When your company has reached a stage where it must be liquidated, but there is not enough money or assets to do so, you may feel like there’s no way out.
However, there are a few options available for you. If you have no money and are concerned about liquidation, contact us today to see how we can help you.
Can you liquidate a company with debt?
Yes, there is an option to liquidate your company called Administrative Dissolution, also known as “striking-off”.
Administrative Dissolution can be performed by the directors themselves, allowing them to take control and ensure there are no unnecessary costs.
In simple terms, administrative dissolution is the process of ensuring all legal requirements are met during the closure of a company, such as informing all creditors, filing all paperwork and dealing with any outstanding issues.
If dissolution is carried out properly, there will be no lasting effects on a director.
What happens if I can’t afford to liquidate my company?
If your business is having major financial difficulties, meaning you cannot afford to liquidate, you will most likely be required to file for a formal insolvency liquidation procedure such as a Creditor’s Voluntary Liquidation (CVL).
As a director of the company, it would be your choice to enter the CVL, as it is not a compulsory liquidation being forced upon you by a creditor.
Whilst a CVL is more expensive at first, as you will need to pay the fees attached to the liquidator, it offers you more control over the undertaking of everything, meaning you will save more money in the long run.
If you decide to wait for a compulsory liquidation, you could run the risk of being investigated for misfeasance. If you are found liable, you will be held personally responsible for the debts.
What happens if you can’t afford a liquidator?
If a company is insolvent, it means its liabilities outweigh its assets, which basically means there is limited liquidity within the assets.
If the costs for a liquidator cannot be found within the company’s assets, book debts or cash at the bank, then the responsibility for the liquidator fees falls on the company director to raise funds.
If you are eligible for redundancy pay, you may be able to use this money to pay for the liquidator and use the remaining money as you see fit.
How to close a company when there are no assets or funds for a liquidation
If your company has no assets of funds to pay for an insolvency practitioner, it will fall on the company director to arrange funding to settle the liquidation costs.
Personally raise the funds
Personally raising funds is more commonly done than you may think. Selling personal possessions and assets to help pay for the liquidation process is a great alternative for those who are struggling with the costs of doing so.
There are a few basic changes you could take such as downgrading your car, cancelling or moving booked holidays, or even using personal loans. Loans can be dependent on your credit rating, but your personal credit rating will not be affected if you run a limited company, regardless of its financial position.
This may sound scary, but it can be a good option to ensure you follow director obligations and reduce your chance of personal liability in the future.
Directors redundancy pay
In some cases, directors of a company may be entitled to redundancy pay. When liquidation seems imminent, it is a good idea to check whether you are eligible for redundancy pay. You can use this money to cover the costs of liquidation.
Many directors are unaware of this type of payment and believe when they’re heading down the liquidation route there is no help available to them; however, this is not the case.
To be eligible for directors redundancy pay, you must be:
- Working a minimum of 16 hours a week
- Working as employee for at least 2 years
- Owed money from the company
- Work there and receive a monthly wage
If a creditor is owed more than £750, they can file for a winding up petition which will initiate the compulsory liquidation.
FAQs about liquidating with no money
How much redundancy pay are you entitled to when you liquidate?
This will depend on your age, salary, time employed by the Company and current employment situation.
What happens with personal guarantees when closing a company with debts?
When a company is being liquidated and is entering a CVL, any personal guarantees will remain and it will be up to the specific creditors to decide whether to call them in.
If a company has not defaulted on its loan and creditors agree to the terms of the CVL, creditors might choose to leave the guarantee in place and not enforce it. However, if multiple payments have been missed before the company enters a CVL, and creditors have lost confidence, the lender may decide to call the personal guarantee in. It will be up to the guarantor to discuss and negotiate with the creditor how the money will be spent. Entering Liquidation will often crystallise a guarantee; making it fall due in its entirety.
What happens if you can’t claim director redundancy during liquidation?
If you’re not eligible for director redundancy, you may be forced to wait until a creditor puts forward a winding up petition which would force you into compulsory liquidation.
When put into compulsory liquidation, the conduct of the directors will be scrutinised by liquidators for evidence of misconduct, or look for any activity which led to the downfall of the company.
If you are in any way concerned about company liquidation and you are having financial issues, get in touch with us today to see how we can help you with the right level of support and guidance.