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Who pays the Liquidator’s fees (in the UK) if the company has gone bankrupt?

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Leading UK
Who pays the Liquidator’s fees (in the UK) if the company has gone bankrupt?

Despite the impact of COVID-19 in 2020, if you look at the monthly UK insolvency statistics, the number of companies that filed for bankruptcy or went into liquidation, administration or CVAs, has decreased year on year. For example, in July 2020 in England and Wales, there were a total of 955 company insolvencies which represented a decrease of 34% in comparison to July 2019. That said, whilst the overall number of company insolvencies was lower than July last year, the number of companies entering administration in July this year saw a 25% increase.

Let’s resolve a popular misuse of words first; bankruptcy is usually a term used for individuals. When referring to companies, the term used is insolvency. To establish whether a company is insolvent, there are two tests:

  • The cash flow test – do you have the necessary cash flow in order to ensure the business continues to operate?
  • The balance sheet test – does the value of the company’s liabilities exceed that of the value of the assets?

If you want to ‘wind up’ an insolvent company, i.e. a company that is unable to pay its debts, or bills, when they are due or its liabilities are greater than its assets on paper, the process is either via a compulsory liquidation or a creditors’ voluntary liquidation. No business owner or company director wants to be in this situation but if the company is insolvent, you have a duty, and legal obligation, to take appropriate action. Usually this is done through an insolvency practitioner.

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