The Difference Between Liquidation and Administration

How do these closure and restructuring processes differ?

Though both liquidation and administration are formal insolvency procedures, the main difference lies in the administration’s aim to salvage viable aspects of the business for ongoing trade, whereas liquidation solely focuses on the orderly closure of the company.

Though the administration doesn’t promise the company’s ongoing survival, it’s frequently a primary objective of the process. On the other hand, with liquidation, however, the sole outcome is the full closure of the business and the removal of its name from the register of companies maintained at Companies House.

 

Can Company Administration Lead to Liquidation?

Absolutely, quite frequently, a company goes into liquidation after administration. Yet, the administration process offers the chance for the company to possibly opt for a pre-pack administration sale and explore funding choices. These avenues offer hope for the company to carry on its operations under a new, debt-free entity.

If the administrator thinks liquidation is probable, they’ll ready the directors for the final dissolution phase with appropriate guidance. Generally, we don’t suggest a business opt for voluntary administration unless success is likely.

 

How does an administration process differ from when a company is liquidated?

Liquidation and company administration can be daunting for company directors, as both can result in the business’s closure. The main distinction between the two is that company administration seeks to aid the company in repaying debts to avoid insolvency (if feasible), whereas liquidation involves selling all assets before fully dissolving the company.

 

Is It Possible to Avoid Liquidation with a Company Administration?

While the company administration may result in liquidation, it can also prevent liquidation or receivership. 

One significant benefit of entering administration is that all legal actions against your company are paused during this time. Once the administration order is granted, an insolvency practitioner is appointed as administrator, taking temporary control over company operations.

Throughout this period, the insolvency practitioner will develop and present a recovery plan, aiming for approval from the insolvent company’s creditors at the creditors’ meeting. The administrator is legally bound to act in the creditors’ best interests.

However, by aiding in the repayment of as many debts as possible, the administration process also improves the standing of the insolvent company.

 

Read More:

• How much does it cost to close or liquidate a company
• Preference Payments in Liquidation: Understanding Section 239
• What are creditors’ rights in a liquidation process
• What does folding a business mean
• What happens to a company after a liquidator is appointed

 

When Should You Consider a Company Administration?

If a company faces repeated threats or warnings from creditors or HMRC, it could be prudent to seek advice from an insolvency practitioner regarding the feasibility of pursuing company administration or exploring alternative options.

When faced with the prospect of receivership or compulsory liquidation, company administration presents itself as one of the most attractive options. If the directors possess adequate funds to buy the company’s assets, a pre-pack sale can be organised. This involves transferring the contracts, property, and other assets of the insolvent business to a newly established company.

Ultimately, initiating administration with the support of a qualified insolvency practitioner could grant your company the necessary time to negotiate with creditors or sell some assets to settle debts.

If there is any chance of liquidation or receivership and are considering whether the company administration could offer crucial debt relief, don’t hesitate to reach out to us for a complimentary consultation. 

With our network of offices spread across the UK, expert and confidential advice is always within easy reach.