Cannot afford to put my company into liquidation, what can i do?

My company is insolvent but cannot afford to pay for a liquidation, what are my options?

There are many reasons for a company to enter into liquidation, as well as many reasons for instructing an insolvency practitioner, but regardless funding a liquidation yourself can be expensive. The first thing you will need to do is take advice from us to decide whether a formal liquidation procedure is required. After obtaining advice, if a liquidation is decided as the best course of action, costs relating to the liquidation will be discussed.

Cannot afford to put my company into liquidation, what can i do?

The most widely used process for closing a limited company that is insolvent is with a creditors voluntary liquidation (CVL).  The directors of a company voluntarily make the decision to embark on a CVL and by contrast, compulsory liquidation is forced on a company by its creditors.

Opting for a voluntary liquidation, rather than waiting to be forced into compulsory liquidation, may initially be more expensive due to fees needing to be paid to the liquidator. However, the directors are in more control of the process with a CVL as they can make their own choice of liquidator (subject to approval from creditors at the creditors meeting) and place the company into liquidation at an appropriate time.

Waiting for a company to be forced into compulsory liquidation is risky and increases the chances of continuing to trade whilst insolvent instead of taking action when warning signs first emerge. Sometimes directors carry on unwilling to accept defeat but if doing so is at the detriment of creditors, then directors may be held personally liable for any losses incurred.

It could be less costly than you think

You could be in for a pleasant surprise at just how inexpensive CVL costs actually are. Talking to one of the licensed and regulated insolvency practitioners at Wilson Field is a good way to be informed about costs, the payment structure and whether CVL is feasible. It may be possible that we operate on a basis of a fixed fee, whereby we agree to cap fees at a specific level.

The sale of company assets to fund the fees

When we are appointed as liquidator one of our roles is to sell company assets, the company’s business and any work in progress. Our costs can be met by these asset realisations. If the assets do not realise the amount needed, all or some of the money held on account would be used for our fees in addition to the asset sale monies. The assets will require a valuation by a RICS chartered surveyor prior to this decision being made. However in many cases, this process can be carried out fairly quickly.

Personally raising the funds

It is not uncommon for directors that fear being forced into compulsory liquidation to attempt to raise the funds for a CVL via the sale of personal assets. Some of the common methods of raising finance include not going on holiday, downgrading to a smaller car or using a credit card or personal loan. Loans and credit are dependent on personal credit ratings and circumstances, your personal credit rating will not be affected if you run a limited company regardless of your company’s financial position.

This may sound drastic but it can be a good option to ensure you follow director obligations and lessen the chances of personal liability in future.

Director’s redundancy pay for liquidation

Directors of limited companies may be entitled to redundancy pay when your company is struggling and liquidation seems likely. This redundancy money can help you to finance your company’s liquidation process.

Many directors are not aware that this is available and they feel that, when finances are struggling and the company looks like it is heading towards liquidation, there is no help on offer. However, there are many statutory entitlements available in respect of redundancy, notice pay, holiday pay and unpaid wages.

There are certain criteria to fulfil in order to claim director redundancy including:

  • You must be working a minimum of 16 hours a week
  • You must be working as an employee for at least 2 years
  • You must be owed money from the company
  • You must be a director and employee of the limited company. You must work there and receive a monthly wage for all work and hours completed.

You can claim for redundancy by requesting a form from us (acting as liquidator) or by going online to request one from the Insolvency Service.

From more information regarding director’s redundancy visit the Company Liquidation Solutions website page all about the subject.

Dissolution

One alternative could be to dissolve the company and we can help and advise you on this. We can advise you and help you to strike your company off the register at Companies House. This will allow you, as director, to close the company without having to go through a formal liquidation process, which can prove considerably less expensive. However, it is advisable to get professional advice to ensure dissolution is the correct option and that it is conducted in a legal and proper manner.

Technically, dissolution can only be applied for if the company does not have any debt, but it may be considered as an option if (in the opinion of the director) creditors will not object. The creditors will require formal written notification about the plans to dissolve the company and it is within every creditors’ right to object to the dissolution.

It is possible for any creditor (whether they were informed or not)  to apply for the company to be reinstated, even after a dissolution has been approved, for up to six years after the date the company was struck off from the Companies House register. As a result, it is worth seeking advice from us to point you in the right direction to ensure the process you follow is the correct one.

Be aware that if your company has large levels of debt to creditors and these creditors are likely to object to a dissolution, you will often have little choice but to go through a formal insolvency procedure. Alternatively, if funds simply aren’t available, the only other alternative would be to wait for a creditor to issue a winding up petition, thus resulting in the company being forced into compulsory liquidation. Again we can advise you on this and all other business debt and insolvency options.

Compulsory liquidation

If raising money for a CVL simply isn’t possible, the company has no assets of any value and dissolution is not a viable option, then the only alternative available to you is to wait for a winding up petition to place your company into compulsory liquidation. If a creditor is owed more than £750, they are able to apply for a winding up petition which initiates the compulsory liquidation process.

A winding up petition being threatened or issued by a creditor signifies that all other options of repayment of the money owed has been explored and this is the only other option now available. In order for the court to approve the petition, it is a requirement that a creditor demonstrates everything has been done to attempt to collect the money.

A statutory demand will usually have been issued prior to a winding up petition, however it may be possible for a winding up petition to be issued without a statutory demand but this is quite rare.

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