How Much Does It Cost to Liquidate a Company?

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What is Liquidation?

Liquidation is a process that is used for companies experiencing financial difficulties or which are unable to continue trading. It involves the winding up of a company’s affairs, the sale of its assets, and the distribution of the proceeds to creditors (and sometimes shareholders).

One of the critical questions that business owners and stakeholders often ask when considering liquidation is, “How much does it cost to liquidate a company?”

This article looks at the costs of a Creditors Voluntary Liquidation – where directors choose to liquidate a company which cannot pay its debts, rather than Compulsory Liquidations (where a creditor forces a company into liquidation through court action) or solvent liquidations (also known as Members Voluntary Liquidations or MVLs)

Who Pays the Costs?

Before we start it’s worth considering who pays the liquidation costs. If the company has assets at the point of liquidation then the costs of the liquidation will be paid from the value of these assets. But if this isn’t the case, an insolvency practitioner will generally ask the directors to cover the liquidation costs so that he/she can be certain that they will be paid.  

Who Pays the Liquidation Costs?

What Factors Affect Liquidation Costs?

The cost of liquidating a company varies widely depending on several factors, including the size of the company, the complexity of its affairs, and the type of liquidation. Some of the key factors that can influence liquidation costs include:

  1. The Complexity of the Company’s Affairs: The more complex a company’s financial and operational affairs, the higher the cost of liquidation is likely to be. Companies with numerous assets, significant outstanding debts, or complex legal issues will require more time and resources to liquidate, resulting in higher costs.
  2. Professional Fees: Liquidating a company involves the appointment of an insolvency practitioner, who is responsible for overseeing the liquidation process, selling the company’s assets, and distributing the proceeds to creditors and shareholders. The fees charged by insolvency practitioners can vary widely, depending on their expertise, the quality of service they provide and the complexity of the company’s affairs.
  3. Asset Realization Costs: The process of selling a company’s assets, known as asset realization, can involve various costs, such as auctioneer’s fees, advertising expenses, and transportation costs. These costs can vary depending on the nature and value of the assets being sold, as well as the method of sale used.
  4. Legal and Accounting Fees: Liquidating a company will sometimes require the involvement of lawyers and/or accountants to provide advice and assistance throughout the process. This can include preparing tax returns, negotiating claims with creditors, and resolving legal disputes. Again these costs will vary depending on the complexity of the work involved and the specific professionals engaged.

Factors affecting the cost of the Liquidation process

Beware of Hidden Liquidation Costs

Given the numerous factors that can influence liquidation costs, it’s very difficult to provide a precise estimate of the cost of liquidating a company without understanding the specific circumstances, so you should be wary of insolvency practitioners who advertise a fixed fee on their websites.

A liquidator has an obligation to investigate how the company was run in the period leading up to liquidation and has certain powers to recover monies from directors and other parties where there has been improper conduct.

If an insolvency practitioner does not talk you through these risks in detail before they accept instructions to act, then you should consider that a red flag. They may be quoting a low initial fee in the expectation of recovering monies from the directors under these powers once they have been appointed. 

Get more information about CVL on our blog; Step-By-Step Guide to Creditors Voluntary Liquidation

Hidden Fees in Liquidation

General Guidelines on Liquidation Costs 

As we’ve said it’s very difficult to estimate the cost of a liquidation without knowing the specifics of the company in question, but we can give some general guidelines:

  1. Insolvency Practitioner Fees: Insolvency practitioner fees typically account for a significant proportion of the overall cost of liquidating a company. These can range from a few thousand pounds for a relatively simple liquidation to tens of thousands of pounds for more complex cases. You may wish to get quotes from multiple insolvency practitioners to compare fees and services before selecting a practitioner to handle the liquidation process.
  2. Asset Realization Costs: Asset realization costs can vary widely depending on the nature and value of the assets being sold and the method of sale employed. In some cases, these costs may be relatively minimal, particularly if the company has few assets or if the assets can be sold easily and quickly. In other cases, asset realization costs may be substantial, particularly if the company has a large number of assets that require specialized marketing, transportation, or storage. 

  1. Legal and Accounting Fees: The extent of legal and accountancy fees during the liquidation process will depend on the specific requirements of the case. In many cases, particularly for a straightforward liquidation of a small company, there will be no need to incur any legal or accountancy fees at all. At the other end of the spectrum, where a large company with complex affairs is being liquidated, these costs could be substantial. 
  2. Miscellaneous Costs: In addition to the costs outlined above, there may be other costs associated with liquidating a company. These include the various types of insurance a liquidator might have to put in place, statutory advertising costs (by law the liquidator has to advertise the appointment) and the cost of storing the company’s records (which the liquidator is obliged to do). For a small company, these costs combined would generally not exceed a few hundred pounds. 

Costs associated with Liquidation

Liquidation Costs Summary

In summary, the costs of liquidating a company vary widely depending on factors such as the complexity of the company’s affairs and the specific professionals engaged.

It’s very difficult to provide a precise estimate of liquidation costs without understanding the specifics of the case, so if someone is quoting a fixed fee on their website you should be sure to get a written commitment that these fees will not be exceeded in any circumstances.

You should also ensure the insolvency practitioner has explained to you whether you are at risk of being pursued personally for any transactions which have occurred prior to liquidation.