Liquidating a company is a difficult decision to make. Leaving your company behind, whether it be due to insolvency, retirement, or otherwise, is not easy. As such, any way to reduce the stress of the situation is a welcome.
Before you decide to liquidate your company, you should speak to an experienced Licensed Insolvency Practitioner to make sure that you pick the best option for your situation.
One of the best ways to make liquidation a better prospect is to make it cheaper. In this article, Clarke Bell outlines the cheapest methods of liquidating a company, both for solvent and insolvent companies.
Liquidating your company at a low cost
While it may come as a surprise, it is possible and legal to liquidate a company at a relatively low cost. However, it is a complex process, meaning you will still have to pay some expenses. Liquidations require the assistance of a licensed insolvency practitioner, paying fees, and paying taxes. Any option that appears too good to be true likely is, and might land you in hot water legally.
Liquidating a solvent company
An MVL is ideal for companies with a large amount of retained profits. It is implemented with the aid of an insolvency practitioner of your choosing, ensuring your company’s liquidation follows the letter of the law. Moreover, it confers noteworthy tax benefits, perfect for companies with high-value assets. The profits gained from liquidating these assets are subject to Capital Gains Tax, instead of Income Tax. This means that your profits are subject to a lower tax rate. If you are eligible for Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief, you can save even further on your tax bill. This can see your liquidation profits being subject to a total tax rate of 10%, with a lifetime limit of £1 million. Considering these tax benefits, an MVL is an incredibly cost-efficient method of liquidating a solvent company, even once you take into account the procedure’s expenses.
The second option for a solvent company is dissolution, rather than liquidation. This is more appropriate for companies that have less than £25,000 stored in assets. Such companies would not benefit as much from the tax advantages afforded by the MVL procedure. Instead, companies can benefit from the incredibly low cost of a company dissolution, often referred to as a strike-off. The process can be initiated for as little as £8, if you apply using the Companies House online portal.
However, this option is not available to insolvent companies. Some unscrupulous insolvency practitioners will still market dissolution as a viable option for companies with large debts. This is not the case, as creditors can obstruct the dissolution process for companies that owe them money. Creditors can also petition the courts to reinstate dissolved companies years after the fact, forcing them into compulsory liquidation to recover the debt. In such a case, company directors will likely be seen as having attempted to escape this debt, which will likely carry severe penalties. As such, it is best to closely follow the legal options you have available and avoid any risk.
Liquidating an insolvent company
Liquidating insolvent companies can be a bit more challenging. The best option available, and often the cheapest in the long run, is a Creditors’ Voluntary Liquidation (CVL). This process is also carried out by an insolvency practitioner of a company’s choosing. The insolvency practitioner will be responsible for carrying out the procedure, ensuring assets are liquidated efficiently, and the company is closed within legal limits. They will also distribute the proceeds of liquidated assets amongst outstanding creditors first, then shareholders, if funds remain.
Although a CVL tends to cost more than methods to liquidate a solvent company, the legal protections offered can reduce costs in the long run. If directors of an insolvent company do not take action to solve their financial problems, creditors could instigate a compulsory liquidation. This will see the company in question forcefully closed. Potentially with consequences for directors if they are found to have influenced the company’s financial decline. Penalties for director misconduct include disqualification for up to 15 years, personal liability for company debt, fines, and possibly even a prison sentence.
The CVL procedure offers protection against this. Once it begins, creditors cannot take legal action against your company. This means that you will be safe from compulsory liquidation, and the potential consequences it brings. Moreover, once the process ends and your company ceases to exist, any debt that remains will be written off. Directors will not be held personally liable for this debt, provided they have not signed a personal guarantee as part of a loan agreement. You can save money and gain peace of mind with a CVL, as you do not risk the potentially costly consequences of compulsory liquidation.
Legal methods of funding liquidation
Finding a cheap method of liquidation is always welcome. However, prioritising low-cost above all else can lead you into murky legal waters. To help fund your liquidation, consider some of these legal methods:
- Self-funding – One of the more common ways to fund a liquidation is self-funding. This entails using the proceeds from liquidated assets to fund the fees of using an insolvency practitioner’s services. This effectively allows you to use a liquidation procedure at a low cost.
- Allow compulsory liquidation to happen – This option is quite cheap, effectively costing you nothing to get the process underway. While this can be a viable method of liquidating a company, it is hardly ideal. As we mentioned, compulsory liquidation can mean significant implications for directors, and is a highly stressful process at the best of times.
- Redundancy payments – Employees are entitled to certain benefits once an insolvent company closes down. If the company cannot pay these benefits, as is often the case, employees can potentially receive payments from HMRC. This is also true for company directors, as they often work in an employee capacity for the companies they own. One of these payments is redundancy, and directors can use it to help fund the liquidation of their company.
Let Clarke Bell help
If you are considering liquidation for your company, let Clarke Bell help. We have over 28 years of experience in helping both solvent and insolvent companies close, and we can do the same for yours. Our specialist team can help liquidate your company efficiently, or find other paths forward if a better option exists. Don’t hesitate to contact us today and find out exactly what we can do for you.