Who Pays For The Cost Of Liquidation?

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When a company becomes insolvent and cannot afford to pay its liabilities, liquidation is often the best course of action. This involves closing down the company and liquidating the assets in order to repay the money that is owed to creditors. However, as many businesses that are considering liquidation are those already in financial difficulty, one of the most common concerns that people have is how to pay for the cost of liquidation. Who is responsible for paying for the cost of liquidating a company and how are funds raised for this? Let’s find out.

The cost of liquidation is the responsibility of the insolvent company. The liquidator’s fees, also known as remuneration, need to be signed off by creditors. During the liquidation process, creditors have the right to form a liquidation committee to monitor costs. Creditors are granted full transparency in regards to fees and have the right to challenge costs at any time. The cost of liquidation is determined by either of the following factors:

  • fixed fee
  • percentage of money retrieved
  • time cost basis

If you’re the owner or director of an insolvent company that’s facing liquidation then you’re likely to be concerned about how to raise the funds to pay for it. However, there are 3 different ways that the cost of liquidation can be paid for. These are:

Sale Of Company Assets

An essential part of the appointed liquidator’s role is to ‘realise’ or sell company assets and use them to pay creditors. If there is any available funds leftover, this can be put towards the cost of liquidation. In most cases, the sale of assets should be enough to cover the full cost of the process.

Directors Redundancy Payments

Whilst it’s more common knowledge that employees of an insolvent company will receive redundancy payments, it’s less well known that directors are also entitled to redundancy payments. Directors can make a claim from the National Insurance Fund and receive payment for outstanding wages, holiday pay and more. 

Directors Personal Funds

If a director cannot claim redundancy payments and there are no assets to sell, it may fall upon the directors to pay the cost of liquidation from their personal funds. This is very unlikely, as in most cases the funds are easily covered by the sale of the assets. It is only on the rare occasion that company funds cannot cover the cost, that the responsibility will fall onto the directors themselves.  

What Happens If I Can’t Afford The Cost Of Liquidation?

It’s important to emphasise that in most cases, the proceeds made from the sale of assets are enough to fund the cost of liquidation. It’s very rare that directors are personally liable for paying the liquidator’s fees. If you are concerned about the cost of liquidation, please don’t hesitate to get in touch with our experienced team of insolvency practitioners. We’ll be able to talk you through the best options that are available to you. 

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