How to Liquidate a Company with No Money
If you’re the director of a company with no money, it’s vital that you start to think about liquidation. This can be a daunting prospect – especially if you don’t have many personal funds to help cover the professional fees.
However, inaction can result in failure to uphold your duties as a director; this may result in you being made personally liable for company debts, hit with hefty court fines, or disqualified from future directorship.
Thankfully, there are a few ways to close a company at little or no personal expense.
So, how do you know if your company is insolvent? How can you uphold your duties? And how can you finance a solution?
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How Do I Know If My Company Is Insolvent?
It’s essential to keep track of whether your company is insolvent as it fundamentally changes your duties as a director.
You can test if your company is insolvent by answering two simple questions:
- Can you pay all your debts when they fall due?
- Are your assets greater than your liabilities?
If the answer to either of these questions is no, your business is insolvent.
Once insolvent, you have to place the interests of your creditors first, not those of the company or its shareholders. Failing to do so can result in civil or even criminal charges.
What Happens if I Don’t Uphold My Duties?
Many directors continue to trade, hoping their business will achieve a successful turnaround. Sadly, this doesn’t normally work out, and the business continues on its downward spiral, worsening the position of creditors.
Failing to protect the position of creditors through a liquidation can result in charges of misfeasance or wrongful trading.
These charges carry a range of potential penalties:
- Being made personally liable for company debts
- Receiving court fines
- Disqualification from future directorship (for between 2-15 years)
You may feel you have no choice but to continue trading as you don’t think you can cover the costs of a professional liquidation. Fortunately, this isn’t the case.
What Is a Creditors’ Voluntary Liquidation?
A Creditors’ Voluntary Liquidation – or CVL – is the most common form of liquidation in the UK.
Control of the company is handed over to a liquidator who sells its assets to help repay its creditors. Any remaining debts are then written off. The process helps protect the position of creditors, keeping directors out of hot water.
How Much Does it Cost to Liquidate a Company?
As a formal insolvency procedure, a liquidation must be carried out by a licensed insolvency practitioner, like those of our team.
As a professional service, the liquidation process does attract some professional fees. A liquidation can cost between £3000-£5000.
While this amount may seem daunting, there are plenty of options to cover the liquidator’s fees, often at no personal expense whatsoever.
How Can I Afford a Liquidation?
The cost of a liquidation is understandably a source of worry for many insolvent directors.
If the company was your primary source of income, or you don’t have much in the way of personal cash reserves, paying fees to shut the company down isn’t exactly an attractive idea.
However, doing so will help to prevent you from paying penalty charges and being made to repay the company’s debts personally. Luckily, there are a few ways to pay the liquidation fees.
The Proceeds of the Liquidation
In the majority of cases, a CVL pays for itself.
The voluntary liquidation cost is paid with the proceeds raised from selling the company’s assets.
If there are sufficient company assets, directors won’t have to pay anything towards the liquidation, allowing the company to be shut down at no personal expense.
Directors’ Redundancy Package
While many directors know that employees can claim redundancy from the government in the event of a liquidation, many don’t realise that directors can claim redundancy too.
To qualify, you must:
- Be registered as an employee of the company
- Work there for at least 16 hours a week
- Have been employed for at least 2 years
- Receive a monthly wage
The package can be pretty sizeable, depending on how long you’ve worked for the company, your age, and the size of your salary.
You can use this redundancy to pay for the liquidation costs entirely or significantly reduce the amount.
Payment Instalment Plan
Sometimes, there may be no choice but to pay for the costs of a liquidation yourself: perhaps you need to liquidate a company with no assets, or maybe you weren’t eligible for a director’s redundancy package.
If this is the case, and you’re not in a position to pay for the fees upfront, you may be able to work out a repayment plan with your insolvency practitioner. This will allow you to pay the amount off gradually while protecting your legal and financial interests.
Personal Loans
If you have no other recourse, a personal loan may be the answer.
You might be concerned that taking out such a loan will be impossible given your company’s insolvency; however, your company is its own legal entity, so it has no bearing on your credit score.
Make sure not to take out any unreasonable loans, as this will cause further problems down the line, putting you at risk of personal insolvency.
Can I Liquidate My Company Myself?
It is possible to shut down a company without the assistance of an insolvency practitioner. You can do this in a process known as a voluntary strike-off.
However, you must remember that this is not appropriate for companies with debts. When a company is struck off, it ceases to exist as a legal entity; this means that creditors have nothing to pursue for their debts. The procedure also does not serve to repay them in any way.
If you have your company struck off while it has debts, it may be viewed as a deliberate attempt to avoid repaying your creditors. Creditors can then apply to have the company reinstated before forcing it into liquidation, which will warrant an investigation into your conduct.
This exposes you to potential charges of misfeasance, wrongful trading, and even fraudulent trading.
Speak to an Expert Today
If your business is struggling financially, you should contact an insolvency practitioner as soon as possible.
Our team can advise you on how best to protect yourself from further legal and financial fallout, all while bearing your financial burdens in mind. We work with companies and individuals struggling with financial difficulty every day, so we understand how stressful it can be.
Get in touch today to book a free, no-obligation consultation.
FAQs
Why Should I Liquidate My Company?
It’s natural to want to keep trading until you’re left with no other choice. However, compulsory liquidation often ends with directors being hit with large fines and getting made personally liable for company debts.
If you’re unable to front these costs, you will be forced to declare bankruptcy, resulting in the loss of your personal assets.
You need to protect the interests of your creditors by entering a voluntary liquidation in order to avoid this.
How Much Does it Cost to Liquidate a Company?
A Creditors’ Voluntary Liquidation usually costs between £3,000 – £5,000. The cost depends on the size and complexity of the business and its debts.
To get a more accurate estimate for the cost of liquidating your company, get in touch with our team. They will assess your situation, letting you know about the potential costs and your best financing options.
How Can I Afford a Liquidation?
Liquidation costs are usually covered by the company. Fees are paid with the sale of the company’s assets, retrieval of its book debts, or simply through its cash at the bank.
However, if there isn’t enough money in the company, responsibility falls to the company director. You can finance this with personal savings, exchanging your car for a more modest model, downsizing your home, using director’s redundancy pay, or perhaps by taking out a small loan.
These options might not seem appealing at first, but they’re much more cost-effective than personally forking out for company debts.
What Happens with Personal Guarantees When Closing an Insolvent Company?
Personal guarantees are loans that you have agreed to personally repay should the company fail.
Unfortunately, this means that any debt secured by a personal guarantee will not be written off when the company is liquidated. It is still a good idea to pursue a voluntary liquidation as this will avoid you having to pay other company debts as well.
If you’re struggling to repay a personal guarantee, you can consider entering into an Individual Voluntary Arrangement. This will stretch out your repayments over 5 years and protect you from bankruptcy.
