Business – 5.1 Business finance – The need for business finance | e-Consult
5.1 Business finance – The need for business finance (1 questions)
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The two procedures differ in intent and effect. The table below summarises the main contrasts:
| Aspect | Liquidation | Administration |
| Primary purpose | To realise assets and distribute proceeds to creditors; ends the business. | To rescue the business as a going concern or achieve a better outcome for creditors than liquidation. |
| Control | A liquidator is appointed to wind up affairs. | An administrator is appointed to manage the company and explore rescue options. |
| Effect on employees | Typically results in immediate termination and loss of claims. | Employees may be retained if a rescue plan is viable; otherwise, they may be made redundant with statutory protections. |
| Creditor hierarchy | Secured creditors are paid first; unsecured creditors often receive little or nothing. | Similar hierarchy, but the administrator may negotiate compromises or payment plans that improve returns for unsecured creditors. |
| Outcome for the company | Company is dissolved. | Company may emerge from administration as a restructured entity, be sold, or ultimately be liquidated if rescue fails. |