Difference Between Company Voluntary Arrangements and Administration

If your company is struggling with debts but remains viable and has the potential to pull through, you may well be giving serious consideration to two possible routes out of insolvency: a company voluntary arrangement and administration. If so, you’ll want to familiarise yourself with the differences between these legal processes so you can choose the most appropriate debt solution for your business.

On the surface, a company voluntary arrangement and administration seem very similar. Both processes are typically initiated by directors. They both require ongoing specialist support from a licensed UK insolvency practitioner (IP). And although neither guarantees survival, they can both rescue companies that have found themselves unable to fulfil considerable financial obligations to creditors within the expected timeframes.

But if you look in more detail at a company voluntary arrangement (CVA) versus administration, you’ll find these processes differ in significant ways, which is why we’ll be comparing and contrasting them in this article. Naturally, we’ll talk about them in general terms below, but for tailored advice about rescuing your company, you can call our insolvency practitioners on 0800 254 5122.

The Differences between Administration and CVA

A company voluntary arrangement is a three-to-five-year agreement between a company and its unsecured creditors that outlines a monthly debt repayment plan based on expected profits; some restructuring will also be required. By contrast, administration is a shorter, more drastic, more costly procedure – it takes less than 12 months and normally focuses on significant restructuring and sale of assets, with the aim of improving cash flow and repaying all creditors.

When exploring the subject of a company voluntary arrangement (CVA) versus administration, it’s vital to consider who’s in control. With a CVA, the directors retain control of the company and the insolvency practitioner supervises the process. Administration is different: the IP, acting as administrator, is in charge. Directors help to shape company voluntary arrangements but don’t have any real influence over administrations.

A business with a CVA needs to continue trading to make the agreed repayments. A business in administration may continue trading if a return to profitability is likely, with the administrator working tirelessly to try and rescue it. But if it doesn’t generate reasonable funds for creditors, it could be sold (to an internal or external buyer) or closed down instead.

Another important point in relation to a company voluntary arrangement (CVA) versus administration is that only directors whose companies are in administration are subject to conduct investigations. However, administration offers companies greater legal protection than a CVA, as it prevents any creditor taking legal action, not just unsecured creditors.

A company voluntary arrangement and administration also differ in terms of privacy. When a company enters administration, the news must be made public. That’s not the case with a CVA, so there’s less chance of negative publicity or losing suppliers and customers.

The final key difference between a company voluntary arrangement and administration concerns the debts themselves. At the end of an administration, some debt may remain; indeed, an administrator may set up a CVA at that point to clear it. But when a CVA is complete, the company will have repaid its unsecured debts.

Administration vs. CVA: Which Is Better?

As is evident from the points we’ve made about a company voluntary arrangement (CVA) versus administration, the latter is swifter and carries more risk – it’s like a short, sharp shock – but also offers more legal protection. Administration is therefore likely to be the better option for a large, well-established company that’s in extreme debt and under extreme pressure from creditors, but boasts plenty of valuable assets, a strong identity and loyal suppliers and customers. The directors will recognise it’s time to put the business’s future in the hands of an external party with insolvency expertise (the administrator).

Company voluntary arrangements are often better for a wide range of companies that are in serious but less extreme situations. The firms may not have many valuable assets, but their creditors will be willing to negotiate and cash flow forecasts will indicate they’ll be able to make reasonable monthly repayments for a prolonged period. The directors will be hands on and determined to steer their ‘ship’ back to success under an IP’s guidance.

Experts in Company Voluntary Arrangements and Administration

When you’re choosing between a company voluntary arrangement and administration, remember you’re not alone. Expert advice from our insolvency practitioners is just a call or click away. Plus, we can manage the whole process for you, whether a CVA or administration is better for your business.

Find out how your company can overcome insolvency – contact Irwin Insolvency today.