What’s the Difference Between Administration and Liquidation?
There's multiple avenues available if your business becomes insolvent. In this article, we'll discuss the difference between liquidation and administration.
If your business is insolvent and is unable to pay its debts on time and as they fall due, administration and liquidation are two essential options for you. If alternate options such as obtaining a loan to overcome a struggle with debts has already been pursued, you may be in a situation which requires administration. If you are running a business which has debt that is hard to manage, it can become difficult to continue to operate. It is important to seek help sooner rather than later, so that your situation can appropriately be assessed and managed to get you right back on track.
What is administration?
Administration refers to when a business receives the assistance of a professional administrator to decide upon the best plan for a business’s financial status. This option can relieve stress for a business in financial strain. Administration is usually the phase to enter before going into liquidation. The Administration process may be used as a means of avoiding liquidation. The administrator will aim to save the business’s financial status by increasing its chances to continue to do business.
Advantages & Disadvantages
Administration can be an effective option to limit a business’s chances of going into liquidation. It has the ability to revive its operations without actually dissolving the business’s operations. Although mainly advantageous, the directors of a business will lose control of the business if under administration.
How to arrange administration?
If your business is struggling with debt you must first seek advice from a professional either through an accountant or financial advisor.
What is liquidation?
Upon failure of administration to produce a better financial arrangement, liquidation will be the next option for a business.Liquidation is the formal legal way of describing the winding up of a company’s operations. Liquidation can only apply to companies, it does not apply to individuals -bankruptcy. The process refers to the releasing of a company’s assets, operation etc to its shareholders. A vote of creditors or a court order can render a business to be in liquidation. A liquidator’s job is to aim for the best result for the business’s creditors and shareholders.
Advantages & Disadvantages
Although quite rare, a liquidator may be able to keep the business continuing its operations if it is in everyone’s best interests. However, the result usually leads to the selling of assets and ceasing of operations. The overall aim of a liquidator is to wind up a business in the most commercially practicable way.
How does a business obtain a registered liquidator?
You can search for a registered liquidator online through ASIC, where professional registers are able to provide free information about professional liquidators.
Businesses under financial strain will look at going into either of the above options. It is important to understand the options and how these different options can work to secure a business’s standing.
Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-price quote from one our network of 600+ expert lawyers or any other legal needs.
Zac is a consultant at Lawpath, Australia’s largest and fastest growing online legal platform. Since joining Lawpath, Zac has assisted 1000s of startups and small business’s with their legal needs.