Administration and liquidation

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Administration and liquidation
  • Introduction
  • Administration
  • Liquidation
  • Informal winding up
  • Effect on accounting periods
  • Companies in administration
  • Companies in liquidation
  • Tax deduction for expenses during liquidation
  • Redundancy payments
  • More...

Administration and liquidation

This guidance considers the tax implications of a company going into administration or liquidation.



A company which is in financial difficulty may go into administration. An administrator is appointed to manage a company’s affairs whilst it is in administration. It usually continues to trade during the period of administration.

The function of the administrator is to fulfil several objectives:

  1. the first of these is to rescue the company as a going concern

  2. the second is to achieve a better result for the company’s creditors as a whole than would be likely if the company was wound up

  3. the third objective is to realise property in order to make a distribution to one or more unsecured or preferential creditors

Insolvency Act 1986, Sch B1, para 3

These are not a set of choices for desirable outcomes, but a hierarchy. The rescue of the company is the priority. The administrator will only actively pursue a better result for the company’s creditors on winding up if this cannot be achieved.

An administrator can be appointed either out of court or with a court order. Out of court, an administrator can be appointed by the company, the directors or the holder of a qualifying floating charge.


Liquidation brings the existence of the company to an end. On completion of the winding up, the company is dissolved. Liquidation can be voluntary or compulsory (defined below).

In either case the liquidator becomes the beneficial owner of the company’s assets and is responsible for the payment of all corporation tax liabilities arising after the commencement of winding up. A liquidator is appointed to sell all the assets, pay all the debts and return any surplus capital to the shareholders of a company in liquidation.

Voluntary liquidation is where the company chooses to be liquidated. This normally applies where the company is solvent. The liquidation starts when the members pass a resolution to wind up the company voluntarily.

Compulsory liquidation is when the company is ordered by a court

Popular documents