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Why liquidate?

Deciding to liquidate your business because it’s insolvent is a big step and can be a stressful time for company directors.

Liquidating an insolvent company is done via a Creditors’ Voluntary Liquidation (CVL).

A director can propose a CVL if:

  • their company can’t pay its debts – i.e. it is ‘insolvent’
  • the shareholders agree and pass a ‘winding-up resolution’

You must appoint a Licensed Insolvency Practitioner to complete a CVL, and they will charge a fee for their expertise.

However, there are some companies who advertise “free” liquidations.

How does a so-called “free liquidation” work?

In the process of liquidating a company, the director(s) may be entitled to redundancy pay.

To be entitled to redundancy, directors must also be classed as employees and there are certain criteria that must be met. For example, the director must be paid by PAYE, work a minimum of 16 hours per work, and have a practical role rather than just advisory. Directors who are not employees have no legal rights as employees and this could affect the payment of any claims that the directors might have against a company subject to an insolvency procedure.

There are Insolvency Practitioners who offer to liquidate your company for ‘free’ and use the redundancy pay-out to fund your company’s liquidation.

Clarke Bell’s CVL process

For most companies we put into CVL there is an upfront fee of £1,995 (including VAT and disbursements). {For complex cases the fee is on a case-by-case basis.}

Our fee includes processing the redundancy of the directors. This means that we do not charge a fee or percentage of any redundancy claims the directors get. Their whole claim goes to the directors.

Don’t be fooled by ‘free liquidation’ services

Some Insolvency Practitioner charge a lot more than we do, and their fee doesn’t include dealing with the directors’ redundancy claims. Instead they pass you to another company who handles this part of the liquidation process.

This means that you will be charged two separate fees.

It may appear that you’re getting a good deal, but you could end up paying far more than you need to for your CVL.

The below is a hypothetical illustration of the financial implications on the company director when comparing the different approaches from liquidators…

A "Free" CVL service

Liquidation fee upfront – paid by director £0
Director’s redundancy claim – processed by the company referred to by the liquidator £10,000
Referred company’s charge for assisting with the director’s redundancy claim £10,000 x 17.5% = £1,750
Liquidator’s fee for placing the company into CVL £4,000 + VAT =
£4,800
Total amount director pays for liquidating their company £1,750 + £4,800 =
£6,550
Redundancy claim director receives after all the costs of the liquidation process £3,450

Clarke Bell’s CVL Service

Liquidation fee upfront – paid by director £2,995 +VAT = £3,594
Director’s redundancy claim – processed by the liquidator £10,000
Clarke Bell’s charge for assisting with the director’s redundancy claim £0
Total amount director pays for liquidating their company £3,594
Redundancy claim director receives after all the costs of the liquidation process £6,406

 

Who determines if a director is an employee?

It is important to stress that it is the Redundancy Payments Service who decides if a director is deemed to be an employee – based upon the information they are supplied.

For more information

We don’t claim to offer ‘free’ liquidations.

What we do offer is free advice and affordable fees – with the directors’ redundancy claims included in those fees.

If you’re looking for help with a CVL and don’t want to pay more than you have to, contact us today.

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