• Is it better to go into voluntary administration or liquidation?

    There’s no simple answer to the question of whether it’s better to go into voluntary administration or liquidation, because each company’s circumstances are unique, which will cause them to weigh up the pros and cons differently.

    If you’re a director of an insolvent company, the benefit of going into voluntary administration is that it might be possible to save the company and regain control. This would happen if the voluntary administrator is able to trade on the business and the creditors approve a deed of company arrangement.

    It’s also possible that the voluntary administrator might find a buyer for the company during the voluntary administration, and that the buyer would be willing to let the company continue trading under the buyer’s overall control.

    However, filing for voluntary administration might backfire if the company continues to lose money, it can’t be saved or no buyer can be found. In that case, the company would have to enter liquidation anyway. Going through both voluntary administration and liquidation would extend the insolvency process, which would probably result in a lower return for the creditors.

    The advantage of a company liquidation is that it is the fastest way to wind up the affairs of an insolvent company. That would allow the company to minimise its losses, which in turn might give the creditors a bigger return than under a more drawn-out insolvency process.

    However, the disadvantage of going into liquidation is that there is no chance of saving the company.

    Also, it is possible that liquidation might result in a lower return for creditors than voluntary administration. During a voluntary administration, there is less pressure to sell assets, which gives the voluntary administrator greater negotiating power with potential buyers. During a liquidation, there is more pressure to sell assets, which gives the liquidator less negotiating power with potential buyers.

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