What Happens if a Company Voluntary Arrangement (CVA) Fails?

A failed CVA is not a soft landing. The moment the supervisor issues the termination notice, the protection ends, and creditors who have been waiting politely for months can move immediately.

That includes HMRC, which may have been holding back a winding-up petition for the duration of the arrangement.

If your Company Voluntary Arrangement has failed, or you have missed contributions and can see it failing, you have very little time to act. The preference lookback clock under section 239 of the Insolvency Act 1986 becomes a live issue again.

Payments you made during the CVA to connected parties, or payments that favoured certain creditors, may be challenged in a later liquidation.

Directors who continue trading without taking advice face the additional risk of wrongful trading under section 214 IA 1986.

Read on for a clear breakdown of what happens legally and practically when a CVA fails, what your obligations are as a director, and how to choose the right route forward.

We work with directors at exactly this juncture, and our experience is that the cases that close most cleanly are the ones where advice was taken within days of failure, not weeks.

Company Voluntary Arrangement Failure at a Glance

Quick Answer: What Happens if a CVA Fails?

When a CVA fails, the supervisor must formally terminate the arrangement and report the failure to court, the registrar of companies, and all bound creditors under section 7 IA 1986.

Creditors immediately regain their full enforcement rights. The company is usually insolvent and must consider an alternative procedure without delay: typically a creditors’ voluntary liquidation (CVL) or administration.

When a CVA Is Treated as Having Failed

A CVA does not fail quietly. The supervisor treats the arrangement as having failed when the company is in material breach. The most common trigger is missed monthly contributions. Two or three missed payments is typically enough.

Other triggers include breaching trading covenants in the CVA proposal, failing to provide required financial information to the supervisor, or where the company’s underlying position has deteriorated to the point where compliance is no longer realistic.

Under section 7B IA 1986, the supervisor can terminate the arrangement. Once that happens, you will receive a formal letter notifying breach and then a termination notice.

If you are looking at that letter on your desk right now, you are in a genuinely time-critical position.

Main Risk When a CVA Fails

The single biggest risk is that you continue trading as if nothing has changed. CVA failure removes the moratorium-style protection that was deterring creditor action. HMRC, trade creditors, and finance lenders can all move simultaneously.

The winding-up petition court fee is £343 and that is not a barrier for a determined creditor owed £10,000.

The second risk is that past transactions come under scrutiny.

Where the CVA involved payments to connected parties, or where contributions were not evenly applied, a liquidator appointed after failure will examine those payments under the preference provisions in section 239 IA 1986.

The lookback period is six months for transactions with unconnected parties and two years for transactions with connected persons such as directors, spouses, or family members.

What Directors Should Do When a CVA Fails

Stop trading on credit you cannot repay. Document every decision you make from this point with a note explaining why it was in creditors’ interests. Take advice from a licensed insolvency practitioner within 48 hours if at all possible.

Do not make large payments to any single creditor, especially a connected one, without taking advice first. Do not ignore the supervisor’s letters either.

The reporting obligations continue, and the supervisor’s file will be reviewed by any subsequent liquidator or administrator. We see directors underestimate how thoroughly that file is read.

Can a CVA Be Saved After Missed Payments?

Legal Position on Renegotiating a Failed CVA

The legal answer is: sometimes, but only if the supervisor agrees and the creditors vote to accept it. The CVA proposal will usually include provisions for what happens on breach.

Some proposals allow a short cure period, typically 14 to 21 days, during which the company can make good on missed payments. Others treat any material breach as an automatic termination trigger.

If the supervisor has issued a notice of default but not yet formally terminated, you may still have a window. That window is narrow.

We have seen companies recover CVAs after a single missed payment where the director moved immediately, made up the arrears, and provided revised cashflow evidence to satisfy the supervisor and creditors.

What we have not seen work is a company that waited until the termination notice had been filed before asking whether anything could be done.

When Renegotiation May Be Allowed After CVA Breach

Renegotiation is most realistic where the breach was caused by a short-term, identifiable cashflow shock rather than structural failure.

If your biggest customer paid 90 days late and that knocked your contributions off track, a creditor body that voted for the CVA in the first place may be willing to extend it or amend the payment schedule.

That is particularly true if HMRC is among them, since HMRC generally prefers recovery over a prolonged insolvency process.

A modified CVA proposal requires fresh creditor approval under the same 75% voting threshold by value that governed the original arrangement. That threshold is set by section 4(6) IA 1986.

If you can demonstrate a genuine revised cashflow and creditors can see more money coming through the CVA than they would recover in liquidation, there is a rational case for them to agree.

You will need a licensed insolvency practitioner to prepare and chair that process.

When CVA Breach Creates Immediate Termination Risk

If the business has run out of trading viability, not just cash, renegotiation will not work. Creditors and the supervisor are not obliged to extend an arrangement that is structurally broken.

If the fundamental problem is that turnover has dropped below the level needed to sustain the agreed contributions, no revised proposal will solve it unless trading conditions change materially.

The honest test is this: if you prepared a revised cashflow today, would it show the company generating enough to meet revised contributions, cover ongoing trading costs, and service any new creditor pressure?

If the answer is no, the CVA route is closed and the right conversation is about CVL or administration.

Director Risks When a Company Voluntary Arrangement Fails

Preference Lookback Risk Under s.239 IA 1986 After CVA Failure

When a CVA fails and liquidation follows, the liquidator will examine payments made in the six months before the insolvency. For payments to connected persons, the lookback extends to two years.

Under section 239 IA 1986, a payment that put a particular creditor in a better position than they would have been in a liquidation can be unwound, and the money clawed back into the estate.

This matters practically because many directors, during the period their CVA was struggling, make payments to creditors applying the most pressure. Often those creditors are friends or family members who lent money, or suppliers threatening to stop trading.

Those payments feel sensible at the time. In a subsequent liquidation, a liquidator with a statutory duty to maximise creditor returns will scrutinise every one of them.

If the CVA failed within two years of a payment to a connected party, that payment is at risk regardless of the intent behind it.

Wrongful Trading Risk After CVA Failure Under s.214 IA 1986

Section 214 IA 1986 creates personal liability risk for a director who continues trading when there is no reasonable prospect of avoiding insolvent liquidation or administration, without taking every step to minimise losses to creditors.

The protection a CVA provided disappears on failure. From the date the CVA terminates, you are trading an insolvent company without the insolvency framework that made that trading defensible.

This does not mean you must stop trading the day the CVA fails. It means you must be able to demonstrate, with contemporaneous board minutes and financial evidence, that every day of continued trading was justified by a genuine prospect of recovery or rescue.

If you cannot evidence that, a subsequent liquidator can apply to court to hold directors personally liable for the increase in the company’s net deficiency during the period of wrongful trading. That liability is not capped.

Director Disqualification Risk After CVA Failure

Director disqualification does not automatically follow CVA failure.

But it can follow if a subsequent insolvency investigation reveals conduct that falls below the standard expected of a director: withdrawing unreasonable salary when the company was insolvent, ignoring professional advice, or making payments to favoured creditors.

The Insolvency Service can apply for disqualification for up to 15 years under the Company Directors Disqualification Act 1986.

Personal guarantees given to secure credit during or before the CVA survive the arrangement entirely.

If you guaranteed a property lease, a bank facility, or a supplier credit line, that guarantee remains enforceable by the creditor regardless of what happens to the CVA or the company.

We see directors genuinely surprised by this. They assumed the CVA wrapped up all their exposure. It does not. Your personal guarantee liability needs to be assessed separately as part of your advice from an insolvency practitioner.

See our guide to director guarantees in a CVA for a full breakdown of where you stand personally.

What Happens to Creditors When a CVA Fails

Creditor Enforcement Rights After CVA Termination

While your CVA was in force, creditors bound by the arrangement could not take enforcement action to recover their CVA debts. That protection ends the moment the CVA terminates.

Creditors may immediately issue statutory demands, obtain county court judgments, or present winding-up petitions. There is no further moratorium, no waiting period, and no requirement for the creditor to engage with you before acting.

The amounts creditors can claim will depend on the terms of the original CVA and how much they have received in contributions.

Where the CVA provided for partial debt forgiveness, that forgiveness is typically conditional on the CVA completing successfully.

If it fails before completion, creditors may be entitled to claim the full original debt less payments received. Your supervisor can clarify the exact position based on your proposal’s wording.

How HMRC Acts After CVA Failure

HMRC is frequently the largest creditor in a failed CVA and it acts decisively when the arrangement ends.

HMRC holds secondary preferential status in any subsequent insolvency for certain taxes collected on behalf of others: VAT, PAYE income tax, employee National Insurance contributions, CIS deductions, and student loan repayments.

This preferential status, reinstated from 1 December 2020 under the Finance Act 2020, means HMRC ranks ahead of unsecured creditors for those tax heads in a liquidation or administration.

HMRC can present a winding-up petition once the CVA has failed and the debt is undisputed. HMRC does not need to wait or negotiate.

If your CVA included a significant HMRC component, HMRC’s enforcement team will typically move within weeks of receiving the supervisor’s termination notice.

The winding-up petition deposit for a creditor petition is £2,600 to the Official Receiver, in addition to the £343 court fee. For HMRC, those figures are not a deterrent.

Winding-Up Petitions After CVA Failure

A winding-up petition results in compulsory liquidation if the court grants a winding-up order. This is the outcome most directors should be trying to avoid.

Not because liquidation itself is catastrophic, but because compulsory liquidation removes all director control, brings the Official Receiver into the investigation process, and typically generates more scrutiny of director conduct than a director-initiated CVL.

The company’s bank accounts are frozen the moment a petition is advertised in the Gazette, before any court order. Trading becomes effectively impossible from that point.

If you can see that creditors are likely to petition, the better option is usually to initiate a CVL yourself before a petition is presented.

That keeps some control in your hands, allows you to choose your liquidator within limits, and demonstrates to the investigation that you acted responsibly when the position became clear.

Options When a Company Voluntary Arrangement Fails

Creditors’ Voluntary Liquidation After CVA Failure

A creditors’ voluntary liquidation (CVL) is the most common outcome after CVA failure.

You and your fellow directors resolve to wind the company up voluntarily, appoint a licensed insolvency practitioner as liquidator, and convene a meeting of creditors.

The liquidator then realises the company’s remaining assets, distributes them to creditors in the statutory order of priority, and dissolves the company.

CVL is not the same as defeat. For most directors whose CVA has failed, it is the responsible, orderly exit. It stops wrongful trading risk accumulating.

It allows the company’s estate to be distributed fairly rather than grabbed by whichever creditor acts fastest. And it gives directors a clean record, provided their conduct during the CVA and leading up to it was reasonable.

We would strongly encourage you to read our CVA vs liquidation comparison for a fuller breakdown of both routes and what determines which is appropriate in your situation.

The pros and cons of a CVA page also explains why some CVAs were always unlikely to succeed given their starting conditions.

Administration After CVA Failure

Administration is worth considering where the business itself, or parts of it, has genuine going-concern value that would be destroyed by liquidation.

An administrator takes control of the company with the objective of rescuing it as a going concern, or achieving a better result for creditors than immediate liquidation would.

Administration provides a statutory moratorium that immediately halts creditor enforcement, including any pending winding-up petition.

The practical trade-off is cost and speed. Administration is more expensive than CVL and requires rapid commercial decision-making.

Most administrations that rescue a business do so through a pre-packaged sale, often completed within days of appointment.

If the business has a buyer or a restructuring plan, administration can make that possible. If the business has no viable trading future, administration is unlikely to achieve a better creditor outcome than a CVL and will cost more to run.

Your insolvency practitioner can assess which applies in your case.

When a Second CVA May Be Possible After Failure

A second CVA is possible in law but difficult in practice. Creditors who have already watched one arrangement fail will apply much stricter scrutiny to any subsequent proposal.

They will want to understand what has changed: why this time the cashflow projections are reliable, why the business model is now sustainable, and what personal commitment the directors are making.

If the first CVA failed because the underlying business was not viable, a second proposal will not survive the creditors’ meeting.

Where a second CVA can work is where the first failed due to an identifiable external shock: a contract cancellation, a large bad debt, a market disruption.

The director must show that the business has stabilised, the disruption is resolved, and the revised projections are conservative.

In that narrow scenario, some creditors including HMRC may prefer a second attempt at recovery over the certainty of reduced recovery in liquidation. The 75% voting threshold still applies.

Any second proposal must be prepared by a qualified insolvency practitioner.

Your Next Step After CVA Failure

The right next step depends on whether your CVA failed because of a cashflow shock or because the business is structurally unviable. That distinction matters more than anything else here.

If you had a cashflow shock, a bad debt, a contract loss, a temporary market disruption, and the underlying business remains viable, the conversation is about renegotiating or replacing the CVA with a modified proposal.

That window is narrow and closes fast. You need a licensed insolvency practitioner reviewing your cashflow within days, not weeks.

If the business has run out of road, if turnover is not recovering, the creditor position has worsened throughout the CVA, and there is no realistic revised cashflow that closes the gap, the honest answer is that rescue is not available.

The decision you face is between initiating a CVL now, on your terms, or waiting for a creditor to petition and losing that control entirely.

A CVL initiated by directors who acted responsibly, with proper advice and documented decisions, is a legitimate and manageable outcome. Waiting for a compulsory petition is not.

Either way, do not continue trading in credit without contemporaneous board minutes justifying each decision. The wrongful trading risk under section 214 IA 1986 runs from the point where rescue ceased to be a reasonable prospect.

A liquidator will not give you the benefit of the doubt unless your records show you were thinking clearly about creditor interests at every step.

Our team works with directors at exactly this juncture. A confidential conversation costs nothing and takes 20 minutes. The difference between acting this week and acting next month can be significant to your personal exposure.

Frequently Asked Questions About CVA Failure