What Happens If You Can’t Afford to Liquidate Your Company?

Running a business isn’t always smooth sailing. Sometimes, due to financial distress or changing market conditions, shutting down becomes the only viable option. But what if you’ve reached a point where you can’t even afford to liquidate your company? It might sound ironic being too broke to close shop, but it’s a real and increasingly common situation for struggling business owners.

In this article, we’ll break down what happens when you’re in this position, the implications, and what options are available.

Understanding Liquidation Costs

Liquidation isn’t free. Even though it involves winding up a company, there are still fees and costs involved, including:

  • Insolvency practitioner fees (for voluntary liquidations)
  • Court fees (for compulsory liquidation)
  • Legal and administrative expenses
  • Potential redundancy payments to employees
  • Outstanding creditor claims

The total cost can range from a few thousand to tens of thousands, depending on the company’s size and complexity. If your company is already deep in debt, affording this might feel impossible.

So What Happens If You Can’t Afford It?

1. Directors’ Duties Still Apply

Even if you can't afford to pay for a formal liquidation, as a director, you must stop trading if the company is insolvent. Continuing to trade could lead to accusations of wrongful trading, which carries serious personal liability.

2. Creditors May Force Liquidation

If you don’t initiate liquidation, a creditor (usually one you owe £750 or more) might issue a winding-up petition to the court. If successful, the court will compulsorily liquidate your company. However, this route can be very stressful, and you’ll lose all control of the process.

3. Assets Will Still Be Sold Off

In compulsory liquidation, a court-appointed liquidator will sell your company’s assets to repay creditors. Even if the value is low, this process will proceed. The fees for the liquidation will come out of those assets first.

4. You Could Be Personally Investigated

Liquidators are required to examine the conduct of directors leading up to insolvency. If any misconduct is found, such as taking excessive salaries, preferring one creditor over another, or misusing company funds, you could face:

  • Director disqualification
  • Personal liability for company debts
  • Criminal charges in extreme cases

What Are Your Options?

1. Seek Advice Early

The earlier you act, the more options you have. Speak with a licensed insolvency practitioner or business rescue advisor to discuss possible routes.

2. Creditors’ Voluntary Liquidation (CVL) with Affordable Payment Plan

Some insolvency practitioners may offer payment plans to help cover liquidation fees over time. This allows you to start the process and stay compliant with your legal duties.

3. Strike Off (Only If No Debts)

If your company has no outstanding debts, you might be able to strike the company off the Companies Register for a nominal fee. But if you have debts, creditors can object to this method.

4. Government or Redundancy Payment Assistance

If you’re an employee/director who has been on payroll, you might be entitled to redundancy pay from the government’s Redundancy Payments Service (RPS). This can sometimes help fund the liquidation.

Final Thoughts

Not being able to afford liquidation can feel like being trapped, but you’re not alone, and there are options. The worst thing you can do is ignore the problem or continue trading while insolvent. Acting quickly, seeking professional help, and understanding your legal responsibilities can protect you from further stress or even legal consequences.

If your company is in this position, don’t panic. Reach out to a qualified advisor and take the first step toward resolution, no matter how tough it feels.

Need Help Navigating Company Liquidation?

Simple Liquidation provides no-obligation consultations and can guide you through your options even if your business is out of funds. Reach out today.


Location: Norwich, UK

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