Administration Vs Company Voluntary Arrangement (CVA).

Administration Vs Company Voluntary Arrangement (CVA). Written by John A Waller, Consultant. Reviewed: June 29th, 2024.

What is the Administration of a Company?

Company administration is a legal process under the Insolvency Act whereby an Insolvency Practitioner is appointed Administrator to control a financially distressed company. The primary goal of this process is to restructure the business to make it profitable or, if that’s not feasible, to arrange for the sale of the business. This is done to preserve the business’s value and safeguard its employees’ jobs.

What is A Company Voluntary Arrangement (CVA)

Company Voluntary Arrangement (CVA) is a contractual agreement between a company and its creditors whereby the company proposes to repay what it can afford to satisfy the debt. These arrangements can be agreed upon through profits or a lump sum payment by selling a company-owned building, freeing up funds, or selling other company assets.

Insolvency Practitioners play a crucial role in the CVA process. They must undertake due diligence before creditors recommend approval of the CVA. While there is no defined format for a CVA, the contract terms require the approval of the company’s creditors.

CVAs can also be an exit route from administration, and administrators can propose one if appropriate.

Administration Goals – Administration Vs Company Voluntary Arrangement(CVA) 

A company administration is a formal insolvency procedure in which an insolvency practitioner acts as the company’s administrator, allowing it to recover while protecting it from creditor action.

Suppose the business is past the point of recovery. In that case, the administrator may sell it as a ‘going concern’ or close the company down.

An administration is advertised in the Gazette.

How is your business Impacted? 

Administration can change the goodwill of the customer base.

An administrator normally will not wish to trade, however, unless it creates a far greater return for creditors once the element of risk is offset.

Once an administrator is appointed, they have one year to resolve matters without making an extension application to the court. This can force customers away, as they may lose faith. Even if issues are resolved, relationships are often damaged beyond repair. 

Overall Management of the Business – (Administration Vs Company Voluntary Arrangement (CVA))

Administration Puts an Insolvency Practitioner(IP) in Control of the Business

Once the Insolvency Practitioner takes place, the administrator assumes operational and financial control, replacing the directors who remain in office. The administrator then will:

Company directors should note that their involvement in the administrator remains managed by the administrator.

Pre-Pack Administration when Debts are too considerable for a CVA

Should the debts be out of the scope of a CVA due to size and complexity? Then, there is a pre-pack sale (Pre-Pack Administration may be the answer). A pre-pack protects the company’s assets, existing contracts, clients, and inventory. However, employee rights and TUPE regulations require consideration in a pre-pack.

A pre-pack administration means the company ends. However, a new company is created. A Company Voluntary Arrangement differs in that the existing company carries on trading.

Trading Administration

During trading administration, an administrator typically takes control of the company while preparing it for sale. If the company is insolvent, it should still have enough assets and income to cover operating expenses while a buyer is sought. This type of administration not only helps the company maintain its presence in the market but also opens up opportunities for its future. In many instances, this type of administration can maintain a company’s position in the market.

Shut-Down Administration

When a company enters a shut-down administration, it ceases trading immediately. This action protects the company’s assets and initiates a moratorium automatically. The moratorium prevents legal actions against the business, providing a breathing space to assess the situation.

CVA Goals – (Administration Vs Company Voluntary Arrangement (CVA)

A CVA is a formal agreement with your creditors that means the existing company will continue to operate, maintaining the same bank, licenses and qualifications, team, offices, customers, etc.

Critical points of a CVA

  • Saves the business and pays creditors more than liquidation through a proposal agreement to repay creditors over time.
  • Essentially, directors maintain control and continue to trade during the CVA.
  • It is not advertised in the Gazette.

CVA’s provide time to recover

A company voluntary arrangement (CVA) allows business time to carry out the restructuring needed for a viable business. Many directors, however, use the opportunity to reduce the workforce and extract money from contracts with suppliers, reducing the load on the company’s cash flow.

CVA’S Allow Directors to Keep on Trading

A CVA allows the company’s directors to maintain trading and control of the company. When the CVA is approved, depending on the period the CVA runs for, it will steer matters moving forward. A CVA lets directors know precisely when the monthly repayments must be made. A CVA binds all creditors to the agreement’s terms, protecting the company from further action, even those who voted against it once it passed.

CVA’s enable continuity of the business.

Once approved, a CVA allows a company to continue trading with minimal effect on the day-to-day running of the business. The main bar of a CVA is the timely payment of the agreed monthly payment. The company retains any trading profits. It is unusual for former suppliers to continue trading with the business while in a CVA. However, be prepared for suppliers to carry out business initially pro forma. A further benefit of a CVA is maintaining important accreditation that is often lost in an administration.

Finally, many contracts cease in administration, but this is not usually true in a CVA. So, understand what a Company Voluntary Arrangement (CVA) is.

Investigations into Directors’ Conduct

Administration includes Investigation of Directors Conduct.

The Administrators must investigate the directors’ previous conduct, note how they operated the business, and report its finances.

CVA’s Require No Directors Investigations

There are no investigations whatsoever into directors’ conduct.

Directors should understand what is a director conduct report.

HMRC Tax Liabilities

CVA Can Offset Tax Liabilities

Suppose a company entering a CVA has accrued tax losses; these can be carried forward to offset liabilities due to future profits.


Once a company enters administration, a new tax period commences. However, this causes any tax losses retained to be lost.

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