The cost of Liquidation includes an initial charge for calling a Creditors Meeting. The appointed Liquidator will then make additional charges depending on the work required.
- Find out the costs involved with Liquidating a company
- The Statement of Affairs and Creditor Meeting fee
- How much does the Liquidator charge?
- Can the costs of Liquidation be avoided?
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Statement of Affairs and Creditors Meeting Costs
The first cost involved with liquidating a company is the appointment of an Insolvency Practitioner (IP). The IP must undertake a review of the financial circumstances of the company and produce a Statement of Affairs.
If the company is insolvent the IP has to call a meeting of all creditors. This is known as a Section 98 meeting. The creditors are given a copy of the Statement of Affairs and asked to appoint a Liquidator. This will normally be the Insolvency Practitioner.
The fee for this work will usually start at around £2000 + VAT for a small company with no employees. The company can pay this fee from income received into its bank account. The required cash can be saved as all further creditor payments should be stopped. This includes any money due to HMRC.
As a last resort the Insolvency Practitioner’s costs will have to be subsidised by the company directors themselves.
Liquidator Costs
The next cost associated with Liquidation is the cost of the Liquidator themselves. These fees will vary widely depending on the nature and complexity of the company. Generally the cash required to pay the fees is generated in a number of ways.
Firstly the Liquidator will collect in any debts owed to the company. This will include money owed to the company by its directors in the form of directors loan accounts. Next the Liquidator will sell any assets owned by the company. The Liquidator can use the cash they collect to pay their fees in preference to all unsecured creditors.
The directors must not take any company assets and start using them in another business. If they want the assets this can be achieved using a Pre Pack solution. The appropriate price will have to be paid to the Liquidator.
Can the cost of Liquidation be avoided?
A common question from directors is whether the cost of liquidation can be avoided by simply leaving the company dormant. If the company has no debts then this is possible but annual returns must still be submitted to Companies House. This must continue until the directors decide to formally strike off the company from the register.
If the company has outstanding debts a creditor might start proceedings to wind up the company. If a Winding Up Order is issued the court will appoint a liquidator. The directors then lose control of the closure process. Arguably it is more likely that a court appointed liquidator will produce a more damning report about the conduct of the directors to the Insolvency Service. Such an accusation could lead to the directors being disqualified.
If the company is smaller in size it is possible that a creditor will take direct action against directors themselves to collect the debt owed. This can happen particular if the registered office address is a director’s home address.
A creditor owed money by a limited company has no legal right to collect their debt from a director unless a personal guarantee has been given. Despite this many creditors successfully take legal action against directors. This situation can be avoided by correctly challenging the creditor early on.
