Many directors wonder how they could even fund the process of liquidation. If a company is insolvent, it means its liabilities outweighs its assets, hence the company coffers are empty.
Of course, before you even get to this stage you may wish to take advantage of a free consultation with us to explore whether alternative options might be preferable. We can advise about the merits of a company voluntary arrangement, or perhaps refinancing.
Below we’ll explore who pays the liquidator.
A Guide to Liquidator’s Fees
Liquidator’s fees must be covered by the insolvent company. If that company has no money or assets, then the directors themselves have the responsibility.
Liquidators fees are known as remuneration, and these fees need to be signed off on by creditors.
Creditors have the right to full transparency around the fees, including the right to challenge any costs they deem to be excessive.
During liquidation creditors always have the right to form a liquidation committee, (with a minimum of 3 and a maximum of 5 members) whose role it will be to keep an eye on the fees as they occur.
Fixing the Liquidator’s Remuneration
This is covered in Rules 4.127 – 4.127B of the Insolvency Rules 1986. These state that the liquidators fees must be fixed:
- as a percentage of assets realised by the liquidator
- on the basis of time spent
- a set amount
- any combination of the above
These fees are fixed by the liquidation committee, if there is one, or if not by the creditors themselves.
Whichever of these is decided upon, all fees must be listed transparently and fairly, as per the Statement of Insolvency Practice 9. All of the information related to fees and expenses but must be provided to creditors in a clear fashion, since they are the ones who effectively bear the brunt of the costs.
Where Could the Liquidator’s Fees Come From?
If you’re wondering where you, as the director of an insolvent company, could find the fees, the following may be helpful.
- Sale of Company Assets – Part of the liquidator’s role is to ‘realize’ or sell company assets to pay creditors. If there are funds available these can be used to pay for the RICS accredited Chartered Surveyor, as well as the insolvency practitioners working on the case.
- Directors Redundancy Payments Another means of paying the liquidators fees you’ll find commonly proposed across the web is director’s redundancy. Many directors simply don’t realise that it’s not just employees covered by HMRC’s redundancy payment scheme. That said, insolvency rules forbid liquidator’s using these fees to fund their own work as there’s an obvious conflict of interests. Beware any company suggesting this course of action to you.
- Directors Raising the Funds Personally – If there is neither assets to sell, nor the possibility of redundancy payments it may be up to the directors themselves to cover the cost of the liquidation personally.
How Much do Liquidator’s Charge
A typical small business liquidator is between £4000 and £7000 in the UK. The fee depends both on the size of the company and the complexity of the work involved.
What if I’ve Got No Money to Pay the Liquidator?
The first thing to realise is that liquidation fees are probably less than you think. What with the possibility of using directors redundancy payments, and money realised from asset sales there is usually enough.
Sometimes directors are asked to pay for the fees themselves, if there are genuinely no other funds available.
If you’re concerned about your situation, and particularly in regard to a lack of funds for any potential liquidation, the best thing is to just speak with us directly. A quick conversation will soon illuminate what options lie available to you.