Beware of Cheap Liquidations

Is a cheap liquidation the best way forward?

Given the current economic climate and the way businesses are struggling many people will be asking what is the cheapest way to liquidate my company or who is the cheapest liquidation company.

There are many genuine liquidators, also known as Insolvency Practitioners, out there who will do their best for the parties involved in the entire process.

However, if an Insolvency Practitioner is quoting a very low price for a liquidation, perhaps around the £2,000 mark or less then there is a good chance that they have an eye on what is called the directors loan account.

The perils of cheap liquidation 

As a rule of thumb, the industry standard cost of a creditors’ voluntary liquidation, or CVL, is in the region of £5,000.00 plus VAT. So why if you search “Cheap Liquidation” can you find them for an awful lot less? 

It is fair to say that some companies may operate a business model or exercise such cost saving methods that allow for this price to deviate southwards – the instruction may also be incredibly straightforward to package and handle – but when disbursements alone for a standard CVL weigh in at around £600.00, how can an insolvency firm charge as little as £2,000.00 plus VAT? 

Liquidation costs explained

Liquidation takes the form of 2 halves: pre-appointment and post-appointment.

Pre-appointment is the stage where the liquidators will gather information from the directors, give notice to shareholders and creditors of the proposed action to wind the company up, set a decision date for the creditors to appoint the liquidator and importantly draft the statement of affairs for the insolvent company. 

After the liquidator is appointed, the process then moves into the post-appointment stage; this is where the liquidator will attempt to raise funds for creditors by selling assets and collecting in debts, and in addition, will undertake a review of the directors’ conduct and reconcile the company’s bank accounts. 

Both pre and post appointment stages of liquidation carry fees and it is the prices that are discussed by liquidators when making initial enquiries which cover the pre-appointment stage.

So, in the instance above, £5,000.00 plus VAT. Post-appointment fees are however generally only charged when there are assets to be sold or debts to be collected and the liquidator will charge their costs for doing this. 

Recovering money from directors loan account

So, coming back to the cheaper £2,000.00 plus VAT quote, it could very well be the case that the liquidator feels comfortable from what the director has said about the company that the prospect of post-appointment fees really pales the pre-appointment fees into insignificance and that the pre-appointment losses can be recouped later. 

This may not be an issue for those director’s involved, especially if the company is covering all costs, but there could be huge pain to follow if the director is indeed a debtor of the company and owes it large amounts of money by way of a director’s loan.  

In these situations, liquidators would have to look to recover these monies from the director, sometimes using a heavy hand.

This often comes as a shock to the director and can cause large amounts of stress and worry. 

Although all liquidators would have to consider any debts owed to the company by the directors, an open discussion with the liquidator (who has been adequately remunerated pre-appointment) prior to any instruction would hopefully pave the way to a commercial discussion on how any debts might be re-paid, and in practice, a means tested negotiation can take place. 

How to close a company when there are no assets or funds for a liquidation

However, in some cases there might not be enough, or indeed any, assets to sell, or any redundancy money to claim, therefore there will be no money to pay for an Insolvency Practitioner, if this is the case then liquidation is not possible and you have a couple of choices which will achieve the same outcome.

Closing a limited company with no assets →

Need to know which is the best way to close your company?

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