How Much Does It Cost To Liquidate A Company?

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While company liquidation is often a process that cannot be avoided, the costs associated with winding up the company’s affairs and distributing assets to creditors and shareholders are rarely planned for. This leads many businesses to suddenly need a prompt answer to the question ‘How much does it cost to liquidate a company?’.

In short, there is no one-size-fits-all answer to this question as liquidation costs will vary depending on a number of factors, including the state of the company and the method of liquidation used. The more a professional has to do to liquidate the company, the greater the cost and therefore liquidating a large company with many assets and/or debts will typically be the most costly type of liquidation. Liquidating a small limited company with few assets is generally much more straightforward and therefore the cost of liquidation will be less in these circumstances.

Factors That Affect Liquidation Costs

In all circumstances, a licensed insolvency practitioner is required to act as the liquidator and oversee the process of realising assets and winding up the company. This means that all companies can expect to incur the fees associated with hiring this professional. As we have already touched upon, several factors will affect how much work is required to complete the liquidation and therefore affect the costs associated with the process. These are:

Type Of Liquidation

Voluntary liquidation can take place via two processes: creditors voluntary liquidation (CVL) or members voluntary liquidation (MVL). In most circumstances, the MVL process will be cheaper than the CVL process as solvent companies will usually not have lots of debts to settle and litigation action is less likely. However, the costs of a CVL can be low where the company is small with a straightforward structure and few debtors.

Company Complexity

In a similar vein, the complexity of the company and its accounts will affect the overall cost of liquidation. A number of factors come into play here, including the number of assets that need to be realised, the number of creditors and the size of the company. Ultimately, the more that needs to be resolved before the company can be formally closed, the greater the cost. 

Employee Redundancy

If the company has employees, redundancy payments will need to be made in line with government rules and regulations and these will add to the overall cost of liquidation. Employees are classed as preferential creditors when assets are distributed to creditors. This means that they must be paid ahead of shareholders should funds remain at this stage.

Legal Matters

The fee charged by the insolvency practitioner is not the only kind of professional fee you can expect to encounter when liquidating a company. In more complex liquidation cases, there may be legal disputes to settle and these will command additional legal fees.

How Are Liquidation Costs Paid?

If your company is forced into compulsory liquidation after being issued with a winding-up petition from HMRC, liquidation fees are paid by the party petitioning for your company to be wound up. If your company is liquidating on a voluntary basis – either a CVL or an MVL – then your company is responsible for its own liquidation fees. 

In most cases, the costs associated with liquidation are paid for with company assets during the asset realisation process. Many companies may think that they cannot afford to liquidate because they don’t have the cash, but the asset realisation process can often recover the money needed to cover the costs e.g. through the sale of physical assets like stock and property. Like employee costs, these costs will need to be paid ahead of any payments that may be made to creditors as per the order of creditors in liquidation.

What Happens If A Company Cannot Afford Liquidation?

If the company cannot cover its own liquidation costs with existing funds or assets, responsibility for payment then falls to the directors. While this can be a stressful thought for any directors affected, there are a number of steps that can be taken to manage the costs of liquidation should they become your responsibility.

In many cases, the insolvency practitioner will agree to a payment plan or an arrangement that involves using any payments made towards overdrawn director’s loan accounts as payment for liquidation costs. Directors may also qualify for redundancy payments from the Redundancy Payment Service (RPS) and these funds can pay for liquidation fees. A good insolvency practitioner should talk you through all of these options if you find yourself liable for the cost of liquidation, allowing you to proceed with a full understanding of your situation. 

Speak To An Expert

Given that the cost of liquidation can vary significantly depending on company circumstances, you must speak to an expert as soon as possible if you wish to liquidate your solvent or insolvent company. 

The team of licensed insolvency practitioners at My Liquidation are always happy to help you better understand your options and will work with you to help you liquidate your company in the most cost-effective way possible. We have a range of experience, including with cases where the process costs nothing extra as the company has suitable assets or facilitates a suitable redundancy payment for directors. Get in touch today to find out more and get a quote for liquidation costs for your business. 

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