Creditors’ Voluntary Liquidation (CVL) Costs
A Creditors’ Voluntary Liquidation (CVL) is the most common route for insolvent companies in the UK. It is a formal process initiated by directors when a company can no longer pay its debts as they fall due.
In the UK market, the fee charged by an insolvency practitioner (IP) for taking a company into CVL is typically between £3,000 and £6,000, although this can increase depending on the complexity of the case.
Factors such as the number of shareholders and creditors, asset levels, and record quality will influence the final fee. This cost is agreed upfront with the directors and can be paid out of any funds in the company, for example cash at bank, paying debtors or the sale of assets. Should the company have no funds or assets, the directors are usually asked to make a personal contribution.
Once a company is in liquidation, the IP and their team will spend many hours working on the liquidation. The key liquidation activities include; investigating the events leading to the liquidation; writing a confidential report to the Insolvency Service; communicating with creditors; selling any remaining assets; collecting debts owed to the company; and writing reports.
Completing the liquidation of a company can therefore take anything from 6 months to many years, although a typical duration is 12-18 months. During this period the fees accrued by an IP and their team can range between £10,000 and £25,000, or more in exceptional circumstances.
The IP can draw these fees from any funds held in the liquidation however, approval first needs to be sought from creditors. If there are insufficient funds in a liquidation case, these fees will be written off. Unlike the fee for taking a company into liquidation, directors will not be asked to make a personal contribution towards these fees.
Members’ Voluntary Liquidation (MVL) Costs
A Members’ Voluntary Liquidation (MVL) is used to close a solvent company — one that can pay all of its debts in full within 12 months.
MVL costs differ from CVL costs because the process is generally more straightforward and involves distributing surplus assets to shareholders rather than dealing with creditor claims.
As a result, MVLs are often less complex administratively. Typical MVL costs in the UK range from £2,000 to £4,000, although this can increase where there are multiple assets or complex distributions involved.
The cost of an MVL is influenced by factors such as:
- The number of shareholders receiving distribution
- The number and type of assets being distributed
- The need for asset valuations
- The involvement of accountants to prepare final accounts
While tax considerations often arise in MVLs, these are usually handled alongside professional advisers rather than forming part of the liquidation fee itself.
For companies with significant retained profits or assets, an MVL can be a more tax-efficient way to extract these, compared to taking income or dividends, and the company is dissolved once the liquidation is complete.
Compulsory Liquidation (Winding Up) Costs
Compulsory liquidation occurs when a creditor, often HMRC, forces a company into liquidation through the courts via a winding up petition.
In this case the petitioning creditor pays for the cost of taking the company into liquidation, which is via a petition to the Courts. These costs will include Court fees of £2,600 plus the legal expenses involved in drafting the petition and attending the court hearing. These are recoverable out of any funds or realizable assets in the liquidation.
Once a company is placed into compulsory liquidation, the Official Receiver is appointed by the Court and a fixed fee of £15,000 is charged to the liquidation by the Insolvency Service. Creditors also have the option to request an Insolvency Practitioner (IP) be appointed Liquidator in place of the Official Receiver, at which point they will be entitled to charge for their time spent managing the liquidation.
However, as with voluntary liquidations, fee approval needs to be sought from creditors and can only be taken if there are sufficient funds in the case. Otherwise, these fees will be written off. There is no requirement for directors to contribute towards fees in a compulsory liquidation.
Do you have to pay taxes on liquidating?
When liquidating a company, there is not usually a separate “liquidation tax” to pay. However, the fees charged by the Insolvency Practitioner for handling the liquidation will typically be subject to VAT, which the Insolvency Practitioner firm must declare through its own VAT returns.
Depending on the type of liquidation and the company’s circumstances, there may still be tax implications for directors or shareholders when funds are distributed, so it is important to seek professional advice based on your specific situation.
Can I just walk away from my limited company?
No, simply walking away from a limited company is not usually advisable. Directors have legal responsibilities and duties, and abandoning the company could leave them in breach of those duties, particularly if the company has outstanding debts, employees, or ongoing obligations.
It is always better to seek professional advice to understand the most appropriate and compliant way to close the company down, whether that is through a formal liquidation process, dissolution, or another suitable solution depending on the company’s circumstances.
Can I close a ltd company myself?
Yes, in some circumstances a director can close their limited company themselves through a voluntary strike-off procedure with Companies House.
This is generally suitable for solvent companies that have stopped trading, have no outstanding debts, and meet the eligibility criteria for dissolution.
However, if the company has creditors, liabilities, or more complex financial affairs, professional advice should be sought to ensure the company is closed in the correct and compliant way.
