Differences between Liquidation and Administration
Distinguishing the two types of liquidation
While liquidation and administration are formal insolvency procedures, they are different processes that eventually achieve different results. A liquidation brings about the end of a company by selling – or liquidating – its assets before dissolving them entirely. However, an administration of a limited company applies when there is a chance of saving a business experiencing high financial or operational distress levels.
Liquidation of a Limited Company is applied when a company is beyond the rescue or its directors no longer want to run the company for many reasons. There are two types of liquidation depending on the company’s financial position.
Company directors may qualify for redundancy if your company is liquidated and insolvent?
When considering a voluntary liquidation for your limited company, advice from a licensed insolvency practitioner can help you understand your options.
Solvent -v- Insolvent Voluntary
A profitable cash-rich limited company is considered solvent. However, if the shareholders no longer require the company, it is no longer needed, perhaps due to retirement. If the director moves on to a new venture, a Members’ Voluntary Liquidation (MVL) can close the company. Therefore, it allows the company to manage its assets efficiently and cost-effectively before winding down for good. A licensed insolvency practitioner must undertake MVLs, and due to the professional costs involved, they are typically only suitable for those companies with more than £25,000 to distribute.
Are you concerned about repaying your Bounce Back Loan?
Bounce Back Loans are now payable. However, many directors express concerns about bounce back loans and liquidation.
As licensed insolvency practitioners, a member of our senior team at HBG Advisory will explain clearly the options available to you and your company.
We can advise you on your options for repaying your outstanding Bounce Back Loan, along with dealing with unpaid creditors of the company.
Contact the team at HBG Advisory today on 0800 612 5448.
Liquidating an Insolvent Limited Company
However, a director will liquidate his company due to falling sales and rising debts. Once a company cannot meet its outgoings as and when they fall due, or if its liabilities outweigh its assets, it is technically insolvent. Liquidation of an insolvent company is the voluntary liquidation of creditors or CVL.
As part of the process, a licensed insolvency practitioner identifies its assets before selling them to benefit any outstanding creditors. The liquidator will then commence closure of the company in an orderly manner. Any debts remaining at this point remain written off. However, if the directors have personally guaranteed any loans or supplies, they shall have to pay outstanding monies applicable only to the guarantee. The liquidation concludes the company’s existence as a legal entity and then removed from the registrar at companies house.
Differentiation of Administration?
A liquidation signals the ultimate end of a company. However, administration often focuses on saving the business through restructuring. As soon as you put your company into administration, the appointed administrator takes control of the company and immediately receives a moratorium, a strong ring-fence that stops any further legal action.
The administrator now has time to consider the company and its financial position, and formulate a plan to rescue the business if possible. Doing so possibly involves streamlining, such as closing non-performing areas of the business or unprofitable retail stores, or restructuring its debts to make them more affordable.
However, when a company enters administration to commence a turnaround, this proves impossible. Then the company will exit administration and immediately enter liquidation – typically through a CVL.
Liquidation or Administration?
If your business has financial difficulties and you are not sure what your next step should be, then you should seek the help of a licensed insolvency practitioner.
Please call our advisers today to arrange a free no-obligation consultation with one of our licensed insolvency practitioners.