Funding A Company liquidation
If a company is insolvent, its debts outweigh assets, and often there is little cash in the bank. Sometimes voluntary liquidation is the most suitable course of action; but how can it be funded?
Disposal of Company Assets
Disposal means selling in this context. The liquidator must understand company assets and use these to pay creditors and other stakeholders. This can fund liquidation costs.
Directors Redundancy Payments Can Fund Liquidation Costs
Liquidation fees may come from the director’s redundancy; it’s not just employees who are covered by HMRC’s redundancy payment scheme.
When an insolvent company enters liquidation, directors can often make a claim from the National Insurance Fund and receive payments for outstanding wages, holiday pay, pay in lieu of notice and tax-free redundancy. This can cover the cost of the liquidation and leave money over for you.
Directors Personal Funds
If there are no assets to sell nor redundancy payments to claim, it may fall upon the directors to cover liquidation costs of the personally.
This only applies only to voluntary liquidation, you could wait to be forced into compulsory liquidation. This is a decision with implications. It’s worth speaking with us to fully understand it. A compulsory liquidation will mean you will have fewer options including not being able to choose the liquidator.
Benefits Of self-funding a Liquidation?
Choosing voluntary liquidation has advantages over waiting to be forced into a compulsory procedure, for example
- Voluntary liquidation allows you to retain some control. You can choose the firm of liquidators you work with. Hopefully, this is a team you feel an empathy with and whom you feel have your best interests at heart.
- Voluntary liquidation will likely come with a less rigorous investigation into directorial conduct that a compulsory procedure. Insolvency practitioners are legally bound to investigate the actions of directors for possible wrongful or fraudulent trading.
- Voluntary Liquidation makes it possible to consider a Pre-Pack. This is where directors buy the assets of the liquidated company and form a new company in order to continue trading.
Determining Liquidation fees
Insolvency practitioners get paid on either a:
- fixed fee,
- percentage of money retrieved.
- time cost basis
Whichever of these is decided upon, fees must be transparent and fair. Details but must be provided to creditors as they normally bear the bulk of the costs.
No Money to Pay the Liquidator?
Liquidation fees are probably less than you think with the proceeds of asset sales usually enough to cover them.
If you’re concerned about your situation, and particularly funds for potential liquidation, please get in touch. A short conversation with us will help you better understand your options.