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Choosing between your business recovery options – Administration, Liquidation or a CVA?

Administration – this is where an insolvency practitioner is appointed to look after a company that has become insolvent and is unable to pay its way.  Administration is a very effective rescue tool and is used where it is evident that the outcome for creditors (those that are owed money by the company) will be better off than if the company entered into liquidation directly.  One of the ways a company may exit administration is a Liquidation, another is by way of a Company Voluntary Arrangement.

Liquidation – This is where a company has reached the point where it is insolvent and there is no alternative but to wind it up voluntarily.  For example, where the deficit to creditors is too great to deal with by alternative means such as a Company Voluntary Arrangement.  A liquidation need not be the end of the road though, in fact if there is still a viable core business it is possible for the business and assets to be sold by the liquidator and the purchaser effectively then starts from scratch with a clean sheet.

Company Voluntary Arrangement (CVA) – this is one of the most useful tools an Insolvency Practitioner can utilise and is where a company puts a proposal to its creditors offering payment in full and final settlement, normally over a period of time.  The proposal will outline the reasons why the company has found itself in trouble and more importantly the steps that have been taken to remedy the situation going forward.  The proposal includes a suitable payment plan, tailored such that the company is able to meet it and creditors consider it acceptable to them.  The key thing with a CVA is that the company continues to be run by it’s officers rather than a 3rd party administrator/liquidator.