Administration or Liquidation? What’s the difference? Which is best for my company?
While administration and liquidation are both insolvency procedures for insolvent, limited companies, they are both very different and will only be applicable in certain circumstances.
Administration is designed to restructure an insolvent company where deep-rooted issues prevent it from being profitable. Liquidation, by contrast, sees an insolvent company closed, drawing a line under its debts.
When deciding whether administration or liquidation would be the best choice for your company, many factors should be considered.
Company administration
Administration is a powerful tool used to protect an insolvent company, halting creditor action and giving the Administrators time to devise a strategy to repay the company’s debt and, if possible, save the company.
Administration is a relatively temporary state rather than a long-term insolvency solution. During this period, the administrators will gather information and data to assess the viability of the business and decide what might be its best route out of administration.
Typically, administration lasts up to one year, although this can be extended if required and the creditors and/or courts allow it.
An administration has three “statutory purposes” to which the insolvency practitioners must adhere:
- Rescuing the company as an ongoing concern.
- Or achieving better results for the company’s creditors, as long as it provides better results than if the company was wound up.
- Alternatively, insolvency practitioners must realise property or assets to make a distribution to one or more preferential creditors.
More on company administration
Liquidation – Creditors Voluntary Liquidation
In contrast to administration, liquidation is a terminal process which sees the company closed down. Liquidation can follow an administration where there’s no further prospect of repaying the company’s debt.
Liquidation sees the company’s assets being sold off or realised to make payments to creditors on a pro-rata basis. While the company ceases to exist, the business isn’t automatically dead. In some cases, the directors can purchase back the assets at market value and continue trading through a different company.
Read more about Creditors Voluntary Liquidation (CVL)
Falling into insolvency is unpleasant for any business and, understandably, can lead to a lot of sleepless nights and stress for directors and stakeholders. Yet it doesn’t have to be this way. Being proactive at the first signs of trouble often yields a more favourable outcome, and if your business is starting to feel the pinch, contact us without delay for free, confidential advice.
Are there alternatives to liquidation and administration?
Often, the procedure best suited for your company depends on its circumstances, how many creditors it has and whether they’re putting pressure on directors. If administration or liquidation is unsuitable, there are still a variety of options to help you recover the company and allow it to continue, or close the doors and put the company to bed.
Read more about company recovery optionsRepaying the debts in affordable instalments
Administration isn’t the only option to recover your company. If the core business has the potential to make a profit without its debts, you may be eligible for a Company Voluntary Arrangement (CVA). These arrangements allow you to remain in control of the company while repaying its debts in affordable monthly instalments. A CVA does require approval before it can be actioned, and it may not be suitable for all companies.
More about Company Voluntary ArrangementsRepaying debts to HMRC
If your debt is to HMRC, you can also apply for a Time to Pay Arrangement (TTP). These allow companies and individuals to repay an affordable, tailored portion of their debt to HMRC, usually on a monthly basis over a period lasting between six and 12 months.
Speak to us if you’re behind on repaying your debts to HMRC. We have developed a strong relationship with them, putting us in an ideal position to negotiate.
More on Time to Pay ArrangementsIn summary
Both administration and liquidation are formal insolvency procedures and share similarities, but both have slightly different purposes. The main difference between administration and liquidation is that administration can enable a company to continue trading if it’s viable. There could be aspects of the business that work and jobs within the company could be saved while other parts of the business are sold. By contrast, a liquidation is for where the company has no realistic future and always ends with the company being closed.
How we can help
If you’re unsure about the best procedure or the right insolvency process for your company, get in touch with our initial advice team today for some free, impartial advice with no obligation. We have a team of experienced insolvency practitioners who will help guide you towards the best route forward.
FAQs
What is the difference between a CVL and compulsory liquidation?
A CVL is a voluntary insolvency procedure carried out when a company’s directors or shareholders recognise that the state of insolvency or financial decline is beyond reasonable repair. Choosing to pursue a CVL protects the company from facing compulsory liquidation through means of a winding-up petition, in which they could face very little control over their company’s closure.
More about compulsory liquidation
Can I hold directorship of another company once my insolvent company has been liquidated?
Yes – it is entirely possible for you to become or remain a director of a separate company throughout and after the process of your company facing CVL. This is, however, subject to there being no disqualifications enforced due to findings of wrongful trading throughout the process of a CVL.
More frequently asked questions around voluntary liquidation
What happens to the company’s employees?
Unfortunately, once a CVL is carried out, employees of the company are made redundant. If there are no funds within the company with which to cover redundancy pay, employees may apply through the National Insurance Fund, as long as they meet the criteria.
More about eligibility for redundancy pay
Case Studies
Print On Solutions Limited
Kelly Burton • Service Agency • Administration
A Leeds print company has been bought out of administration saving all 54 jobs.
Print On Solutions Limited was set up in 1999 years ago and went from start-up business to the largest envelope overprinter in the UK with offices in Leeds and Bury, 12 litho presses and six digital presses.
Administrators Kelly Burton and Joanne Wright from Sheffield business turnaround experts Wilson Field were appointed joint administrators on 11 April after the company, based in Century House, Holbeck, ran into financial difficulties following an ongoing dispute relating to a significant contract.
The directors took early advice and the business was sold to new company WEPOS Limited as a going concern saving all 54 employees’ jobs.
Kelly Burton from Wilson Field said:
“Following discussions with the directors, the business was sold to WEPOS Limited as a going concern, safeguarding all 54 employees’ jobs. The new company will offer the same service and standards and will operate under the same management team.”
In 2003 Print On expanded by moving to a 12,000 sq ft, purpose-built factory in Leeds, designed to offer the business a state-of-the-art platform for growth.
The expansion of the group was through strategic acquisitions and mergers of envelope manufacturers. Tower Envelopes in Bury merged with Print On in 2010 and became the Lancashire division.
K2 Technologies Ltd and K2 Thermal Imaging Ltd
Kelly Burton • Service Agency • Administration
Wilson Field has helped secure the sale of two related North East businesses, which developed and manufactured thermal imaging equipment, as a going concern to Cenergem Limited backed by a group of local investors not associated with the current management.
Kelly Burton and Joanne Wright from Sheffield-based insolvency specialists Wilson Field were appointed joint administrators of Darlington-based K2 Technologies Ltd and K2 Thermal Imaging Ltd on 25 July 2016.
The two companies had experienced cash flow problems following to a sharp decline in the demand for their products due to increased global competition in the market over the last 18 months.
The sale, which resulted in six of the current eight jobs being saved, was achieved by Wilson Field, working alongside valuers and asset management consultants Charterfields, who handled a number of inquiries and Mark Wilkinson, insolvency partner at Shulmans Solicitors in Leeds.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said:
“During the past 12 to 18 months K2 had begun to experience increased competition in the market. Competitors had started to manufacture and sell similar products at a lower price, meaning the company had seen a sharp decline in the demand of products and a resultant shortage of cash flow.
“Our job was to realise a sale of K2 as a going concern to achieve the best return for the company’s creditors. There was significant interest by a number of parties. The resultant sale has also saved six of the eight jobs.”
K2 Thermal Imaging Ltd and its predecessors were involved in the development of three products establishing the company as a lead pioneer in thermal imaging.
The company designed and engineered three main product ranges for extensive use in the marine, firefighting and industrial sectors, allowing operators to enter smoke-filled environments to detect and rescue people with a hands-free application, therefore improving success rates in recovery.
ARB (Sound Vision Light Power) Limited
Kelly Burton • Leisure & Hospitality • Administration
Wilson Field has secured a new future for a Banbury headquartered events management company, which boasted clients including Crufts, Tour of Britain and Virgin London Marathon after it was bought out of administration.
ARB (Sound Vision Light Power) Limited was established in September 2014 and specialised in event hire including providing audio visual solutions equipment, hire and installation.
The company, which traded from Coton Cottage, Chacombe near Banbury, called in administrators from Sheffield-headquartered Wilson Field for formal insolvency advice.
The company, which has an impressive client list and relied solely on sub-contractors as and when needed, suffered VAT and HMRC issues as a result of a period of illness.
Kelly Burton and Lisa Hogg from Wilson Field were appointed as joint administrators on February 20 and concluded a pre-packaged sale of the business and assets for an undisclosed sum to ARB Motors Limited, lead by the same management team.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said:
Wilson Field was brought in to look at the situation of the business.
The focus on the company had diluted during a period of illness of one of the two directors. A debt was due to HMRC and a repayment proposal was rejected resulting in the need to protect the business and assets via a formal insolvency procedure.
The pre-packaged sale means the business, which was an established player in event management at large scale events, has a bright future moving forward.
The loss of a major employee’s input through illness can harm an organisation and it is important for businesses to seek help should this arise. Timing is essential to keep focus on the business.
ARB has combined experience of more than 100 years and provided hire equipment such as indoor and outdoor PA systems, single and double-decker commentary units, street sound vehicles, exhibition TVs, stage lighting and mobile power in both primary and secondary distribution.
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