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Creditors guide to liquidation fees

When a company goes into liquidation the costs of the proceedings are usually paid from the proceeds of the sale of its assets. The creditors, who hope to recover some of their debts out of the assets, will have a direct interest in the level of costs, and in particular, the remuneration of the insolvency practitioner (IP) appointed to act as liquidator.

The insolvency legislation recognises this interest by providing mechanisms for creditors to fix the basis of the liquidator’s fees. This guide is intended to help creditors be aware of their rights to approve and monitor fees and explains the basis on which fees are fixed.

In a liquidation (whether voluntary or compulsory) the creditors have the right to appoint a committee called the liquidation committee. This committee has a minimum of 3 and a maximum of 5 members, to monitor the conduct of the liquidation and approve the liquidator’s fees.  The committee is usually established at the creditors’ meeting which appoints the liquidator, but in cases where a liquidation follows immediately on an administration, any committee established for the purposes of the administration will continue as the liquidation committee.

The liquidator must call the first meeting of the committee within 3 months of its establishment (or his appointment if that is later). Subsequent meetings must be held either at specified dates agreed by the committee, when requested by a member of the committee, or when the liquidator decides he needs to hold one.  The liquidator is required to report to the committee at least every 6 months on the progress of the liquidation, unless the committee directs otherwise.  This provides an opportunity for the committee to monitor and discuss the progress of the insolvency and the level of the liquidator’s fees.

Fixing the liquidator’s fees

The basis for fixing the liquidator’s remuneration is set out in Rules 4.127 – 4.127B of the Insolvency Rules 1986.  The rules state that the remuneration shall be fixed either:

  • As a percentage of the value of the assets which are realised or distributed or both.
  • By reference to the time properly given by the liquidator and his staff in attending to matters arising in the liquidation.
  • As a set amount (for IP appointments after 1st October 2015, the liquidator must give a proposed estimate of the likely costs and fees. Liquidator’s fees will be capped unless the creditors agree otherwise.)

It is for the liquidation committee (if there is one) to determine on which of these bases the remuneration is to be fixed, and if it is to be fixed as a percentage, to fix the percentage to be applied.   Rule 4.127 says that in arriving at its decision the committee shall have regard to the following matters:

  • The complexity (or otherwise) of the case.
  • Any respect in which, in connection with the winding up, there falls on the IP (as liquidator) any responsibility of an exceptional kind of degree.
  • The effectiveness with which the IP appears to be carrying out, or to have carried out, his duties as liquidator.
  • The value and nature of the assets with which the liquidator has to deal with.

If there is no liquidation committee, or the committee does not make the requisite determination, the liquidator’s remuneration may be fixed by a resolution of a meeting of creditors. The creditors take account of the same matters as the committee would. A resolution specifying the terms on which the liquidator is to be remunerated may be taken at the meeting which appoints the liquidator. If the remuneration is not fixed in any of these ways, it will be in accordance with a scale set in compulsory liquidation and court in voluntary liquidation.

Fees in members voluntary liquidation (MVL)

An MVL is a liquidation procedure for a solvent company looking to close due to it reaching the end of its natural life. Our standard fees for MVL are £795 + VAT and disbursements (providing all loose end in the business are tied up and there are no assets to be sold, see our terms and conditions for more details). This process allows you to:

  • Release cash quickly (subject to shareholder indemnity) as we do not have to deal with HMRC.
  • We aim to distribute the funds from your business within 7 days of receipt of the cash from your company’s bank account.

An MVL is a tax efficient way of distributing the assets and profits of your company to your shareholders. The sale of assets should have taken place before approaching us for your MVL and the proceeds will be used to pay creditors (if there are any) in full.

These funds should also be able to help you pay our liquidator fees meaning that the money for our fees comes out of the business and not your own personal funds. All remaining money from the business will be distributed to the business’ shareholders.

For more information on MVL’s visit our dedicated page on this form of liquidation.

Authored by Phil Meekin

Phil Meekin

Senior Consultant