My company is insolvent but cannot afford liquidation, what are my options?
If, as a director, your company is facing cash flow problems and struggling to survive financially, sometimes there seems to be little alternative but for it to enter liquidation. The first thing you should do is contact us to decide whether a formal liquidation procedure is the best option. Sometimes, a company may find itself in a position where it cannot afford liquidation, or other routes, such as a voluntary arrangement, refinancing or a dissolution, would be more suitable.
After considering all alternatives, if liquidation is decided as the best course of action, costs relating to the liquidation, and whether you can afford it will be discussed.
Who pays the bill?
As a limited company is a separate legal entity, it is usually responsible for its own liquidation costs.
Sale of company assets
In the role of liquidators, we undertake the selling of company assets including any work-in-progress, stock, etc. Generally, the assets will require a valuation by a RICS chartered surveyor to ensure that they are sold for a realistic amount in the circumstances. In most cases, this process can be carried out fairly quickly.
Our costs and fees for completing the liquidation are covered by asset realisations. If the asset realisations are insufficient so you cannot afford liquidation and you still wish us to act as liquidator, you may wish to pay the fees yourself.
Why would you want to pay for a company’s liquidation?
Much depends on how you see the future of the business.
- If you consider that it has no viable future or you have no appetite to continue running the business, you may prefer to sit back and wait for a creditor to push the company into compulsory liquidation (see below)
- If you believe that the core business is sound but it is struggling because of historical debt, you may wish to pay the liquidation fees and make a bid to purchase the assets of the old business and continue to trade through a new company
What are my options?
The most widely used process for closing an insolvent limited company is a creditors voluntary liquidation (CVL). The directors of a company voluntarily decide to embark on a CVL, which is then agreed to by creditors. By contrast, compulsory liquidation is forced on a company by its creditors.
Opting for a CVL rather than waiting to be forced into compulsory liquidation will give you, as a director, more control over the whole process, which is important if you have ambitions to buy assets from the liquidator and set up a phoenix company to continue trading the business. You can also choose your own liquidator (subject to approval from creditors) and place the company into liquidation much earlier. This eradicates the stress of having to wait for the company to eventually be wound up, ending creditor pressure and putting the company and its debt to bed.
See how a CVL could work for you
It could be less costly than you think
Though you might worry that your company cannot afford liquidation, you could be in for a pleasant surprise at just how inexpensive CVL costs actually are. Talking to one of our licensed and regulated insolvency practitioners 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 in the 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.
See more on director redundancies here
Alternative options
If funding a liquidation just isn’t an option, an alternative route is a compulsory liquidation.
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 push 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 have 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.
In summary
If your company is insolvent, as a director you have an obligation not to continue trading if the position of creditors will worsen. It is a time to consider the future of your business – whether you simply want to close it down and walk away or whether you want to try to rescue it.
If you do want to save the business but the company does not have sufficient assets and it cannot afford liquidation, contact us now to book a free meeting with one of our consultants who can talk you through the alternative options. Every case is different, so it could be a lot cheaper than you think.
You may even be entitled to directors’ redundancy pay, or be able to personally raise the funds yourself to avoid having to wait for a compulsory liquidation, which could prolong creditor pressure.
How we can help
If you’re worried that you cannot afford liquidation for your insolvent or struggling company, we can help. Our advisors are available to talk through your business and its situation and will be able to advise on how a CVL can be funded. All advice is actionable, tailored to your particular case and isn’t just generic, vague jargon. Our consultants can also liaise with you to give you full and accurate quotes on a cost-free basis. If you think a CVL is out of reach for your business, give us a call.
Case Studies
Derwent Castings Limited
Kelly Burton • Metals • Creditors Voluntary Liquidation (CVL)
Unsecured creditors owed money by a Derbyshire manufacturing company which went into liquidation are to receive a higher than the expected dividend of 60p in the pound.
A total in excess of £128,000 is due to be distributed to unsecured creditors of Whatstandwell-based Derwent Castings Limited, whose claims totalled over £192,000.
The company, whose roots date back to the 1940s, had traded profitably for a number of years but in late 2013 / early 2014 saw the cancellation of its largest sales contract which represented 70 per cent of its turnover.
Bosses at the company, which employed 16 staff including three directors, struggled to attract replacement business and had to drop prices. Further business was lost as a result of foreign competition.
Sheffield’s insolvency specialist Wilson Field was called in as liquidator and worked with the creditors’ committee of Derwent Castings Limited to secure the positive dividend.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Dividends for insolvent companies are generally low, or nothing, for a variety of reasons – cost of staff redundancies, difficulty collecting outstanding invoices, selling assets in a forced sale situation, selling specialist assets which have limited appeal to purchasers, deteriorating or perishable assets, as well as other costs involved.
“However, thanks to a very positive relationship with the creditors committee, I am delighted to return a healthy dividend to the unsecured creditors in the region of 60p in the pound.
“The supply chain is often greatly affected by a liquidation and in this case we have been able to help creditors.”
Derwent Castings Limited was incorporated in August 2002 and specialised in iron casting from the five-acre Derwent Foundry site at Whatstandwell near Matlock.
However, the iron founding operation at Derwent Foundry was first introduced back in 1946 by Wragg & Hawksley which produced cast iron pipes for the water industry.
In 1950 the foundry was acquired by WH Davis & Sons Ltd to supply castings for their railway wagon building business. Following a management buy out in 1984, the company was renamed Derwent Foundry Ltd and following its closure in July 2002, was bought by its present owners and renamed Derwent Castings Ltd.
Amongst jobs carried out on site were moulding using loose pattern and modern air setting (boxless) sand systems; metals work using the latest in electric induction melting producing a wide range of grey, SG and alloy irons; an independent Namas approved test laboratory, finishing, pattern making and machining facilities.
M J Squire Limited
Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)
A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.
However, recently it has been forced to close due to the downturn in the construction and retail industry.
The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.
Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.
February 10th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.
Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.
Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case.
“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”
“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”
Statestrong Limited
Kelly Burton • Manufacturing • Administration, Creditors Voluntary Liquidation (CVL)
Insolvency experts Wilson Field has helped turnaround the fortunes of a loss-making manufacturing company in Lancashire providing a new future for its 80 employees.
Businessman Russell Blaikie acquired the struggling 40-year-old Statestrong Limited, headquartered in Lytham St Annes, through a pre-pack sale and has been able to help the company immediately utilising his expertise in manufacturing and management.
Arrangements for the purchase of Statestrong’s business and assets were negotiated by Sheffield business specialists Wilson Field who affected the sale shortly after being appointed.
The company, which manufactures and supplies aerosol and liquid products for use in health and beauty, household, automotive and industry globally, posted sales of £12m last financial year, but had suffered pressure from creditors with outstanding arrears.
The total value of the deal is undisclosed but includes the business and the assets of the company based on Boundary Road in Lytham St Annes and Tarporley in Cheshire, which will now trade as Statestrong Products Limited.
Mr Blaikie said:
“Transactions of this nature are sensitive and require careful handling. The team at Wilson Field provided exactly the right professional approach.”
Wilson Field’s insolvency practitioners Kelly Burton and Joanne Wright worked closely with Mr Blaikie along with senior corporate case administrator Gareth Kinneavy.
Kelly Burton, said:
“The company had a wealth of expertise but was straddled with financial liabilities which ultimately made its future questionable. Looking forward, a previously distressed business now has a viable future.”
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