There are five formal routes a UK company can take when it is in financial difficulty, and the differences between them matter more than the names suggest. This page sets them out in one table and then explains each one. It is general information, not advice about your company.
Every formal route below requires a licensed insolvency practitioner except compulsory liquidation, which is run by the court and the Official Receiver. The column that usually matters most to a director is the last one.
| Route | Who starts it | Company survives? | Director control |
|---|---|---|---|
| CVA Company voluntary arrangement | Directors | Yes — keeps trading | High. Directors stay in office |
| Administration | Directors, or a qualifying floating charge holder | Sometimes — rescue, sale or wind-down | Low. An administrator takes control |
| CVL Creditors’ voluntary liquidation | Directors and shareholders | No — closed and dissolved | Moderate. Directors choose the timing and the liquidator |
| Compulsory liquidation | A creditor, via the court | No — closed and dissolved | None |
| MVL Members’ voluntary liquidation | Shareholders | No — but the company is solvent | High. This is a planned closure |
This table describes the general framework under the Insolvency Act 1986 and later reforms. Which routes are actually available to a particular company depends on its finances, its creditors and its timing, which is what an initial conversation with a practice is for.
A CVA is a legally binding agreement to repay creditors part of what they are owed, over a fixed period, while the company continues trading. Directors propose it, a licensed insolvency practitioner acts as nominee and then supervisor, and creditors vote. If enough of them approve it by value, the arrangement binds all unsecured creditors, including those who voted against.
It is the only route on this list designed around the company surviving intact with its directors still in place. That makes it attractive, and also makes it the hardest to get right: it only works where the underlying business is viable and the problem is historic debt rather than an unprofitable operation. A CVA that a company cannot actually afford to service usually ends in liquidation a year later, having cost money in the meantime.
Administration puts a licensed insolvency practitioner in control of the company and triggers a statutory moratorium that stops most creditor action, including winding-up petitions, while a plan is worked out. Directors lose day-to-day control from the moment the administrator is appointed.
It is used where there is something worth saving inside a company that cannot pay its current debts — a profitable division, a customer base, a workforce, a contract. The administrator may rescue the company, sell the business as a going concern, or wind it down in a more orderly way than a liquidation would allow. The moratorium is often the real reason for choosing it: it buys time that a company facing an imminent petition does not otherwise have.
A CVL is the route directors take when the company cannot be rescued and should be closed. Directors resolve to wind the company up, shareholders pass a resolution, a licensed insolvency practitioner is appointed liquidator, assets are realised and distributed to creditors in the statutory order, and the company is eventually dissolved.
It is voluntary in the sense that directors initiate it rather than a court. That is the main practical difference from compulsory liquidation, and it is not a small one — directors choose the timing and choose the liquidator. There is a fuller explanation on the CVL page.
Compulsory liquidation is a court-ordered wind-up, usually following a creditor’s winding-up petition. HMRC is the most common petitioner. Once a winding-up order is made, the Official Receiver becomes liquidator, though creditors may later appoint a licensed insolvency practitioner in their place.
Directors have no control over the process, no say in who runs it, and no influence on timing. It is generally the outcome of an unresolved debt rather than a decision, and the window to choose a different route usually closes when the petition is advertised. If a petition has been served, the time to speak to a practice is that week, not after the hearing.
An MVL is not an insolvency procedure. It is how shareholders close a solvent company and extract the remaining value, usually for tax reasons, and it requires the directors to swear a declaration that the company can pay all its debts in full within twelve months.
It appears on this list because it is easy to confuse with a CVL and because many practices offer both — the two use the same liquidation machinery. The distinction is solvency, and swearing the declaration when the company cannot in fact pay its debts is a serious matter with personal consequences.
These are not five equivalent options a director picks from a menu. In practice they form a sequence determined by how much time and viability is left. A viable business with historic debt and time to negotiate has a CVA available. A viable business with no time has administration. A business with nothing worth rescuing has a CVL. A director who waits long enough has compulsory liquidation chosen for them.
That is the practical argument for early contact, and it is the same argument every practice will make — but it is true regardless of who is making it. The options narrow as the position hardens, and they narrow in one direction only.
Can a company keep trading during administration?
Often yes. The administrator takes control and decides whether continuing to trade serves the purpose of the administration — typically to keep a business saleable as a going concern. But it is the administrator’s decision, not the directors’, from the moment of appointment.
What is the difference between a CVL and an MVL?
Solvency. A CVL is for a company that cannot pay its debts. An MVL is for a solvent company being closed deliberately, and requires the directors to swear a declaration of solvency stating the company can pay all its debts in full within twelve months.
What is the difference between voluntary and compulsory liquidation?
Who starts it and who controls it. A creditors’ voluntary liquidation is initiated by the directors and shareholders, who choose the timing and the liquidator. A compulsory liquidation is ordered by the court on a creditor’s petition, and the director has no say in either.
Is a CVA better than liquidation?
Only where the underlying business is viable and the problem is historic debt. A CVA keeps the company trading and the directors in place, but commits it to years of payments. Where the operation itself loses money, a CVA usually delays liquidation rather than avoiding it.