News & Events

News & Events

Back To Articles

Insolvency – the clue’s in the name

2020 has been a year to remember for many reasons. One such reason has been the number of well-known and long established household brands that have fallen into insolvency.

Not all insolvencies are the same however, and one clue as to what that means for a business, can be found from the type of insolvency process affecting that business. The choice of insolvency procedure often dictates the future for that business but insolvency terms are sometimes shrouded in confusion to those unfamiliar with these procedures.

Here is a short glossary of key insolvency procedures using real life examples:

Company Voluntary Arrangement (CVA)

This is an insolvency process designed to allow a company to survive as a going concern by ring-fencing old debt whilst agreeing the terms upon which it can trade on. The CVA is a court approved legally binding agreement entered into between an insolvent company and its unsecured creditors where the company agrees to pay those creditors an agreed percentage amount of their outstanding debts payable over an agreed period of time.

The company puts together a document for its creditors explaining the problems it faces and the terms upon which it proposes to pay old debt and continue to trade. This is known as the ‘Proposal’. Creditors can suggest changes to the Proposal and these are known as ‘modifications’. If the Proposals are accepted (with or without modifications) then this becomes the ‘Arrangement’ which is binding on all creditors, whether they voted for it or not as long as a majority of unconnected creditors have approved it.

A CVA is therefore a deal between debtor company and creditors for the payment of money on agreed terms. A CVA can do much more than pay money however and can be used to restructure a business. For example by surrendering property leases, making redundancies, selling assets.

The appeal of a CVA is the flexibility that it allows a company to continue trading whilst ‘in CVA’ and under the control of its existing management.

The deal is supervised by a Licensed Insolvency Practitioner whose job is to act a bit like an umpire or referee to make sure each party complies with their obligations so that purpose of the CVA can be achieved. The supervisor also receives the company payments under the CVA (known as contributions) and makes the payments to creditors at agreed intervals (known as dividends).

The company has to maintain all payments to its creditors (old and new) and only after it successfully completes its CVA does it come ‘out of CVA’ and back to normal financial standing.

There have been a number of high profile CVAs recently. The Gusto and Alchemist chain of restaurants compromised old debts and gave up a number of premises back to the landlords for an agreed rate of compensation via their CVA and this allowed the chain to survive, albeit on a smaller scale to before.


Administration is an insolvency procedure designed to protect the business and assets of an company whilst the business is rescued, usually by finding a buyer for the business in whole or in part.

The company is protected from enforcement action whilst it is in administration in order to give it the best chance of being rescued.

The Company is placed into the hands of an insolvency practitioner (known as an administrator) whose primarily job is to try and rescue the business as a going concern.

The business of the insolvent company can be rescued by trading it whilst in administration and concurrently marketing it for sale (known as a ‘trading administration’) or it can already have found a buyer through discreet marketing and it is sold to the buyer on the same day as it goes into administration (known as a ‘pre-pack administration’). Whichever route is chosen, the business of the company is rescued by it being sold to a buyer.

When the sale completes, the old debts of the company remain with the old company and the business and assets of the company (sometimes including properties) are transferred to the buyer. It is usual that most employees of the old company also transfer to the buyer in administration.

Typically, this is where you might see a media headline talking about the business being ‘rescued’ and ‘jobs being saved’. The ‘rescue’ comes from the fact that the buyer will usually be in a better financial position to run the business than the old company and they will be better able to finance the business going forwards.

Recent high profile administrations include House of Fraser, Debenhams and Edinburgh Woollen Mill. In the case of House of Fraser, the business and assets of House of Fraser were sold to a new company controlled by Sports Direct and it is that new company which currently trades under the brand name of House of Fraser.

An administration usually ends by the old company being dissolved or going into liquidation. This normally happens months after the initial company going into administration and with far less media attention than when it went into administration.


Liquidation is the process by which the business and assets of a company are wound up with a view to business closure. This normally means property and assets being sold and the proceeds distributed to creditors and/or shareholders.

Insolvent liquidation can occur through the court (known as winding up proceedings) or by agreement with creditors (known as creditors voluntary liquidation).

Solvent liquidation occurs when a company is no longer needed and takes place by agreement of the company’s shareholders (known as members voluntary liquidation).

CVAs and administrations can end in creditors voluntary liquidation but these procedures are primarily designed to rescue businesses whereas liquidations are primarily designed for business winding up without first attempting to rescue the business.

We hope this brief explanation is helpful. If you require assistance with a business in financial difficulty then please do not hesitate to contact our team of specialist advisors who are here to help you. Talk to the team today by calling 01482 325242 or email

Contact Us

Let's keep in touch!

To receive regular updates such as newsletters, legal updates and invitations to upcoming events please fill in your details below.

I agree that Andrew Jackson Solicitors LLP will retain my details on its database, and may sometimes use the details in accordance with its Privacy Notice to send marketing materials to me.

    Type your search term above

    Please enter a search term above and we'll show you any matching pages.

    Call us

    Hull+44 (0)1482 325 242

    York+44 (0)1904 275 250

    Grimsby+44 (0)1472 267 770

    Scarborough+44 (0)1723 882 500

    We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on the Andrew Jackson Solicitors LLP website. However, you can change your cookie preferences at any time through your browser settings. Click here to view our cookies policy.