If you want to close your solvent or insolvent company down, then depending on your circumstances, the most effective way to do so could be via the process of voluntary liquidation.
In this guide, we’ll take a look at how much it costs to liquidate a limited company and who has to foot the bill.
How much does it cost to liquidate a limited company?
That depends on several factors such as the size of the company, the value of its assets and the number of creditors. However, the biggest factor in the cost of liquidation is whether the company is solvent or insolvent, as that determines the type of voluntary liquidation procedure it must go through.
There are two types of voluntary liquidation procedure:
- Members’ voluntary liquidation (MVL) – An MVL is a formal procedure governed by the Insolvency Act 1986 that’s used to close down a company that can afford to pay its debts. An MVL is suitable for companies that have assets to realise, with the proceeds distributed among the shareholders in the most tax-efficient way. Shareholders can claim Entrepreneurs’ Relief on the distributions if they meet the relevant criteria.
- Creditors’ voluntary liquidation (CVL) – A CVL is a formal insolvency procedure that’s used to close down a company that has outstanding debts it cannot repay and assets that must be realised for the benefit of its creditors.
Whichever procedure you use, it’s important to note that liquidation is terminal. Once the liquidation has been completed, your business will cease to exist. In the case of an insolvent business, you may choose to purchase the assets of the liquidated business and start again under a different business name, in which case, you should factor the price of those assets into the overall cost of liquidation.
How much does a members’ voluntary liquidation cost?
A members’ voluntary liquidation is typically the route the company director(s) will take when the business has ceased to trade and the company is no longer required. The process must be carried by a licensed insolvency practitioner who will act as the liquidator and be paid a fee.
The cost of a members’ voluntary liquidation generally starts at around £2,000 plus VAT. That’s the fee for a simple MVL, where the company has no outstanding liabilities and the only asset is cash in the bank. This will cover the cost of:
- Drafting and submitting the relevant paperwork to Companies House
- Searching for any liabilities and paying creditors’ claims in full
- Calculating and distributing funds to shareholders
- Obtaining clearance from HMRC to liquidate and dissolve the company
The cost will rise in more complex cases where there are physical assets such as buildings, vehicles and machinery that must be realised, with the proceeds distributed in accordance with the company shareholding.
Who pays for a members’ voluntary liquidation?
The insolvency practitioner’s fee will be approved by the shareholders and will usually be taken directly from the assets of the company in liquidation. That means there will not usually be an upfront fee to pay. For the vast majority of solvent companies, the liquidator’s fees are nominal when compared with the sum the company’s shareholders receive.
How much does a creditors’ voluntary liquidation cost?
The cost of a creditors’ voluntary liquidation is typically quite a lot more than an MVL, which is due to the additional complexity of the process. Again, the fee will be largely depending on the size of the company and the value of its assets, but the value of the company’s outstanding liabilities and the number of creditors that make a claim against the company will also affect the price you pay.
On average, small and medium-sized limited companies that do not have a significant asset value could expect to pay between £3,000 and £6,000 plus VAT for a creditors’ voluntary liquidation. However, that will rise in line with the company’s asset value. This will cover the cost of:
- Settling legal disputes with creditors and any outstanding contracts
- Making employees redundant and processing their claims for money they’re owed
- Collecting debts owed to the business including those owed by the company directors
- Inviting and processing creditor claims
- Providing regular updates to the company’s creditors
- Investigating the reasons for the company’s insolvency
- Valuing and selling the company’s assets
- Distributing the proceeds of the assets to the creditors
- Submitting the relevant paperwork to Companies House and HMRC and dissolving the company
Who pays for a creditors’ voluntary liquidation?
If you are the director of an insolvent company, then naturally, you’re going to be concerned about where the liquidator’s fees are going to come from. Typically, the liquidator’s fee will be recouped from the funds released by the sale of company assets during the liquidation process. The liquidator will take their fee before the company’s creditors are repaid in a prescribed order.
However, sometimes the insolvent company does not have the necessary assets or funds to cover the liquidator’s fees. In that case, it would fall on the director or a third party to pay the balance using one of the methods below:
- The director’s personal funds
If there’s no cash in the bank or other company assets that can be sold to pay the liquidator’s fee and the directors want to avoid the negative consequences associated with compulsory liquidation, it’s not uncommon for directors to use their personal funds. They may use savings, access personal credit products such as credit cards or personal loans or even sell personal assets. If a director is paying for the CVL using their personal funds, the insolvency practitioner will usually charge a fixed, pre-appointment fee and no post-appointment fee will apply.
- Third-party funds
If the company has insufficient cash and assets to cover the liquidation costs, it’s also possible for a third party that’s known to the director to pay for the creditors’ voluntary liquidation. In this instance, the liquidator will usually agree to a pre-appointment fee only.
- Director’s redundancy payment
Many company directors are not aware that they could be entitled to a statutory redundancy payment following their business’s closure. Directors that are on the company payroll and have been working for the company for a minimum of 16 hours a week and for over two years are entitled to an average of £12,000. That can be an excellent way to cover the costs of liquidation if no company assets are available.
How can I liquidate my company for free?
Liquidation is not the only way for a company director to close their business voluntarily. Administrative dissolution is another process that can be used to wind up a company. Like liquidation, this process has the effect of removing the company from the Companies House register so that it ceases to exist. However, with this method, there are no liquidation costs to pay.
Although administration dissolution, also known as ‘striking off’, might sound like the perfect solution, it can only be used to close a company with no debts, or where any outstanding debts will be settled in full within 12 months. Using administrative dissolution to close an insolvent company is very high risk and could lead to disqualification from acting as a director for up to 15 years and personal liability issues.
There are also limitations to the company dissolution process when closing a company without debts. The maximum value of company assets and share capital that can be distributed on strike off is £25,000. Any capital that exceeds that amount will be taxed as income. For that reason, if the company’s assets are likely to exceed £25,000, a members’ voluntary liquidation is likely to be the most tax-efficient way to close the company down.
Do you want to liquidate your limited company?
Call 08000 24 24 51, email email@example.com or complete an enquiry form to discuss the best way to close your limited company with a licensed insolvency practitioner. We’ll explain your options and provide free, no-obligation advice to help you make the right decision for you and your company.