Member of BTG Global Advisory

We are often asked whether Administration and Liquidation are the same. Although they are both formal insolvency procedures, there are significant differences between the two, both in objective and application:

  • Company Administration is entered into with a view to business rescue and recovery so that the company can avoid insolvency
  • Liquidation is the method used to realise a company’s assets prior to closing it down

If the administration process is unsuccessful, liquidation could be the result and this could be one of the worst outcomes envisaged by directors dedicated to turning their company around.

Administration and liquidation are part and parcel of the same problem – looming or existing insolvency which manifests itself in two ways:

  • An inability to pay debts presently due
  • An excess of liabilities over the total value of assets

So although administration and liquidation are fundamentally different in their approach to the problem, both are processes used to limit the damage for companies and their creditors. The more hopeful option of the two is administration and there are eligibility criteria and potential benefits of this process for companies and creditors alike.

Company Administration

Mounting debts combined with little hope of meeting financial obligations presents a bleak picture for directors struggling to keep their business going. This stress and financial pressure often results in the company entering administration in the hope that the business can be made profitable again.

If you are experiencing a situation such as this, Company Administration will halt any legal action against the company. It provides valuable time to use the expertise of a licensed Insolvency Practitioner to turn the company around.

Begbies Traynor can help as we can accept appointment as Administrators. All areas of the UK covered through our extensive office network, it is easy to contact us for support.

Pre-pack Administration

‘Pre-pack’ is a form of administration that involves the valuation of assets and negotiations for sale prior to appointment of the administrator. Once appointed, the business is sold as a going concern, with the underlying business sometimes being purchased by existing directors who go on to run a new company, usually without loss of trade or jobs.

Certain legal requirements need to be met before pre-pack administration can be considered, however, and creditor interests are paramount. At the end of the process, the Insolvency Practitioner must prepare a report to explain and justify their decision to use pre-pack administration. They must demonstrate that choosing this option over others, including liquidation, provided the best returns for creditors; this requirement helps to allay fears that the process used was unethical.

In many cases, a swift sale of the business brings about several benefits:

• Contractual obligations are met, helping to secure the new company’s future by carrying on trade with the same suppliers.
• Jobs can often be saved
• Being sold as a going concern can result in greater returns for creditors

Once the ‘newco’ has been formed, the existing suppliers may request payment via pro forma invoice or cash on delivery, but a positive relationship can be built up without the stress of mounting debt.

Company Liquidation

Three types of liquidation exist:

Members’ Voluntary Liquidation (the company is solvent)
Creditors’ Voluntary Liquidation (it is insolvent and directors choose to close it down)
Compulsory Liquidation (closure is forced on the company by creditor action)

Whichever process is used, the result is closure for the company, with no consideration given to rescue or recovery. In the case of a Members’ Voluntary Liquidation the company will be trading from a solvent position, whereas the other two processes are undertaken due to insolvency.

Administration vs liquidation – what are the main differences?

Trading position

• Administration: severe cash flow problems are being experienced by the company, but the underlying business is viable and insolvency may be avoided
• Creditors’ Voluntary Liquidation and Compulsory Liquidation: the company is insolvent and cannot pay its creditors. There is no hope for the future; assets need to be sold before the company is closed down.

Main objective

• Administration: to rescue a company by restructuring or otherwise returning it to profitability, so avoiding insolvency.
• Liquidation: to wind up the company by realising its assets so that creditors/shareholders can be repaid.


• Administration: company interests are at the fore, alongside those of creditors
• Liquidation: with the exception of Members’ Voluntary Liquidation, the interests of the company are no longer relevant once the process is under way. Maximising creditor returns is the main concern.

Whether your company is presently solvent or known to be insolvent, you need to act quickly to minimise the likelihood of wrongful trading accusations. The Insolvency Service investigates the conduct of directors in cases of liquidation, and if you are found to have traded whilst the company is insolvent, you could face fines and penalties.

It is vital that you receive advice from a licensed Insolvency Practitioner. We can arrange a same-day consultation at your local Begbies Traynor office to discuss the best way forward. Contact a member of our professional team for more details on Company Administration and Liquidation.

Contact our team

Latest News
York taxi company placed into administration
York taxi company placed into administration
On 25th November 2016, Rob Sadler and Dave Broadbent of Begbies Traynor in York were appointed as joint administrators of Six Five Nine Cars Ltd. The business, which has traded in York for over 15 yea…
40 jobs saved as gaming retailer sold out of administration
40 jobs saved as gaming retailer sold out of administration
Administrators of a South West-based gaming retailer have succeeded in saving 40 jobs at the company after securing the sale of the business, including 12 out of 15 of its High Street stores. Business…
Nearly 100 jobs saved as bars and restaurants are sold out of administration
Nearly 100 jobs saved as bars and restaurants are sold out of administration
Almost 100 jobs have been saved by the successful sale out of administration of a number of Midlands bars and restaurants. Town and Country Inns plc appointed business recovery and rescue specialists …
Begbies Traynor opens new office in Taunton
Begbies Traynor opens new office in Taunton
The UK's leading independent business recovery practice, Begbies Traynor, has opened an office in Taunton.  The move will enable the firm to build on work it has already done in the town and with the…
Brexit uncertainty puts the brake on London businesses
Brexit uncertainty puts the brake on London businesses
New research reveals that British businesses from Land's End to John o' Groats have shown surprising resilience since the EU Referendum result was announced, with levels of financial distress falling…
UK businesses remain resilient in the face of Brexit
UK businesses remain resilient in the face of Brexit
UK businesses across nearly every sector of the economy were showing positive signs of stability following the EU Referendum, new research from Begbies Traynor, the UK’s leading independent insolven…

Advice You Can Trust

Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland