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Liquidation and Administration – What’s the difference?

It’s already been a difficult financial year for many businesses, we saw Carillion go into Liquidation and Toys R Us head for Administration. While these terms are becoming familiar headline news, some individuals are left scratching their heads in confusion, what does all of this financial jargon mean?

Let’s start with Liquidation and Administration, to some degree, these terms are means of paying off debts, however, both terms have different futures from one another. So, what’s the difference between the two?

Administration

You may be aware of this term, as it circled around a lot in 2017, many well-known businesses had gone into Administration including Monarch Airlines. But, what does Administration mean?

When a business is insolvent, it will face serious threats from creditors. The company will then appoint a Licensed Insolvency Practitioner as an Administrator by the court. During this time, all legal action around the company will come to a halt.

In order to restore the company’s viability, the Administrator will attempt to find buyers for the company’s assets and usually, the monies received will then be used to repay creditors – a big responsibility! For many businesses, going into Administration can lead to the complete recovery of the business, but that’s not the case for many. If a business’ finances are beyond repair or no buyer has been found, the business will cease.

Liquidation

Another term you may have heard floating about is Liquidation, this is the process where all of the company’s assets are sold (becoming liquid) in order to repay off accumulated debts. Any remaining finances are distributed among the shareholders.

Liquidation can also be the result of a company going into Administration. If a company’s financial situation is so severe that there’s no going back for the company, and it will dissolve (be liquidated).

While both Administration and Liquidation are dissimilar in their approach to insolvency, both methods aim to minimise the damage caused by the company to its creditors.

If you are facing the threat of Administration or Liquidation, get in touch with us today. We’ll support you and help you to work through this difficult financial period.

Contact us now for a confidential and no fee chat on 01656 661426 or email email Clive here.

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