When a company is in liquidation, the costs and fees of the process is paid for by the sale of its assets, or any remaining cash. Creditors will receive some of their debt payment from these process proceedings. However, given that the company usually has liabilities in excess of its assets, it is likely that creditors will receive very little. The overall return that creditors receive will be, in part, dependent on the cost of the process. So, they have a direct interest in the level of fees that the liquidator charges. If creditors are unhappy with the liquidators’ fees being applied, they have the right to challenge this, as this guide explains.
What work do the fees cover?
- Advising directors of their duties
- Settling legal disputes or outstanding contracts
- Making people redundant and processing their claims
- Collecting debts, including those owed by company directors
- Investigating transactions prior to the liquidation to check for discrepancies, such as preferences/undervalued transactions.
- Alerting creditors to progress every 12 months and involving them in decisions where necessary.
- Valuing and realising assets
- Distributing monies to creditors and accounting for them.
- Meeting deadlines for paperwork and keeping the relative authorities informed. These include;
- Companies House
- HMRC,
- Insolvency Service and Department for Trade.
Voluntary Liquidation Disbursements
In addition, there are disbursements that have to be paid on top of the Liquidator’s fees.
One crucial cost will be for the Insolvency Practitioner’s Bond, which is in effect insurance that the money entrusted to the IP doesn’t go missing! This bond is required by law.
As part of the liquidation process there will be a statutory need for advertising that typically costs in the order of £150 plus VAT for each advert placed. These notices are for things like the Liquidator’s appointment. These appear in the London Gazette Insolvency Notices
How do companies pay for voluntary liquidation?
Proceeds from the sale of the company’s assets usually pay the costs for three different areas:
- The cost of voluntary liquidation
- Money owed to creditors
- Shareholder debts
However, the second and third tier only receive funds after payment of the cost associated with the previous tier. Therefore, as the process continues, it could become increasingly unlikely that shareholders will receive the full amount owed to them. To see a list of who gets paid what see our creditor priority list
Sometimes, the cost of voluntary liquidation cannot be met through the sale of assets. In such cases, liquidators will require payment in advance.
When this occurs, or directors require a more efficient process, directors often pay for liquidation out of their own funds.
What is a Liquidation Committee?
For voluntary or compulsory liquidations, creditors can appoint a liquidation committee, under their own right. This is a committee of 3-5 members who monitor the liquidation process and approve the fees of liquidators. This ensures it is fair to all of those involved. They work closely with the appointed liquidator and tend to be chosen at the creditors meeting. After the first 6 weeks of appointment, a meeting among the liquidator and committee occurs. This can be continued every 6 weeks unless a date is directed otherwise. The purpose of these meetings is to report the progress of the liquidation and the level of the liquidators fees.
To fix liquidators fees, rules 4.127-4.127B of the Insolvency Rules 1986 apply. They state that the remuneration should be fixed by reference to the time properly given by the liquidator, and his staff, in attending matters arising in the liquidation. This should be a percentage of the value of assets either realised or distributed, or as a set amount.
If the remuneration is not fixed, for compulsory liquidations it will coincide with a scale set, whereas for voluntary liquidations, court will be involved, either reducing, changing or disallowing the cost. Creditors may use this when they see the remuneration of liquidators too high or inappropriate.
Liquidators can also apply for remuneration of themselves to be fixed, if they feel it is inappropriate. They can get the amount either reduced or increased, depending on their argument. In doing this, liquidators apply to court. They must give 14 days-notice of intention to the members of the committee, who may then represent at the court hearing. If there is no committee, the creditors will be sent the application and one of them will represent instead.
The cost covers preparation of statements of affairs, as well as vat, numerous reports and calling the creditors meeting. The costs of liquidation can put directors off but not doing anything is likely to cost you more in the long run! Generally the costs start at around £3500 + VAT. This would be for liquidating a company with a single creditor, such as having an unpaid Bounce Back Loan (BBL) or HMRC. For more than one creditor issue, we would expect the fee to be approximately £3,750-4,000 plus VAT. For more complex issues including companies who have landlords, employees, BBLs and supplier debts we will provide a written quote after our meeting with the directors to discuss the company’s options. Do get in touch to discuss your company’s liquidation, don’t delay and hope the problem will go away!
Members Voluntary Liquidations Fees
For Members Voluntary Liquidations, fees vary. It is a tax efficient way to distribute assets and profits of your company to shareholders. Proceeds from the process are distributed to shareholders. Unlike those discussed above, an MVL involves a solvent company, so the company is able to repay any liabilities, hence able to distribute funds to shareholders. For MVLs, disbursements are important to consider. These are additional costs, being 4 different notices in the Gazette (around £60 each + VAT), a small search fee (£3) and a bond with a varying premium that is dependent on the assets value.
