The liquidation cost of a company is the amount it takes to sell all its assets, pay its debts and distribute any remaining proceeds to shareholders. The process can be costly, especially if the company is in financial trouble. The exact figure can vary depending on the type of assets being sold and the method of sale used, but it’s possible to reduce liquidation costs significantly by choosing a suitable strategy.

Insolvency Practitioner Fees

The first thing that will be deducted from any liquidation proceeds is the fee charged by a licensed insolvency practitioner who is appointed to oversee the liquidation process. These fees can vary widely based on the experience and quality of service provided, as well as the complexity of the case.

Asset Realization Costs

In addition to the liquidation practitioner’s fees, there are other costs involved in selling a company’s assets. These expenses are known as asset realization costs and can range from auctioneer’s fees to transportation costs.

Another major expense is the cost of disposal or scrapping assets at the end of their useful life. This cost can be quite significant, especially for more valuable assets such as machinery or vehicles. When considering the total liquidation cost of a company, it’s important to take these costs into account, as they can make a huge difference in the final amount available for creditors and shareholders. In the case of the discount footwear retailer, Payless, for example, a company that has ceased trading, its assets may have been sold for around $45 million. This was less than the company’s outstanding liabilities, and as a result, the company’s lenders were only paid around $1.5 million.