What is the difference between a Liquidation process and an Administration process?
As Insolvency Practitioners, we’re often asked what the difference is between Liquidation and Administration.
They are both formal company insolvency procedures in the UK. The main difference is that a liquidation process is used to close a company down, whereas Administration is a business rescue tool that may help it to survive.
Going into Liquidation
Liquidation usually means that the company ceases trading and its assets are turned into cash – in other words, “liquidated”. It really is the end of the company per se, but the ‘business’ itself may survive to live another day.
There are three types of Liquidation processes:
The first two of these are used to wind up an insolvent company, whereas an MVL is used to legally close down a solvent company that no longer has a purpose.
Even if your company is facing insolvency, liquidation isn’t necessarily your only option. If the business has a viable future and reliable cash flow, Administration can help its survival by protecting the company and its assets from aggressive creditors while it is restructured.
Although Administration doesn’t always offer a great return to creditors, it is usually a better alternative than liquidation. As well as effectively wiping out the prospect of any return, this increases unemployment and eliminates any chance of a successor business.
Speed is of the essence
The most important thing to remember if your company is struggling financially is to take professional advice as soon as you spot any signs of problems, such as declining cash flow or increased creditor pressure. Early detection can increase your options and ensure that the company has a viable future as a going concern. Please contact us for help if you have any concerns about your business.