When you’re facing the prospect of closing your company, one of the first questions that comes to mind is: how much will liquidation cost? Liquidation isn’t free, because it’s a formal, regulated process overseen by a licensed insolvency practitioner (IP). But the exact figure varies from case to case.
Why does liquidation have a cost?
Liquidation is more than just filling in forms. It’s a structured legal process that ensures your company is closed correctly, creditors are treated fairly and directors meet their legal duties.
The main reason liquidation carries a cost is that a licensed insolvency practitioner is required to act as liquidator. Their responsibilities include:
- Assessing the company’s financial position
- Notifying creditors and handling their claims
- Selling company assets and distributing funds
- Investigating directors’ conduct, as required by law
- Filing reports with Companies House and the Insolvency Service
This is a regulated area of the accountancy industry that must be carried out professionally, which is why fees are built into the process.
Types of liquidation and how costs differ
There are several forms of liquidation in the UK, and the costs can vary significantly depending on which route applies to your company.
Creditors’ Voluntary Liquidation (CVL)
A Creditors’ Voluntary Liquidation is the most common route for insolvent companies. Costs are generally met from the sale of company assets where possible. But if there are few assets, directors may need to cover some of the fee personally.
Compulsory Liquidation
This is when a creditor (often HMRC) forces your company into Compulsory Liquidation through the court. It’s rarely the best option as you cannot control the timings or choose the licensed insolvency practitioner that manages your case.
Members’ Voluntary Liquidation (MVL)
For solvent companies with over £25,000 in retained profits, a Members’ Voluntary Liquidation can be a tax-efficient way to close down. The benefit is that, thanks to Business Asset Disposal Relief, directors could save more in tax than the liquidation itself costs.
Who pays for liquidation?
This is one of the biggest worries for directors. In most CVLs, the liquidator’s fees are paid from company assets before anything goes to creditors. If there are no assets, directors may be asked to contribute towards the cost personally.
The good news is that these costs are normally modest compared to the debts being written off. Once the company is liquidated, unsecured debts (including loans, unpaid suppliers and even your Bounce Back Loan) can be written off, if there’s no evidence of misconduct, such as fraudulent trading or preferential transactions.
Why you shouldn’t choose based on cost alone
When money is tight, it’s tempting to shop around for the cheapest liquidation quote. But liquidation isn’t a simple commodity. It’s a professional service that affects your legal position, your reputation as a director and your future opportunities.
Choosing the wrong firm could mean:
- Poor communication with creditors
- Delays in closing the company
- Higher risk of something being missed if the process isn’t managed properly
A reputable licensed insolvency practitioner will always be transparent about fees, explain how they’re calculated and set them out in writing.
When liquidation is the right option?
Liquidation is usually the right path when:
- Debts are unmanageable
- Creditors are threatening or have already started legal action
- There are no realistic prospects of the business becoming profitable again
- Continuing to trade risks directors being personally liable for wrongful trading
In these cases, liquidation draws a line under the situation. Debts are written off, directors meet their legal duties, and the stress of juggling unpayable bills comes to an end.
Speak to us about liquidation costs
Liquidation does have a cost, but it’s rarely as high as directors fear. What matters more is choosing the right process for your situation and getting advice early. That way, you stay in control of the outcome rather than letting creditors or the courts dictate it.
We’ll talk you through your options, explain the costs in plain terms, and help you close your company in the most straightforward and compliant way possible. Get in touch today for free, confidential advice from one of our licensed insolvency practitioners.
