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
M J Squire Limited
Kelly Burton • Construction & Engineering • Creditors Voluntary Liquidation (CVL)
A bespoke joiners and shop fitters in Sheffield, M J Squire Limited, had been in its trade for more than 30 years.
However, recently it has been forced to close due to the downturn in the construction and retail industry.
The company was located at Orgeave Close in Sheffield, after working for many household names over the years including House of Fraser, Levi’s, Austin Reed and Tommy Hilfiger.
Until 2014, it had been a profitable company but over the past couple of years, it had been unable to secure profitable contracts.
February 10th, 2016 saw the appointment of Wilson Field’s Andy Wood and Robert Dymond as liquidators. This development for the company came as a result of suffering cash flow problems.
Operations at M J Squire Limited have now ceased and regrettably, all nine roles within the company were made redundant.
Andy Wood, insolvency practitioner from Wilson Field, spoke about his work on this case.
“Declining sales at M J Squires significantly impacted cash flow and the business’ ability to meet its liabilities. In the face of tough market conditions, the director has taken the difficult decision not to continue trading. The business has closed and the assets are being sold.”
“It is very sad to see this well-known local business cease to trade after over 30 years. The downturn in the retail sector has hit this business hard.”
Statestrong Limited
Kelly Burton • Manufacturing • Administration, Creditors Voluntary Liquidation (CVL)
Insolvency experts Wilson Field has helped turnaround the fortunes of a loss-making manufacturing company in Lancashire providing a new future for its 80 employees.
Businessman Russell Blaikie acquired the struggling 40-year-old Statestrong Limited, headquartered in Lytham St Annes, through a pre-pack sale and has been able to help the company immediately utilising his expertise in manufacturing and management.
Arrangements for the purchase of Statestrong’s business and assets were negotiated by Sheffield business specialists Wilson Field who affected the sale shortly after being appointed.
The company, which manufactures and supplies aerosol and liquid products for use in health and beauty, household, automotive and industry globally, posted sales of £12m last financial year, but had suffered pressure from creditors with outstanding arrears.
The total value of the deal is undisclosed but includes the business and the assets of the company based on Boundary Road in Lytham St Annes and Tarporley in Cheshire, which will now trade as Statestrong Products Limited.
Mr Blaikie said:
“Transactions of this nature are sensitive and require careful handling. The team at Wilson Field provided exactly the right professional approach.”
Wilson Field’s insolvency practitioners Kelly Burton and Joanne Wright worked closely with Mr Blaikie along with senior corporate case administrator Gareth Kinneavy.
Kelly Burton, said:
“The company had a wealth of expertise but was straddled with financial liabilities which ultimately made its future questionable. Looking forward, a previously distressed business now has a viable future.”
National Videogame Arcade
Kelly Burton • Leisure & Hospitality • Administration
Image from GameCity.org [http://gamecity.org/]
The National Videogame Arcade is a unique national centre which is dedicated to history and development of computer and video games. The museum itself contains many rare and original videogames and consoles as well as a Toast Bar which serves a wide array of toast-based snacks.
Over its time, it has also been involved in working in collaboration with Arts Council England, Times Educational Supplement, Wellcome Trust and the British Library to name a few. These projects and collaborations focused on developing the role of videogames in culture and education.
Home of the acclaimed GameCity festival, The National Videogame Arcade in Nottingham, sadly fell into cash flow difficulties earlier this year despite an increase in its footfall. An eleventh hour investment by a director-led consortium, led by director Iain Simons, saved all 40 jobs at the increasingly popular tourist attraction and museum.
The cash flow difficulties led to the destination being taken into administration, Wilson Field’s Andy Wood and Lisa Hogg were appointed as joint administrators on 19th August 2016.
Andy Wood, an insolvency practitioner at business turnaround and insolvency specialist, Wilson Field, said;
“The investment story behind the consortium is based on the passion that Iain Simons and his staff have for the GameCity project.
“We were appointed as administrators after the company fell into financial difficulties, despite growing in popularity. The consortium of investors could clearly see the potential to turn the business around and with support from the staff, GameCity has a new future.”
Director of GameCity and investment consortium leader, Iain Simons, was very happy with securing the last minute investment and the service he received from ourselves; “The NVA is like no other facility within the UK and is rapidly growing in popularity. It was devastating to us when we realised that the business was in financial difficulty, but we knew it could be overcome.
“I have to give all credit to the staff here who volunteered to work without pay when we announced that the business was in trouble and this undoubtedly allowed us the time to pull together a consortium of investors to give the facility a bright new future and secure those jobs.
“GameCity is rapidly picking up pace and the Toast Bar, National Videogame Arcade and our collaborations with new partners in the UK and beyond are proving to be just as popular as we’d hoped.”
For more information on GameCity visit http://gamecity.org and for further information about our insolvency procedures, call us on 0800 901 2475.
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