Administration Vs Liquidation

At Blackstone Solicitors, we understand that even well-run businesses can encounter financial difficulties. When this happens, navigating the complexities of insolvency procedures can be overwhelming. Two prominent options companies facing insolvency may consider are administration and liquidation. While both processes involve dealing with company debts, they have distinct purposes and outcomes. In this article, Administration Vs Liquidation, we take a look at the process involved and the options available to you.

Free Initial Telephone Discussion

For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of company administration and liquidation, and once instructed, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.

What is Administration?

Administration is a formal insolvency procedure overseen by a court-appointed administrator. The primary objective of administration is to rescue the company as a going concern. The administrator takes control of the company’s assets and operations, aiming to:

• Identify and implement a turnaround plan: This plan may involve debt restructuring, asset sales, cost-cutting measures, or a combination of these strategies.
• Negotiate with creditors: The administrator negotiates with creditors to reach an agreement on how outstanding debts will be repaid. This may involve extending debt maturities, reducing interest rates, or agreeing to a Company Voluntary Arrangement (CVA) – a debtor-led proposal for debt repayment.
• Protect the company’s assets: A moratorium (suspension) on legal action against the company is granted during administration, providing breathing space to develop and implement the turnaround plan.
• Sell the company as a going concern: If a viable turnaround plan can be established, the administrator may seek to sell the company as a whole to a new owner.

Benefits of Administration:

• Opportunity to rescue the company: Administration provides a chance to save the business and continue trading.
• Protection from creditors: The moratorium prevents creditors from taking legal action during administration.
• Flexibility in dealing with debt: Negotiations with creditors allow for restructuring debt obligations and potentially reducing the overall debt burden.

Disadvantages of Administration:

• Costly process: Appointing an administrator and implementing a turnaround plan can be expensive.
• Uncertainty for employees: The restructuring process may involve redundancies and changes in working conditions, impacting employee morale.
• Risk of failure: There’s no guarantee that the turnaround plan will be successful, and the company could still end up in liquidation.

What is Liquidation?

Liquidation is a formal insolvency procedure where the company’s assets are sold to repay creditors as much as possible. The process is overseen by a liquidator, who is an insolvency practitioner appointed by the court or creditors. The primary objective of liquidation is to wind up the company’s affairs in an orderly manner.

Steps Involved in Liquidation:

• Cease trading: The company stops its normal trading activities.
• Identify and value assets: The liquidator identifies and values all the company’s assets, including property, equipment, and inventory.
• Sell assets: The assets are sold to generate funds to repay creditors.
• Distribute funds to creditors: After selling assets and settling any outstanding expenses, the liquidator distributes the remaining funds to creditors according to a set order of priority (secured creditors are paid first, followed by unsecured creditors and shareholders).
• Company dissolution: Once all debts are paid (to the extent possible) and all assets are sold, the company is formally dissolved and removed from the register at Companies House.

Benefits of Liquidation:

• Orderly closure: Liquidation provides a structured process for winding up the company’s affairs.
• Fairness to creditors: Creditors have a clear path to recovering some or all of their outstanding debts.
• Finality: Liquidation brings a definitive end to the company’s operations.

Disadvantages of Liquidation:

• Loss of business: The company ceases to exist, leading to job losses and potential disruption in the market.
• Damage to reputation: Liquidation can damage the company’s reputation, negatively impacting its brand and future business ventures of its directors.
• Limited recovery for creditors: There may not be enough funds from asset sales to fully repay all creditors.

Choosing Between Administration and Liquidation

The most suitable option for your company depends on several factors, including:

• Severity of financial difficulties: If the company has a chance of becoming profitable again, administration might be a viable option. If the company’s financial situation is dire, liquidation might be the only course of action.
• Value of assets: If the company has valuable assets that can be sold to repay creditors, liquidation may be a better option.
• Creditor support: If creditors are willing to work with the company through a turnaround plan, administration may be more feasible.

How we can help

We have a proven track record of helping clients deal with the legal process involved in administration and liquidation. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/

How to Contact Our Corporate Solicitors

It is important for you to be well informed about the issues and possible implications of corporate administration and liquidation. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.

To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Authored by Ben Posted in Blog, News Tagged as

Comments are closed.