Liquidations & Administration
The process of liquidation and company administration can be alarming for company directors as both can lead to the business permanently closing its doors. Administration gives potentially viable companies the opportunity to repay their debts and avoid insolvency by negotiating with creditors. During the administration period all legal action is put on hold. The appointed administrator (who must be a professional insolvency practitioner) is legally obligated to maintain the best interest of the creditors.
All control and company assets are handed over to the administrator at this point. This is also beneficial to the company itself by reducing the monies owed and can assist in the avoidance of liquidation.
What is Liquidation?
Liquidation is the process of closing a business and using all assets to repay creditors. This is the step taken following insolvency, when an individual or organisation can no longer meet its financial obligations with its lender or lenders as debts become due.
There are two types of liquidation. Voluntary liquidation is when a company determines that it must wind up its affairs and cease to trade and operate. Compulsory liquidation is the court based procedure where company assets are distributed amongst creditors following a winding up order granted by a judge.
Once the liquidation process has begun the business is dissolved and debts will remain until the statute of limitation has expired. This for a simple contract amounts to six years. Following this the debt must be written off by the creditor as there is no longer a debtor for the monies owed.
What is Administration?
Administration is a similar process. Either a creditor or the company can appoint an Administrator. The Administrator’s function is to try to repay the company’s debts to avoid insolvent liquidation if possible. The aims are, in order, to try to save the company, failing that to try to save part of the company’s business and failing that to liquidate.
The work is varied and includes:
• Advice to the creditors of insolvent companies in liquidation or administration
• Advising and acting for directors of insolvent companies who face claims by Administrators or Liquidators for contributions to the company’s assets on the basis of wrongful trading, fraudulent trading, preferring creditors or misapplication of funds
• Advising and acting for directors who face Directors Disqualification proceedings following an insolvency
• Before a company runs into problems, we always recommend to directors of companies for whom we act that they should try to obtain legal expenses insurance cover in case of the worst. We can put you in touch with a very good insurer which offers this kind of cover