CVL vs Administration: What’s the Difference?

A Creditors’ Voluntary Liquidation is a formal insolvency process used where a company cannot pay its debts and the directors decide that closure is the appropriate option.

A licensed insolvency practitioner is appointed as liquidator and takes control of the company’s affairs.

The liquidator deals with:

• company assets;
• creditors;
• outstanding claims;
• relevant transactions;
• director conduct;
• the eventual closure of the company.

A CVL is therefore about winding up an insolvent company, not rescuing it.

Company administration is also a formal insolvency process, but its purpose is different.

An administrator takes control of the company and seeks to achieve one of the statutory administration objectives.

The first aim is usually to rescue the company as a going concern. If that is not realistic, the administrator may instead try to achieve a better result for creditors than immediate liquidation.

Administration can therefore involve:

• continuing to trade;
• restructuring;
• selling the business;
• selling assets;
• negotiating another insolvency solution;
• eventually moving into liquidation.

For most insolvent companies, the practical distinction is:

CVL

The business has no realistic future and the objective is an orderly closure.

Administration

There is still something worth protecting, such as:

• a viable underlying business;
• valuable contracts;
• employees;
• stock or assets;
• intellectual property;
• customer relationships;
• a credible buyer.

Administration is therefore more likely to be considered where continued trading, restructuring or a business sale could preserve value.

In a CVL

Trading will usually stop because the company is being wound up.

There can be limited circumstances where activity continues temporarily to help the liquidator realise value, but CVL is not intended to return the company to normal trading.

In Administration

A company can continue trading if the administrator believes this will improve the outcome.

This may allow time to:

• restructure the business;
• find a purchaser;
• complete existing work;
• preserve customer relationships;
• protect jobs.

This is one of the biggest practical differences between CVL and administration.

CVL

Once the liquidator is appointed, control of the company’s assets and affairs passes to the liquidator.

Administration

Once an administrator is appointed, they take control of the company.

Directors may still assist or remain involved operationally where appropriate, but the administrator ultimately makes the decisions.

Administration does not mean directors remain in control simply because the company continues trading.

CVL

Because the company normally closes, redundancies are common.

Eligible employees may be able to claim amounts including:

• statutory redundancy pay;
• unpaid wages;
• holiday pay;
• statutory notice pay.

Read our full guide to what happens to employees when a company goes into liquidation.

Administration

Employees may remain employed where the administrator continues trading or pursues a business sale.

However, redundancies can still occur if they are necessary to restructure the business or reduce costs.

Administration therefore offers a greater possibility of preserving jobs, but there is no guarantee.

Neither procedure automatically makes directors personally liable for company debts.

However, directors may still need to consider:

• personal guarantees;
• overdrawn director loan accounts;
• transactions before insolvency;
• use of company assets;
• payments to connected parties;
• director conduct.

For a detailed explanation, read what happens to a director when a company goes into liquidation.

The important point is that administration protects the company from certain creditor action; it does not personally protect directors from existing liabilities or conduct issues.

There is no universal cost that applies to every case.

CVL

A CVL has insolvency practitioner fees and other costs connected with winding up the company.

Company cash or assets may help fund the process, and in some cases directors or shareholders may need to contribute.

See who pays for a CVL for more detail.

Administration

Administration is generally more complex because the administrator may need to:

• keep the business trading;
• deal with employees;
• negotiate with creditors;
• market the business;
• arrange a sale;
• manage significant assets.

Administration therefore normally needs enough value or a realistic outcome to justify using it.

For a small insolvent company with little value and no viable future, CVL may be the more realistic option.

Yes.

A company can sometimes move from administration into CVL.

This may happen where administration has achieved its main purpose but remaining assets or funds still need to be dealt with through liquidation.

Administration can also end through:

• rescue;
• a business sale;
• a Company Voluntary Arrangement;
• another form of closure.

So administration does not automatically end in liquidation.

CVL may be more appropriate where:

• the company is insolvent;
• trading is no longer sustainable;
• there is no realistic prospect of rescue;
• there is no credible buyer;
• there is little going-concern value to preserve;
• directors want to take proactive steps to close the company.

Administration may be worth considering where:

• the underlying business remains viable;
• there are valuable contracts or assets;
• employees or customer relationships can potentially be preserved;
• a buyer may exist;
• creditor action threatens the business;
• restructuring could create a viable company;
• administration could achieve a better result for creditors than immediate liquidation.

The key question is whether there is still something worth rescuing or preserving.