When your business is in financial trouble, two potential options are Company Voluntary Arrangements (CVA) or administration. These two methods both offer a variety of benefits and each serve a different purpose for your business.
This blog will explain what CVAs and Administration are, the key differences between the two, and which route is right for your business.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement (CVA) is a statutory insolvency process under the Insolvency Act 1986 that allows a company to agree a compromise with its unsecured creditors under the supervision of a licensed insolvency practitioner. If approved, it binds all unsecured creditors (including dissenters and non-voters) but does not bind secured or preferential creditors without their consent. It’s typically used where the business is viable and creditors are likely to do better than in the alternative, with contributions commonly paid over 3–5 years.
Control:
In a CVA, directors remain in control of the company and continue running day-to-day operations. The process is overseen by a licensed Insolvency Practitioner (IP), known as the CVA Supervisor, who ensures that the repayment terms are followed.
Process & Publicity:
A CVA is a more discreet process than administration. It’s generally only made known to creditors and recorded at Companies House, involving minimal court involvement unless disputes arise.
Moratorium:
A CVA doesn’t automatically offer a moratorium (a legal freeze on creditor action), though one can be sought by appointing a Monitor through the provisions of Part A1 Statutory Moratorium or using an Administration process to provide temporary protection.
Director Investigation:
Unlike administration, there’s no statutory requirement for an investigation into directors’ conduct prior to the CVA.
Goal:
The primary objective of a CVA is to allow the existing company to continue trading, restructure debt, and return to profitability while ensuring creditors receive a better return than they would otherwise in alternative insolvency procedures.
Administration
Administration is a statutory insolvency process where an Administrator (a licensed Insolvency Practitioner) is appointed to take control of the company. The Administrator must pursue a statutory objective in a set order: first, to rescue the company as a going concern; if that is not reasonably practicable, to achieve a better outcome for creditors as a whole than liquidation; and only if neither is achievable, to realise assets to make a distribution to secured and/or preferential creditors.
Control:
Once an Administrator is appointed, they assume total control of the business. Directors’ powers are suspended during this time.
Process & Publicity:
Administration is more formal and public than a CVA. It requires court filings, involves a notice in The Gazette, and is typically more costly and complex to implement.
Moratorium:
Upon entering administration, an automatic statutory moratorium is granted. This provides immediate legal protection against all creditor actions, including from secured creditors, giving the Administrator breathing space to stabilise the company and plan the next steps.
Director Investigation:
The Administrator is legally required to investigate the directors’ conduct in the period leading up to insolvency, which may include reviewing transactions and decision-making.
Goal:
The primary purpose of administration is to achieve one of the statutory objectives; in practice, this is often delivered by selling the business and/or its assets to a purchaser, in which circumstances the directors may have no ongoing involvement with the business going forward
The Differences Between Company Voluntary Arrangements and Administration
The main difference between a Company Voluntary Arrangement (CVA) and Administration lies in who controls the business. In a CVA, the existing directors stay in control while repaying debts under the terms of the agreement. In administration, however, control is transferred to the Administrator, who assumes full responsibility for the company’s operations and financial decisions.
Beyond control, there are other key distinctions:
- Formality and Cost: Administration is more formal, public, and expensive, while a CVA is relatively discreet and cost-effective.
- Legal Protection: Administration automatically provides protection from creditors, whereas a CVA may not.
- Director Accountability: Administration involves a mandatory investigation into directors’ conduct; a CVA does not.
- Objective: A CVA aims to help a viable business manage its debts and continue trading. Administration may aim to rescue, sell, or wind down the business, depending on the situation.
Which Route Is Right for You?
Choosing between a Company Voluntary Arrangement and administration depends on your company’s current position and long-term goals.
A CVA may be the right choice if your business is fundamentally profitable but temporarily burdened by debt, and you wish to maintain control while repaying creditors. It’s a collaborative, restructuring-focused solution for companies that can realistically trade their way out of difficulty.
Administration, on the other hand, may be appropriate if your business faces immediate creditor pressure or legal threats, or if the situation has become too complex for directors to manage effectively. The process provides protection from creditors and gives an Administrator the authority to take decisive action to preserve value or prepare for sale.
At Coots & Boots, our specialists help company directors navigate financial distress and identify the most effective rescue strategy for their situation. Whether you’re exploring a Company Voluntary Arrangement vs. Administration, our experienced team can guide you through each option, ensuring your business has the best chance of recovery and long-term success. Get in touch to find out more.
