What is the Difference between Company Liquidation and Administration?
Many businesses are seeking professional assistance nowadays as they find themselves in financial turmoil. Figures and jargon are thrown at them as they are told their options, but for one who is not familiar with insolvency terminology, this can be overwhelming and may lead to them making the wrong decision. It is increasingly important to understand not only what your options are, but also what they will do to serve the best interests of you and your company.
When a company encounters irreparable financial distress there are essentially two options:
- Voluntary Administration
Put simply, liquidation refers to the cessation of a company’s operations and the sale of its assets to pay outstanding debts to creditors. It can be initiated on either voluntary or involuntary terms. In an involuntary situation, a creditor may open a case with the courts when the company fails to pay outstanding debts that exceed $2000. If this proposal is approved, a liquidator is then appointed to the company to ensure the debts are repaid. It often happens that a company will voluntarily apply for liquidation to avoid the stress of court encounters. This is one of the final options a company’s directors should consider, as the company will be de-registered and cease to exist following the completion of the liquidation process.
Voluntary administration, on the other hand, presents a more flexible option for a company when they are insolvent or likely to become insolvent. Unlike liquidation, it provides company directors with the opportunity to restructure the business and/or settle its debts without affecting its ability to trade in the future. An external administrator is appointed to the business and is put in charge of investigating the company’s affairs, reporting to creditors and assisting in determining the most appropriate course of action the company should take to rectify its debts.
The two major differences between liquidation and voluntary administration lay in the level of control held by the company director and the future of the business. Owing to the benefit of allowing companies to resume trading, voluntary administration is regarded as the best option for businesses who are facing insolvency and whose restructuring will prove worthwhile. For companies who have reached a point of no return, liquidation is recommended.
For more information about company liquidation or voluntary administration, or to find out how CRS can help you out of your financial turmoil, contact 1800 210 073 for free and no-obligation advice.