What Happens if a CVA Fails Mid-Term?

Missed this month’s contribution or just received a formal Notice of Breach from your supervisor? The clock has started. Once a CVA defaults and is formally terminated under its terms, the compromise falls away, creditors regain their full enforcement rights, and the supervisor may petition for liquidation or administration.

That chain reaction can expose directors to wrongful trading claims under s.214 of the Insolvency Act 1986, personal guarantee enforcement, and disqualification proceedings. The sections below map each trigger, consequence, and decision you may face in the days following breach, before events overtake you.

How a CVA Slips from Breach to Termination

A CVA fails when a breach under the approved proposal is not remedied within the timeframe set out in the arrangement itself. The distinction between breach and termination matters: you may be in breach and still have time to act.

A breach occurs when the company fails to comply with the agreed terms. A termination occurs when the supervisor formally ends the arrangement in accordance with the proposal. Once terminated, the arrangement no longer binds creditors and the original debts revive under insolvency law.

We see breach arise in predictable ways. A company hits a slow quarter, the VAT falls due the same week as the CVA contribution, and the director pays HMRC first, reasoning that HMRC is the more dangerous creditor. That calculation is understandable. It is also a breach.

Missed or reduced CVA contributions, failure to pay ongoing taxes falling due after approval, failure to provide required financial information to the supervisor, and disposing of assets without required consent are the most common triggers we see. These are the patterns we encounter in the cases that reach our door in distress.

Many CVA proposals include provisions stating that breach may arise where contributions are more than one payment behind, arrears exceed a specified threshold, required accounts or tax returns are not delivered, or legal action is not resolved within a stated period.

The time allowed to remedy a breach is not fixed by statute; it is determined by the terms of the CVA proposal itself, commonly 14 or 28 days. In our experience, that window moves faster than directors expect.

If the breach is not remedied within the contractual window, the supervisor may issue a certificate of termination and must notify Companies House using Form CVA4 within 28 days, as required by the Insolvency (England and Wales) Rules 2016.

The CVA Breach Window: Every Day Counts When a CVA Fails

Miss a CVA payment and your supervisor will normally issue a written breach notice. During the cure period the proposal specifies, directors must either clear the arrears or agree a formal variation with creditor approval. Silence is the worst response. Supervisors are required to act in creditors’ interests; they are not your advocate, however professional the working relationship has been.

We’ve seen directors wait out the breach notice hoping the problem resolves itself. It rarely does. The waiting period is often the last window for a structured response.

An approach to the supervisor in the first week after a missed payment, with a realistic funding plan and honest projections, sometimes results in an agreed forbearance or a variation proposal before termination is triggered. An approach in week three, after the cure period has expired, is usually too late to prevent formal steps.

The sequence in practice: supervisor identifies breach and sets a remedy deadline; directors attempt payment, refinance, or negotiate variation; if the breach remains unresolved, the supervisor issues a certificate of termination; the supervisor then files Form CVA4 at Companies House within 28 days. Filing does not create termination; it records it.

CVA Termination: Immediate Fallout

Termination takes effect under the terms of the arrangement. Once it does, creditors’ original claims revive, less any dividends already paid under the CVA. Creditors may issue statutory demands, present winding-up petitions, or commence legal proceedings.

If any debt was subject to a personal guarantee, the termination of the CVA removes the compromise and the creditor may pursue the guarantor according to the guarantee terms.

Secured creditors’ position requires particular attention. Unless they specifically consented to be bound, their rights were never fully compromised by the CVA. After termination, qualifying floating charge holders may appoint administrators, fixed charge holders may enforce, and receivers may be appointed where the security documentation permits.

The public record updates. Companies House records the termination filing. If liquidation or administration follows, the company’s status changes accordingly. Banks and suppliers checking the register will see the history.

The dangerous moment is the period between termination and any subsequent formal insolvency appointment. In that gap, directors are still managing an insolvent company with no moratorium protection, full creditor enforcement rights restored, and the clock running on wrongful trading exposure.

Personal Exposure for Directors After CVA Failure

When a CVA fails and liquidation follows, attention shifts quickly to what directors did in the period before and after breach. The CVA itself does not shield past conduct from scrutiny; it defers resolution. Liquidators look backwards from the date of insolvency.

Wrongful trading (s.214 IA 1986). A court may order directors to contribute to company assets if they continued to incur liabilities when they knew, or ought to have concluded, that insolvent liquidation was unavoidable. The test is objective as well as subjective: what a reasonably diligent director with your knowledge and your role would have concluded.

Directors who kept trading after the breach notice arrived, drawing wages and incurring new creditor debts, are the ones most exposed. CVA failure is not automatic wrongful trading, but the pattern of conduct during and after breach is exactly what liquidators examine.

Disqualification. Liquidators and the Official Receiver must report on director conduct under the Company Directors Disqualification Act 1986. Disqualification can run from 2 to 15 years and affects your ability to act as a director of any company.

CVA failure is not itself a disqualification trigger, but the conduct that contributed to the failure is examined: preferring connected parties, drawing excessive remuneration in the final months, ignoring creditor correspondence. All of these feature in the conduct reports we see.

Preferences (s.239 IA 1986). If you paid a connected party, a family member’s invoice, or your own director’s loan within two years before the CVA failing into liquidation, that payment may be challenged. The lookback window for unconnected creditors is six months.

The dangerous payment is the quiet one to a connected creditor, not the noisy one to a trade supplier who was threatening a winding-up petition.

Overdrawn director’s loan accounts. An overdrawn director’s loan becomes an asset of the liquidation estate. The liquidator can pursue repayment. If it was cleared shortly before liquidation from CVA funds, that transaction may also be examined as a preference.

Creditor Enforcement Rights After CVA Failure

Once the CVA terminates, unsecured creditors may sue for the full revived balance, less dividends already paid. HMRC ranks as a secondary preferential creditor for VAT, PAYE, and other specified taxes under the Finance Act 2020 (from 1 December 2020), meaning it sits ahead of ordinary unsecured creditors in any subsequent liquidation distribution.

The practical effect is that HMRC, which was often the most accommodating creditor during the CVA period, becomes the most aggressive enforcer after termination. In our experience, HMRC has petitioned for winding up within weeks of a terminated CVA where significant tax arrears had accumulated; we treat that risk as near-certain in our initial assessment where HMRC is a major creditor.

Other creditors follow the lead. A petition advertisement in the Gazette triggers bank account freezes and effectively ends trading for most businesses.

What the CVA Supervisor Can Do When the CVA Fails

Following termination, the supervisor must notify Companies House using Form CVA4 within 28 days, report to creditors, and account for funds held. Whether they petition for winding up depends on the circumstances and the terms of the CVA proposal.

Some proposals specifically grant the supervisor this power, and many supervisors will use it if creditors press for action and no structured alternative is progressing. Supervisors are not automatically required by statute to petition, but their duty to creditors means they cannot be passive indefinitely.

If you are in dialogue with a supervisor who has not yet terminated, your strongest position is an honest assessment of what has changed and a concrete proposal for how the default is remedied. Vague reassurances do not move supervisors; funding evidence and realistic projections do.

We’ve helped directors put together that case under significant time pressure. The ones who succeeded were specific about the numbers rather than optimistic about the outlook.

Your Decision Pathway After CVA Failure: CVL, Administration, or Rescue?

Once breach occurs, directors face a genuine fork. The options are not equally available at every point along the timeline, and the right choice depends on whether a viable business still exists underneath the debt problem.

If the underlying trading business is viable but the CVA contributions are unmanageable, a variation is the first option to explore. A variation requires a fresh creditor vote at the same 75% threshold as the original CVA; if creditors have lost confidence in management or the trading projections, it may not pass.

If the business is still viable but needs breathing space, administration offers a moratorium that stops creditor enforcement immediately. The administrator can then trade, restructure, or sell the business as a going concern.

Administration costs are higher than CVL and the administrator controls the company, not the directors. It is the right choice when there is genuine value to protect that liquidation would destroy.

If the business is not viable, a Creditors’ Voluntary Liquidation is nearly always better than waiting for a compulsory petition. In a CVL, directors choose the liquidator and control the timing to the extent the situation allows. In compulsory liquidation, the Official Receiver is appointed first and the process is court-led. The difference in outcome for directors is not trivial.

Your Next Step

If you have received a breach notice, the most useful thing you can do is contact your supervisor and then a licensed insolvency practitioner, in that order, today. Not next week.

Directors who engaged within the first 48 hours of a breach notice preserved far more options than those who waited even a fortnight. The director who acts early keeps the ability to choose between CVL and administration, to manage the conduct period, and sometimes to negotiate a variation that keeps the business alive.

In our practice, the outcomes that cause directors most regret are not the ones where rescue failed. They are the ones where the window for a structured exit was missed entirely because action came too late.

The director who waits loses those choices one by one as creditors file and courts move. Fast action cannot guarantee a good outcome, but delay reliably produces a worse one.

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