Who Pays for a Creditors Voluntary Liquidation?

The first place to look is the company’s own financial position.

Available resources might include:

• money held in company bank accounts;
• cash reserves;
• stock;
• vehicles;
• machinery or equipment;
• property;
• outstanding invoices;
• other assets owned by the company.

Once appointed, the liquidator is responsible for securing and realising company assets, including money owed to the business, for the benefit of the liquidation and the company’s creditors.

Where the company has sufficient resources, directors may therefore not need to meet the cost entirely from their own money.

The difficulty arises where the company has reached insolvency with little or no available cash or readily realisable assets.

Yes, company assets can play an important role in funding a liquidation.

Assets might include:

• vehicles;
• stock;
• machinery;
• computers and office equipment;
• property;
• intellectual property;
• investments;
• debts owed to the company.

A liquidator’s role includes securing and realising assets and recovering outstanding invoices where appropriate.

The proceeds form part of the funds available within the liquidation.

Directors should not simply sell or transfer company assets themselves at artificially low values in an attempt to raise money quickly.

Where assets need to be sold before liquidation, appropriate advice and proper valuations may be necessary.

Not automatically.

Being a director does not itself mean you personally become responsible for paying all of the company’s liquidation costs.

Where company funds or assets are sufficient, those resources may meet some or all of the relevant costs.

However, where the company cannot fund the initial work required to place it into CVL, the directors or shareholders may need to make up the shortfall personally.

This often happens in small owner-managed companies where:

• the bank account is empty;
• trading has already stopped;
• there are few valuable assets;
• customers do not owe significant sums;
• available funds have already been absorbed by wages, tax and suppliers.

A director contribution in this situation is not the same thing as becoming personally liable for all company debts.

For a fuller explanation of when directors can and cannot become personally exposed, read what happens to a director when a company goes into liquidation.

This area is frequently misunderstood.

A director’s potential redundancy entitlement is not money sitting inside the company that can simply be withdrawn in advance to pay the liquidator.

A director who was genuinely also an employee may be entitled to make claims following formal insolvency.

The Insolvency Service considers whether the director had an employment relationship with the company, including whether an express or implied contract of employment existed. Being listed as a director alone is not enough.

Depending on eligibility, claims can potentially include:

• statutory redundancy pay;
• unpaid wages;
• holiday pay;
• statutory notice pay.

Statutory redundancy pay normally also requires at least two years of continuous employment.

The important distinction is:

The director may personally receive redundancy-related payments after formal insolvency if eligible. Those payments are not company funds available beforehand to pay for the CVL.

However, where a director has personally contributed towards arranging the liquidation, a later successful redundancy claim may help reduce the overall personal financial impact.

Read our full director redundancy guide or use our director redundancy calculator to explore potential eligibility.

Once the company is formally insolvent and the director has been made redundant, an eligible director can apply through the government’s insolvency payments service.

The insolvency practitioner provides the case reference needed to make the claim.

Director applications can require additional evidence because the Insolvency Service needs to establish that the director was genuinely an employee rather than only an office-holder.

Evidence might include:

• an employment contract;
• payslips;
• PAYE records;
• P60s;
• evidence of regular working hours;
• proof of salary payments;
• details of the work actually performed.

Eligibility should therefore be assessed on the director’s actual circumstances rather than assumed simply because they were paid through PAYE.

This distinction is useful.

There can be costs involved in preparing and arranging the voluntary liquidation before the insolvency practitioner formally becomes liquidator.

Once the liquidator is appointed, the liquidation itself can involve additional work such as:

• selling or recovering assets;
• dealing with creditor claims;
• collecting outstanding invoices;
• investigating company transactions;
• reporting on director conduct;
• dealing with employees;
• statutory reporting and administration.

Under the Insolvency Rules, fees, costs, charges and other expenses incurred in the course of winding up are treated as expenses of the winding up and are dealt with according to the applicable priority rules.

So if a director has to personally contribute to getting the CVL started, that should not automatically be understood as the director personally paying every professional cost incurred throughout the entire liquidation.

Once appointed, the liquidator takes control of the liquidation.

Available company assets are realised and funds are dealt with in accordance with insolvency law.

The liquidator may:

• sell company assets;
• recover outstanding debts;
• collect money owed to the business;
• deal with creditor claims;
• make distributions where funds permit.

Liquidation costs and expenses are dealt with as part of the formal winding-up process.

The amount ultimately available will depend heavily on the value of company assets and the complexity of the case.

The cost of a CVL varies according to the circumstances and complexity of the company.

Factors can include:

• the number of creditors;
• employees;
• assets;
• quality of company records;
• director loan accounts;
• outstanding disputes;
• work required before and after appointment.

Rather than duplicating the pricing discussion here, read our full guide to how much it costs to liquidate a company.

Do not assume your only option is to leave the company indefinitely or wait for a creditor to force it into compulsory liquidation.

First establish:

• whether company cash remains available;
• whether the company has assets with realisable value;
• whether customers owe the company money;
• how much is actually required to arrange the CVL;
• whether a director or shareholder contribution is possible;
• whether you may later qualify for director redundancy-related payments.

The practical solution can only be established after looking at the company’s actual financial position.

Waiting can also allow creditor pressure, HMRC action or company liabilities to continue escalating.

If you are concerned about your duties while deciding what to do, read our guide to director duties when facing insolvency.