What is the difference between an administration and winding up?
In deciding whether administration or winding up is the necessary and appropriate company insolvency procedure for your company, it may be helpful to weigh the advantages of each:
Advantages of Administration
• Prohibits Legal Actions
When a company is placed into administration, a halt, or more formerly, ‘a moratorium’, is placed on all legal action. This effectively stalls any legal action already existing against the company as well as any legal action threatened to commence against the company. For example, a landlord forfeiting the company’s lease or a winding up petition presented by HMRC in respect of the company’s tax liabilities would be prohibited whilst the company was in administration.
It is no surprise therefore that administrations are quite attractive to insolvent companies as it allows them enough time to regroup and decide on the best course of action for the business moving forward.
• Rescues the Company
One of the key objectives of an administration is to rescue the business as a going concern, this means that often administrators are able to advise the company directors of possible ways of restructuring the business to promote success. The wide range of powers given to administrators allow discretion when determining the best course of action for the company.
Unlike many other insolvency procedures, administration offers the possibility for a company to continue trading, preserve contracts and keep on key employees. These factors tend to make an administration more appealing to companies as opposed to winding up a company.
• Achieves a Better Result
As part of their role, an insolvency practitioner will always seek the maximum return for company creditors. If an administration is chosen, the Insolvency Practitioner will have concluded that administration offers the possibility of a greater financial return than winding up the company.
Advantages of Winding Up
• Debts Written Off
A director will have no legal liability to repay the debts owed by the business unless the director has made personal guarantees for the company debts. This allows the directors to start a new venture without the burden of the debts of the former company.
• Halt on Legal Actions
Any legal action is buried with the company whilst it is in liquidation. As long as the directors have no personal liability in respect of any of the company’s liabilities, creditors will be prohibited from taking legal action against individual directors.
• Low Cost
Aside from funding the costs for arranging the statement of affairs and holding a creditor’s meeting there aren’t many upfront costs when winding up a company. All professional fees will be paid from the sale of the company assets.
If you are considering an administration or winding up a company, please contact one of our expert insolvency lawyers now for your informal consultation. At Francis Wilks & Jones, we have all the insolvency experience needed to handle any type of company insolvency problem. We offer quick and effective advice, whatever your situation. Don’t delay. Call now on What is the difference between an administration and winding up, for a friendly consultation.