What is the Cost of Liquidating my Company?

Introduction

If a company is insolvent and needs to be closed then typically the directors and shareholders will decide to take the company into a creditors voluntary liquidation (CVL).  Otherwise known simply as “voluntary liquidation” this is where a licenced insolvency practitioner will be appointed as Liquidator (following resolutions passed firstly by shareholders and then by creditors) over the company.  The main duties of the Liquidator will be to:

• Sell or realise any remaining assets of the company (e.g. equipment, stock, book debts)
• Investigate what happened and report to creditors accordingly
• If funds are available, pay dividends to creditors and then shareholders
• Write a confidential report on the conduct of the directors
• Once the liquidation is concluded, ensure that the company is dissolved at Companies House

The time it takes for a Liquidator to complete this work varies enormously, depending on the company’s situation.  The process can take as little as 6 months or as long as 3-4 years, sometimes even longer.  Throughout this process the Liquidator and staff will be recording the time they spend on the case and are entitled to be paid for their work.  Whether they are actually paid or not depends firstly on whether there is any money in the liquidation from the realisation or assets and, secondly, on creditors agreeing the fees that the Liquidator proposes charging.

Because of the uncertainty around the amount of time to be spent, an insolvency firm will usually just quote a headline figure which is typically between £4,000 and £6,000 plus VAT.  However there is much more to it than this and in the rest of this article the full extent of the fees and other costs of a liquidation are explained.

Breakdown of Fees & other Costs in a Liquidation

The Statement of Affairs Fee

This is the headline figure I referred to earlier and is typically between £4,000 and £6,000.  You’ll see some firms advertising online and offering fees of “as little as £2,500” but don’t be fooled by this – it is too good to be true and they will be making up the difference somewhere else (see liquidators fees and costs below).

The Statement of Affairs fee is essentially an initial fee which covers the costs of getting the company into liquidation, including:

• Advising the directors
• Collating all documents and information necessary to take the company into liquidation
• Preparing and sending documentation for the meetings of shareholders and creditors
• Issuing statutory notices to the London Gazette and Companies House

This first phase of liquidation can be very intense and the insolvency firm will be working very closely with the directors to get everything ready.  The fee is usually paid from money the company still has, but it can also be paid later once the Liquidator has sold or realised assets.  In the event that the company has no money or assets at all then the directors will be asked to pay the fee personally.

Ongoing Time Costs

As explained earlier in this article, the amount of time spent by the Liquidator and staff very much depends on the work that needs to be done.  They are entitled to charge for this work at an hourly rate, which depends on the level/skill of the staff member concerned (for example a junior administrator may charge at £100/hour but an insolvency practitioner will charge at £300/hour, and sometimes a lot more).   These ongoing time costs quickly mount up and will typically be £10,000 to £15,000, after 12 months, although in some cases they might end up being a lot more.

The key thing about these time costs is that the Liquidator will only actually be paid for them if there is money available in the liquidation (from cash that was in the company, or from the realisation of assets).  If there isn’t any money then this time is written off.  The directors will not be asked to pay this themselves.

Other Expenses in a Liquidation

As well as the time costs there are a number of other expenses which may be incurred and will need paying.  In every case there will be London Gazette notices (approx. £270) and insurance (based on the value of the company’s assets) to pay. 

But there may also be other professional advisors who are required to assist the Liquidator deal with certain specialist areas (for example dealing with a company pension fund or handling redundancy claims made by employees).  Also quite often the Liquidator will use agents to sell any assets (for which they will charge a fee) and may need solicitors if legal documents are required.

Again, these costs are paid from cash that was in the company or the realisation of assets.

So what does this all mean for Directors?

As you will have concluded from the explanations above, there is no straight answer to the question “What is the cost of liquidating my company?”.  Fundamentally the costs of liquidating are met by the cash and other assets that are in the company, and directors would only be asked to pay personally if none is available.

However when an insolvency firm quotes for a liquidation they are merely stating what their initial fee is, whereas in reality other ongoing fees and costs will also apply.  In simple terms the higher the fees charged overall by the Liquidator, the less money that will be left over to pay back to creditors.  In many cases this won’t concern directors however if directors themselves are creditors, or they have personally guaranteed other company debts, then the total amount of fees charged by the Liquidator becomes a lot more relevant.

So the key message is that when considering liquidation and discussing fees with the insolvency firm make sure you ask them what the total fees are likely to be, not just their initial fee.