Chris is an Insolvency Practitioner regulated by the ICAEW since 2014,.
He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.
When a Company Voluntary Arrangement (CVA) fails, the consequences can be swift and serious. Missed payments or breaches of the arrangement may lead to its termination, leaving the company exposed to renewed creditor action. Once a CVA comes to an end, any protections it was providing cease to apply, and directors must act quickly to address the company’s financial position.
Urgent decisions may be required, including whether to enter liquidation or administration. Understanding these outcomes is essential for directors navigating insolvency and seeking to protect both the company and themselves.
A Company Voluntary Arrangement (CVA) is generally regarded as having failed when the company is unable to comply with its obligations under the arrangement, such as failing to make agreed contributions or breaching other material terms. Where this occurs, the CVA may be terminated in accordance with its terms and the applicable insolvency rules.
Common triggers for CVA failure include:
Missed payments: Failure to make agreed contributions to the CVA.
Breaches of terms: Non-compliance with key obligations set out in the CVA proposal.
Termination of the arrangement: The CVA is treated as terminated once the supervisor concludes it has failed and issues the required notices.
Once a CVA ends, the company no longer benefits from the arrangement, and creditors regain their rights to pursue outstanding debts. The supervisor must issue formal notice of the termination and prepare a report explaining the reasons for failure and summarising receipts and payments. This process formally brings the CVA to a close and signals that the company must now address its insolvency position through another route.
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When a Company Voluntary Arrangement (CVA) fails, the immediate legal and financial consequences can be significant. Creditors are no longer bound by the arrangement and may resume enforcement action for unpaid debts. This can include issuing statutory demands or presenting winding-up petitions where appropriate.
Under the Insolvency Rules 2016, the CVA supervisor must, within the required timeframe, issue a notice and report following termination. These documents are sent to members and creditors bound by the CVA and are also filed with the court and the registrar of companies. The supervisor remains in office until these statutory duties have been completed.
For directors, the end of a CVA often marks a critical point. If the company remains insolvent and no immediate action is taken, the risk of compulsory liquidation increases. Prompt consideration of alternative insolvency procedures is therefore essential.
Supervisor’s Role Post-Failure
Following the termination of a CVA, the supervisor remains responsible for completing all statutory reporting and filing obligations. They must account for funds received and paid out under the arrangement and explain the reasons for its failure. Only once these steps are completed can the supervisor vacate office.
The supervisor does not automatically become the office-holder in any subsequent insolvency procedure, but their reports may be relied upon by creditors, the court, or a future liquidator or administrator.
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Once a CVA has failed, creditors regain their individual enforcement rights. This may include commencing legal proceedings or petitioning for compulsory liquidation if debts remain unpaid.
HM Revenue & Customs (HMRC) is entitled to exercise the same enforcement rights as other creditors once the CVA ends. In any subsequent insolvency, HMRC holds secondary preferential status for certain specified taxes collected on behalf of others, such as VAT, PAYE income tax, employee National Insurance contributions, CIS deductions, and student loan repayments. Other HMRC debts, such as corporation tax, do not benefit from this preferential status.
Unsecured creditors may also take action to recover debts or submit claims in a later liquidation or administration. The resumption of creditor enforcement underlines the importance of directors addressing the company’s position without delay.
Director Duties, Liabilities, and Risks
When a CVA fails and the company is insolvent or approaching insolvency, directors must have regard to the interests of creditors. Continuing to trade without a reasonable prospect of avoiding insolvency can expose directors to personal risk.
Key risks include:
Wrongful trading: Allowing the company to continue trading when there is no reasonable prospect of avoiding insolvent liquidation or administration, without taking steps to minimise losses to creditors.
Misfeasance: Breaches of duty, misuse of company assets, or failures in governance.
Disqualification: If a subsequent insolvency office-holder reports unfit conduct, directors may face disqualification proceedings.
Directors should also ensure that company records are properly maintained and that decisions are carefully documented. Seeking professional advice at an early stage is critical to reducing personal exposure and ensuring compliance with legal duties.
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After a CVA fails, directors must decide how the company’s insolvency will be addressed. The main options are administration, creditors’ voluntary liquidation (CVL), or compulsory liquidation.
Administration aims to rescue the company as a going concern or achieve a better result for creditors than immediate liquidation. An administrator takes control of the company and may continue trading while restructuring or selling the business.
Creditors’ Voluntary Liquidation (CVL) is initiated by the company when rescue is no longer viable. A liquidator is appointed to realise assets and distribute funds to creditors. This route allows directors to take proactive control rather than waiting for creditor action.
Compulsory liquidation occurs when a creditor successfully petitions the court to wind up the company. This process is court-driven and often results in closer scrutiny of director conduct.
Comparison of Insolvency Options
Administration
✅Pros: Potential business rescue, structured process ❌ Cons: Complex and often costly Typical outcome: Restructuring or sale
Creditors’ Voluntary Liquidation (CVL)
✅ Pros: Director-led process, generally faster than court liquidation ❌ Cons: Trading ends, investigation of conduct Typical outcome: Asset realisation and distribution
Compulsory Liquidation
✅ Pros: Creditor-initiated ❌ Cons: Less director control, court involvement Typical outcome: Court-supervised winding up
Impact on Employees and Pensions
If liquidation or administration follows a CVA failure, employees may be made redundant. Eligible employees can claim certain unpaid entitlements, including wages, holiday pay, notice pay, and statutory redundancy pay, from the National Insurance Fund, subject to statutory limits.
For members of defined-benefit pension schemes, the Pension Protection Fund may provide compensation if the employer becomes insolvent and the scheme cannot meet its obligations. While these protections do not replace full entitlements in every case, they offer an important safety net.
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Several misconceptions often arise when a CVA fails. First, a failed CVA does not automatically result in director disqualification; this only occurs where misconduct or unfitness is established. Second, while creditors regain their rights once the CVA ends, the treatment of debts and any amounts already paid depends on the terms of the CVA and subsequent insolvency process.
Finally, proposing a second CVA is possible but requires a fresh proposal and creditor approval, which may be difficult following a previous failure.
FAQs
1. Does a failed CVA mean all debts automatically come back in full?
When a CVA ends, creditors are no longer bound by its terms. How debts are treated depends on the wording of the CVA and any subsequent insolvency procedure, including what has already been paid to creditors.
2. Can a second CVA be proposed after failure?
It is possible to propose a new CVA, but the company must put forward a viable proposal and obtain creditor approval. Previous failure can make this more challenging.
3. How soon can creditors force liquidation once a CVA fails?
Once the CVA has terminated, creditors may take enforcement action without waiting for a further moratorium, including petitioning for winding up where appropriate.
4. Are personal guarantees still enforceable if the CVA ends?
Yes. A CVA does not release directors or third parties from personal guarantees, and creditors may pursue guarantors if the company defaults.
5. Do directors automatically lose their roles when a CVA fails?
No. Directors remain in office unless and until another insolvency procedure removes control or disqualification proceedings are brought.
Deciding Your Next Step
A CVA failure is a critical moment for any company. Acting quickly can help preserve value, manage creditor pressure, and reduce personal risk for directors. Early engagement with a licensed insolvency practitioner allows you to understand your options and choose the most appropriate route forward, whether that involves rescue through administration or an orderly liquidation. The key is not delay, but informed and timely action.
