When companies find themselves insolvent, a liquidation is often one of the only options available to them. With liquidations not being cheap, though, how are directors expected to liquidate a company with no money available?
How do I liquidate company with no money?
There are options available to you that will effectively close your business legally. Dissolution could be an option and you may even be able to liquidate without any upfront money to pay for it.
What is liquidation of a company?
To liquidate a limited company means to sell off any assets (things the company owns, like stock, computers, desks, buildings etc.) to turn them into money, this is then used to repay the people the company owes money to (creditors).
Read our guide to the Limited Company Liquidation Process
What is the cheapest way to liquidate a ltd company?
In the sections below, we look into different methods that effectively allow you to liquidate a company without paying upfront. If, however, you’ve been quoted some prices that are significantly lower than others, it may be worth treading with caution.
Business advisor and liquidation specialist, Paul Turner warns business owners not to “fall into the trap of cheap liquidation services”.
He adds that “while some cheaper services can offer liquidations that are sometimes thousands of pounds less than other quotes, you could end up paying a lot more further along in the process. Unscrupulous liquidation services often tempt new customers with low initial quotes, only to come after outstanding directors loan accounts once instructed. This means that they’re able to charge you personally for the outstanding debt to the company.
“It’s a sneaky way to operate, as they can often make much more from directors loan account payments than they would had they charged a normal price for a liquidation”.
Can you liquidate a company for free?
Yes, but it’s not as simple as it seems.
Liquidating the assets of the company can also pay for the liquidator’s (insolvency practitioner’s) fees, therefore essentially costing the directors nothing.
This is useful because the cost to liquidate a company can often run into the thousands of pounds.
Can you liquidate if you have no assets?
Perhaps, but not always.
In some liquidation cases the company director may also be able to claim for redundancy, provided they have been on the PAYE scheme.
If there is any redundancy money this can also be used towards any liquidation costs.
By utilising money raised from selling assets and redundancy claims you can essentially liquidate a company for free as you are not paying for the liquidation with money from your bank account.
How to liquidate a company when there are no assets or funds
However, in some cases there might not be enough, or indeed any, assets to sell, or any redundancy money to claim, therefore there will be no money to pay for an Insolvency Practitioner.
If this is the case then liquidation is not possible and you have a couple of choices which will achieve the same outcome.
1. If your company has no debts
If you simply want, or need, to close down the company, and there aren’t any debts or any assets to liquidate, then you can dissolve the company and have it struck off the Companies House register.
This process can typically take about 3 to 6 months and you’ll need to put together and present cessation accounts in order to do this.
Our blog post on how to dissolve a limited company explains what you need to do.
NOTE. If your company does have assets then, depending on the amount, a members voluntary liquidation may be the best route to use.
2. If your company does have debts
If the company does have debts, including Bounce Back Loans, but no assets then there is another route that can be used.
This process clears any debts and allows for the company to be closed, this is called administrative dissolution. It has the same effect as a liquidation but usually costs far less.
The administrative dissolution process is based on the benefits of using Sections 1003 to 1008 of the Companies Act 2006 (formerly Section 652 of The Companies Act 1985) which are available to limited companies.
You must follow the process carefully
If you follow the dissolution route you should ensure that all creditors are informed and the financial position explained to them. You should also invite the creditors to petition for the winding up of a company.
You will also need to make sure that you inform all shareholders, directors, employees and trustees of any pension fund.
The benefit of Administrative Dissolution is that you have addressed your statutory duties of informing your creditors of the financial position and, as you have also reported the matter to the Registrar of Companies, you can’t later be personally fined by the Registrar for any later failure to deliver accounts and annual returns.
The main downside is that the process has to be carried out correctly with paperwork etc. being filed on time and in the correct order.
Also, it is especially important to be careful about your actions and accounts when you realise your company is trading whilst insolvent.
For example, if you attempt to sell off all assets in an independent sale for a price that is far below market value you could be accused of wrongful trading.
In addition, you shouldn’t take out any credits or loans while the company is insolvent, as you may be held personally liable for these debts if you are found guilty of wrongful or fraudulent trading.
Read – Is it Illegal to Dissolve a Company With Debts?
How can Forbes Burton help you?
If you are considering liquidating or closing your limited company get in touch with us today for some FREE advice on which is the right route for you.
We’ll let you know your options and what you need to do next.
Call us for free (mobiles and landlines) on 0800 975 0380 or email advice@forbesburton.com
