What to do if you can't afford an insolvency practitioner


Deciding to liquidate a company isn't always an easy choice, especially for smaller businesses where there's often a tight-knit team including family members and employees who've been there since the doors first opened. There's no corporate team going to whiz in and take over, give people their notice periods and a cheque to sweeten the blow; to deal with creditors, sell off assets for their worth or more.

No, when you're a small business, at times like this, you can feel extra small. The responsibility weighs heavy. Many feel tempted to simply walk away, or they bury their heads in the sand. The final insult being that they feel they can't even afford to go out of business in a dignified manner because they can't afford an insolvency practitioner to perform the task. And so they let things slide into the gutter until they are forced into compulsory liquidation by their creditors. The end.

Stop. It's probably not that bad: there are multiple ways to fund a liquidation

If it's your business, you may be feeling backed into a corner, and maybe haven't been given the right advice yet, that's all. You will be stressed and, if you're honest, perhaps not thinking like the level-headed awesome leader you normally are. Remember: this is business, there are ways to do everything. And you're not alone.

Yes, compulsory liquidation waits at the bottom of the drain you possibly think you're circling, but let's not go there just yet. There's probably a way to do it voluntarily. A way where you're still in control.

Understanding the risks of waiting to be forced into compulsory liquidation

Really, it depends on what's motivating you to go down that path. Everyone has different reasons, but one thing most people have in common is being worried about the cost of entering into a creditors voluntary liquidation (CVL), with liquidators commanding extortionate fees to perform it, like proverbial vultures ready to feast on another dying business. But, it's not true. Yes, insolvency practitioners know the position you're in, but the majority are willing to negotiate a fee that works for everyone - some pay is better than no pay, right?

If you operate an insolvent business to the detriment of your creditors, you might be personally liable for any costs incurred

It can take months for a business to be forced into liquidation by creditors, in the meantime, the business is trading insolvent. If this causes further losses for creditors and increases debts, then the company's directors can be held liable because, in all likelihood, action could have been taken earlier to prevent things reaching the compulsory stage. It's a similar scenario if a business chooses to dissolve itself.

Avoiding formal liquidation and choosing dissolution

A more affordable option than CVL and a less damaging option than 'waiting' is to dissolve your company and have Companies House strike it off their register. This means, if you're the director, you don't need to go through liquidation and all the formalities it involves. However, a general stipulation of lawfully dissolving a company is that it holds no debts. But if you can get your creditors to agree in writing, then it's possible.

Things always catch up with you

If you owe them a significant amount of money, there's a chance they will object; they can take action if it's over £750. If you are successful at dissolution and are struck off, they can apply to have you put back on. And if you simply don't have any money to give anyone, then they may issue a winding up petition and drive you into compulsory liquidation, anyway. So before you pursue this option, it's best to seek professional advice, someone who can better advise you based on your personal circumstances.

3 ways small businesses can fund liquidation and afford insolvency practitioner fees

Maybe you remember when you first thought about going into business, and all the money-making schemes you had to raise capital to do so. Loose change down the sofa, washing cars, selling things. Here's the grown-up version for small business owners:

Agree to use your businesses assets to cover the fees

Liquidators earn their name because they liquidate assets to raise money to pay creditors, this also includes things like value found in ongoing work. Generally, any valuations will be carried out by an independent chartered surveyor.

Raise it yourself 

If you want to avoid being forced into compulsory liquidation, then it's time to be resourceful again. you'd be surprised how many directors make personal sacrifices like cancelling gym memberships, cutting their family food budget and even the family holiday. Sometimes, it's whatever it takes, isn't it? It all depends on which way you want things to go.

Compulsory liquidation: crossing the finish line

In many cases, this should be the last choice. You've exhausted all possibilities of ways to fund the liquidation process and pay for a CVL. None of the three suggestions worked, and you can't think of anything else. Whether it's forced or a conscious decision, it's not an easy process to navigate. Be sure you've got the right support and exploit all the best free professional advice you can. Most good insolvency practitioners will offer a free consultancy to get you started, so look at it as a way to interview them, to spot the vultures.

Experienced in all areas of corporate and personal insolvency

Combined experience of over 30 years in all areas of corporate and personal insolvency. Read more...

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