Insolvent Company? No Funds for a Liquidation? These are Your Options

Liquidation is the widely used term for closing an insolvent company, and the process is overseen by an Insolvency Practitioner (IP). In many cases, instructing an Insolvency Practitioner is neither appropriate or viable.

Your first step should be to get in touch; we will talk through the various options which are suitable for your company and establish whether an Insolvency Practitioner is required to ease the situation.

Here, we have compiled the various paths open to directors that need to close their company, but aren’t in a position to achieve this personally. Many people first get in touch with us after receiving threats of a winding up petition, so we will first address this issue.

 

My limited company is being wound up by a creditor – why choose a Creditors Voluntary Liquidation (CVL)?

We do understand that most don’t see the logic behind opting to pay for a liquidation which has already been funded by a creditor in the form of a winding up petition.

The primary reasons for going through the process voluntarily include:

• You are far more in control of the process
• You can choose your liquidator
• Wind-ups are overseen by the Official Receiver (appointed by the crown). While the overall process is similar to a CVL, Compulsory Liquidations involve a much more intrusive investigation into whether any wrongful or fraudulent trading has gone on
• The appropriate time for the company to go into liquidation can be chosen
• Waiting for someone to wind the company up rather than doing it yourself poses the risk of continuing to trade an insolvent company, which is classed as wrongful trading
• There are several ways to fund the CVL process; it may not burn any holes in your pockets

 

How do I know if my limited company is being wound up?

You will receive notice of this. In the vast majority of cases, a statutory demand is issued as a warning before winding up proceedings are submitted.

A petition will then be delivered and signed for. If you have received either of these warnings, you need to get in touch now to discuss your options.

 

It may cost less than anticipated

Unfortunately, you cannot easily google ‘how much does a liquidation cost?’ and expect to get an accurate answer. This is because the cost will depend completely on the individual circumstances of the company. However, speaking to the right people helps.

All it will take is a 10 minute chat with one of our advisers to establish an estimated cost, with no obligation whatsoever.

We do find that many directors who have had a look online before speaking to us are pleasantly surprised at the low costs that we are able to offer.

 

So, how do I find the funds to pay for liquidation?

1. Sale of company assets

One of our initial questions when we are establishing how to fund a liquidation is regarding the company assets. Liquidator costs may be met by realising the assets available.

An RICS (Royal Institute of Chartered Surveyors) valuation expert would need to assess prior to an instruction on this basis, but this can be arranged quickly.

If the assets can cover some but not all of the IP’s fees, of course this can still be arranged.

2. Director’s redundancy pay

Many directors are not aware that they may be eligible for redundancy if they have an insolvent company. If we consider that your redundancy claim is likely to cover all or part of the IP’s fees, we would be happy to look into this for you.

You will be eligible if:

• Your company enters liquidation
• You are on the company payroll
• You work(ed) in the company for at least 16 hours per week
• You have been doing so for a period of more than 2 years

Usually in this case, we would obtain the information needed to provide a redundancy estimate, and feed this back to you along with the liquidation quote.

On comparison of these two figures, you can make a better informed decision from there.

Within the redundancy estimate we would also include notice pay, holiday pay and unpaid wages.

If you decide to go down this route and your redundancy estimate covers the costs of the liquidation, our practitioners are able to take instruction on this knowledge.

Once the payment comes through, they can use this to cover their costs and anything left over, of course, goes to you personally. If the redundancy pay out comes up short, the rest can be arranged on a payment plan, if this is the only available option.

3. Funding the liquidation personally

If you are in a position to personally fund the liquidation, this option can be taken. When there are no other options, it is common for directors to fund liquidations by selling their personal assets.

We must re-iterate that this is only recommended by Forbes Burton when there are no alternatives. After all, limited entities are legally separate from their directors and employees for a reason; to protect the associated parties from becoming effected personally when things go downhill.

However, by choosing to take on the direction of a limited company, individuals do undertake certain obligations. Fulfilling these will lessen the chances of personal liability in the future, especially if your plans are to continue within another entity.

Our Insolvency Practitioners pride themselves on being flexible and understanding the difficult positions that directors are often in when they first contact us. For this reason, they are able to offer payment plans to those that require them.

4. Dissolution

Dissolving the company is a further option; this is the informal equivalent of liquidation, and costs considerably less than liquidation due to the fact that an Insolvency Practitioner does not need to be instructed.

Although this is a far simpler process, there are still certain statutory requirements that you must fulfil in order to close the limited company lawfully.

If we were to undertake the dissolution process for you, we would deal with all creditor correspondence and ensure that your position is not compromised.

Keep in mind here that if your company was to be closed improperly, you could be found personally liable for limited company debts, whether this is through the liquidation process or not.

Because of all of the above, it is always worth seeking advice from one of our insolvency experts before deciding which path to take.

 

Note – Taking advice from accountants on an insolvent company

Please be aware that your accountant may not be an insolvency expert.

Although they may be a trusted individual, have always been on your side and know their stuff when it comes to business, their insolvency advice should still be taken with a pinch of salt.

Unfortunately, we come across a high number of cases in which the director of an insolvent company has been advised wrongly by their accountant and come under fire as a result of this.

Just know that however knowledgeable your accountant is, unless they have come from an insolvency background, they will not be familiar with the insolvency legislation and therefore are not in a position to advise you regarding your insolvent company.

We obviously don’t know your accountant or how good a friend to you they are. It is not that we don’t believe that this is the case, but what we do know is that if your company is to close they will lose a client.

Furthermore, if it is later discovered that the company has been trading whilst insolvent (or conducting any other misfeasance), it is not the accountant at risk of personal liability, but the director.

As a rule of thumb, if you have an insolvent company and it no longer seems to be viable without your personal situation being affected, then it needs to close.

You would be surprised how many limited company directors we have come across whose accountants have advised them to take out personal loans to pay company creditors!

 

Note – Finding the cheapest liquidation

Another situation that we come across is that directors take our advice and then search elsewhere for a cheaper liquidation quote.

Of course, we offer non-obligation advice because we fully support individuals exercising their right to shop around in a competitive market. However, please be clear of your terms before you sign on the dotted line.

Unfortunately, there are liquidators out there who severely under-quote for their services in order to take instruction on for further gain down the line.

Some see large asset lists or the fact that the director is in a positive financial situation, and use this to their advantage later on by charging hidden costs.

We value transparency and decency; we’re not here to catch people out, but solve their problems.

Our panel of insolvency practitioners look after our clients, because if they didn’t we would not be working with or recommending them.

We have come across many who have been enticed by a cost that looks very low, but later find that they end up paying far more out of their personal funds.

By the time they have come back to us, it is too late; please just be aware of the practitioner’s intentions, whichever path you choose. We would be happy to provide you with a few choice questions to ask.

 

Next steps

We hope that this article has shed some light on your options when you have an insolvent company, and that there are more possibilities available than you had previously been aware of.

We know that this information can be very overwhelming – we would recommend that you give us a call for an informal chat.

This way, we can satisfy any queries you have and put some sense into all of the jargon. We’re only on the end of the phone; 0800 975 03800.