How Much Does it Cost to Liquidate a Limited Company?
There’s no set cost to liquidate a company, but in most cases, expect to pay between £4,000 and £6,000 plus VAT, depending on the complexity of the situation and the amount of assets involved.
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.
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.
The cost of a Members’ Voluntary Liquidation (MVL) – which is used to close solvent companies with assets over £25k – is typically lower than that of a CVL, but again, this will vary depending on the amount of work required.
Our guide will go into more detail and explain the typical fees for liquidating a company through solvent and insolvent procedures.
- What Are the Typical Costs Involved in Company Liquidation?
- Who Pays the Costs of Liquidation?
- How are the Liquidation Fees Paid?
- Are there Extra Legal Fees in Company Liquidation?
- What if my Company Cannot Afford the Costs of the Liquidation?
- Can Directors be Personally Liable for Liquidation Costs?
- How Much Does an Insolvency Practitioner Charge for Company Liquidation?
What Are the Typical Costs Involved in Company Liquidation?
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.
- Insolvency practitioner’s fees: £4,000 to £15,000 or more, depending on the complexity of the liquidation process
- Legal costs: £1,000 to £3,000 for solicitor’s fees for legal guidance and the filing of necessary paperwork
- Disbursement costs: £500 to £2,000 for third-party costs necessary for the liquidation process, such as advertising the liquidation or valuing assets
- Court fees: £280 for a winding-up petition if the liquidation process goes through a court
- VAT: 20% on most of these fees
Who Pays the Costs of Liquidation?
In a voluntary insolvent liquidation, 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.
In compulsory liquidation cases, the burden of paying the liquidation fees falls upon the party that initiates the process by petitioning for the winding up of the indebted company.
In a Members’ Voluntary Liquidation (MVL), the company’s assets are liquidated – meaning they are converted into cash. This cash is then utilised to pay for the liquidation costs, such as the insolvency practitioner’s fees, legal expenses, and any other related charges. Once these costs are paid, the remaining funds are distributed to the shareholders.
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 may also be charged as a percentage of the assets realised.
- 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. Liquidation costs also cover the costs associated with organising and holding this meeting.
- 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 realisation costs: The liquidator is responsible for valuing and realising the company’s assets. The costs associated with doing this are also covered by liquidation costs.
» MORE Read our full article on Who Pays the Liquidator’s Fees?
How are the Liquidation Fees Paid?
In insolvent liquidation, the liquidation fees are paid by selling the company’s assets. The appointed insolvency practitioner (IP) manages this process, converting assets into cash. This cash is then used first to cover the liquidation fees, including the IP’s fees and expenses. This ensures that the costs of managing the liquidation are prioritised before any distribution to creditors.
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.
Are there Extra Legal Fees in Company Liquidation?
For most small businesses, there are no additional legal fees in company liquidation. However, this can change depending on the complexity of the company’s legal and financial affairs. In cases where there are intricate issues such as disputes, complicated contracts, or complex debt arrangements, legal services may be required.
If a director is accused of misfeasance, these costs are usually borne by the director personally and not covered by the company’s liquidation expenses.
What if my Company Cannot Afford the Costs of the Liquidation?
If your company cannot afford liquidation costs, options include negotiating a payment plan with the liquidator, using company assets, borrowing funds, or using personal funds. However, be aware that if the company’s assets are insufficient, directors may risk personal liability for its debts. If these options fail, the liquidator might seek a compulsory winding-up by the court.
Can Directors be Personally Liable for Liquidation Costs?
Directors are not typically personally liable for liquidation costs. These costs are usually covered by the company’s assets. However, if there are no company assets or cash available, directors may need to pay from their personal funds. Additionally, directors can be personally liable if they have given personal guarantees for company debts or if found guilty of wrongful or fraudulent trading, potentially making them responsible for the company’s debts, including liquidation costs.
How Much Does an Insolvency Practitioner Charge for Company Liquidation?
Insolvency practitioners commonly charge for company liquidation based on the time spent on the case. They provide creditors with a report detailing hourly rates for each staff member involved and an estimated total cost. Creditors must agree to this fee proposal. If charging by a percentage of realisations, the practitioner needs creditors’ consent, outlining estimated realisations and the proposed percentage. Fees cannot be drawn from asset realisations without the agreement of a simple majority of creditors by value who vote. Practitioners must maintain transparency regarding fees, and creditors can request more information if needed.
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.