Options for a company in financial difficulty

Work out where the company stands

A company is insolvent if it cannot pay its debts as they fall due, or if its liabilities, including contingent and prospective liabilities, are greater than the value of its assets. Being insolvent does not always mean the company must stop trading, but it changes what the directors must do, because they must then give proper weight to the interests of the company's creditors. Our guide to directors' duties in financial difficulty explains what that involves.

Before choosing a route, the board needs an accurate picture of the company's position. That means current management accounts, a cash-flow forecast for the coming months, a list of creditors showing who is owed what and which debts are overdue or disputed, and details of any security. Check the register at Companies House for charges over the company's assets, and establish whether any director has personally guaranteed the company's borrowing, lease or supplier accounts, because guarantees affect how the directors view each option. Above all, work out whether there is a viable business underneath the debt. A business that makes a profit on its current costs but cannot service its historic debts may be rescued. A business that loses money every month needs changes to how it trades, and restructuring its debts will not be enough on its own.

Informal options: negotiation, HMRC payment plans and refinancing

Where the problem is a temporary shortage of cash, an informal approach may be enough. Suppliers and landlords will sometimes agree extended terms or a payment plan if they are approached early with realistic proposals. HMRC may agree a payment plan for overdue tax, and it will check whether the plan is affordable; if a plan cannot be agreed, it will ask for the full amount. New money from the existing owners or an investor, asset-based lending or invoice finance can bridge a gap, and selling surplus assets at market value can raise cash.

Informal arrangements are flexible, private and relatively cheap. Their limitation is that they bind only the creditors who agree to them. A creditor who refuses can still sue, serve a statutory demand or petition to wind the company up, and if an informal arrangement is not holding, one of the formal procedures below may be needed to protect the business.

A moratorium: time to plan a rescue

Part A1 of the Insolvency Act 1986, added by the Corporate Insolvency and Governance Act 2020, allows an eligible company to obtain a moratorium that protects it from creditors while a rescue is worked out. The directors obtain it by filing documents at court, including their statement that the company is, or is likely to become, unable to pay its debts, and a statement from a licensed insolvency practitioner, who acts as the monitor, that a moratorium is likely to result in the rescue of the company as a going concern. A company that already faces an outstanding winding-up petition cannot use this simple filing route.

The moratorium initially lasts 20 business days. After the first 15 business days, the directors can extend it by a further 20 business days without creditor consent if they file the required statements, and it can be extended further with creditor consent or by the court. While it lasts, creditors generally cannot enforce security, repossess goods under hire purchase, forfeit a lease by peaceable re-entry, or start or continue legal proceedings without the court's permission, and, apart from limited exceptions such as public interest petitions, only the directors can present a winding-up petition. The company has a payment holiday for most debts that fell due before the moratorium, but it must keep paying the monitor, rent for the period of the moratorium, wages and salary, redundancy payments, goods and services supplied during the moratorium, and debts under financial services contracts such as loans.

The purpose of the moratorium is to give the company time to agree a company voluntary arrangement, a restructuring plan, new funding or a sale. The monitor must bring it to an end if a rescue of the company as a going concern stops being likely, or if the company cannot pay the debts it must keep paying during the moratorium.

Company voluntary arrangements

A company voluntary arrangement, or CVA, is a binding agreement between the company and its creditors, usually to pay part of what the unsecured creditors are owed over an agreed period while the company keeps trading and the directors stay in control. The directors put forward a proposal with the help of a licensed insolvency practitioner, who acts as the nominee and then supervises the arrangement.

The creditors vote on the proposal, weighted by the value of their debts. It is approved if at least 75% by value of the creditors who respond vote in favour, unless more than half of the total value of the creditors who are not connected with the company vote against it. The shareholders also vote, but if their decision differs from the creditors', the creditors' decision generally takes effect, subject to a shareholder's right to apply to the court. Once approved, the arrangement binds every creditor who was entitled to vote, including those who did not vote and those who would have been entitled to vote had they received notice.

A CVA cannot affect a secured creditor's right to enforce its security without that creditor's agreement, and it cannot change the priority of preferential creditors without their agreement. That includes HMRC, which since 1 December 2020 has been a secondary preferential creditor for VAT and for taxes the company deducts from others: PAYE income tax, employees' National Insurance contributions, student loan deductions and construction industry scheme deductions. A creditor, a shareholder or the nominee can apply to the court to challenge an approved CVA on the grounds that it unfairly prejudices their interests or that there was a material irregularity, generally within 28 days of the result being reported to the court.

Restructuring plans

A restructuring plan under Part 26A of the Companies Act 2006 is available where a company has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern, and a compromise or arrangement with its creditors or shareholders is proposed to eliminate, reduce, prevent or mitigate those difficulties. Creditors and shareholders vote in classes at meetings ordered by the court, and a class approves the plan if 75% in value of those voting agree.

The court then decides whether to sanction the plan. It can do so even if one or more classes vote against it, provided no member of a dissenting class would be worse off than in the relevant alternative, which is whatever the court considers most likely to happen if the plan is not sanctioned, and provided the plan has been approved by at least one class that would receive a payment, or have a genuine economic interest in the company, in that alternative. The court still has a discretion to refuse. Because of the court hearings, class meetings and evidence involved, a restructuring plan usually costs more than a CVA.

Administration and pre-pack sales

Administration puts the company under the control of an administrator, who must be qualified to act as an insolvency practitioner and must act in the interests of the company's creditors as a whole. The administrator's first objective is to rescue the company as a going concern. If that is not reasonably practicable, or a better result for the creditors as a whole can be achieved another way, the objective is a better result for the creditors than an immediate winding up would produce. Only if neither is reasonably practicable can the administrator simply realise property to make a distribution to secured or preferential creditors.

An administrator can be appointed by the court, by the holder of a qualifying floating charge, or out of court by the company or its directors. Once the company is in administration, a moratorium applies: the company generally cannot be wound up, and security cannot be enforced, hire purchase goods repossessed, a lease forfeited by peaceable re-entry, or legal proceedings started or continued, without the administrator's consent or the court's permission. An administration ends automatically after one year unless the court extends it or the creditors consent to an extension of up to one further year.

Administration is often used to sell the business and assets, sometimes immediately after the appointment in what is known as a pre-pack sale. Where the buyer is connected with the company, such as a new company owned by the existing directors, and all or a substantial part of the business or assets is sold within eight weeks of the company entering administration, the administrator must first obtain either the creditors' approval or a qualifying report from an independent evaluator. The administrator will also report on the conduct of the directors, as a liquidator would.

Liquidation and closing a company

If the business cannot be rescued, liquidation brings the company to an end. The liquidator collects and sells the assets, investigates the company's affairs and the directors' conduct, pays the costs of the liquidation and distributes what is left to the creditors in the order the law sets, after which the company is dissolved.

There are three types. In a creditors' voluntary liquidation, the shareholders pass a special resolution to wind up the company, the directors send the creditors a statement of the company's affairs within seven days, and the creditors can nominate the liquidator, who must be a licensed insolvency practitioner. It allows the directors to deal with an insolvent company before a creditor forces the issue. A compulsory liquidation follows a winding-up order made by the court, usually on a creditor's petition, and the Official Receiver becomes the liquidator unless and until someone else is appointed. A members' voluntary liquidation is only for solvent companies: the directors must make a statutory declaration that the company will be able to pay its debts in full, with interest, within a stated period of no more than twelve months, and making the declaration without reasonable grounds is a criminal offence.

Some directors consider applying to Companies House to strike the company off the register instead. That is not a suitable way to close a company with unpaid creditors. The application cannot be made if the company has traded or changed its name in the previous three months, a copy must be given to every creditor within seven days, and anyone can show cause why the company should not be struck off. After dissolution, the liability of the directors continues and the court can still wind the company up, and since the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 the directors of a dissolved company can be investigated and disqualified.

How the options compare

Option	Who is in control	Protection from creditors	Typical purpose
Informal arrangement	Directors	Only from creditors who agree	Time to pay, refinancing or a sale
Part A1 moratorium	Directors, overseen by a monitor	Most creditor action restricted for an initial 20 business days	Time to agree a rescue
Company voluntary arrangement	Directors, with a supervisor	Binds creditors entitled to vote; secured and preferential creditors keep their rights unless they agree	Paying creditors over time while trading
Restructuring plan	Directors	Binds each class once sanctioned by the court, including dissenting classes if the conditions are met	Restructuring debt, including secured debt
Administration	Administrator	Statutory moratorium while the company is in administration	Rescue, a sale of the business, or a better return than liquidation
Creditors' voluntary liquidation	Liquidator	Company's affairs are wound up and it is dissolved	Orderly closure of an insolvent company
Compulsory liquidation	Official Receiver or liquidator	Proceedings against the company need the court's permission after the order	Closure on a court order, usually after a creditor's petition

Why timing matters and what to do first

Every rescue option depends on the company still having something worth rescuing, such as a profitable core business, customers, staff or assets a buyer wants, and enough cash to fund the process. Those things are lost as creditors press for payment, suppliers stop supplying and staff leave. Directors who act early have a choice between the options described here. Directors who wait until a winding-up petition has been advertised and the bank account is frozen may find that liquidation is the only route left, and that their own conduct in the final months is examined closely.

If your company is struggling, the first steps are to prepare up-to-date figures, hold a board meeting to record the position, avoid taking on credit the company may not be able to repay, and take advice from a licensed insolvency practitioner. Directors should also consider separate advice on their own position, particularly if they have given personal guarantees or have an overdrawn loan account; our guide to when directors become personally liable explains the risks. We advise directors and shareholders on these decisions and work alongside insolvency practitioners and accountants, and we agree the scope and cost of our work with you in writing before we start.

Frequently asked questions

What is the difference between a CVA and administration?

A company voluntary arrangement is a binding deal with the company's creditors, usually to pay part of what the unsecured creditors are owed over time, while the directors stay in control and the company keeps trading. Administration puts an administrator in control, with a statutory moratorium protecting the company from creditor action, while they try to rescue the company or achieve a better result for creditors than a liquidation, often through a sale of the business. A CVA needs the support of at least 75% by value of the creditors who respond.

How long does a Part A1 moratorium last?

A moratorium under Part A1 of the Insolvency Act 1986 initially lasts 20 business days, starting on the business day after it comes into force. After the first 15 business days, the directors can extend it by a further 20 business days without creditor consent if they file the required statements, and it can be extended further with creditor consent or by the court. It ends early if the company enters another insolvency procedure, or if the monitor or the court brings it to an end.

Can HMRC give my company more time to pay its tax?

Yes, HMRC may agree a payment plan that lets the company pay overdue tax in instalments. To set one up, the company needs its tax reference, bank details and information about its income and spending, and HMRC will check whether the plan is affordable. If a plan cannot be agreed, HMRC will ask for the full amount. Contact HMRC as soon as you know the company cannot pay, and keep filing the company's returns on time.

Can I close my company by striking it off if it has debts?

Striking off is not a suitable way to close a company that owes money. A copy of the application must be given to every creditor within seven days, creditors can object, and the application cannot be made if the company has traded in the previous three months. Even after dissolution the directors' liabilities continue and the court can still wind the company up, and the Insolvency Service can investigate directors of dissolved companies. An insolvent company should normally be closed through liquidation.

What is a pre-pack administration?

A pre-pack is a sale of a company's business or assets that is arranged before an administrator is appointed and completed on or shortly after the appointment. If the buyer is connected with the company, such as a company owned by the existing directors, and the sale takes place within eight weeks of the company entering administration, the administrator must first obtain the creditors' approval or a qualifying report from an independent evaluator. The administrator must still act in the interests of the creditors as a whole.

What happens to my personal guarantee if the company goes into liquidation?

A personal guarantee is not cancelled because the company enters liquidation or administration. Depending on its terms, the lender, landlord or supplier can call on the guarantee and pursue you personally for the amount it covers. If you have given guarantees, take advice before the company takes a formal step, because your exposure may affect which option makes most sense and whether there is room to negotiate with the creditor first.

Sources & further reading

• The Insolvency Service — Director information hub: insolvency
• legislation.gov.uk — Insolvency Act 1986, section A9: end of the moratorium
• legislation.gov.uk — Insolvency (England and Wales) Rules 2016, rule 15.34: requisite majorities
• legislation.gov.uk — Companies Act 2006, section 901G: sanction where one or more classes dissent
• legislation.gov.uk — Insolvency Act 1986, Schedule B1, paragraph 3: purpose of administration
• legislation.gov.uk — The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021, regulation 3
• legislation.gov.uk — Finance Act 2020, section 98: HMRC debts, priority on insolvency
• GOV.UK — If you cannot pay your tax bill on time

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. AD Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).