A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
Liquidation vs administration - what's the difference?
Liquidation ends a company; administration tries to save the business inside it - that's the essential difference, and everything else about the two procedures follows from it.
In this guide you'll learn how the purposes, processes, costs, and outcomes differ, and the practical questions that determine which route fits your company.
The two are often confused because both involve a licensed insolvency practitioner taking control of an insolvent company - but they head in opposite directions, so it's a good idea to understand both before assuming yours is a liquidation case.
What is each procedure for?
Liquidation is terminal: assets are sold, creditors are paid so far as funds allow, employees claim through the government scheme, and the company is dissolved.
Administration is protective: a legal moratorium freezes creditor action while the administrator tries to rescue the company, or - far more commonly - sell the business as a going concern so that the trade, jobs, and value survive even though the original company usually doesn't.
A helpful shorthand: liquidation deals with a company that has no future; administration deals with a good business trapped inside a failed company.
How do the processes compare?
A Creditors' Voluntary Liquidation is initiated by shareholders, typically takes two to three weeks to enter, and runs six to twelve months to conclusion - trading stops at or before appointment.
Administration can be entered within days where urgency demands (the moratorium can bite from the filing of a notice of intention), the business often continues trading under the administrator, and the procedure lasts up to twelve months unless extended.
Administration is the faster shield but the more demanding process - trading a business in administration requires funding, management, and a realistic buyer or rescue plan.
What about cost?
Liquidation is almost always cheaper - a straightforward CVL commonly starts from a few thousand pounds, as covered in our liquidation cost guide.
Administration costs materially more because the administrator is running and selling a live business - which is why the first test of any administration is whether the value being preserved exceeds the cost of preserving it.
What happens to directors in each?
In both, directors' powers cease, cooperation is mandatory, and pre-insolvency conduct is reviewed - our guide on what happens to directors applies to both procedures.
The difference is what comes next: in administration, directors are frequently involved in the go-forward business - either employed by a purchaser or, in a pre-pack, part of the buying team, subject to the connected-party rules and restrictions on reusing the company name.
What happens to employees in each?
In liquidation, employees are made redundant and claim wages, notice, and redundancy from the Redundancy Payments Service.
In administration, employees attached to a business that's sold usually transfer to the buyer under TUPE with continuity of employment - one of the main reasons administration is worth its cost when the business is genuinely saleable.
How do I tell which one fits my company?
Four questions do most of the work.
Is there a business anyone would buy - customers, contracts, brand, workforce - separate from the debts? If no, liquidation; if yes, administration deserves a look.
Is there funding to trade through a sale process, or a buyer already interested? Administration needs one or the other.
Is creditor action imminent - a winding up petition, enforcement, a frozen account? The moratorium may make administration urgent even where the eventual outcome is a sale and wind-down.
Would creditors do better from a sale than a shutdown? That's the statutory test the administrator must satisfy - and a licensed IP will tell you honestly at the first meeting whether your case can meet it.
Where can I get a straight answer for my company?
Call our licensed insolvency practitioners in Manchester on 0333 023 5090. One confidential conversation with an ICAEW-licensed IP will usually establish which procedure - if either - fits your company, with no obligation.
InsolvencySupport.co.uk is operated by Xeinadin Corporate Recovery Limited (company no. 11415156), 100 Barbirolli Square, Manchester M2 3BD. Our insolvency practitioners are licensed and regulated by the ICAEW.
This article is intended for general information purposes only and does not constitute financial, legal, or professional advice. Always take advice from a licensed insolvency practitioner about your specific position.
Reviewed by Alan Fallows, Licensed Insolvency Practitioner, ICAEW.