If your limited company is in financial difficulty, it’s likely that you’ve heard of two formal insolvency procedures: administration and liquidation. Understanding the difference between them and which is most appropriate for your company is vitally important for any director.
Below, we explain what each process involves, how they compare, what they cost, and how creditors are paid in each case.
If you need immediate guidance, contact the Liquidation Centre for a free, confidential consultation with a licensed insolvency practitioner.
Company administration and liquidation explained
What does administration mean?
Company administration is a formal procedure that involves the appointment of a licensed insolvency practitioner (IP) as an administrator, who takes control of the company from its directors.
One of the key features of administration is the statutory moratorium. This gives your company legal protection from creditor action, including enforcement, legal proceedings, and winding-up petitions. Depending on the route taken, the protection can begin before your company formally enters administration, which is often why directors are advised to act early.
The primary objective of administration is to rescue the business as a going concern. If this is not reasonably practicable, or it would not achieve the best result for creditors as a whole, the administrator aims to secure a better outcome for creditors than would be likely through immediate liquidation. In some cases, a pre-pack administration may be used, where a sale of the business is arranged and completed shortly after the company enters administration.
Importantly, administration does not automatically result in the closure of your company. Whether it does depends on what the administrator is able to achieve during the process.
What does liquidation mean?
Company liquidation is an alternative formal process that results in the closure and dissolution of a limited company.
A licensed insolvency practitioner is appointed as liquidator and takes control of the company from the directors. The liquidator is responsible for realising the company’s assets, investigating its financial affairs, and distributing funds to creditors in a strict legal order. Once this process is complete, the company is removed from the Companies House register.
There are two main forms of voluntary company liquidation:
- Creditors’ Voluntary Liquidation (CVL): Used by insolvent companies that can no longer meet their debts as they fall due. Directors initiate the process voluntarily, rather than waiting for a creditor to force compulsory action.
- Members’ Voluntary Liquidation (MVL): Used by solvent companies able to settle all liabilities in full. Often used by directors looking to close a company in a tax-efficient manner, as distributions through an MVL may attract Business Asset Disposal Relief (BADR).
An insolvent company can also be placed into compulsory liquidation following a winding-up order made by the court.
What is the difference between liquidation and administration?
The difference between company administration and liquidation lies in their purpose, outcome, and the level of control you as a director retain throughout the process.
Below you can see the main differences laid out side by side.
| Administration | Liquidation | |
| Purpose | Business rescue, restructuring, or better creditor return | Formal closure of the company |
| End outcome | May rescue the business or transition to liquidation | Company is dissolved and removed from the register |
| Trading | Company may continue trading under the administrator | Trading generally ceases |
| Director control | Directors lose control. Administrator takes over | Directors lose control. Liquidator takes over |
| Legal protection | Statutory moratorium prevents creditor action | No equivalent moratorium. Creditor enforcement and proceedings may still be restricted once liquidation begins |
| Suitable for | Companies with potential to be rescued | Insolvent companies with no viable future, or solvent companies closing in an orderly way |
Both processes are governed by insolvency legislation and require the appointment of a licensed insolvency practitioner. The key distinction here is intent: administration tries to preserve value or achieve a better outcome for your business before closure becomes inevitable, while liquidation is the closure itself.
What happens when a company goes into administration?
When a company enters administration, the appointed administrator takes immediate control of your business, and the statutory moratorium comes into effect.
The administrator then assesses your company’s position and prepares a statement of proposals, which is sent to creditors within eight weeks of the company entering administration. This sets out the strategy for the administration, whether that’s to attempt a sale of your business, restructure its affairs, or realise assets for creditors.
During administration, your company may continue to trade if this supports the overall objective outlined above. Staff may be retained, contracts may continue, and your business may operate more or less as normal – though under the administrator’s control, rather than yours as the director.
Administration typically lasts up to 12 months, although this can be extended where necessary.
Who can put a company into administration?
A company can be placed into administration by:
- The directors, who can file a notice of intention to appoint an administrator or appoint one directly in certain circumstances.
- The company itself, by a resolution of the shareholders.
- A qualifying floating charge holder, typically a bank or other secured lender.
- The court, on the application of a creditor or other eligible party.
In practice, administration is most commonly initiated by the director(s) or by a floating charge holder. If directors appoint, the route depends on whether your company has a secured lender with a floating charge. If it does, that lender must be given notice and has a short window to object or appoint its own choice of administrator. If it does not, the directors can appoint directly. Your insolvency practitioner will handle the paperwork either way.
What happens when a company goes into liquidation?
When a company enters liquidation, the liquidator takes control of the business, and the company’s trading activity ceases. The liquidator’s primary duties are to identify and realise your company’s assets, investigate the conduct of you as the director and your company’s financial affairs, and to distribute the proceeds to creditors in the order set out by insolvency legislation.
As part of this process, the liquidator reviews transactions that took place before your company became insolvent. This may include examining payments made to creditors or connected parties, assets sold below market value, or any conduct that could amount to wrongful or fraudulent trading.
As the director, you are required to cooperate fully with the liquidator by providing access to all company records and attending any meetings or interviews requested of you. Once the liquidator has completed their work, a final report is submitted and the company is formally dissolved and removed from the Companies House register.
Administration vs. liquidation cost
The cost of both processes varies depending on the complexity of the company’s affairs, the number of creditors involved, and the work required to complete the procedure.
As a general guide, liquidation tends to involve lower costs than administration, as the scope of work is typically more defined. Administration can be a longer and more involved process, particularly where the business continues to trade and restructuring options are being explored.
How much does it cost to liquidate a company?
The cost of liquidating a company depends on the type of liquidation and the complexity of the case:
- CVL costs: Pre-appointment fees can start from around £3,000+ VAT. Where the company holds assets, the liquidator’s ongoing fees are typically drawn from the proceeds of their realisations. A director contribution may be required where assets are insufficient.
- MVL costs: Fees may start from around £1,499, with costs usually met from the realisation of the company’s assets prior to shareholder distribution. For companies with significant retained profits, the tax savings available through BADR could help mitigate the overall cost of the process.
At the Liquidation Centre, we provide fixed-fee pricing with a clear quote before any work begins. Get a quote to find out what liquidation could cost for your company.
How much does company administration cost?
The cost of company administration is usually a lot more than liquidation and an exact figure is less predictable. The cost of the administration process depends on:
- The work needed before the appointment to prepare your company for administration
- Whether a pre-pack sale is used, or whether the business continues to trade during the administration
- How complex your company’s affairs are
- The exit route, which can range from control returning to you as director through to liquidation or dissolution
Administrator fees are paid from the money raised in the administration and must be approved by creditors. Your insolvency practitioner will set out the expected costs as early as possible, so you know what to expect before committing. For an accurate estimate of what administration might cost in your company’s specific circumstances, speak to a member of the Liquidation Centre team for a free quote.
Who gets paid first in company administration and liquidation?
When a company enters administration or insolvent liquidation, the money raised from its assets is distributed according to a statutory order of priority. This means neither directors nor insolvency practitioners can choose which creditors to pay first.
The precise outcome depends on factors including the assets available and whether creditors hold valid security. Creditors within the same ‘class’ generally rank equally, so they may each only receive a proportion of what they are owed if there is not enough money to pay that class in full.
Broadly, creditors are paid in the following order:
- Fixed-charge creditors: These are secured lenders with a charge over a specific company asset, such as a property or piece of machinery. They are paid from the proceeds of that asset after the applicable costs of realising it have been deducted.
- Insolvency fees and expenses: The incurred costs and expenses of administrating or liquidating the company are paid from the assets available to the insolvency practitioner, subject to the applicable rules.
- Ordinary preferential creditors: These primarily include qualifying employee claims, such as certain wage arrears and accrued holiday pay, up to the relevant statutory limits.
- Secondary preferential creditors: HMRC has secondary preferential status for certain taxes collected by the company on behalf of others. These include VAT, PAYE, employee NI contributions, and student loan repayments.
- Prescribed part for unsecured creditors: Where a floating charge was created on or after 15th September 2003, part of the company’s net property may need to be set aside for unsecured creditors. This is known as the prescribed part and is calculated according to statutory rules and subject to a maximum cap.
- Floating-charge creditors: These are lenders whose security applies to a changing class of company assets, such as stock, raw materials, or certain cash balances. They are paid from the assets covered by their charge after preferential claims have been accounted for.
- Unsecured creditors: These commonly include suppliers, customers, contractors, landlords, and lenders without valid security. HMRC debts that do not qualify for preferential status also rank as unsecured claims.
- Shareholders: Shareholders receive a distribution only if all creditors have been paid in full and a surplus remains. This is uncommon in an insolvent liquidation.
How the Liquidation Centre can help
Whether administration or liquidation is the more appropriate route for your company, taking early advice from a licensed insolvency practitioner could make a significant difference to the outcome.
At the Liquidation Centre, our in-house insolvency practitioners have over 20 years of experience supporting UK directors through formal insolvency procedures. We offer a free, confidential initial consultation with no obligation to proceed and fixed-fee pricing on all liquidation services.
Administration and liquidation are not the only options. Depending on your company’s financial position, it may be possible to reach an informal arrangement with creditors including HMRC, refinance, or agree a Company Voluntary Arrangement, where creditors accept payment of some or all of the debt over an agreed period. A licensed insolvency practitioner can tell you which of these is realistic for your company.
Get in touch today to discuss your company’s situation and understand your options.
Administration vs liquidation FAQs
Is administration the same as liquidation? ▸
No, administration and liquidation are distinct formal insolvency procedures with different objectives, processes, and outcomes.
Administration aims to rescue your business or achieve a better result for creditors before closure becomes necessary. Liquidation is a formal closure process that ends with the company being dissolved.
The two can be confused because both involve the appointment of a licensed insolvency practitioner and the loss of director control, but the intent and outcome of each are fundamentally different.
How do I know if my company needs administration or liquidation? ▸
The appropriate route depends on whether your company has a viable future.
If there is a realistic prospect of rescuing your business or restructuring its debts, administration may be worth exploring. If your company cannot realistically continue, or if you are looking to close it in an orderly and controlled way, liquidation is likely the more appropriate option.
Speaking to a licensed insolvency practitioner at an early stage will give you a clearer picture of which route best fits your company’s circumstances.
What happens to directors in administration and liquidation? ▸
In both administration and liquidation, directors lose day-to-day control of the company.
You are required to cooperate fully with the appointed insolvency practitioner, including by providing access to all company records and assisting with any investigations into the company’s affairs.
A review of director conduct is a standard part of both processes. Where concerns arise, such as wrongful trading or transactions below market value, these may be pursued by the administrator or liquidator.
Directors are not normally personally liable for a limited company’s debts solely because the company becomes insolvent. However, personal liability can arise in circumstances such as personal guarantees, overdrawn directors’ loan accounts, misfeasance, and wrongful or fraudulent trading.