My company is insolvent but cannot afford a 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, or whether 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.
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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 a 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 a 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 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 a 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 about that you cannot afford a 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.
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