For many insolvent companies, a CVA is the ideal way to stop creditor pressure and give your company the opportunity to pay its creditors as it works towards financial recovery.
Despite the advantages of a CVA, some companies can experience better results by using a different insolvency solution. There are several insolvency solutions for UK companies, each offering a different range of advantages and disadvantages.
From administration to creditors voluntary liquidation, all of the alternatives to a CVA have advantages and disadvantages. We’ve listed some of the most frequently used alternatives to a CVA below, along with a brief description of each option.
Entering into administration shields your company against legal threats from its creditors and gives your company the opportunity to restructure and facilitate a financial recovery.
Throughout the administration process, a third party administrator controls your company and makes decisions aimed at repaying creditors and, if possible, helping your company recover and continue trading profitably.
Although administration is a common alternative to a CVA, entering administration doesn’t prevent a company from proposing a CVA. During administration, the third party administrator might propose a CVA to generate funds and pay creditors.
Unlike entering into a CVA, entering into administration is a public process. If your company enters into administration, it will be listed in The Gazette and a notice of administration will be included in its invoices.
Learn more about administration
When your company enters into administration, its assets may be sold off in order to raise funds for creditors. Pre-pack administration is an insolvency solution that allows your company to sell some of its assets in a pre-packaged sale.
These assets can be sold to a third party company or, more commonly, to a new company owned by the existing company’s directors. This allows a business to seamlessly continue operating with a new company structure.
Since pre-pack administration involves valuing company assets prior to sale, it’s a fast solution. With pre-pack administration, a business can continue without staff, contracts and obligations that affected its finance prior to the administration.
In order to carry out a pre-pack administration sale, your company needs to show its creditors that it’s the optimal solution. It also needs to ensure it complies with the Transfer of Undertakings (Protection of Employment), or TUPE, regulations.
Learn more about pre-pack administration
Compulsory liquidation is a process that involves the closure of your company and the sale of its assets by a liquidator. Any creditor owed more than £750 can initiate compulsory liquidation against your company using a winding up petition.
In order to start the compulsory liquidation process, a creditor needs to have sent your company a statutory demand for payment. If your company ignores a formal letter demanding payment, it could face the threat of liquidation.
If your company is liquidated by a court, its assets will be sold and the company itself will cease to exist. If you broke the law, for example, by trading while your company was insolvent, you could face charges of wrongful trading.
By taking action after your company receives a formal payment demand, you can avoid the compulsory liquidation process using a different insolvency procedure.
Learn more about compulsory liquidation
Creditors Voluntary Liquidation
Creditors voluntary liquidation is a different form of company liquidation. Although the outcome is the same as compulsory liquidation – the company ceases to exist – a creditors voluntary liquidation is a less risky process for company directors.
In a compulsory liquidation, company directors are more likely to face wrongful or fraudulent trading charges. In creditors voluntary liquidation, a company’s director or directors appoint an insolvency practitioner to liquidate company assets.
This reduces the risk of criminal charges and gives company directors the help of an expert insolvency practitioner. During the liquidation process, the company’s assets will be sold and it will formally cease to exist.
Learn more about creditors voluntary liquidation
Members Voluntary Liquidation
A members voluntary liquidation is a different type of liquidation procedure that’s most commonly used by solvent companies. In an MVL, a company’s assets are sold and the proceeds are distributed between the company’s shareholders.
This process has numerous financial advantages for shareholders, including lower taxes on any cash taken out from the company. A members voluntary liquidation is not a solution for insolvent businesses under pressure from their creditors.
Learn more about members voluntary liquidation
Emergency Loans and Credit
If your company is struggling to pay its creditors and needs cash, an emergency loan or line of credit could be its best solution. If your company is viewed as safe, it might be able to access short-term credit to “bridge the gap” and pay creditors.
Emergency loans and credit are ideal for companies that have a sound business and strong overall financial health, but need short-term cash to make up for a customer default, unforeseen expense or other disruption to normal cash flow.
Companies with more serious structural issues can usually benefit more from other solutions, such as administration or a CVA.
Learn more about emergency loans and credit
If your company has limited access to cash but has significant accounts receivable, it may be able to raise cash using invoice factoring. Invoice factoring involves handing over control to your company’s sales ledger to a third-party invoicing company.
The invoicing company will manage your company’s invoices and collect payments from your company’s customers. Your company will be paid immediately a certain percentage (typically 80-90%) of the value of its invoices, creating cash flow.
Invoice factoring gives your company immediate cash flow, saving you from having to wait for 15, 30 or 60 days for payment from customers. This cash flow can often give your business the cash it needs to pay suppliers and other important creditors.
Learn more about invoice factoring
Get expert financial help
Are you unsure which option is best for your company? If your company is under pressure from creditors or is struggling to pay its bills, we’re here to provide the help you need.
Contact us to speak to an insolvency expert and learn more about the options that are available to your company. We’re here to help you make the right decision to protect your company and preserve its future.