The difference between a CVA and liquidation comes down to one question: does your company still have a viable future? A company voluntary arrangement (CVA) lets a struggling but workable business keep trading while it repays creditors over time, whereas liquidation closes the company down and stops trading for good.
Both are formal insolvency procedures under the Insolvency Act 1986, and both need a regulated insolvency practitioner to run them. Beyond that, they serve very different purposes, and choosing between company voluntary arrangement or liquidation depends on whether your business can realistically be turned around.
This article sets out how each route works, what it means for you as a director, and how you might start to work out which one fits your company. It is general information, not a recommendation for your specific circumstances.
The fundamental question: is the business viable?
Before comparing process detail, the real decision sits behind both options: is there a workable business underneath the current cash flow problem?
A company that is fundamentally sound but held back by one or two heavy costs, a bad contract, or a temporary trading dip is often a candidate for rescue. A company with no realistic route to profitability, or one that has lost its market, its contracts or its reason to continue, is usually better served by an orderly close.
- Signs a CVA might suit you: core trading is still profitable, cash flow is the main problem, and creditors would likely recover more if the company kept going.
- Signs liquidation might suit you: losses are structural, the market has moved on, or there is no realistic path back to profitability.
How a CVA lets you keep trading and repay over time
A CVA is a formal agreement between your company and its creditors, proposed with the help of an insolvency practitioner, to repay some or all of what is owed over an agreed period — typically three to five years. The company keeps trading throughout.
Creditors vote on the proposal, and if enough support it, it becomes binding on all unsecured creditors, including those who voted against it. This is one of the main appeals of a CVA alternative to liquidation: it gives breathing space without an immediate winding-up.
Directors stay in day-to-day control of the company, though an insolvency practitioner (the "supervisor") monitors the arrangement and reports to creditors on progress. Payments are usually made monthly, based on what the business can realistically afford.
How liquidation draws a line under the company
Liquidation ends the company's life. Assets are sold, employees are made redundant (with statutory entitlements dealt with by the process), and any funds raised are distributed to creditors in a set legal order. Once complete, the company is dissolved and removed from the Companies House register.
For an insolvent company where directors and creditors agree closure is the right outcome, this is usually done through a Creditors' Voluntary Liquidation (CVL). Where a creditor forces the issue through the courts, it becomes a compulsory liquidation instead.
There is no attempt to continue trading (beyond winding down orders already in progress) and no repayment plan — creditors simply receive whatever share of the company's remaining assets they are entitled to.
Impact on directors, staff and contracts
The practical effect on people involved differs sharply between the two routes.
- Directors: in a CVA, directors generally remain in post and keep running the business, subject to the supervisor's oversight. In liquidation, a liquidator takes control and director powers end.
- Staff: a CVA can preserve jobs if trading continues. Liquidation almost always means redundancies, though staff can usually claim certain entitlements from the government where the company cannot pay them.
- Contracts and suppliers: a CVA allows existing contracts to continue where suppliers agree, supporting ongoing operations. Liquidation typically ends contracts as trading stops.
Directors' conduct is reviewed in both processes, but the level of ongoing personal involvement is far higher in a CVA, since the business keeps operating under their management.
Cost, timeline and creditor approval compared
A CVA needs approval from creditors holding at least 75% (by value) of those who vote, and the proposal itself takes time to prepare properly — often four to eight weeks before the creditor meeting, then years to complete the repayment plan.
A CVL can move faster once directors and creditors agree to close the company, with the formal process typically completing within a few weeks of the resolution to wind up, though realising assets and finalising distributions can take longer.
Costs differ too. A CVA involves ongoing supervisor fees spread across the repayment period, funded from trading income. Liquidation costs are usually met from the sale of company assets before creditors are paid.
Credit, reputation and future trading
A CVA is a matter of public record, but because the company survives, it can rebuild trading relationships and credit standing over the life of the arrangement, particularly once payments are being made reliably.
Liquidation ends the company entirely, so there is no ongoing trading reputation to manage for that entity. Directors can usually set up a new company afterwards, though rules under the Insolvency Act 1986 restrict reusing a similar name in some circumstances, and conduct during the failed company is reviewed.
Neither route is inherently "worse" for a director's future prospects — the right choice depends on whether continuity of the business itself is realistic and desired.
CVA vs liquidation: how to tell which one your company qualifies for
There is no simple checklist that decides this for you, but a few practical questions tend to point in one direction or the other:
- Would creditors likely recover more from continued trading than from a sale of assets?
- Is there a credible, costed plan for returning the business to sustainable profit?
- Do you, as a director, have the appetite and capacity to run the business under a formal arrangement for several years?
- Are key customers, suppliers and staff likely to stay if the company proposes a CVA?
If the answers point towards a workable future, a CVA is worth exploring with a regulated practitioner. If not, an orderly liquidation may protect creditors, staff and you as a director more effectively than continuing to trade. For a broader view of the full range of routes available, see our guide to company insolvency options.
Frequently asked questions
Can a CVA fail and lead to liquidation anyway?
Yes. If the company cannot keep up with agreed payments or trading conditions worsen, creditors or the supervisor can bring the CVA to an end, and the company may then move into liquidation.
Which option is generally better for creditors?
It depends on the numbers. Creditors usually favour whichever route returns more money — sometimes that is a CVA funded by ongoing trading, sometimes it is a faster liquidation and asset sale. There is no universal answer.
Do I need a licensed insolvency practitioner for either route?
Yes. Both a CVA and a liquidation must be handled by a licensed insolvency practitioner, who prepares proposals, reports to creditors and (in a CVA) supervises the arrangement afterwards.
Can a small company use a CVA, or is it only for larger businesses?
CVAs are used by companies of all sizes, though the cost and administrative effort involved mean it usually needs a certain level of ongoing trading income to be worthwhile.
What happens to a director's personal finances in each route?
In most cases, being a director of a company that enters a CVA or liquidation does not make you personally liable for company debts, unless you have given personal guarantees or your conduct is found to be improper.
This article is general information, not legal, financial or insolvency advice, and does not cover every circumstance a company may face. If you would like to talk through your company's position, Harbourfirst can introduce you to a regulated insolvency specialist — start an enquiry.