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How much does it cost to liquidate a company?

Posted on: Friday 24th January, 2020

How much does it cost to liquidate a company?

An insolvent company is liquidated through a formal process known as a Creditors’ Voluntary Liquidation (CVL) which must be administered by a licensed insolvency practitioner and this unfortunately does come with a financial cost attached.

The exact price varies depending on the position of the business which is being closed including the extent and complexity of its debts and assets, however, you should expect to pay around £4,000 + VAT for a straightforward liquidation of an insolvent company under the direction of an insolvency practitioner.

How do I pay for the liquidation costs if my company is insolvent?

If your company is insolvent, you may be concerned as to how you are going to be able to meet the cost of placing it into liquidation, and maybe even considering whether it is worthwhile going down this route at all. However, as the director of an insolvent company you have certain legal responsibilities you must adhere to meaning burying your head in the sand is not an option.

The good news is that in many instances, the cost of the liquidation is taken directly from the company’s assets. Assets could take the form of cash at bank, as well as tangible assets such as vehicles and machinery, or even intangible assets such as the company’s debtor ledger.

However, should the company not have an adequate level of assets to fully cover the cost of the liquidation, the directors will need to pay for the liquidation on the company’s behalf.

While this is not an ideal situation to find yourself in, there are many benefits in opting for a formal liquidation process as opposed to trying to dissolve the company through a strike off application which makes the financial outlay well worth it.

Why should I choose liquidation over company dissolution?

Once you know your company to be insolvent you must take appropriate steps to ensure you are not engaging in any activity which could expose your creditors to further losses. This may mean that you need to stop trading immediately; in other cases, it may be beneficial to creditors for you to continue trading particularly if you are in the middle of a lucrative contract. However, rules surrounding insolvent trading are complex and the advice of a licensed insolvency practitioner will help ensure you are acting within the law.

Not only will opting for a formal liquidation process protect your creditors from further losses and ensure you are adhering to your responsibilities as a company director, but you may also be eligible to claim director redundancy which could be a financial lifeline during what is likely to be a stressful time both mentally and financially.

You should note that it is not possible to claim director redundancy following the dissolution of a limited company; in order to qualify, the company must have been through a formal liquidation procedure.

Director redundancy on liquidation

If you are classed as an employee of the company as well as its director, you may be entitled to claim redundancy and other statutory entitlements when it enters liquidation. So long as you carried out day-to-day activities in the business and drew a regular salary through PAYE, it is likely you will have a legitimate claim for director redundancy. The amount you will be entitled to will depend on a number of factors including your age, how long you have been working for the company, and the salary you were paid during this time.

The average claim amount for director redundancy is £9,000 and all directors of an insolvent company are able to submit their own claim. This means multiple directors can receive a pay-out on the back of the liquidation of one company; a common example of this is when a company is structured with a husband and wife as co-directors.

So whilst going down the route of liquidation may initially seem costly, in many cases this can be outweighed completely by the possibility of a valid redundancy claim. Directors can even find themselves financially better off even after paying for the company liquidation using personal funds.

Considering liquidation but worried about how to pay for it?

If you are considering liquidating your insolvent company, speak to a director redundancy expert to find out whether you could be eligible to claim. Knowing this information could help you make a more informed decision as to the future of your company. Find out how much you may be able to claim by using our calculator, or call 01625 881 134 to speak to an advisor.


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