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.

To undertake a formal insolvency process such as a Creditors’ Voluntary Liquidation or Members’ Voluntary Liquidation, you will need to use a Licensed Insolvency Practitioner.

A Licensed Insolvency Practitioner is the only person who can deal with a voluntary liquidation of your company.

You would be wise to speak directly to the Insolvency Practitioner who will act as liquidator of your company. If you don’t how else will you know what to expect once you’ve appointed them as liquidator. After all they will be responsible for your director’s conduct report in a CVL and will be in control of your assets in an MVL.

When a company is falling behind with payments due to suppliers, HMRC, financiers or staff – with no clear opportunity to get back on track – then the company is likely to be insolvent. Evidence of this might be a tightening of cash flow, chasing letters from creditors, court enforcement or bailiff action.

There are two tests that can be applied to assess an organisation’s financial viability: the cash flow test and the balance sheet test.