulsory liquidation may be initiated by the creditors. In this case, the cost is generally covered by the sale of the company’s assets.
What assets can be used to pay liquidation costs?
Any company assets like property, equipment, vehicles, stock, debtors and intellectual property may be sold by the liquidator to cover costs.
Can I Negotiate Liquidation Costs?
Yes, you can negotiate the fees with your insolvency practitioner. However, lower fees may limit the amount of personalized service and advice you receive.
Is VAT Applicable to Liquidation Fees?
Yes, VAT is usually applicable to liquidation fees and is an additional cost to consider.
How Do I Choose an Insolvency Practitioner Based on Cost?
While cost is an important factor, also consider the practitioner’s experience and reputation. A less expensive practitioner might not offer the quality of service your situation requires.