The Difference Between Liquidation and Administration
For directors of any business, both company administration and liquidation can be daunting processes as either of them could lead to the company collapsing. The main difference between these is Liquidation involves disposing of all business assets before the business is dissolved. Whereas a company in Administration has the task to help in repayment of debts or sale of part or whole of the business to prevent insolvency (where possible).
Do all cases of company administration lead to liquidation?
In many cases, a company that is in administration will eventually go into liquidation. However, the company administration process offers a window of opportunity to a business to look for a pre-administration sale and find funding. This raises the opportunity of the business to remain operational without debt and as a new entity. When the administrators realise that the most probable result is liquidation, they will guide the company directors through the last stages of dissolution. Usually they do not recommend a voluntary administration without the probability of being successful.
Is it possible with Company Administration to prevent Liquidation?
Despite the probability of liquidation, company administration can prove effective in preventing this from happening. One of the main benefits of opting for administration is all legal issues are placed on hold during the administration process. When an administration order is issued’ the insolvency practitioner will get control as the administrator with complete control over business operations for a period. This period is used by the insolvency practitioner to create a new plan for recovery by calling a meeting with company creditors and obtaining their consent.
While the administrator is legally bound to work to the benefit of the creditors by helping to clear the business debts it also is beneficial for the save business from insolvency.