Administration vs liquidation
Administration and liquidation are often confused, but they have opposite purposes. Administration is a rescue procedure: it puts the company under a Licensed Insolvency Practitioner with a legal moratorium that stops creditor action, so the business can be saved, sold or restructured. Liquidation is a closure procedure: the company stops trading, its assets are sold, creditors are paid in order of priority, and the company is dissolved. The right choice depends on whether the business is viable. Insolvency Act 1986; Insolvency Service
- Administration
- Rescue: moratorium protects the company while a plan is found
- Liquidation
- Closure: assets sold, creditors paid, company dissolved
- The test
- Is the underlying business viable and worth saving?
- Cost
- Administration is generally more involved and expensive
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Which route: CVL, CVA or administration?
1. Is the underlying business viable and worth saving? If not, the route is a CVL.
2. If it is viable, does it need urgent protection, or is a sale the best outcome? If yes, administration. If it can pay over time, a CVA.
- CVLCreditors' Voluntary Liquidation
- Business not viable. Close it properly: assets are sold, creditors paid in order of priority, the company dissolved.
- CVACompany Voluntary Arrangement
- Sound business, affordable payments. Directors keep control and repay creditors over 3 to 5 years, supervised.
- AdministrationRescue or going-concern sale
- Needs urgent protection or a sale. A practitioner takes control and a moratorium stops creditor action.
At a glance
| Administration | Liquidation | |
|---|---|---|
| Purpose | Rescue: protect, then save or sell the business | Closure: sell assets, pay creditors, dissolve |
| Best for | A viable business worth preserving | A business that is not viable |
| Creditor action | A legal moratorium stops creditor action | Action stops once the company is wound up |
| Who takes control | A practitioner acting as administrator | A liquidator (in a CVL, the directors start it) |
| Likely outcome | Restructured, sold as a going concern, or rescued | Trading stops and the company is dissolved |
| Cost | Generally more involved and expensive | A CVL is the common, lower-cost route for a smaller company |
Viability is the deciding factor
If the business can trade profitably once pressure is dealt with, administration or a CVA may rescue it. If not, a CVL is usually right. A practitioner will assess viability quickly.
If there is a viable business, goodwill or contracts worth more sold as a going concern than broken up, administration may protect and realise that value. If the business is not viable, an orderly liquidation is usually the more honest and cost-effective route.
Common questions
Is administration better than liquidation?
Neither is universally better; they do different jobs. Administration suits a viable business worth rescuing or selling; liquidation suits closing a business that is not viable. The right answer depends on your company.
Which costs more, administration or liquidation?
Administration is generally more expensive and more involved, so it tends to suit larger or genuinely rescuable businesses. For a smaller insolvent company that cannot be saved, a CVL is the common, lower-cost route.