Winding up a company that is unable to pay its debts involves the appointment of a licensed insolvency practitioner (IP). The process is called a Creditors’ Voluntary Liquidation, or CVL, and if you decide to take this route the liquidator will control the business on appointment.
Closing a limited company in this way prioritises the interests of creditors, which is a major factor in any insolvent situation. The liquidator will identify all the company’s assets and liabilities, value and sell the assets, and distribute the proceeds to creditors in the statutory order prior to closing the company down.
As well as potentially being the best option for creditors, voluntary insolvent liquidation is also an appealing option for directors who fear misconduct accusations, or allegations of wrongful trading following the liquidator’s investigations.
Because you have proactively entered liquidation and placed creditor interests to the fore, it is less likely that action will be taken against you. An issue of cost for the liquidator’s services does arise, however, and it is not uncommon for directors to feel that the process is out of reach financially.
Begbies Traynor is the UK’s largest professional services consultancy. Our licensed insolvency practitioners are available to provide professional advice, or appointment as liquidator.
The liquidation fee will vary according to the size of the company, and the amount of work involved. Costs can range from around £4,000-£5,000 plus VAT for small limited companies with few assets.
This figure can be considerably higher for larger companies owning a number of assets, due to the additional complexity and time needed to wind up the company. So with this in mind, what are a liquidator’s duties during the process?
When a liquidator takes over control of an insolvent company they must value and sell any assets, and distribute funds among creditor groups in the prescribed order. The office-holder also undertakes investigations into the directors’ conduct during the time leading up to insolvency.
The costs incurred by an office-holder when liquidating a large company are bound to be higher than those for a small business, but there is a way in which you might be able to fund the process, regardless of the company’s size.
It is not commonly known, but under certain conditions limited company directors can claim redundancy pay and other statutory entitlements. These could then be used to fund a Creditors’ Voluntary Liquidation.
The average payout for director redundancy is £12,000, so it is certainly worthwhile considering whether or not you are eligible. You need to have worked under a contract of employment continuously for the company for a minimum of two years – although a contract of employment can be written, oral, or implied, your status as an employee may be easier to establish if you have a written contract in place.
Other eligibility criteria include:
Working a minimum of 16 hours per week for the firm
Being owed money by the company – this is often an initial investment
Carrying out work that is more than advisory or non-executive
Some directors choose to fund a CVL process using their own personal funds, either in full or in part. Selling your own assets could boost the money available to pay liquidator fees, and if other directors take the same action, you may be able to cover all the costs.
Other directors choose to use personal savings to pay for their company’s liquidation. In the long-run, you should consider the potential ramifications of not entering a CVL – you might be forced into compulsory liquidation by a creditor, after which investigations into your conduct will be more stringent.
Begbies Traynor can offer professional advice and assistance if your company is considering voluntary insolvent liquidation. We will provide impartial advice on the best options bearing in mind your statutory duties as a director. Call one of the team to arrange a free same-day consultation to discuss your needs – we operate from 46 offices nationwide.