Company Liquidation – What will it cost to close my company?

Company Liquidation – What will it cost to close my company?

If you need to close your company, there are costs involved which often need to be borne by the directors. However better this than waiting for a winding up order and risk being left liable for company debts.

If a company needs to be closed because it is unable to pay its creditors and is at risk of being wound up, a process called voluntary liquidation should be implemented.

The directors of the company must first appoint an insolvency practitioner. If the insolvency practitioner agrees that the business should be closed, a meeting of creditors will be held. The creditors will normally appoint the insolvency practitioner as the liquidator at this meeting.

The liquidator is in charge of the closure process.

Liquidation charges

An insolvency practitioner will generally charge between £4000 and £7000 to liquidate a company. This fee will be paid by the company itself if there are any available funds. If you see or hear an insolvency firm charging less that this be very wary.

If funds are limited, the fee can be paid through the sale of the company’s assets.

However, if there are no funds or assets available, the directors will be required to pay the insolvency practitioner’s fee themselves.

Compulsory winding up may lead to director’s disqualification

As an alternative to paying the charge for closing the company, many directors question whether it would not be better just to stop trading and leave the company for the creditors to wind it up if they wish.

The problem with this strategy is that the directors then lose control of the closure process.

Generally the business will have outstanding tax debts. As such, HM Revenue and Customs is likely to issue a compulsory winding up petition against the company. If this is granted, the court will appoint a liquidator.

One of the tasks of the liquidator is to investigate the conduct of the company directors. Where the directors have simply abandoned the business, it is more likely that a court appointed liquidator will find that they have been at fault and may look to accuse them of wrongful trading.

Such an accusation could lead to the directors being disqualified or becoming personally liable for some or all of the company’s debts.

Can the business be saved instead of liquidated

Closing the business may not always be the answer if a company is struggling to pay its debts. Directors should always fully investigate the alternative options:

Company Voluntary Arrangement (CVA) – a CVA is an agreement with a company’s creditors to reduce debt payments to an affordable amount and will normally involve writing off a significant amount of the company’s debt. A CVA can be implemented for far less than the cost of liquidation.

Pre Pack Administration (Phoenixing) – Pre pack administration allows a brand new company to buy the assets of the old failing business and then continue to trade without the burden of any debts.

These alternatives to liquidation are used to save businesses every day. As such, before making a decision to close your company, it is very important to get advice and investigate whether there might be an option to save the company.

However, where the company cannot be saved and there are no available assets, the directors will generally be required to pay for its closure.

This should always be the preferred closure route. Leaving the company to be compulsorily wound up by its creditors will put the directors at increased risk of disqualification or personal liability for company debt.