Liquidation vs Administration vs CVA – Which is Right for Your Business?
By Keywood Group
Facing financial difficulties can be overwhelming for any business director. Terms like liquidation, administration, and Company Voluntary Arrangements (CVAs) can sound confusing, yet choosing the right route can mean the difference between business survival and closure.
In this article, we break down the key insolvency options available in the UK, helping you understand your choices and what each path entails.
- What Is Liquidation?
Liquidation is the formal process of closing a business and selling off its assets to pay creditors. It is usually considered the last resort when a company cannot pay its debts as they fall due.
Key points:
- Can be voluntary (initiated by directors/shareholders) or compulsory (ordered by a court)
- Assets are sold and proceeds distributed to creditors in a statutory order
- Directors lose control once a liquidator is appointed
- Once complete, the company ceases to exist
When to consider liquidation:
- Business is no longer viable
- No realistic prospect of restructuring or refinancing
- Creditors are pushing for payment
- What Is Administration?
Administration is designed to rescue a company, or at least achieve a better outcome for creditors than liquidation. It allows the business to continue operating while a licensed administrator assesses options.
Key points:
- Provides legal protection from creditors (a “moratorium”)
- Administrator takes control and can restructure, sell, or wind down the business
- Goal: rescue the company or maximise returns for creditors
When to consider administration:
- Business has a viable core but needs breathing space
- There is potential to sell or restructure assets
- Directors want to explore rescue options before liquidation
- What Is a Company Voluntary Arrangement (CVA)?
A CVA is a formal agreement between a company and its creditors to repay debts over time. Unlike liquidation or administration, the company remains in control of its operations while following the agreed repayment plan.
Key points:
- Typically lasts 3–5 years
- Requires approval from 75% of creditors by value
- Can include compromises on rent, leases, or supplier contracts
- Offers directors a chance to continue trading while addressing debt
When to consider a CVA:
- Business is fundamentally viable but needs time to manage debt
- Creditors are willing to negotiate a repayment plan
- Directors want to retain operational control
- Pre-Pack Administration Explained
A pre-pack involves arranging the sale of a business or its assets before the company formally enters administration. It is designed to preserve value, jobs, and ongoing trading while dealing with debt efficiently.
Key points:
- Sale is executed immediately after administration starts
- Often used to sell to existing management or new investors
- Can be controversial if creditors feel excluded, so transparency is critical
- Choosing the Right Path
Selecting the correct insolvency solution depends on:
- Cash flow position: Can short-term borrowing or restructuring help?
- Business viability: Is there a sustainable core business?
- Creditor support: Are landlords, suppliers, or lenders cooperative?
- Director objectives: Is saving the business or preserving personal risk the priority?
Keywood Group Tip: Every company’s circumstances are unique. Seeking early professional advice ensures you pick the right solution before cash runs out or legal action escalates.
Final Thoughts
Understanding the differences between liquidation, administration, and CVAs is essential for any director facing financial difficulty. Acting early not only increases the chances of rescue but also protects directors from potential personal liability.
At Keywood Group, we specialise in guiding directors through these complex decisions with practical, expert advice. If your business is experiencing financial pressure, contact Keywood Group today for a confidential consultation.
