When looking at the cost of Liquidating a Company, it is important to differentiate between the types of Liquidation as the costs differ significantly between the processes.

The different types of liquidation:

• Creditors’ Voluntary Liquidation – an insolvent liquidation instigated by the Directors in which the Company’s assets are worth less than the total amount it owes out to its creditors.
• Members' Voluntary Liquidation – a solvent liquidation instigated by the Directors in which the Company’s assets are worth more than the total amount it owes out to its creditors.
• Compulsory Liquidation – an insolvent liquidation ordered by the Court following a winding up petition issued by one of the Company’s creditors as a result of unpaid debts.
• Dissolution – not a type of liquidation but the method by which a Company with no assets and no liabilities is removed from the Register at Companies House.

The Cost of Creditors’ Voluntary Liquidation (known as CVL)

Putting a Company into CVL involves the Directors appointing a Licensed Insolvency Practitioner (also called an ”IP”) to prepare statutory notices to go to the Company creditors and shareholders in order to convene a decision process to place the Company into Liquidation. The IP will also prepare the required statement of affairs and report to creditors on behalf of the Directors.

Typical costs for this process range from approximately £3,000 plus VAT for very straightforward CVLs with minimal creditors and no assets through to £6,000 plus VAT for more complex cases with numerous assets to deal with and multiple different types of creditors and employee claims.

Very complex cases involving Companies with multiple trading locations and high numbers of employees and creditors can of course cost considerably more but these are unusual amongst small to medium sized Companies. Cases of this nature will have high asset values in any event from which the Liquidator would be able to draw the costs.

Ways to meet the costs of CVL

There are 2 main ways in which the costs of a CVL can be met:

1. The Company’s asset value is high enough to meet the costs

In any Liquidation, the Liquidator’s fees and costs are the first thing to be paid out of any asset realisations.

This means that if the Company has assets worth in excess of the quoted costs of placing the Company into CVL, the Liquidator will simply sell the assets and take their costs from the proceeds.

Overview of Costs of Liquidation

• Creditors’ Voluntary Liquidation (insolvent) typically costs between £3,000 and £6,000 with the fees taken from the sale of assets where possible. You may be eligible to claim redundancy and other employment entitlements.
• Members' Voluntary Liquidation (solvent) typically costs between £2,000 and £5,000 with the costs being far lower than the tax benefits of the process.
• Compulsory Liquidation (insolvent) is instigated by your creditors so carries no cost. You will have no control whatsoever over this process as the Liquidation is subject to a Court hearing.
• Dissolution only carries the cost of Companies House filing but the Company must have no assets or liabilties and meet all other statutory conditions for dissolution.

If there is any surplus after paying fees, these are then distributed to the different classes of creditors on a pro-rata basis.

It is worth noting here that if you as a Director wish to buy back the assets then you are free to make an offer for them. The Liquidator will instruct an agent to sell the assets and if the agent thinks your offer represents the best price they can achieve then you can buy them back.

If you do buy the assets, then the Liquidator can draw their costs from the proceeds so you would not have to pay the fees on top.

2. The Company doesn’t have any assets or they are not worth enough to cover the costs

If the Company doesn’t have any assets or they aren’t worth enough to cover the costs of the CVL then it will fall to the Directors to fund the difference if they want the CVL to be able to go ahead.

You might then ask yourself, why would you want to pay to Liquidate the Company and what’s in it for you? The answer is usually threefold.

• First, by placing the Company into CVL, you are immediately able to free yourself of creditor pressure by proactively doing something about the fact the Company is insolvent rather than leaving the creditors in limbo. This usually comes with a predictably welcome reduction in stress for you as a Director as you will no longer need to deal with irate calls from creditors chasing payment.
• Second, the IP can immediately deal with advising employees about their rights and deal with notification to the redundancy payments service thus providing some much needed certainty to your staff.
• Third, you ensure that you avoid any unnecessary breaches of your duties as a Director by getting expert advice and support in place straight away. Don’t forget that if you don’t take action to Liquidate the Company then it remains live and all of your normal statutory duties apply.

How to pay when finances are already tight

As Insolvency Practitioners, we understand that if you find yourself having to Liquidate your Company, your finances are almost always bound to be tight. Because of this, we will always work with you to agree a payment plan that is sensible and manageable for you whilst also being sustainable for us. Every Director’s circumstances are different so what this plan looks like will be tailored to you.

If you have been on the Company payroll, you are also likely to be eligible to claim redundancy and other statutory payments as an employee which could help you to set off some or all of the costs of Liquidating. You can get a rough idea of what you might be entitled to claim by using our Redundancy Payments Calculator but bear in mind you can only make a claim through the Redundancy Payments Service if the Company is placed into Liquidation.

The Costs of Members' Voluntary Liquidation (known as MVL)

In an MVL, the assets of the Company are always worth more than the liabilities and so the Liquidator will always be able to draw their fee from the assets.

Typical costs for an MVL range from around £2,000 plus VAT for simple cases with no creditors and a distribution of cash to 1 shareholder to around £5,000 plus VAT for cases in which there are still creditor balances to deal with and multiple assets to distribute.

Occasionally, cases involving a wide range of assets and very complex creditor positions and ownership structures can cost considerably more and so would need to be costed out on a case by case basis.

What about Compulsory Liquidation?

Unlike CVL and MVL which are instigated by the Directors, Compulsory Liquidation results from a creditor issuing a winding up petition to the Court. Because of this, there is no cost to the Company or Directors.

The obvious side effect of this is that you have no control whatsoever over when or even if the Liquidation process takes place and so can be left in limbo with a Company that is insolvent but also unable to formally wind up. During this time, your duties as a Director remain and so you are left not only with having to deal with disgruntled creditors and employees but also the risk of personal liability should you breach any of your statutory duties.

Additionally, the Company’s bank accounts will be frozen as soon as the winding up petition is advertised leaving you unable to pay wages or suppliers.

With all of the above in mind, it is obviously preferable to take control of the Liquidation process if you can rather than suffer the stress and risk of just letting things carry on.

Where does Dissolution come in?

Dissolution is the process by which a Company which has no assets or liabilities is removed from the register at Companies House.

If your Company is in this situation and meets the other qualifying criteria listed at Companies House then you can simply file the appropriate DS01 form at Companies House online. The Company will then be dissolved after 3 months.

How We Help

If you are looking to place your Company into Liquidation it is important to make sure that you get the right advice. This is particularly true if your Company is experiencing financial difficulties as you are likely to be under pressure from creditors and may be beginning to suffer with the stress of the situation. In these circumstances, finding supportive and well structured advice as soon as possible ensures that you have the maximum number of options available and can also go some way to alleviating some of the pressure you are under.

At The Insolvency Helpdesk, we aim to provide you with online access to the information you need to understand the basics of how to liquidate a Limited Company. You can then call us for advice specific to your business circumstances in the knowledge that you will better understand these options and the advice given. We operate throughout the UK and all advice is provided by Licensed Insolvency Practitioners with years of practical experience.

Whatever your situation, taking control of the Company closure process through Voluntary Liquidation will give you more options and greater certainty. We will always work with you to help you achieve the best outcome you can in the most affordable way possible so please call us free on 0800 066 3122