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 as a going concern, or restructured. Liquidation, by contrast, 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 underlying business is viable and worth preserving. 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. Administration is generally more expensive and involved, so it tends to suit larger or genuinely rescuable businesses, while a Creditors Voluntary Liquidation is the common route for closing a smaller insolvent company. Insolvency Act 1986; Insolvency Service
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- 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
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.
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.
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