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Administration or Company Voluntary Arrangement CVA

Written by Keith Steven Managing Director 23 September 2020

Administration or Company Voluntary Arrangement CVA

"Administration versus CVA? What's best for our company"?

Many people say to us "we have lots of problems and so we have talked to an insolvency practitioner (IP) and he has stated we must go down the Admin path or we face huge risks". Often this is simply bullying you into a very expensive process that makes them lots of fees!

Let's look at an ACTUAL EXAMPLE of a CVA versus Administration that was prepared for one of our clients

CVA versus Administration Comparison

CVA Approach for "ABC Ltd".


Administration Approach: (plus or minus pre-pack), for "ABC Ltd".


Control directors remain in control. They are helped by KSA. Obviously some directors do not want such close involvement.


The Administrator is in control. He decides if company is sold, liquidated or put into CVA. Directors have no control or input.


Breathing Space. Time to deal with the potential loss of confidence of any suppliers. Allow detailed analysis of the business requirements, production of marketing and business plan.


Breathing Space to allow restructure, sale or closure. Company can propose an arrangement if management and finance available.


Creditors receive dividends over time, they will be happy to receive that and KEEP a customer.


In pre-pack creditors receive NO dividend but may keep customer if they supply newco. If Admin followed by CVA they receive dividend.


The fees are not insubstantial for a proposal. They have to be paid out of cashflow. However, see below, cashflow is much improved by the process. Effectively the tax man pays for the deal.


Administration fees would be 5-10 times higher than CVA. Administrator controls the cash and takes his fees as he needs them (subject to later ratification from creditors).

Lawyers must be involved and they cost!


Leverage over £100,000 of tax debts into the arrangement. By not paying VAT or PAYE until the proposal is approved! However, HMRC will not be happy if it takes too long and may not approve it as a result!


Administrator MUST pay tax and VAT during Admin period. If pre-pack used then the Newco must also pay tax and VAT from the outset. NO tax leverage.


The overdrawn directors current account can be paid back over 6 months under HMRC standard modifications 


If not cleared before any Administration directors are required to personally repay the loan.


Time defined process fixed date of creditors meeting means crystallising of position. KSA talks to creditors, removes pressure from directors.


Equity value of the business written off. (Unless CVA proposed after Administration). Loans written off.

You would have to buy back the business if pre-pack.


Flexible plan under the CVA, we would forecast minimal monthly contributions to the creditors as profits will be low in year 1. Profit related ratchet kicks in if the business exceeds profit forecast.


All invoices, purchase orders, faxes, emails and letters will have to state the company is in Administration. This would severely damage marketing and sales.


Protects the company from aggressive action by creditors. Exclude critical creditors but likely that company will have to pay upfront (pro-forma) for new services/ supplies.


ALL CREDITORS lose their money, no exceptions. Newco would have to pay upfront (pro-forma) for services/supplies.


CVA Approach.


Administration Approach: (plus or minus pre-pack).


The company can utilise current work in progress to turn into cash. Collect out WIP & debtors. Both over time and with no reduction in asset value.


If not a pre-pack the business will be advertised for sale as a matter of course. Could be several interested parties who will need to be shown around and sales memorandum prepared. Debtors harder to collect.


Finance director involved going forward to help structure the financial reporting of the business, attract investment, adherence to plan and building the final business plan.


If a trading Administration, the directors can be instantly removed without recompense under s13 Insolvency Act 1986. Administrator can appoint directors or managers.



No investigation into directors conduct.


Investigation into the conduct of the officers in the 3 years up to the terminal insolvency of the company.


Considering the advantages and disadvantages of the two options, our strongly held view is that the model is the most effective route forward. The bullet points of the suggested strategy are:

  • Propose a deal in 4-8 weeks, use the period to build an outlined plan and work out all requirements.
  • Buy breathing space, remove freneticism, allows controlled restructure. Get you focused on your jobs not firefighting and fighting the Tax man.
  • KSA provides client services management to help you get caught up with company accounting issues. (ALWAYS OPTIONAL).
  • Recover control and refocus the director on the company.
  • Get proposal approved help restructuring and attract new profitable business.
  • Save a viable business.
  • Avoid the possibly huge meltdown of Administration followed by pre-pack/liquidation will lead to.

Categories: CVA, What is a CVA or Company voluntary arrangement?, What is administration

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