An informal arrangement with creditors is a private, non-binding agreement between a company and the people it owes money to, setting out reduced or rescheduled payments outside any formal insolvency process. It can buy a struggling business breathing space without the cost, publicity or court involvement of a Company Voluntary Arrangement (CVA). But because it carries no legal force, it only works while every creditor keeps playing along.
Many directors reach for this option first, before considering a formal process, because it feels quicker and less daunting. That instinct is understandable, but an informal creditor agreement has real limits that directors need to understand before relying on one to see the company through.
What an informal arrangement with creditors is
An informal arrangement with creditors is simply a negotiated understanding — usually reached by phone, email or letter — where one or more creditors agree to accept less than they're owed, spread payments over a longer period, or pause enforcement action while the company recovers.
There's no set legal format. It might cover:
- A single supplier agreeing a longer payment plan for an overdue invoice.
- Several trade creditors accepting reduced monthly instalments.
- HMRC agreeing a Time to Pay arrangement for VAT, PAYE or corporation tax.
- A landlord agreeing rent deferral or a reduced schedule.
Because it's a private contract (or set of contracts) rather than a court-sanctioned procedure, it sits entirely outside the formal Company Voluntary Arrangement provisions of the Insolvency Act 1986. Nothing needs to be filed at Companies House, and there's no need to appoint an insolvency practitioner to run it.
How it differs from a formal CVA
A Company Voluntary Arrangement is a formal procedure under Part I of the Insolvency Act 1986, proposed with the help of a licensed insolvency practitioner and voted on by creditors. Once approved by the required majority, it binds all unsecured creditors — even those who voted against it or didn't respond.
An informal arrangement has none of that legal weight. Key differences include:
- No binding effect — a CVA binds dissenting creditors; an informal deal only binds those who actually agreed to it.
- No moratorium — a CVA proposal can trigger a legal pause on certain creditor action; an informal arrangement gives no such protection.
- No independent oversight — a CVA is supervised by an insolvency practitioner; an informal arrangement relies entirely on trust between the parties.
- No court or Gazette process — a CVA generates formal notices; an informal arrangement is private and unregulated.
This is the crucial trade-off: an informal deal is faster and cheaper to set up, but it offers the company far less protection if things don't go to plan.
When creditors will and will not accept an informal deal
Creditors weigh up an informal debt arrangement against their other options — chasing payment through the courts, issuing a statutory demand, or petitioning to wind the company up. They're generally more willing to agree informally when:
- The company has a credible, specific proposal rather than a vague promise to "sort it out".
- The creditor values the ongoing trading relationship and wants to keep the customer.
- The amount owed is relatively small, or recovery through legal action looks slow and costly.
- The director has a track record of open, honest communication rather than going silent.
They're far less likely to agree — and more likely to escalate — when the debt is large, when HMRC is already threatening formal action, or when previous promises have been broken. Some creditors, particularly HMRC on repeat Time to Pay requests, may simply decline to negotiate further and proceed straight to formal recovery.
Building a proposal creditors can trust
An informal arrangement stands the best chance of holding together when it's built on realistic numbers, not hope. Before approaching creditors, it helps to prepare:
- A clear statement of what's owed to each creditor and by when.
- A cash flow forecast showing what the company can genuinely afford to pay, and from what date.
- A short explanation of why the difficulty arose and what has changed to make repayment realistic.
- A single point of contact so creditors aren't chasing different people for updates.
Consistency matters more than generosity. A modest, dependable monthly payment that's always made on time will do more to preserve goodwill than an ambitious offer that's later missed. Directors should also keep a written record of every agreement reached, even if it's only confirmed by email — this becomes important evidence of intent if a dispute arises later.
The risk that any single creditor can still act
This is the central weakness of an informal debt arrangement: agreement with nine creditors out of ten offers no protection from the tenth. Because nothing binds a non-participating or dissenting creditor, any one of them can, at any time:
- Issue a statutory demand for payment.
- Start court proceedings to recover the debt.
- Present a winding-up petition if the company appears unable to pay its debts.
A winding-up petition, once presented, is generally advertised in The Gazette after service — a step that can freeze the company's bank account, since banks routinely monitor Gazette notices. This can happen even while the company is honouring an informal arrangement with every other creditor. The larger and more numerous the creditor base, the greater this risk becomes.
Directors' duties while running an informal arrangement
Negotiating informally doesn't pause a director's legal responsibilities. Throughout the process, directors must continue to:
- Act in the company's best interests, and increasingly in creditors' interests as insolvency risk grows.
- Avoid taking on new credit or contracts the company has no realistic prospect of honouring.
- Keep accurate financial records and monitor solvency closely.
- Avoid favouring one creditor over others in a way that could later be challenged as a preference.
If the company is trading while insolvent — unable to pay debts as they fall due, or with liabilities exceeding assets — continuing to rack up further debt can expose directors to personal risk. An informal arrangement is not a shield against wrongful trading concerns; it simply changes how creditors are being managed.
When to switch to a formal process instead
An informal arrangement tends to work best as a short-term bridge for a company with a small number of creditors and a genuinely temporary cash flow problem. It's usually time to consider a formal alternative, such as a CVA, administration or, where recovery isn't realistic, liquidation, when:
- One or more creditors have already refused to negotiate or begun legal action.
- The creditor list is too large or fragmented for informal agreement to be practical.
- A winding-up petition has been threatened or presented.
- The underlying problem is structural, not temporary, and informal payment plans no longer make a dent.
Reviewing the wider set of rescue options at this stage, rather than persisting with an informal approach that's no longer holding, is often what protects both the business and the director. Our guide on Can I Save My Company? UK Director's Rescue Options sets out the full range of formal and informal routes available at this point.
Frequently asked questions
Is an informal arrangement with creditors legally binding?
Only on the creditors who actually agree to it, and only in the ordinary contractual sense. It doesn't bind creditors who refuse to take part, and it carries none of the court-backed protection of a formal CVA.
Can HMRC agree an informal arrangement?
Yes, through a Time to Pay arrangement, HMRC can agree instalment plans for tax debts. HMRC assesses each request on the company's compliance history and ability to pay, and may decline further arrangements after repeated missed payments.
What happens if a creditor breaks ranks during an informal deal?
They're free to pursue formal recovery, including a statutory demand or winding-up petition, even if every other creditor is sticking to the informal terms. This is the main risk directors should weigh before relying on this route.
How is an informal debt arrangement company approach different from a CVA?
An informal approach is a private negotiation with no legal force and no independent oversight. A CVA is a formal procedure under the Insolvency Act 1986, supervised by a licensed insolvency practitioner, that binds all unsecured creditors once approved.
Do I need a solicitor or insolvency practitioner to negotiate informally?
It's not a legal requirement, but many directors find it useful to get independent guidance before approaching creditors, particularly once several creditors are involved or HMRC debt is significant.
This article is general information, not legal, financial or insolvency advice, and shouldn't be relied on as a substitute for advice on your company's specific circumstances.
If you're weighing up an informal approach against a formal process, Harbourfirst can introduce you to a regulated insolvency specialist to talk through the options — start an enquiry.