What’s the difference between administration and liquidation?
Is administration preferable to liquidation?
The decision of whether your company should be liquidated or placed into administration is not an easy one to make, and the consequences can be significant.
In this article we consider whether administration is preferable to liquidation and how directors can make the best decision for their business. We also explore what happens when a company goes into liquidation, including the differences between voluntary and compulsory liquidation.
What are administration and liquidation?
Administration and liquidation are both options available to directors when their company is insolvent, whether a business can be rescued or not.
Liquidation is the process of winding up a company’s affairs. It involves selling off all assets, paying creditors what they are owed, and distributing any surplus funds amongst shareholders according to their shareholdings. The company is then closed – or wound up.
This can be done by a Creditors’ Voluntary Liquidation (CVL). As the name indicates, this is a voluntary process, agreed on by your creditors as the best way to regain the maximum amount of the outstanding debt. In some cases, we can use a CVL as a Start Afresh Liquidation to restart your business under a new company.
Compulsory liquidation is liquidation by court order. It’s resorted to by your creditors if there’s no other option available for them to be repaid the monies you owe. If you’ve been threatened with a compulsory liquidation, or been issued with a winding up order by your creditors, please call our team of licensed insolvency practitioners on 0800 054 6590 – the earlier you deal with the situation the more likely it is that we can help you.
Administration is a process by which the company in financial difficulty is placed into the hands of an administrator. Throughout the administration, they will manage its day-to-day operations while preserving its value for creditors until such time as it can be restructured in a way that will bring it back to profitability or made suitable for sale. If the decision is that some or all parts of the business need to be sold, in some cases these parts can be bought by the existing company director(s), set up under a new company.
As you can see, liquidation and administration are both viable options for dealing with insolvent companies. They are simply different solutions to the problem of insolvency. And both could mean you can restart your company without the debts.
Which is best for your company?
This is not a question we can answer until we know more about your business’ situation. Different solutions will be appropriate and available depending on your unique circumstance. And, most importantly, depending on your own aspirations for the business.
What’s important to understand is that your company’s financial difficulties don’t have to mean the end of your business. Our licensed insolvency practitioners can explain your options in a straightforward way and guide you through whichever solution you decide on.
Call us on 0800 054 6590 or contact us