Some operators sell “low-cost” liquidation without telling you how a Liquidator actually gets paid. Here’s the information you need to make the right decision.
How is a Liquidator Paid?
How a Liquidator is paid for liquidating a company will depend on whether or not the company has any assets (Plant and equipment, Debtors, Cash, etc.)
If the Company does have assets, then the Liquidator is paid from the the proceeds of whatever assets are sold or recovered.
For example, if the Company being liquidated owns plant and equipment, the liquidator’s fees will be deducted from the proceeds of the sale. Any cash the company has in the bank may also go towards the cost of the liquidation.
If the company doesn’t have any assets (or only has limited assets), the cost of the liquidation is usually paid by its Directors or Shareholders. At Revive, we fix this cost so directors and shareholders know exactly how much they’re paying.
If you’d like to know more about liquidation fees and our liquidation cost packages, contact us today.
What Fees are Liquidators or Administrators Entitled to?
A Liquidator, Voluntary Administrator or Deed Administrator (also known as an External Administrator) is entitled to be:
- paid reasonable fees (or remuneration) for the work they perform once they’ve been approved by creditors, a creditors’ committee or a court
- reimbursed for out-of-pocket expenses incurred in performing their role (legal fees, valuers fees etc).
What’s “reasonable” will depend on the type of external administration and the issues that need to be resolved. Some are straightforward, while others are more complex.
Prior to taking any payment for conducting a liquidation, a liquidator must seek approval from the company creditors by passing a resolution at a creditors’ meeting.
How do Liquidators Charge?
Insolvency Practitioners and Liquidators generally charge in one of four ways:
- Time-based/hourly rates. The fee is the sum of each person’s hourly rate multiplied by the number of hours they worked.
- Fixed Fee. The fee is normally quoted at the start of the administration, and is the total cost for the administration. A practitioner may also quote a fixed fee to finalise an administration.
- Percentage. The fee is based on a percentage of a particular variable, such as the gross proceeds of asset realisations.
- Contingency. The practitioner’s fee is structured to be contingent on achieving a particular outcome.
Given the nature of some administration, Insolvency Practitioners usually choose the time-based/hourly rates method. Here’s why:
- They’re paid only for the work done, subject to the Company’s assets being sufficiently realised/recovered.
- It ensures creditors are only charged for work performed.
- They need to perform numerous tasks that don’t relate to realising assets, such as responding to creditor enquiries and reporting to ASIC. Determining fees based on other methods would be unrealistic.
- They can’t reliably estimate total fees to complete the administration when there are complexities involved such as court action, voidable transaction recoveries, etc.
If your business uses XERO for its accounting, you can receive an instant score and suggested actions based on your personal situation, using our free online Business Viability Tool. Alternatively get in contact via our contact form or call the team today for professional, non-judgemental support and advice.