With dire predictions for the global economy in 2016 gathering steam, we’ve decided to republish this article to help our customers get to grips with the differences between company liquidation and company voluntary administration. The information found below remains accurate, and we hope it answers some of the biggest questions our clients have.
If you’re a company director whose business is about to make an exit, then no doubt you’ll have heard the words ‘administration’ and ‘liquidation’ fired around quite a bit. But what are the differences between the two? While it’s true that company liquidation and company voluntary administration are both insolvency procedures to help a business wrap things up, there are some fundamental differences which could sway the decision for you depending on your needs.
The question of liquidation or administration is a question which insolvency practitioners are asked perhaps more than any other. Liquidation means the end of company trading (as we touched upon in a previous article here), offering a stress free exit from the business and a way to settle any outstanding debts. Company voluntary administration on the other hand, will seek out ways to settle debt while allowing the company to continue trading. Quite often, if the debts are excessive, administration will end in liquidation after a short while.
While liquidation may seem like a headache, it’s actually a relatively stress free exit route from a business that’s about to close its doors. A company director doesn’t need to concern himself too much with the process once it’s under way and the liquidation process will work to pay off outstanding debts. If a creditor has petitioned on your behalf, this repayment through assets is known as compulsory liquidation. Voluntary liquidation is a viable option when a business is simply no longer needed, regardless of whether or not it’s insolvent, and can be triggered by its members or directors. Despite its negative connotations, liquidation is an excellent way to settle outstanding debts and write of tax liabilities. It also holds off any creditors and they are able to claim back any VAT that they may be owed from outstanding debt. Perhaps more fundamentally however, is that after the liquidation process you are free to set up another business and commence trading, carrying everything that you’ve learned from the process with you. Liquidation is seen as something which happens to the company, not to the individual.
Company Voluntary Administration
Company voluntary administration can be used to effectively ‘save’ a company, while some of its assets are sold off to settle outstanding debts. A company in administration can sometimes retain its original employees and management if it gets the right advice and assistance (and the debt situation isn’t too out of control). Trading is allowed to continue under administration and the business can be sold to settle debts with creditors or pay off shareholders. However, there are one or two drawbacks to consider when entering company voluntary administration. The process costs money (usually around 10% of the outstanding debt), and monthly repayments will need to be made in order to carry on trading. If these payments aren’t met, the company will likely face compulsory liquidation.
Before making any definitive choices it’s recommended that you take advice from company liquidation experts who will talk you through your options and help you do what’s best for your business.