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If you are a Director of an insolvent company, Oliver Elliot can help you address your concerns and explain how is a Liquidation paid for

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Liquidation Help

In an ideal world, the answer to the question ‘How Is A Liquidation Paid For?’ would be by the assets of the company that is going into Liquidation. But what if the company has no assets?

How Is A Liquidation Paid For When There Are Assets?

The answer to the question of how is a Liquidation paid for when there are assets is unsurprisingly from the assets of the company. It is entirely correct and proper for the cost of a Liquidation to be paid by the company itself.

If a Limited company has sufficient assets to pay for a Liquidation then the Insolvency Practitioner who has been appointed as the Liquidator will realise the company’s assets, pays the costs of agents used to sell such assets and then use the proceeds of sale left over to pay for the other costs and expenses of the Liquidation.

How Is A Liquidation Paid For When There Are No Assets?

It is to be expected that a company that needs to go into Liquidation will often have no assets because trading losses and prior sale of the assets will often have depleted the company of all of its property. This then leads to the more challenging and less obvious answer to the question of how is a Liquidation paid for when there are no or insufficient assets?

If the company to be placed into Liquidation has insufficient assets to pay for all the costs and expenses of the Liquidation then there are a number of options available to pay for the Liquidation.

The Directors Personally Pay For The Liquidation

A responsible step for the Directors to take is to plug any gap between the level of the company’s remaining assets and the costs of a Liquidation. Creditors will have suffered losses and as a result, they deserve an orderly winding up of the company’s affairs. Liquidation is the route to resolve that position to enable creditors to have the best chance of getting a dividend as quickly as possible.

If a Liquidation process is started quickly it will likely limit the future costs and thereby preserve any of the remaining assets that otherwise might get eaten up in other expenses such as preparing annual accounts and corporation tax returns. Once a Liquidation is required it is generally better if it is undertaken as soon as possible.

If the Directors pay for a Liquidation then they will be able to conceivably claim as a creditor and recover some of their outlay to pay for the Liquidation if any recovery were to arise. This might be unlikely but it can and does happen.

Even if the Directors consider it unlikely they are unable to pay for the Liquidation there are options available that you can talk to us about. You might however generally find that a Liquidation costs far less than you envisage. Shop around and you might find a wide range of quotations for a Liquidation.

Making A Claim For Redundancy

If as a Director of a Limited company you have been employed by the company on its payroll, then you will be able to make a claim for redundancy provided you have been employed for more than two years and you are owed money in accordance with the terms of your employment with the company.

This may enable you to claim sufficient sums to enable you as a Director to pay for the Liquidation.

This is frequently marketed as a route to enable a Director to pay for a Liquidation. However, the problem with this is that it is not guaranteed and there are circumstances in which a Director might not be aware that a claim to the Redundancy Payments Service can be rejected, such as when there is a Phoenix company involved that has taken over the employees.

Creditors: How Is A Liquidation Paid For

There are other alternatives as to how a liquidation can be paid for. An example would be that a creditor issues a Winding Up Petition and forces the company into Compulsory Liquidation. The effect of that is that the Directors will then have to attend on the Official Receiver and be subject to an investigation by the Insolvency Service instead of by a Voluntary Liquidator. The cost of the Liquidation process then falls on the Insolvency Service in the first instance which is an executive government agency.

How Is A Liquidator Paid?

A Liquidator is paid subject to the approval of creditors. Without such approval either the Liquidator has no entitlement to a fee or he or she has to apply to Court for their fees to be approved.

Typically a Liquidator can be paid in a number of ways:

  • on the basis of their time spent by themselves and their staff
  • fixed fee basis
  • percentage of asset realisations

The remuneration of a Liquidator is subject to strict and rigorous regulatory scrutiny. You can review those rules in Statement Of Insolvency Practice Number 9.

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Disclaimer: How Is A Liquidation Paid For?

This page: How Is A Liquidation Paid For?  is not legal advice and should not be relied upon as such. This article How Is A Liquidation Paid For? is provided for information purposes only. You can Contact Us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.