How to Liquidate My Company for Free

How to Liquidate My Company for Free

Firstly we will quickly explain what a liquidation is. 

Liquidation is a term used in accounting to describe the process of closing down a company and ceasing trade. When the company is brought to an end, assets will then be sold off and the money will be distributed between shareholders and creditors. 

A liquidation usually happens when a company has become insolvent. This means that they are no longer able to pay back any debts they might owe to creditors.

There are three main types of liquidation:

  • Members Voluntary Liquidation
  • Creditors Voluntary Liquidation
  • Compulsory Liquidation

For more information on the different types of Liquidations you can read our blog: Company Liquidation: What Are Your Options? here.

So back to the original question can you Liquidate your Company for free? 

Liquidations cost money, however where the funds for the liquidation costs can potentially be found elsewhere. 

How Much does a Liquidation Cost?

This will vary depending on the size of the company, also what level of work is involved.

Costs can range from £3000 to £6000 plus VAT for small limited companies with minimal assets. However, these figures can be considerably higher for larger companies owning a larger number of assets. This is because there will be added work and time needed to fully wind up the company. 

When a liquidator has been appointed they will need to spend the time valuing and then selling off the assets that belong  to the company. A decision is then made on the distribution of funds raised in this sale.

The initial fee will be to cover the cost of the insolvency practitioner. They will act as liquidator and will organise the creditor meetings. On top of that, the costs will also cover the time it takes to put together a statement of affairs and section 98 reports. 

As the liquidation progresses, there will be more costs that accrue. This will be to pay for additional duties a liquidator takes on. These other duties are: 

  • Valuing and realising assets owned by the company
  • Helping to advise directors of their duties and legal requirements
  • Helping with the redundancy of staff employed by the company and processing any claims employees make. 
  • Checking the transactions of the company before the liquidation. To identify any inconsistency. 
  • Setting and meeting deadlines for paperwork. 
  • Clear communication with the relative authorities such as HMRC, Companies House etc. 
  • Distributing funds made from the sale of assets to the appropriate creditors. 
  • Collecting debts owed to the company or directors. 
  • Alerting creditors every 12 months of the progress of the liquidation.

Can I Liquidate the Company Myself?

Technically an individual can independently carry out the process of liquidating assets. Especially if they just wish to pay off debts but carry on trading. 

However,

To wind up a company and cease trading you will need a licensed insolvency practitioner. This process can’t be done by anyone else. 

Formal insolvency procedures such as voluntary and compulsory liquidations can’t be done by the individuals running the company. 

If your company is insolvent and you need to liquidate; we’d suggest speaking to an expert right away. Get in touch with us here at Anderson Brookes and we’ll help you understand your options. 

This way you can avoid being accused of wrongful trading should inconsistencies show in the process of individually liquidating your company. Wrongful trading can be classed as undervaluing assets or taking out loans while still owing debts to other creditors.

Do you need help or advice on Company Liquidations?

How can I Pay for a Liquidation?

You have a number of options when it comes to covering the cost of a liquidation these are:

Personal Funds

You can pay for a liquidation using personal funds. This can be in full or part-funding the costs. 

Raising the funds could come from selling personal assets and if there are multiple directors of the company, collectively you could cover the costs. 

Personal savings can be used and also personal loans. As long as the loan is taken in the name of the director and is in no way associated with the company, then this should be an acceptable method of paying for the liquidation.

Directors Redundancy

Most company directors will be entitled to redundancy pay. Many people assume that when a company fails the directors will lose money and not be able to claim redundancy. 

In fact, this is something we do on a regular basis for directors of companies who can’t afford the costs of liquidation. The redundancy claim can potentially pay the fees. 

A director is still classified as an employee of the company, you may still be entitled to statutory settlements. 

The director can choose to use their redundancy pay however they please. Some choose to fund the liquidation process. This is usually when they fail to have any personal assets or company assets to sell. 

The criteria for redundancy pay is:

  • You need to be working a minimum of 16 hours per week.
  • You need to have been working (with a contract of employment) for the company for at least two years.
  • The company owes you money. This includes any money you might have invested and unpaid wages.

Sale of Assets

If the company has a large amount of assets. Then selling those assets should generate the cash needed to liquidate the company as well as payback debts. 

This is usually a more attractive option for directors as the assets are usually classed as capital and have no impact on the directors personal and earned money. 

An insolvency practitioner will be able to liquidate assets to generate funds and divide them accordingly between creditors (in prescribed order) and towards the insolvency procedure. Any money left over when the liquidation is complete will be distributed to shareholders. 

So essentially, any liquidation fees and costs could come out of the sale of the company assets.

Will I have to pay when issued with a winding-up order?

If your company has been issued with a winding-up order, then that means a liquidator has been appointed to force the closure of the company. 

As a winding-up order is issued by the court, this would mean a creditor has paid a fee to have your company wound up. It’s done by applying for a winding-up petition and is usually a last resort action for creditors that have been unsuccessful with recovering debts your company owes. 

It would not cost you, as the owner or director of the company, to pay for your company to be wound-up this way. This is because you will have no choice in the matter and your company will be closed whether you want it to or not. The costs and fees for the liquidators will come from the selling of assets and fees paid by the creditors. 

However, if you wish to stop or halt the winding-up procedure. You may be able to pay off the creditors who have the winding-up order placed against you. So this would incur some personal costs. 

Conclusion

So can you liquidate a company for free? 

Free, as in no money whatsoever then no. A liquidation costs money, to appoint a liquidator you will need to be able to pay them. 

However, the fees to cover the cost can come from other means, rather than needing to use your personal finances. 

If you are looking to liquidate, but you are struggling to find the fees to pay for it. Then get in touch with Anderson Brookes today. We can help you find the best solution for the closure of your business.

Do you need help or advice on Company Liquidations?

By |2020-01-09T11:34:49+00:00January 7th, 2020|Financial|0 Comments

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