With almost four decades of experience in business, Mike Smith is one of the founders of Company Debt and one of the UK’s most experienced mediators with HMRC.
Having previously owned several of his own successful companies and occupied senior roles as a director within both Legal and General and Sun Alliance during separate periods of his career, Mike founded Company Debt with a genuine desire to help stressed directors in challenging circumstances. He is also an expert in the alternative finance sector.
Imagine it is Friday morning, a bailiff is at reception and a creditor enforcement action is beginning to bite. The business is insolvent and time is running out. Two formal rescue procedures often discussed are a Company Voluntary Arrangement (CVA), where directors stay in control subject to creditor agreement, or administration, where a licensed insolvency practitioner takes over and a statutory moratorium begins.
The wrong choice could hasten liquidation and job losses. This guide sets the two options side by side so you can decide with greater confidence.
A Company Voluntary Arrangement (CVA) is a formal statutory procedure under Part I of the Insolvency Act 1986 by which an insolvent company reaches a binding agreement with its creditors about how much of its debts it can reasonably pay and over what period. If enough creditors vote in favour, the arrangement binds all creditors who had notice and were entitled to vote.
Directors normally start by instructing a licensed insolvency practitioner (IP) to act as nominee. The nominee helps prepare the proposal, which is then put to creditors and shareholders. If approved, the nominee (or another IP) becomes supervisor and oversees compliance, while the company’s directors remain responsible for day-to-day management.
Importantly, a CVA does not automatically create a statutory moratorium that halts all creditor action (that remains a feature of administration or a separate moratorium procedure under the Corporate Insolvency and Governance Act 2020).
Core steps at a glance:
Directors instruct an IP and provide financial information.
The IP, acting as nominee, helps prepare a CVA proposal and sends notice to creditors.
Creditors vote. At least 75% (by value) of creditors who vote must approve the arrangement for it to be binding. There is also a separate test restricting connected creditors’ influence on the vote.
If approved, creditors are bound and the IP becomes supervisor while directors run the business.
If directors need immediate statutory protection, the next option is administration.
How Administration Works
Administration is a statutory procedure under Schedule B1 of the Insolvency Act 1986 that gives the company a period of breathing space and aims to secure the best outcome for creditors. Under administration, an administrator, a licensed insolvency practitioner, controls the company’s affairs, business and property.
While in administration, most legal actions and creditor enforcement are halted by a statutory moratorium, giving time to restructure, sell the business as a going concern, negotiate a CVA, or realise assets more favourably than in liquidation.
Who can start it:
The company or its directors; or
A qualifying floating charge holder (e.g. a secured lender) if their security is in place; or
In rare cases via a court order.
What the administrator does:
Takes control of running the business or realising its assets.
Prepares a set of proposals to creditors and the registrar (and publicity in The Gazette) within a statutory period (eight weeks is typical under the Rules).
The proposals will set out the strategy for rescuing or selling the business or, if that is not viable, realising assets and distributing proceeds.
Main steps:
Administrator appointment takes effect and the moratorium starts.
Administrator gathers a statement of affairs and stabilises operations.
Formal proposals are circulated (typically within eight weeks).
Creditors decide whether to approve or amend them; the administrator acts in accordance with those decisions and statutory objectives.
CVA vs Administration: Key Differences at a Glance
Choosing between a CVA and administration turns on who stays in control, the level of statutory protection from creditor enforcement you require, and how much creditor support you can realistically secure.
Side-by-side snapshot
Feature
CVA
Administration
Control
Directors keep day-to-day management; IP supervises compliance under the approved plan.
Administrator takes legal control of trading, assets and contracts.
Moratorium
No automatic statutory moratorium arises purely from the CVA process (although a separate moratorium application is possible under Part A1).
Statutory moratorium begins on appointment and protects against most creditor actions.
Creditor approval
75% (by debt value) of voting creditors must agree, plus safeguards for unconnected creditor voting.
Proposals are circulated and creditors vote under the insolvency rules; decisions require a majority by value of those voting.
Typical timeline
IP prepares proposal within about one month; voting follows.
Administrator must circulate proposals (typically eight weeks).
Costs
IP’s fees for drafting and supervising are paid through the plan.
Administrator’s fees and statutory costs are covered from company assets.
Outcomes
Rescheduled debts and continued trading under director control.
Could lead to rescue (including a CVA), going-concern sale, or asset realisation and liquidation.
Immediate Risks of Choosing Late or Wrong
Delay or the wrong procedure can worsen an already critical situation. Among the dangers are:
Wrongful trading claims – if directors continue to trade without a realistic prospect of rescuing the company and fail to take advice when insolvency is looming.
Enforcement action accelerating – without a moratorium, landlords or other creditors can take legal steps while a CVA proposal is drafted.
Lenders calling guarantees – personal guarantees are not negated by either procedure.
CVA failure forcing liquidation – if creditors reject a plan, enforcement can follow quickly.
Because of these risks, specialist advice from a licensed insolvency practitioner should be sought early.
Typical Situations Suited to Each Option
Below are situations commonly associated with each route, but these are general patterns rather than rules:
Retail business under pressure from multiple landlords – a CVA can fit when there’s negotiating room with landlords and trade creditors and a clear cash-flow path under an agreed payment schedule.
Asset-rich manufacturer facing secured lenders – administration may better protect assets and provide immediate moratorium protection, allowing time to restructure or sell in a managed way.
Control and Management Powers Under Each Route
In a CVA, directors remain responsible for running the business. In administration, the administrator takes over contractual and management authority.
Who signs contracts
CVA: Directors generally continue to sign contracts; the supervisor ensures compliance with plan terms.
Administration: Only the administrator (or authorised persons) can enter, cancel or renegotiate contracts.
Who answers to creditors
CVA: Creditors deal principally with the supervisor but may hold directors to account against the agreed plan.
Administration: The administrator reports to creditors and implements the approved strategy.
Protection from Creditors and Moratorium Effects
Administration: Once an administrator is in office, most legal actions and enforcement procedures against the company require consent or court permission
CVA: No automatic statutory moratorium arises solely from the CVA process. Creditors can generally enforce rights unless the company has successfully obtained a separate moratorium under Part A1 of the Insolvency Act.
Costs and Funding Requirements Compared
Both processes involve insolvency practitioners, but:
CVA costs are typically drawn out of agreed repayments on a monthly basis.
Administration incurs upfront costs and statutory fees (including notices in The Gazette).
Timeline and Milestones You Can Expect
CVA – director-led:
Day 0: IP appointed.
~One month: Draft proposal prepared.
Proposal issued to creditors; voting follows.
After approval, the supervisor oversees compliance.
Administration – administrator-controlled:
Day 0: Administrator appointed and moratorium starts.
~Eight weeks: Proposal circulated.
Creditors’ decisions under the Rules.
Following months: Strategy executed.
Creditor Voting and Influence Explained
A CVA requires 75% (by debt value) of voting creditors to approve and a safeguard that limits the influence of connected creditors.
In administration, proposals are voted on under the Insolvency Rules, typically requiring a majority in value of those voting.
Impact on Staff, Contracts and Other Stakeholders
Employees: In administration, redundancies and contract terminations are for the administrator to decide. Under a CVA, contracts typically continue if the plan is implemented.
Landlords: Administrators can surrender or renegotiate leases; in a CVA, landlords are bound only to the agreed terms.
HMRC: Generally treated as unsecured for many debts, but the law includes changes affecting priority for certain taxes.
Secured creditors: A CVA cannot compromise a secured creditor’s enforcement rights without consent; administration moratorium may limit enforcement.
Director Duties and Personal Exposure
Once insolvency looms, directors must prioritise creditors’ interests. Both procedures require cooperation with the appointed insolvency practitioner. Continuing to trade without a realistic prospect of rescue can give rise to wrongful trading claims.
Personal guarantees remain enforceable unless changed by creditors.
Decision Checklist: Which Route Fits Your Company?
Cash flow suited to staged repayments → CVA
Urgent need for statutory pause on enforcement → Administration
Majority unsecured creditor willingness to compromise → CVA
Heavy secured debt or imminent enforcement → Administration
If you are unsure, professional advice is essential.
Other Rescue Alternatives to Consider
Informal creditor arrangements – negotiated directly; not statutory.
Moratorium under Part A1 – formal breathing space while CVA is considered.
Refinancing – raising capital outside insolvency procedures.
Creditors’ Voluntary Liquidation (CVL) – orderly closure and asset realisation.
FAQs
1) Does a CVA affect my personal guarantees?
No: personal guarantees are separate contracts and continue unless the creditor agrees otherwise.
2) Can a secured creditor block a CVA?
A CVA cannot bind secured creditors as to enforcement of their security without consent; and a creditor holding more than 25% of the voting debt can prevent the 75% approval threshold being met.
3) How long does administration usually last?
There’s no fixed end date. Administrators circulate proposals (typically within eight weeks) and continue until objectives are met under Schedule B1.
4) Will HMRC vote against my CVA?
Government guidance does not prescribe HMRC’s voting policy; it reviews proposals on their merits and votes based on likelihood of payment.
5) Can my company exit administration early?
Yes: if the administrator achieves the statutory purpose (rescue, sale or better return than immediate liquidation), administration ends.
6) What happens if the CVA fails?
Normal enforcement rights resume and creditors can pursue debts, including winding-up petitions.
7) Do I need court approval for a CVA?
Court involvement is limited to specific challenges and procedures; routine CVA approval does not require a court order unless a challenge arises.
8) Can I switch from administration to a CVA later?
Yes: administrators can propose a CVA if that provides a better outcome for creditors.
9) Will my company’s credit rating be affected?
Public filings (especially administration notices in The Gazette and Companies House entries) can negatively affect credit terms for suppliers and lenders.
10) Who pays the administrator’s fees?
Administrator fees are covered from company assets and must be reported to creditors and filed with Companies House.
11) Can employees claim redundancy during a CVA?
Under a CVA, the company continues trading; redundancies can occur if the business chooses, though insolvency procedures like liquidation trigger statutory redundancy claims.
12) Is pre-pack administration different?
A pre-pack is a sale negotiated before and concluded soon after the administrator’s appointment; it’s a type of administration strategy.
