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
Berks Healthcare Services Limited
Kelly Burton • Healthcare • Administration
Wilson Field has advised on the sale of a Slough-nursing agency which was bought out of administration saving all 7 jobs.
Berks Healthcare Services Limited, which traded as Enchor Healthcare Services, specialised in providing healthcare professionals for the public and private sector.
It supplied registered general and mental health nursing staff, together with unqualified support and ancillary staff, to private hospitals and care homes in the areas local to the company’s offices in Slough, Portsmouth, Birmingham and Luton.
The company, headed up by healthcare professionals, called in administrators from Wilson Field after suffering from a fall in turnover, which left it struggling to meet unsustainable historic legacy debt. It had also been issued a winding-up petition from HMRC.
Kelly Burton and Emma Bower were appointed as joint administrators on 14 June 2018 and concluded the sale of the business and assets for an undisclosed sum to an unconnected company Connect Care & Support Limited, also based in Slough.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said: “The company had a turnover in the region of £2.9m per annum in 2017. However this is a very competitive marketplace, which is primarily price driven and recent minimum wage legislation changes had also impacted on the company’s potential profit margins.
“As administrators, we sought a purchaser for the business.
“This pre-packaged sale to Connect Care & Support Ltd saved seven permanent jobs as well as numerous temporary agency staff.
“It has also mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay in lieu of notice estimated to total £29,576 as the liabilities have transferred to the successor business under the TUPE regulations.
“This means the business has a new future moving forward.”
Berks Healthcare Services Ltd was incorporated in January 2015, but can be traced back to February 2007. Enchor Health Care was recognised and registered as Recruitment Consultants providing both permanent & temporary staffing solutions to many different Health and Social Care settings. It also had supported living and rehabilitation centres.
Designer Recliners Limited
Kelly Burton • Manufacturing • Administration, Company Voluntary Arrangement (CVA)
A Sheffield furniture manufacturer and upholster has relaunched offering a smaller, more specialised range of products.
Anico Interiors Limited, which included reclining chairs for the elderly, had suffered cash flow problems and issues with profitability.
Designer Recliners Limited, managed by director Nick Wall, has purchased the assets and business of Anico saving all 11 jobs.
Andy Wood and Robert Dymond from Sheffield business turnaround experts Wilson Field were appointed joint liquidators on 8 June and advised on the sale of the 14-year-old company, based on Orgreave Crescent at Orgreave Industrial Estate, as a going concern.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“Historically, the company offered a wide range of products but has now streamlined its offer to customers and cut out some unprofitable lines, as well as re-vamped its web site.
“Directors took advice from Wilson Field with the business sold to new company Designer Recliners Limited as a going concern, safeguarding all 11 employees’ jobs. The new company will offer the same service and standards under the same management team but focus on a smaller range of specialised products.”
The company employs skilled staff including upholsterers, seamstresses and cutters and was set up in 2002 by Nick Wall.
Aristocrat Pet Supplies
Kelly Burton • Retail • Administration
The business and assets belonging to a Sheffield online pet supplies company are up for sale. Aristocrat Pet Supplies, a family owned and run business, milled its own feed and seed on-site in Sheffield and has been trading for over 25 years selling agricultural raw materials, livestock, textile raw materials and semi-finished goods.
Sheffield-based insolvency specialists Wilson Field were called into the firm after it experienced increasing pressure and competition online. Andy Wood and Lisa Hogg were appointed as joint administrators for the company on January 26.
Wilson Field is trading the business in the short term with a view to finding a potential buyer for the company based on Holbrook Green Industrial Estate near Sheffield.
Andy Wood, associate director and insolvency practitioner at Wilson Field said:
“The business has encountered increased competition in recent years, principally from discount stores which have reduced margins.
“It has been on the market for several months but has not attracted any significant interest so far. As administrators, Wilson Field is trading the business in the short term to maximise realisations on a reduced staff base of seven.”
Aristocrat, which employed 19 staff, offered a range of pet supplies including dog and cat treats, chews, small animal bedding, wild bird supplies, poultry and aquatic food.
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