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Who Pays the Liquidator Fees? How Do They Get Paid?

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Who Pays the Liquidator Fees? How Do They Get Paid?

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The realm of liquidation is fraught with complexities, each intertwined with legal, financial, and ethical threads. At its heart is the liquidator, the pivotal entity steering the ship through tumultuous waters. But a common conundrum that often emerges is the compensation of these professionals: Who pays their fees? How are these fees calculated? And under what circumstances are they paid? 

This article aims to demystify these questions, offering a comprehensive understanding of the financial dynamics that play out when a company is on the brink of dissolution. 

Whether you’re a company director, a creditor, or an intrigued reader, this guide sheds light on the intricacies of liquidator fees within the UK context.

How Do Liquidators Get Paid?

Liquidators are critical figures in the liquidation process. Tasked with the responsibility of winding up a company’s affairs, they ensure assets are sold, and proceeds are distributed in accordance with the law. Given the weight of this responsibility, the question arises as to how these professionals are compensated.

Firstly, it’s important to understand that liquidators are typically paid from the proceeds of the sale of the company’s assets. Once they take charge, their initial tasks involve a comprehensive evaluation and assessment of the company’s assets. This step helps in determining the potential revenue the assets can generate. After this assessment, they will begin the process of selling off these assets, be they physical properties, intellectual properties, stock, or any other tangible or intangible assets the company might hold.

The revenue generated from these sales is primarily utilised to cover the liquidator’s fees and the other associated costs of the liquidation process. This method ensures that the liquidator’s interests align with the objective of realising the maximum possible value from the assets.

However, situations do arise where the assets’ total value may be minimal, or the costs associated with their realisation are high. In such instances, the funds raised might be insufficient to cover the liquidator’s fees. This is where alternative arrangements come into play. These can range from an agreement to defer the payment until more funds become available, or the liquidator might agree to a reduced fee, considering the circumstances.

In some scenarios, especially where a creditor-driven push for liquidation is strong, creditors might decide to bear the initial costs, hoping to recover their funds after the asset sales. However, such agreements are not standard and depend largely on the specifics of the situation and the negotiations between parties involved.

How Much Do Liquidators Charge?

The fee structure for liquidators is a topic of interest for many, especially those who find themselves at the crossroads of considering liquidation for their company. Given the significant responsibilities that liquidators shoulder, their compensation is structured to reflect both the magnitude and complexity of their tasks.

Liquidators’ fees can vary widely, and several factors come into play when determining the amount. The size of the company in question, the nature of its assets, the overall complexity of the liquidation process, and the specific challenges that might arise during the proceedings can all influence the final figure.

Generally, there are three predominant charging methods adopted by liquidators:

  1. Percentage of Asset Value: This is a common approach where liquidators charge based on a percentage of the total assets realised. This aligns their interest with the maximisation of the asset’s value, as a higher recovery would mean a higher fee for them.
  2. Fixed Fee: In situations where the assets and the liquidation process are relatively straightforward, liquidators might opt for a fixed fee. This provides clarity and predictability for both the liquidator and the company.
  3. Hourly Rate: Liquidators might also charge based on the actual time they spend on the liquidation process. This method is often adopted when the nature of the task is unpredictable, with many unforeseen challenges.

While these are the primary charging methods, a combination of these can also be agreed upon, based on the specific nature of the liquidation process. It’s paramount for companies to have a clear discussion and agreement on the fee structure at the outset, ensuring transparency and preventing potential disputes down the line. 

As always, seeking comparison quotes and understanding industry norms can be invaluable for companies in making an informed decision.

What Happens if the Company Has No Money to Pay Liquidators?

The scenario in which a company lacks sufficient funds to cover the cost of liquidation is not uncommon. It’s a situation that underscores the financial difficulties the company is already grappling with. When such circumstances arise, the way forward may seem intricate, but there are several mechanisms in place to address this issue.

First and foremost, a liquidator’s initial role is to assess the company’s financial health and the realisable value of its assets. If, during this assessment, it becomes apparent that the company’s assets won’t cover the costs of the liquidation, alternative routes may need to be explored.

  1. Deferred Fee: One of the common approaches in such situations is for liquidators to agree on a deferred fee structure. Essentially, they undertake the liquidation process with the understanding that their fees will be paid from any future realisations from the company’s assets. This is a calculated risk that liquidators may choose to take, particularly if they believe there’s a likelihood of future recoveries.
  2. Creditors’ Intervention: There are situations where the creditors, especially those with significant outstanding amounts, might choose to bear the initial costs of the liquidation. Their motivation often stems from the hope that by investing in the liquidation process, they enhance their chances of recovering a portion of their debts once the assets are sold or other recoveries are made.
  3. Alternative Payment Arrangements: Some liquidators might agree to reduced fees or alternative payment arrangements, such as a percentage from future recoveries, when they understand the dire financial straits of the company.
  4. Pro Bono or Reduced Fee Liquidations: In rare instances, certain liquidators, especially those associated with larger firms or charitable entities, might take on a case pro bono or at a substantially reduced fee, especially if the company’s work was socially significant or had a broader public impact.

While a company’s inability to pay upfront might seem like a substantial hurdle, there are ways to navigate these challenges. It’s always advisable for companies to engage in open dialogue with potential liquidators to explore the most viable option tailored to their unique circumstances.

What is an Average Commission Rate for a Liquidator?

Understanding the average commission rate for a liquidator is pivotal for companies and creditors, as it provides a benchmark to set expectations and to ensure that the costs incurred are fair and reasonable.

In the UK, while commission rates for liquidators can vary based on several factors, there is a general ballpark that most tend to fall within. Typically, the commission rate lies between 5% to 15% of the total assets realised. 

However, understanding the intricacies behind this figure can shed more light on the nuances of these fees.

  1. Nature of Assets: The type and quality of a company’s assets can significantly influence the commission. Easily liquidable assets like cash or marketable securities might attract a lower commission, while assets that are harder to sell, such as specialised machinery or niche properties, might warrant a higher commission due to the effort and time required for their disposal.
  2. Complexity of the Task: Liquidation isn’t always straightforward. Companies with tangled financial webs or those embroiled in legal disputes can pose challenges. In such instances, liquidators might charge a higher commission to compensate for the added complexities and risks.
  3. Reputation and Experience: Seasoned liquidators, or firms with a notable track record, might command a higher commission due to their expertise and the added assurance they bring to the process.
  4. Volume of Work: In large-scale liquidations involving a substantial number of assets or transactions, a reduced commission rate might be negotiated given the sheer volume of work.

While the 5% to 15% range offers a general guideline, companies should delve deeper into the specifics of their situation and negotiate a rate that aligns with the value and expertise the liquidator brings to the table.

Do Liquidators Get Paid Before Creditors?

When a company enters the liquidation process, the order of payment is an area of keen interest for all involved parties, especially the creditors who are keen to recover their dues. The answer to the query of whether liquidators receive their fees before creditors is a nuanced one.

In the hierarchy of liquidation payments, the liquidator’s fees and the associated costs of the winding-up process indeed take precedence. This hierarchical structure is a reflection of the fundamental role liquidators play in the entire procedure. Their task of assessing, realising, and distributing assets is vital to ensure that all stakeholders, including creditors, receive a fair and justifiable portion of what’s due to them.

Furthermore, by prioritising the liquidator’s fees, the system ensures that professionals are incentivised to take up the role, understanding that their compensation is secured. This guarantees that companies undergoing liquidation can always find experts willing to oversee the process, regardless of the company’s financial health.

However, it’s crucial to note that while liquidators are high on the priority list, this doesn’t guarantee full payment. If assets are insufficient, they might even face shortfalls.

Are Liquidators Guaranteed to Get Paid?

The assurance of payment for liquidators is a subject of both intrigue and importance. Given the high stakes and responsibilities attached to the liquidation process, it’s natural to ponder the security of their compensation.

While liquidators rank highly in the hierarchy of payments during a company’s wind-up, this does not inherently guarantee their full remuneration. The reality is contingent on the company’s financial landscape and the total assets available.

The primary source of a liquidator’s fee is from the sale of the company’s assets. If these assets, once liquidated, are insufficient to cover both the costs of the liquidation and the liquidator’s fees, there is a potential for a shortfall in their payment.

In situations where the company is severely insolvent, with minimal assets to realise, liquidators face a real risk. While some arrangements might involve deferred payments or percentage-based compensations, these models too operate under the fundamental premise that there will be future recoveries.

It’s also worth noting that the intricacies of certain liquidations, especially those involving complex legal battles or challenging asset realisations, can escalate costs, thereby affecting the eventual payout to the liquidator.

In essence, while the system prioritises the compensation of liquidators, there are circumstances where they might not receive their full expected fee, underscoring the risk element in their role.

Are Directors Liable for Liquidators Fees During Liquidation?

The question of director liability in the context of liquidator fees is particularly pertinent, especially as directors grapple with the complexities of navigating their company through the liquidation process.

Under standard UK insolvency laws, directors are not personally liable for the fees of liquidators. Liquidators are primarily compensated from the assets of the company undergoing liquidation. The principle is clear: personal assets of directors remain distinct from those of the company.

However, exceptions do exist. In instances where directors have provided personal guarantees for company debts or obligations, they might be held liable. Similarly, if there’s evidence of wrongful or fraudulent trading on the part of directors, they could be held accountable and personally liable for debts, which could, in turn, cover the liquidator’s fees.

Furthermore, if directors have drawn money or benefits from the company which are not properly accounted for or are deemed as illegitimate transactions, they might be required to repay such sums, indirectly contributing to the liquidation costs.

Final Notes On Who Pays the Liquidator Fees

The path of liquidation is never an easy journey. It’s a reflection of challenging times and intricate financial scenarios. Yet, at the heart of this journey lies the crucial role of the liquidator, a professional tasked with ensuring fairness, clarity, and diligence. 

As we’ve navigated through the financial intricacies surrounding their fees, it’s evident that the process is designed to balance the interests of all parties involved.

From prioritising the liquidator’s fees to ensure the smooth progression of the liquidation process to safeguarding the interests of creditors, the framework seeks equilibrium. 

For company directors and stakeholders, understanding these dynamics is invaluable. It not only prepares them for the road ahead but also fosters a sense of transparency and trust. In the realm of business uncertainties, knowledge is indeed a guiding light, and we hope this exploration has illuminated the path for many.

For free confidential advice, get in touch today.


Hannah Paull

Hannah Paull

Hannah Paull is a co-director at Marchford with over 25 years experience as a trained accountant, including lecturing the AAT Accounting Qualification. After specialising in company closures and insolvency, Hannah has, for the last 5 years helped hundreds of directors of struggling limited companies with a wide range of solutions including company closures.


Hannah Paull

Hannah Paull

Hannah Paull is a co-director at Marchford with over 25 years experience as a trained accountant, including lecturing the AAT Accounting Qualification. After specialising in company closures and insolvency, Hannah has, for the last 5 years helped hundreds of directors of struggling limited companies with a wide range of solutions including company closures.
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