If your company is in an insolvent position and cannot pay its debts, the decision of whether or not to liquidate it is difficult.
In this article, we consider administration as an alternative to liquidation and how directors can make the best decision for their company. We also explain what happens during a liquidation, including the differences between voluntary and compulsory processes.
What is liquidation?
Liquidation is the legal process of winding up a company’s affairs, selling off its assets and paying creditors what they are owed. Any surplus funds that remain after settling outstanding debts get distributed among shareholders according to their shareholdings—and then the company itself is closed down for good.
This can be done by a Creditors’ Voluntary Liquidation (CVL). Just as its name implies, this is a voluntary process agreed on by your creditors. Creditors agree in the hope they can still be repaid something rather than nothing at all.
In some cases, we can also use CVL to restart a business under a new company, owned by your existing company director(s). This process is called a Start Afresh Liquidation.
When a creditor has tried multiple methods – and none of them were successful in getting you to pay the money you owe then – they may ask the court to enforce the liquidation of your company. This is a compulsory liquidation. You are far better to stay in control, take the correct advice and make your own decisions rather than have this situation forced upon you.
If you’ve been threatened with a compulsory liquidation or been issued with a winding up order by your creditors, please call our team of licensed insolvency practitioners. The earlier you deal with the situation the more likely it is that we can help you.
What is administration?
Administration is the process of appointing an administrator (who must be a licensed insolvency practitioner), who takes over control of the company to try to pull it out of financial difficulty and get it back on its feet.
The administrator will manage the company’s day-to-day operations, preserving its value for creditors until such time as it can be restructured to become profitable or sold.
In some cases, if it’s decided that the viable parts of a business need to be sold off and the company closed, these profitable parts can be bought by the existing company director(s) who set up under a new company.
Which is best for your company: liquidation vs administration
Liquidation and administration are both ways to deal with insolvent companies. They solve the problem of insolvency differently. But each could mean you can restart your business without debt.
We won’t know what’s appropriate for your business until we have more facts about your unique situation. The best solution depends on many factors, including its purpose and the future you envision for it.
It’s important to understand that your company’s financial difficulties don’t have to mean the end of your business. Our licensed insolvency practitioners can explain options and guide you through whichever solution you decide on.
