For limited company directors facing insolvency, the costs of company liquidation are of primary concern.

In this article, we’ll cover this subject in detail including where the money can be found, and who is expected to pay.

Costs and Fees of Liquidation

How Much Does it Cost to Liquidate a Limited Company?

The creditors voluntary liquidation of a company costs between £4000-£6000 + VAT as general guideline, where there are few assets and a small number of debtors.

Liquidation fees are based on the size and complexity of the insolvency situation, the number of assets to be realised and the volume of creditors.

Liquidation fees are paid to the liquidator (licensed insolvency practitioner(s)) whose job it is to formally close the limited company and distribute assets to business creditors.

What do the Liquidation Costs Cover?

The liquidator’s fees are charged for their work formally closing the company. Fees are usually a fixed amount but can, in some cases, be set as a percentage of assets realised.

The appointed liquidator will initially call the creditors’ meeting and prepare the Statement of Affairs document, outlining the company’s financial position in detail.

The liquidator’s additional duties may include:

  • Advising directors of their duties
  • Making redundancies and processing employees’ claims
  • Settling outstanding disputes and contracts
  • Collecting money owed to the company
  • Informing the relevant authorities such as HMRC, Companies House and the Insolvency Service
  • Investigating transactions in the period leading up to the liquidation
  • Valuing and realising the assets

Who Pays the Costs of Liquidation?

One concern you’ll undoubtedly have as the director of an insolvent business is how the liquidation costs will be paid, especially if the company bank account is empty.

There are several different ways the cost of liquidation can be paid:

(1) Liquidation fees can be paid through the sale of company assets

One of the liquidator’s main roles is to sell the company’s assets and any work in progress following a valuation by a RICS chartered surveyor. As well as cash in the bank, these assets can include stock, machinery, or even intellectual property.

The costs of the liquidation can usually be met by these sales.

(2) Liquidation fees can be paid by Directors Personally

If the sale of assets does not cover the cost of liquidation, you may be left with no choice other than to pay using funds held personally. It is not uncommon for directors to use personal savings or pay for the liquidation with a credit card or personal loan. Although that might sound drastic, it’s often worth it to avoid the stress and potential repercussions of a compulsory liquidation.

NB: Liquidation cannot be funded from the company director’s redundancy pay

Not many people know that directors of limited companies may be entitled to redundancy pay, once their company is in liquidation. The average sum paid for director redundancy is around £12,000, which is usually good news for cash-strapped directors.

However, although it has become normal for many firms to suggest you can just use this to pay for liquidation, that’s not the case. There is an obvious conflict of interests for insolvency practitioners to suggest a course of action which would end up paying their own fees. Hence this is forbidden by the Insolvency Service.

If you choose to use us as your liquidators, we will always assess your eligibility for directors redundancy as standard. But this is a separate subject from how you can pay for any potential liquidation.

» MORE Read our full article on Who Pays the Liquidator’s Fees?

My Company Can’t Afford the Costs of Liquidation

If you’re choosing voluntary liquidation, the fees have to come from somewhere and so, where the company has no cash or assets, directors will have to find the money themselves.

If you’re concerned about not being able to find this money, the best course of action is to simply have a no-obligation discussion with us about the situation and we can explain your options.

What if I have an Overdrawn Director’s Loan?

It is a common scenario for directors to have overdrawn directors loans at the point of insolvency. So does this money get written off when the company goes into liquidation, along with the corporate debts?

The answer to this is no. Overdrawn director’s loans are considered a personal debt between you, the director, and the company. As such, you will be asked to repay the money back into the company, as with any other company creditor.

If a director cannot afford to repay what is owed, the liquidator could take legal action through the courts, leaving directors at risk of personal bankruptcy.

Receive Expert, No-obligation Advice from our Team

If you’d like to know more about the cost of liquidation or want to discuss any other matter related to company debts or insolvency, please do not hesitate to get in touch with our team.