When your company is insolvent — or heading that way — you'll quickly discover there are several different formal processes available. Administration, liquidation, CVA, dissolution... the terminology is confusing, the implications of each are different, and the information online is mostly written by insolvency practitioners who'd quite like you to engage them for whichever option generates the highest fees.
This guide explains each option in plain English: what it is, when it's appropriate, what it means for you personally, and — critically — what it means for your staff and creditors. This is general guidance, not legal advice. Get professional help before committing to any formal insolvency process.
The options at a glance
Before diving into detail, here's the landscape:
| Process | The company survives? | Who's in control? | Best for | |---|---|---|---| | Company Voluntary Arrangement (CVA) | Yes | Directors (with supervision) | Viable businesses with debt problems | | Administration | Sometimes | Administrator | Complex situations, potential rescue or sale | | Creditors' Voluntary Liquidation (CVL) | No | Liquidator | Businesses that need to close with debts | | Compulsory Liquidation | No | Official Receiver/Liquidator | When creditors force closure | | Dissolution (strike-off) | No | Directors | Businesses with no debts or assets |
Company Voluntary Arrangement (CVA)
What it is
A CVA is a legally binding agreement between your company and its creditors to repay some or all of its debts over a fixed period — typically three to five years. Think of it as a structured payment plan approved by your creditors.
The company continues to trade. You, as director, remain in control of the business. An insolvency practitioner acts as supervisor to monitor compliance with the arrangement, but they don't take over management.
When it's appropriate
A CVA works when the business is fundamentally viable — it can generate profit and cash — but has accumulated debts it can't pay in full. Perhaps you had a bad year, lost a key contract, or took on too much debt. The underlying business model works; it's the balance sheet that's broken.
CVAs are most effective when: the business has a realistic prospect of trading profitably, creditors are likely to receive more from a CVA than from liquidation (this is the key test — creditors will only agree if it's in their interest), and you have a credible plan for how the business will generate the payments required under the arrangement.
What it means for you
You keep your position. You keep running the business. You have to make the agreed payments on time and comply with the terms of the arrangement. If you default on the CVA, it typically terminates and the company may then go into liquidation.
What it means for creditors
Creditors vote on whether to accept the CVA. It needs approval from at least 75% by value of those voting. If approved, it binds all unsecured creditors — even those who voted against it. Secured creditors and preferential creditors are not bound by a CVA unless they consent.
Creditors typically receive a percentage of what they're owed — perhaps 30p to 70p in the pound — over the term of the arrangement. This is usually more than they'd receive in a liquidation, which is why they agree.
Pros and cons
Pros: Business survives. You stay in control. Avoids the stigma of liquidation. Employees keep their jobs. Can write off a significant portion of debt.
Cons: Requires creditor approval (not guaranteed). You have to make regular payments for years. The supervisor monitors your business. If you default, you're back to square one — probably worse. HMRC have become more resistant to CVAs in recent years, which can make approval harder if you owe significant taxes.
Administration
What it is
We've covered this in detail in What actually happens when a company goes into administration, so here's the summary: an independent administrator takes control of the company, with the aim of rescuing the business, achieving a better outcome for creditors than liquidation, or realising assets for distribution.
When it's appropriate
Administration is best for: companies with significant assets or ongoing business value that could be preserved through a sale, situations where a moratorium (freeze on creditor action) is needed to prevent a chaotic scramble, complex cases with multiple creditors, disputed claims, or potential legal issues, and cases where a pre-pack sale (selling the business immediately to a new owner) is the best option.
Administration is probably not appropriate for very small businesses with few assets — the costs of administration may consume most of what's available. In those cases, a CVL is often more suitable.
What it means for you
You lose control of the company. The administrator makes all decisions. You have a duty to cooperate fully. The administrator will investigate your conduct as a director. You are not personally liable for company debts unless you've given personal guarantees or there's evidence of wrongful or fraudulent trading.
Pros and cons
Pros: Moratorium protects the company from creditor action. Potential to save the business or achieve a better outcome than liquidation. Professional management of a complex situation. Employees may be protected through TUPE if the business is sold.
Cons: Expensive. You lose control. The process can be slow. No guarantee of a good outcome. Administrator's fees take priority over most creditors.
Creditors' Voluntary Liquidation (CVL)
What it is
A CVL is the orderly winding up of a company that can't pay its debts. The directors decide to close the company, appoint a liquidator, and the liquidator's job is to realise the company's assets and distribute the proceeds to creditors in the legally prescribed order.
The company ceases to trade (or continues only briefly to maximise asset value). The liquidator handles everything: selling assets, collecting debts owed to the company, adjudicating creditor claims, making distributions, and eventually dissolving the company.
When it's appropriate
A CVL is the most common insolvency process for small and medium businesses. It's appropriate when: the company is insolvent and there's no realistic prospect of rescue, the business has stopped trading or will stop trading imminently, you want to close the company in an orderly, legally compliant way, and you want to fulfil your duties as a director responsibly.
A CVL is generally less expensive than administration and is more straightforward procedurally. For most small businesses that simply need to close, a CVL is the right route.
What it means for you
You resign as a director (or your role effectively ends) once the liquidator is appointed. The liquidator takes control of the company and its assets. As with administration, the liquidator will investigate director conduct and submit a report to the Insolvency Service.
You are not personally liable for the company's debts unless: you've given personal guarantees, you're found to have traded wrongfully (continuing to trade when you knew the company couldn't avoid insolvency), you're found to have traded fraudulently, or there are transactions at undervalue or preferences that the liquidator can challenge.
For honest directors who acted in good faith, a CVL is usually a clean process. The company closes, the debts are dealt with, and you move on. For more on your duties, read: Director duties during insolvency: what you need to know.
What it means for staff
Employees are typically made redundant when a CVL begins. They can claim statutory entitlements from the Redundancy Payments Service if the company can't pay. Read: What happens to your staff when your company goes insolvent.
Pros and cons
Pros: Orderly closure. Fulfils your legal duties. Less expensive than administration. Relatively quick (typically 6-18 months). Draws a clear line under the company.
Cons: The company closes — no rescue option. Costs still come from company assets before creditors are paid. Unsecured creditors often receive little or nothing.
Compulsory Liquidation
What it is
This is involuntary winding up — a creditor petitions the court to force the company into liquidation. The court issues a winding-up order, the Official Receiver is appointed as liquidator, and the company is closed.
When it happens
Compulsory liquidation typically happens when: a creditor is owed more than £750 and the company hasn't paid within 21 days of a statutory demand, HMRC petitions to wind up the company for unpaid taxes, or the company has been served a winding-up petition and can't satisfy the court that it's able to pay its debts.
What it means for you
If a creditor is threatening a winding-up petition, act immediately. A winding-up petition is publicly advertised, which usually causes your bank to freeze the company's accounts. This can be fatal to a business that might otherwise have survived.
If you're served with a winding-up petition, you have options: pay the debt in full, negotiate a settlement with the petitioning creditor, apply to the court for an adjournment, or enter administration or a CVA before the petition is heard.
Don't ignore a winding-up petition. The consequences of doing nothing are severe and fast-moving.
Pros and cons
Pros: None for you. This is something that happens to you, not something you choose.
Cons: Loss of control. Public process. Bank accounts frozen. More intensive scrutiny of director conduct. The Official Receiver is less commercially minded than a private insolvency practitioner, which can mean worse outcomes for creditors.
Dissolution (Strike-off)
What it is
The simplest way to close a company — you apply to Companies House to have the company struck off the register and dissolved. This is appropriate only when the company has no debts, no assets of significant value, has stopped trading, and has no pending legal actions.
When it's appropriate
Dissolution is for companies that are genuinely finished and have no outstanding liabilities. It's not an insolvency process — it's a company closure process. If the company owes money to anyone, dissolution is not appropriate and could create personal liability if creditors are left unpaid.
The process
You file a DS01 form with Companies House. The company must not have traded or changed its name in the previous three months. The application is published in the Gazette, and if no objections are raised within two months, the company is dissolved.
Warning
Do not use dissolution to avoid dealing with debts. Creditors can object to the strike-off, and they can apply to restore the company to the register even after dissolution. Using dissolution to evade creditors is not only ineffective — it can constitute misconduct that leads to personal liability and potential director disqualification.
How to choose
The decision between these options depends on several factors:
Is the business viable? If yes, consider a CVA. If no, you're looking at administration (if there's a sale possibility or complexity) or CVL (if the company simply needs to close).
Are there significant assets or a saleable business? If yes, administration might achieve a better outcome. If the assets are minimal, a CVL is simpler and cheaper.
Is a creditor threatening legal action? If a winding-up petition is imminent, you need to act fast. Administration provides a moratorium. A CVA can also prevent a petition proceeding if creditors approve it.
What can the company afford? Administration is expensive. If the company has very few assets, the costs may consume most of what's available. A CVL is more cost-effective for smaller companies.
What's best for employees? If there's a chance of saving jobs (through a sale of the business), administration may be the right route. If the business is closing regardless, a CVL ensures employees can access the Redundancy Payments Service quickly.
Getting professional advice
This decision should not be made alone or in a panic. Talk to an insolvency practitioner — most offer a free initial consultation. They can assess your specific situation and recommend the most appropriate route. For guidance on finding the right IP, read: How to choose an insolvency practitioner (and what to watch out for).
Be aware that some IPs have financial incentives to recommend certain processes over others (administration generates higher fees than a CVL, for example). Get a second opinion if you're unsure, and always ask: "Is this the best option for the creditors and for me, or is there a simpler route that achieves the same outcome?"
Your accountant can also be a valuable sounding board — they know your business's financials and can help you assess which option is realistic given the company's assets and liabilities.