How much does a liquidation really cost?

Published: 28/02/2020 By Andrew Bailey

The costs of a typical Creditors' Voluntary Liquidation ("CVL") seems to be a topic that is rarely disclosed openly in the public domain and yet it is one of the key questions raised by the directors when they approach me to consider options that are available for their business.

So, I could easily say that the price varies because every CVL differs but this does not really address the topic.  Below I have run through different scenarios to show how costs might alter in each type of case.

Before I run through the scenarios I should add that every assignment, whatever size, requires the liquidator to manage the case in a compliant manner ensuring all statutory requirements are met as well as investigating the affairs of the company and its directors. It is work that goes completely unseen and will not be seen as adding value to creditors but it has to be done and inevitably adds to the costs.

Scenario 1 - a shutdown scenario where the company has ceased trading and has no assets. The company is left with historic creditors including HMRC and other suppliers. There are no employees and other obvious complications.

The cost is £5,000 plus VAT. It is straightforward and where the business has no assets we will ask the directors to pay the fees personally.

Scenario 2 - the company has some assets of low value at around £10,000. The company will cease to trade shortly before the liquidation but needs to be wound down in an orderly manner. There are employees and other creditors including HMRC and suppliers.

The liquidator will instruct a valuation agent to sell the assets and pay any proceeds into the liquidation. Assuming that a sum of around £10,000 is realised then the cost of the liquidator and agent will be discharged from this balance. For example, the agent may receive around £1,500 for the valuation work and the liquidator would receive £8,500 for costs and disbursements if approved by creditors.

The director will not need to contribute towards the costs because they have been discharged from the proceeds from the sale of the company’s assets. There would be no distribution to creditors.

Scenario 3 - trading business operating from various high street outlets with remaining employees. Business needs to be wound down in an orderly manner including dealing with stock and retention of title claims. Landlords to be dealt with and assignment of leases where possible. Employee claims to be dealt with along with dealing with enquiries from many creditors.

Asset realisations consisting of the sale of stock and assets, assignment of a lease and other assets like cash at bank equate to around £40,000.

The costs of the liquidator are likely to be in the region of £20,000 - £25,000 and you would expect agents' costs of around £5,000. The costs are paid from the asset realisations.

There should be funds remaining to enable a distribution to creditors.

Scenario 4 - the only asset is an overdrawn director loan account of £50,000 and the only creditor is HMRC who are owed a similar amount of £50,000.

The costs of these types of assignment vary depending upon the cooperation of the director and his ability to repay the loan account. The key element of the assignment is reviewing accounts and reconciling the loan account whilst engaging with HMRC. Typically the costs will be anything from £15,000 upwards but would be subject to agreement from HMRC. The fee is paid from the funds repaid by the director into the liquidation in respect of the overdrawn director loan account and the director does not pay a separate fee. The balance of funds are distributed to HMRC as the sole creditor.

There are various different scenarios when dealing with liquidations and every case is different.

There are various different scenarios when dealing with liquidations and every case is different. However, in every case the liquidator is required to approach creditors for approval of the proposed fees and it is for the liquidator to explain why any level of fees are justified. It is therefore imperative that creditors are engaged in the process.

turpin barker armstrong are insolvency professionals providing clear expert insolvency advice throughout the Surrey area.  If you would like discuss the best liquidation process for your company call us on 020 8661 7878 for a FREE initial consultation with no obligation to proceed.