The difference between Administration and Liquidation
If your company is facing insolvency or you are considering closing your business, it’s important to recognise there are a number of options available to you, depending on your individual circumstances.
Two of those options are administration and liquidation. These are two very different procedures that aim to achieve different outcomes. Our industry experts are here to help you understand the difference between company administration and the liquidation process, so you can decide if either option suits you and your business best.
Are you considering company administration or liquidation?
If your company is insolvent, you might be considering company administration or liquidation.
What does it mean when your company is insolvent? Insolvency means that your company is no longer in a financial position to pay off its debt.
What does company administration mean?
In short, the main difference between company administration and liquidation is that the overall goal of administration is to rescue your business.
You might choose to go down the administration route if there is the potential to save parts of your business. It’s important to recognise that company administration is usually just a temporary measure that’s put in place, giving a business time to plan a more permanent solution.
What is the company administration process?
When a company goes into administration, the control of the business is handed over to an Administrator – this person must be a licenced insolvency practitioner, just like the ones at Insolvency.co.uk. The Administrator will run the business throughout the duration of administration.
During the company administration process, creditors will not be able to take legal action against your business. This is one of many benefits to company administration, as it gives your company essential breathing space, so you can plan your survival.
Once appointed, the Administrator will be given eight weeks to send out formal proposals to creditors, employees and Companies House, detailing a basic plan of action, along with the anticipated outcome.
Along with the proposals, creditors, employees and Companies House will all be invited to approve or amend these plans at a meeting.
The Administrator might decide to:
- Negotiate a Company Voluntary Arrangement (CVA) so that your business can keep trading
- Consider Pre-Pack Administration: a form of administration that involves selling your business to another company, or back to the original directors but under a different name
Company administration could also end up in liquidation.
What is liquidation?
There are three main types of liquidation:
- Members’ Voluntary Liquidation (this happens if the company is solvent)
- Creditors’ Voluntary Liquidation (when the company is insolvent and the directors choose to close it down)
- Compulsory Liquidation (when a business is forced to close after creditors take action)
All three of these will result in the closure of your business, rather than rescuing or recovering the company.
The main objective of liquidation is to wind up the company, and release its assets to the creditors and/or shareholders can then be repaid.
Can you liquidate your company and start over?
In short, yes, you can liquidate your company and start again. This is called ‘Start Afresh Liquidation’.
Once your business has gone through the administration or liquidation process, its assets can be bought by the former directors, so that you can sell similar products to similar markets. This is often known as creating a phoenix company. If this is something you are considering, then you must speak to liquidation specialists first, as there are a number of rules you must follow.
Are you considering company administration or liquidation?
Whatever route you feel might be best for your business, it’s essential that you seek support and advice from professional experts who specialise in company administration and liquidation.
At Insolvency.co.uk, we understand that if your business is insolvent, or you want to close your company, knowing which route to choose can seem confusing and overwhelming. Our insolvency practitioners are here to support you every step of the way. Get in touch with our team today.