Is it Possible to Liquidate a Company for Free?

Can a company be liquidated for free? The straightforward answer is no; the process incurs professional costs for the involvement of a licensed insolvency practitioner.

On the other hand, if there are company assets that can be sold, it is possible to pay the liquidator from what is raised, meaning that the liquidation is effectively free from the perspective of directors.

Where this isn’t possible, directors may have to raise the funds themselves, as we’ll explore in detail below.

What is the Cheapest way to Liquidate a Company with No Money?

It is not possible to liquidate a limited company for free in the traditional sense, as there will always be some costs associated with the process, such as the fees of an insolvency practitioner. Working with IPs is required by law to ensure that creditors get the best possible return on their losses.

However, it is possible to offset these costs by selling any company assets, plus it may be possible to negotiate reduced fees with an insolvency practitioner.

Here are some specific steps you can take to liquidate a limited company at a minimal cost:

1. Assess your company’s financial position. This includes identifying all of your company’s assets and liabilities. If your company has no assets, or if the value of your assets is less than the value of your liabilities, it is unlikely that you will be able to liquidate for free.
2. Contact an insolvency practitioner. Explain your situation and ask if they are willing to work on a reduced fee basis or consider other arrangements, such as deferred payment.
3. Consider if you’re eligible for directors’ redundancy. While this money can’t be directly used to fund the liquidation, it may be some comfort to directors that the Redundancy Service does allow directors to claim redundancy in liquidation, providing they are eligible. These funds can offer much-needed support during this difficult period. Directors should meet the necessary employment criteria, including continuous service and hours worked, as outlined by UK employment law.

It is always advisable to seek professional advice from an insolvency practitioner such as ourselves before making any decisions.

Low-Cost Liquidation Options

When considering the closure of a limited company, whether solvent or insolvent, it is essential to assess the most cost-effective methods available. Here we outline the primary options for both types of companies.

Solvent Company Liquidation

For companies that are financially healthy but need to close, two main liquidation methods stand out:

1. Members’ Voluntary Liquidation (MVL): This method is suited for companies with substantial assets. It involves a licensed insolvency practitioner who ensures the liquidation adheres to legal standards, offering significant tax advantages. Assets liquidated under MVL are subjected to Capital Gains Tax, which is generally lower than Income Tax, and may qualify for Business Asset Disposal Relief, capping the effective tax rate at 10%.
2. Company Dissolution: Also known as striking off, this is simpler and less costly than an MVL, ideal for companies with assets under £25,000. The process can be initiated via an online application to Companies House and involves minimal fees.

Insolvent Company Liquidation

For companies unable to meet their financial obligations, liquidation requires careful handling to minimise legal risks and protect directors:

1. Creditors’ Voluntary Liquidation (CVL): This is the recommended approach for insolvent companies. It involves appointing an insolvency practitioner who liquidates the company’s assets to pay creditors, prioritising legal compliance and creditor satisfaction. This method helps prevent the complications and additional costs that might arise from creditors forcing the company into compulsory liquidation.

How to Liquidate a Company When There are no Assets or Funds

If you’re wondering what the cheapest way to liquidate is, your options are as follows:

• Sell Assets: Using the company’s assets to cover liquidation costs. This is often the primary source of funding for the liquidation process. Selling off assets can help pay for the liquidator’s fees and any outstanding debts.
• Wait for Compulsory Liquidation: Opting not to initiate liquidation and instead waiting for creditors to force the company into compulsory liquidation. In this case, directors wouldn’t have to find funds personally, but this approach comes with potential risks, including loss of control over the process and possible personal liabilities if wrongful trading is proven.
• Redundancy Payments from HMRC: Directors who are also employees of the company may be entitled to redundancy payments from HMRC. Although these payments cannot be used directly to fund the liquidation, they might provide personal financial relief that indirectly supports the directors in covering the liquidation costs.
• Directors Find the Money Personally: Directors personally funding the liquidation process. This option is considered when there are no company assets to sell and the directors wish to avoid compulsory liquidation. It requires directors to personally cover the costs of appointing a liquidator and managing the liquidation process.

“Can You Liquidate a Company for Free via Dissolution?”

While the internet is awash with advice that suggests you can liquidate a limited for free by simply dissolving it, this is misinformation, and you should do 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, 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 directly.

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 practitioners’ 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 interest 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. We apply for directors’ redundancy on our clients’ behalf at cost only.

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