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 a going 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.

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.

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.

Repaying 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 implemented, and it may not be suitable for all companies.

Repaying 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.

In 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 used when 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

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 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.

Oldham Precision

Kelly Burton • Construction & Engineering • Administration

Machining engineers Oldham Precision, has been bought out of administration, saving all 12 jobs.

The company’s principal activity was the subcontract manufacture of large volume batch precision machined components for clients across a wide range of industries including aerospace, paper converting, printing, coatings, electronics and valve construction.

Administrators Kelly Burton and Lisa Hogg from Sheffield business turnaround experts Wilson Field were appointed joint administrators on 17 January after the company suffered cash flow problems.

Originally established in 1982, the company, based at Red Rose Business Park on Shaw Rd in Royton, offered subcontract engineering including CNC milling, grinding and turning.

After advice from Wilson Field, the business was sold to the existing management team as a going concern, saving all 12 employees’ jobs.

Kelly Burton, director in the Leeds office at Wilson Field said:

“Following discussions with the director, the business was sold as a going concern, safeguarding all 12 employees’ jobs and offering a better return for the company’s creditors than alternative options.

“The new company will be under the same management offering the same standards of service to its customers.”

Precision Engineering Business

Kelly Burton • Construction & Engineering • Administration

A bespoke precision engineering business, working predominantly in the automotive and aeronautical sectors, found itself experiencing cash flow difficulties caused by an increase in costs due to the uncertainties surrounding Brexit, and the loss of a key member of the sales team.

When the company’s largest customer reduced its spending by 50%, the director felt the business couldn’t continue and sought advice from the team at Wilson Field.

Wilson Field marketed the business and assets for sale, and a sale of the tangible assets was completed immediately following the administrators’ appointment, to an unconnected third party.

Kelly Burton, insolvency practitioner and director at Wilson Field, said:

“With so many complications surrounding Brexit, coupled with the loss of some key staff, the company experienced some cash flow difficulties it could not get out of.

There was a positive outcome in the end as some of the tangible assets within the company were sold, which meant a good return for creditors.”

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