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A company is considered insolvent if it cannot pay its debts as and when they fall due. Broadly speaking, there are three main types of insolvency: administration, liquidation and Company Voluntary Arrangement (CVA).


Only the court, the insolvent company or a Qualifying Floating Charge Holder can place a company into administration. The primary aim of the process is either to rescue of the company, to achieve a better result for creditors in comparison to other insolvency methods, or to realise property. During the administration period, a company may continue to trade and/or have its assets sold. Monies are then paid to creditors according to their status – secured creditors are paid first, then preferential, unsecured and finally shareholders/members.

Where the sale of a company’s assets are agreed before the administration has commenced and completed almost immediately after the start of the administration, this is commonly known as a pre-pack.


The liquidation of a company can either be a voluntary or compulsory. Unlike administration, a creditor of the company can petition for the insolvent company to be wound up. During a liquidation, company assets are realised i.e. turned into cash, and distributed to creditors to satisfy their debts. As with administration, creditors are paid out according to their status.

A liquidator has substantial power to investigate the affairs of the company and is permitted to bring legal claims where necessary for the benefit of creditors. Where a company has been wound up, the Liquidator has a duty to review the director’s conduct and is required to submit a report to the Insolvency Service of its findings.

Company Voluntary Arrangement (CVA)

An insolvent company can use a CVA to agree a payment plan with creditors over a fixed period of time. This method is often used when a company is able to trade out of its debt, for example because a large contract is due for payment in the near future. It is still necessary to use an insolvency practitioner in this process as a formal proposal will need to be drawn up.

A meeting of creditors is generally called and for the CVA to be approved, 75% of creditors in value must agree to its terms. If a CVA is accepted, it will bind all creditors, even those did not attend the meeting or who voted against it.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.