Mar 04,2019 | 5 min read

Company Administration and Liquidation of A Company

Company Administration and Liquidation of A Company

Company administration and liquidation are formal insolvency procedures that can be an intimidating process for company directors. Even though these processes play a crucial role in understanding the insolvency situation, their objective and application differ from each other.

To shed light on their important factors and compare their roles, we first need to segregate and define them in brief.

Company Administration

Company administration is simply a formal procedure in which an insolvency practitioner is appointed to act as the administrator of an insolvent company with the goal of bringing about a recovery. In this situation, the company directors ideate possible ways to help a company repay its debt and avoid itself from liquidation.

This burdensome zone puts the company directors in a tough spot and makes it hard for them to come out of this contingently insolvent situation. If the company has very little assets and is also lacking cash inflow then a creditor’s voluntary liquidation would be a more suitable solution.

Company liquidation

Liquidation on the other hand is a process where a company becomes redundant and dissolved after redistributing all its assets. The process of liquidation arises when customs, an authority or agency in a country responsible for collecting and safeguarding custom duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.

However, there are two main types of liquidation, voluntary liquidation, that does not involve the court and compulsory liquidation, where a petition to wind up the company’s asset is presented.

Company administration and liquidation go hand in hand but there are significant differences between the two:

  • Administration is incorporated with a view to prevent a company from insolvency by repaying debts.
  • liquidation is the method used to realise a company’s assets prior to closing it.
  • If successful then company administration can lead to complete recovery whereas if it is a failure then the result will be liquidation of the company

It is vital to analyse these business rescue options thoroughly because your decision as an experienced director will help you to take the right path for your company.

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