If your business is in serious financial difficulty, you may be weighing up your next move. Is there a chance to save what you’ve built, or is it time to draw a line and close things down? That’s where Liquidation and Administration come in. They’re both formal insolvency processes, but they work in very different ways and are designed for different outcomes.
What’s the difference between Liquidation and Administration?
Liquidation is used to close down a business that’s reached the end of the road. The company’s assets are sold, staff are let go and the business is formally dissolved. It’s often the last step when there’s no realistic way to recover.
Administration, on the other hand, is a way to temporarily protect a company from legal action while a licensed insolvency practitioner takes over and tries to rescue or sell the business. It gives breathing space and a chance to explore options before deciding whether the company can survive, or needs to be wound up.
When might Administration be the right choice?
Administration is only suitable if your business still has something worth saving, like contracts, a solid customer base, intellectual property or brand value. It’s particularly useful when:
- The business is fundamentally viable but needs restructuring
- There’s potential to sell the company, or its assets, as a going concern
- There’s immediate legal pressure due to unpaid debts
- A large creditor (like HMRC) is threatening action
The key benefit of Administration is the legal protection it could provide. As part of the process, you can apply for a moratorium that prevents your creditors from taking further action while you’re in the Administration process.
What happens during Administration?
Once a company enters Administration:
- A licensed insolvency practitioner becomes the administrator
- The administrator takes control of the business
- Their goal is to rescue the company, sell it, or achieve a better return for creditors than Liquidation would
If a sale is possible it may happen as part of a pre-pack Administration, where the sale is agreed in advance and happens immediately when the Administration begins. This can preserve value and jobs, but it has to be carefully managed to ensure legal compliance and transparency.
If rescue isn’t viable, the administrator may move the company into Liquidation.
When is Liquidation the better route?
Liquidation is usually the best choice when the business:
- Has no future trading prospects
- Is burdened by unmanageable debt
- Has little to no assets or contracts left to protect
- Has tried and failed to restructure or recover
There are two main types of Liquidation:
1. Creditors’ Voluntary Liquidation (CVL)
Used when directors choose to wind up the company because it’s insolvent. A Creditors’ Voluntary Liquidation allows you to take control of the process, meet your legal duties as a director, and walk away from company debts. You could use this route even if you’re unable to pay a Bounce Back Loan.
2. Compulsory Liquidation
Forced by the court when a creditor, often HMRC, files a winding up petition to shut your company down due to unpaid debts. Compulsory Liquidation is a much harsher process and gives you little control over how it unfolds. A licensed insolvency practitioner could help you deal with a winding up petition from HMRC – or any other creditor – before the situation goes too far.
Which process protects you better as a director?
Both Liquidation and Administration can offer legal protection but in different ways.
- Administration could protect you from immediate legal action while your company is assessed for rescue.
- Liquidation, particularly a CVL, helps reduce the risk of wrongful trading accusations by showing you’ve taken the responsible path. It also allows debts to be written off, and could even give you a route to start again (under strict rules).
In either case, timing matters. If you delay while knowing the company is insolvent, you could be held personally liable for worsening creditor losses. Acting early and seeking advice helps protect your personal position.
Can I start again after Liquidation or Administration?
Yes, but with caution.
After a Liquidation, it’s legally possible to start a new company, even in the same industry. This is commonly called ‘phoenixing’ and is perfectly legitimate when done properly. But there are strict rules to follow, especially around using a similar name or reusing assets from the old company.
After Administration, it depends on the outcome. If the company is sold or restructured successfully, you might remain involved. If it’s later liquidated, the same rules of Liquidation apply.
In both scenarios, we guide directors through the process so they can move on safely and with a clean slate.
Are directors personally liable in either case?
In most cases, company debts stay with the company, not you personally. But there are exceptions in both Liquidation and Administration where you could be held personally liable for company debts, particularly if:
- You signed a personal guarantee on a business loan
- You took dividends or loans when the company was insolvent
- You misused a Bounce Back Loan
- You breached the duties of a director
This is where it really helps to get advice. A licensed insolvency practitioner will review your situation and help minimise your personal risk.
How to decide between Liquidation vs Administration
If you’re not sure which route is best, don’t guess. The earlier you speak to someone, the more options you’ll have, whether that’s saving the business or closing it in a responsible, legal way.
We offer both Liquidation and Administration services through our wider group. So we’re not pushing one solution. We’ll give you an honest view of your position and help you move forward with confidence.
Talk to one of our licensed insolvency practitioners. We’ll explain your options clearly and help you take the next step, whether that’s recovery or closure. There’s no charge for the initial advice and everything is confidential.
