It is true that the liquidation process comes at a price, which can be a real hassle for business owners, as in almost every case, the reason a business enters liquidation is due to the financial issues they’re facing at that time.
As your business venture enters a phase where it becomes financially unstable and riddled with cash flow issues, it can be inevitable that you’ll have to file for liquidation. The first thing you should do is contact us here at Business Insolvency Helpline, as we can aid you in making the key decisions on dilemmas. For example, whether a formal liquidation procedure is the best option, or whether other routes, such as a voluntary arrangement, refinancing or a dissolution, would be more suitable to your individual situation.
Once you’ve considered all alternatives, if liquidation is decided as the best possible action to take, costs relating to the liquidation will be discussed. As well as all other details that’ll be looked into as your business begins to go through the liquidation process.
What if I can’t afford to liquidate my company?
There are many reasons why you may not be able to pay an Insolvency Practitioner to liquidate your company. It my be that you are owed money from your customers and they are holding back funds while you have employees to pay, leaving nothing in the bank. A customer may have entered insolvency leaving you with unpaid invoices, or your bank account may be frozen due to a winding up petition, there are many reasons while a company cannot afford to liquidate.
Once you begin to become concerned with the costs of this process, it’s wise to first seek out your accountant or an insolvency practitioner. They will help you to decide whether you need to formally liquidate the company or if you can dissolve the business and have it struck off at a Companies House. If the latter ends up being the case for your situation, you’ll need to be advised in order to ensure you’re doing things correctly, though this will prove to be the more cost effective of the two methods.
If your business is majorly struggling and can no longer pay off its debts, you will most likely need to file for a formal insolvency liquidation procedure; the procedure will need to be fronted by a licensed insolvency practitioner.
One of the most common ways of closing a limited company is going down the Creditors Voluntary Liquidation (CVL) route. The directors of the company would be the people to make the decision to enter a CVL as it is not a compulsory liquidation being forced on them by a creditor. Opting for a voluntary liquidation, rather than a compulsory one, may well be more expensive at first as you’ll have to pay fees attached to the liquidator, though it does in return offer you more control of the process overall, meaning it can be less costly in the long run.
If you decide to wait for a compulsory liquidation, you run the risk of being investigated for fraudulent trading and wrongful behaviour more thoroughly. If you are then found to be guilty of anything relating to this, you’ll be personally liable for all company debts.
Who pays the liquidator fees
A limited company is a separate legal entity and therefore it is normally responsible for all costs of its own liquidation. If a company is insolvent this means its liabilities outweighs its assets, in reality this means there is vary limited liquidity within that entity. If the costs cannot be found within the company such as assets, cash at bank or book debt than the responsibility for paying the liquidator fees lands with the company directors and the following may help to raise funds.
The sale of company assets
As we take on the role of liquidators, we assume the selling of company assets including any and all stock, work-in-progress assets, etc. Typically, your company’s assets will require a valuation by a RICS chartered surveyor. This will work to ensure they are sold for a realistic amount of money, considering the unfortunate circumstances. In most cases, this process can be carried out fairly quickly, but that isn’t always guaranteed to be the case.
Asset realisations cover our costs and fees for completing the liquidation of your company. If the asset realisations are insufficient and don’t cover these costs, you may wish to actually go ahead and pay these fees yourself.
What are my options?
The most commonly used process for concluding an insolvent limited company is a creditor voluntary liquidation (CVL). The directors of a company voluntarily decide to embark on a CVL, which is then agreed to by creditors. By contrast, compulsory liquidation is forced on a company by its creditors.
Opting for a CVL rather than waiting to be forced into compulsory liquidation will give you, as a director, more control over the whole process, which is important if you have ambitions to buy assets from the liquidator and set up a phoenix company to continue trading the business.
Though, sometimes it is a good option to choose your own liquidator and place the company into liquidation from a much earlier point in time. This gets rid of the stress of having to wait for the company to eventually be wound up. All creditor pressure will be gone before it can even really start to begin, and the debt of your company will be put to bed, which is always a great feeling.
It could be less costly than you think
You may be surprised to learn just how low CVL costs can end up being. Of course, getting into contact with us and speaking to one of our insolvency practitioners is the best way to get a confirmation on these costs. It may be possible that we operate on a basis of a fixed fee, whereby we agree to cap fees at a specific level, not allowing you get discover any nasty surprises waiting for you around the corner in terms of unpaid fees.
The sale of company assets to fund the fees
As company assets are sold, the funding made from them can then be directly used to cover other costs of the liquidation process. This is one of the best ways to make funding that gets to be used in a positive way, one that will aid you in handling the closure of your company, as well as the fees that come along with doing so.
Personally raising the funds
Personally raising funds may sound scary at first, or simply unachievable, but it’s probably more commonly done than you think. Selling personal assets to help afford to pay for the liquidation process is a great alternative for those that are struggling with the costs of doing so.
There are some basic life changes you can make to come up with the funds yourself as well, which include, cancelling a holiday you had planned for later in the year, downgrading to a smaller car, or even just using a credit card or personal loan. Loans and credit are dependent on personal credit ratings and circumstances; your personal credit rating will not be affected if you run a limited company regardless of your company’s financial position.
This may sound drastic, but it can be a good option to ensure you follow director obligations and lessen the chances of personal liability in future. Also, if cancelling a planned trip or something of a similar ilk is something you think you’d easily be able to cope with, then do it as it may just be the financial help you need to get through this process with more ease, allowing you to relax and reduce your high levels of stress.
Director’s redundancy pay
In some instances, directors of limited companies may be entitled to redundancy pay. When your company is failing and liquidation begins to seem the likely outcome, it can be a good idea to check if you’re viable for a redundancy payment. You can use this money to help cover the financial costs of your liquidation process.
The reason we mention this is because many people unaware of this type of payment and therefore believe that, when finances are struggling and the company looks like it is heading towards liquidation, there is no help on offer. However, there are many statutory entitlements available in respect of redundancy, notice pay, holiday pay and unpaid wages which may be available to you.
To claim director redundancy payments, you must meet certain criteria, this includes:
- You must be working a minimum of 16 hours a week
- You must be working as an employee for at least 2 years
- You must be owed money from the company
- You must be a director and employee of the limited company. You must work there and receive a monthly wage for all work and hours completed.
- Compulsory Liquidation
If it seems impossible to raise money for a CVL, your business has no viable assets to make money from, you’re only really left with a single option. You’ll have to apply for a winding-up petition and wait to be put into compulsory liquidation.
If a creditor is owed more than £750, they are able to apply for a winding-up petition which initiates the compulsory liquidation process.
A winding-up petition being threatened or issued by a creditor signifies that all other options of repayment of the money owed have been explored and this is the only other option now available. In order for the court to approve the petition, it is a requirement that a creditor demonstrates everything has been done to attempt to collect the money.
Business Insolvency Helpline
By getting into contact with an expert member of our liquidation team today, you can receive a free overlook of all available options to you. You likely wouldn’t be viewing this article if you didn’t feel as if your company was destined for liquidation, so why not see how we could help you through that process?
Contact us and receive free guidance from an expert before making any final decisions about the fate of your business venture. We are available 24 hours a day, 7 days a week. We offer professional and impartial turnaround and recovery advice to get your business back on track no matter what the issues are that you are facing.