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.
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, personal guarantee enforcement and potential disqualification proceedings. The pages below map each trigger, consequence and decision you may face in the days following breach, before events overtake you.
A CVA fails when a breach under the approved proposal is not remedied within the timeframe set out in the arrangement.
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 in accordance with insolvency law.
Common breach triggers include:
Missed or reduced CVA contributions
Failure to pay ongoing taxes falling due after approval
Failure to provide required financial information to the supervisor
Disposing of assets without consent where consent is required
Breaching dividend or director loan restrictions in the proposal
Entering another insolvency process without variation approval
Typical breach clauses in UK CVAs
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
Legal action is not resolved within a stated period
Insurance or statutory licences lapse
The time allowed to remedy a breach is not fixed by statute. It is determined by the terms of the CVA proposal itself.
If the breach is not remedied within that contractual window, the supervisor may issue a certificate of termination and must notify Companies House (using Form CVA4) within 28 days of termination, as required by the Insolvency Rules 2016.
The Breach Window: Why Every Day Counts
Miss a CVA payment and your supervisor will normally issue a written breach notice.
The proposal will specify how long you have to cure the default, commonly 14 or 28 days, but this is not prescribed by legislation. During this period, directors must either:
Clear the arrears, or
Agree a formal variation with creditor approval.
If the breach is not resolved, the supervisor may terminate the CVA and consider further action, including petitioning for liquidation.
What happens in practice
Notice served – Supervisor identifies breach and sets remedy deadline under proposal terms.
Cure period – Directors attempt payment, refinance, or negotiate variation.
Termination – If breach remains unresolved, supervisor issues certificate of termination.
Companies House filing – Supervisor files Form CVA4 within 28 days of termination.
Silence rarely helps. Supervisors are required to act in creditors’ interests. Engaging early and providing realistic funding evidence may preserve options.
Immediate Fallout Once the CVA Is Terminated
Termination takes effect under the terms of the arrangement. Companies House notification follows, but filing does not itself create termination.
Once terminated:
1. Debt revival
Creditors’ original claims revive, less any dividends already paid under the CVA.
2. Enforcement rights return
Creditors may:
Issue statutory demands
Present winding-up petitions
Commence or continue legal proceedings
Enforce security (if secured)
3. Secured creditors
Unless they consented to be bound, secured creditors’ rights were never fully compromised. After termination they may:
Appoint administrators (if qualifying floating charge holders)
Companies House records the termination filing. If liquidation or administration follows, the company’s status will update accordingly.
Personal Exposure for Directors After Failure
When a CVA fails, attention shifts quickly to directors’ conduct, especially if liquidation follows.
Wrongful trading
Under Insolvency Act 1986 s214, a court may order directors to contribute to company assets if they continued trading when they knew (or ought to have concluded) that insolvent liquidation was unavoidable.
Wrongful trading claims only arise if the company enters insolvent liquidation or administration. They are assessed retrospectively by the liquidator or administrator.
Disqualification
Under the Company Directors Disqualification Act 1986, liquidators and the Official Receiver must report on director conduct. Disqualification can range from 2 to 15 years.
Personal guarantees
Termination revives underlying creditor claims. If a debt was personally guaranteed, the guarantor may be pursued according to the guarantee terms.
HMRC has powers to require security deposits in certain circumstances. CVA failure may increase perceived risk, but security is not automatic and depends on HMRC’s assessment.
Creditor Rights and Debt Revival Explained
Once terminated:
Unsecured creditors may sue for the full revived balance (less dividends).
HMRC ranks as a secondary preferential creditor for certain taxes (e.g., VAT, PAYE) under current legislation.
Secured creditors may enforce their security according to its terms.
The precise treatment of funds already paid into a CVA depends on the arrangement terms and applicable legal principles. Supervisors must account for funds in accordance with the Insolvency Rules and the proposal.
What the Supervisor Can Do Next
Following termination, the supervisor must:
Notify Companies House (Form CVA4) within 28 days
Report to creditors
Account for funds held
The supervisor may petition for winding up under Insolvency Act 1986 s7, as a person entitled to present a petition. Whether they do so depends on circumstances and proposal terms.
They are not automatically required by statute to petition, but many CVAs give them power to do so.
Rescue or Wind-Up? Your Decision Pathway
Once breach occurs, directors must decide quickly whether rescue remains viable.
Comparing Liquidation, Administration and Moratorium
Creditors’ Voluntary Liquidation (CVL)
Directors resolve to wind up
Creditors confirm liquidator
Conduct report required
Control passes to liquidator
Compulsory Liquidation
Petition presented by creditor or supervisor
Court hearing determines outcome
Official Receiver becomes liquidator initially
Administration (Schedule B1)
Moratorium begins upon appointment
Administrator controls company
Purpose must satisfy statutory objectives
Part A1 Moratorium
Standalone moratorium supervised by a monitor
Initial 20 business days
Must be terminated if rescue no longer likely
The moratorium restricts certain creditor actions but does not eliminate director duties or prevent later investigation.
Real-World Scenario and Pitfalls
A company misses a VAT payment while behind on CVA contributions.
If breach is not remedied:
CVA terminates
Creditors’ original claims revive
HMRC may petition
Liquidation may follow
Directors’ conduct is reviewed
Common mistakes:
Incurring further debts without realistic repayment plan
Preferring selected creditors
Ignoring breach notices
Delaying professional advice
FAQs
1) Can I stop the supervisor petitioning for liquidation?
Possibly. If breach is remedied within the proposal timeframe or a variation is approved, termination may be avoided. Once a petition is presented and advertised, options narrow significantly.
2) Do I still owe arrears?
Yes. Contributions due under the CVA remain payable unless and until the arrangement is formally terminated. After termination, underlying debts revive.
3) Are bounce-back loans reinstated?
If compromised under the CVA, termination removes the compromise and the lender may claim the outstanding balance (less dividends paid). Bounce Back Loans did not require personal guarantees.
4) What happens to money already paid into the CVA?
Funds are distributed according to the CVA terms and Insolvency Rules. Treatment depends on the proposal and applicable law.
5) Will HMRC demand security automatically?
No. Security notices are discretionary and based on risk assessment.
6) Can we propose a second CVA?
Legally possible. Practically difficult. Creditors will scrutinise viability and past performance closely.
7) Does failure itself trigger TUPE?
No. TUPE applies depending on the nature of any subsequent business transfer and the insolvency procedure used.
8) Can landlords forfeit immediately?
After termination, landlords may exercise lease rights subject to statutory requirements. If the company later enters administration or moratorium, additional restrictions may apply.
9) How long does compulsory liquidation take?
Typically several weeks from petition to hearing, depending on court timetable.
10) Can I resign to avoid liability?
No. Resignation does not remove liability for past conduct.
11) Is personal guarantee enforcement automatic?
No. Creditors must follow contractual enforcement steps.
12) Does termination appear on Companies House?
Yes. The supervisor files Form CVA4 within 28 days of termination.
13) Can I reuse the company name after liquidation?
Restrictions apply under Insolvency Act 1986 s216. Using a prohibited name without complying with statutory exceptions may create personal liability.
Your Next Step
If you have received a breach notice, speak to your supervisor or a licensed insolvency practitioner immediately.
Fast action may:
Preserve the CVA
Enable variation
Allow structured transition to administration or CVL
Reduce personal exposure
This guide provides general information only. Obtain regulated professional advice tailored to your circumstances.
