Placing a company into liquidation will necessarily involve the payment of professional fees but what if I can’t afford to liquidate a limited company?
In circumstances when the directors are looking to close down a small company, they will often need to take responsibility for the payment of the liquidator’s fees. However, if they simply are unable to afford to do so then the company’s assets may come to the rescue. Ultimately it is the company as a separate legal person who ideally will pay these fees.
How To Liquidate A Company With No Money
If the company has any assets such as equipment, stock and customer book debts then these can be realised to pay such fees so all is not lost.
Understanding Liquidation Costs
Liquidating a limited company involves various fees, including those for the Insolvency Practitioner who is to be the liquidator, legal expenses, and disbursements such as statutory advertising in the Gazette and, the Insolvency Practitioner Bond. The total sum could amount to a reasonable sum of money.
Options When You Can’t Afford Liquidation
Creditors Voluntary Liquidation
If your company is insolvent and it seems you can’t afford liquidation, a Creditors Voluntary Liquidation (“CVL”) might still be an option. It might be cheaper than you think. Under Rule 6.7 of the Insolvency (England and Wales) Rules 2016 the expenses of the statement of affairs and decision procedure to put the company into CVL are specifically permitted to be paid from the company’s assets.
In a CVL, the directors agree to voluntarily wind up the company’s affairs, but it’s handled by a Licensed Insolvency Practitioner. If your company has assets, these can be sold to cover some or all of the liquidation costs. If the assets aren’t enough, you as then you might need to contribute to bridge any shortfall.
Some Insolvency Practitioners may be prepared to be flexible with their fees structure. Some may act on a fixed fee basis for a CVL and others may want their time costs covered. You can always try to negotiate. You may also be able in some cases to pay the fees over a period of time, particularly if you as director are contributing and the company has insufficient assets.
Compulsory Liquidation
If you can’t afford voluntary liquidation to liquidate a limited company that is insolvent, creditors might force your company into compulsory liquidation by petitioning the court. While this isn’t an ideal situation, the responsibility of liquidation initially goes to the Official Receiver who is appointed as the liquidator. However, this might be considered less attractive because creditors may consider the directors have pushed further costs onto them and left it too late, thereby having not been proactive in addressing the company’s financial position.
Company Dissolution Or Strike Off
For companies with little or no debt, dissolution of the company through using a DS01 to strike off a company might be a more affordable option. This process involves applying to Companies House to remove the company from the register. It’s simpler and cheaper than liquidation but comes with restrictions. It is generally unsuitable for a company with debts but it is possible if the rules are assiduously complied with.
Negotiating With Creditors
If liquidation costs are prohibitive then an alternative to formal liquidation may involve negotiating with your creditors. Some creditors may agree to a payment plan or reduced settlement terms if they have transparency of information that enables them to understand the reason for company’s financial difficulties. Such communications can be effective.
You might be able to delay the need to liquidate immediately if revised payment terms are agreed but beware of doing so without having all the major creditors properly on board. Ensure that all agreements to revised payment terms with creditors are in writing so that disputes do not arise later. You would not want for example for there to be suggestions of trading without such agreement and the implications arising from the risk of wrongful trading.
Exploring Alternative Funding
If liquidation is the only viable option but funds are short, you may be able to explore alternative funding sources. This might include personal loans, borrowing from friends or family, or even selling personal assets. While these options come with their own risks, they might provide the necessary funds to cover liquidation costs.
This may involve the director having to make some personal sacrifices to source the finance to pay for the liquidation. However, this short term price can pay off in the longer term for you.
How Oliver Elliot Can Help
Navigating insolvency and liquidation laws can be complicated. We can help you seek advice from an Insolvency Practitioner such as us through our CEO, Elliot Green at Oliver Elliot to help you understand all your options and the potential consequences of your proposed actions. We understand this may be very worrying but Elliot Green has been helping directors in such instances for over twenty years so get in touch and contact us.
