Business Insolvency Solicitors
A business in financial difficulty has more options than it thinks — and more time to act than it often realises. Administration, CVA, and pre-pack solutions can rescue what is worth rescuing and limit what cannot be saved.
Business insolvency is governed by the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016. Where a company cannot pay its debts, it has a range of formal and informal solutions — from a Company Voluntary Arrangement (CVA), which restructures debt while the business continues, to administration (which provides a moratorium and a supervised rescue process), to creditors' voluntary liquidation (CVL) for an orderly wind-down. Directors also have statutory duties once insolvency is foreseeable — a solicitor will advise on the options and protect the directors' personal position throughout.
Business Insolvency Options
Business insolvency — the formal options, what each achieves, and when each is most appropriate.
The right insolvency process depends on whether the business (or part of it) is worth rescuing — and whether there is enough time and cash to implement the appropriate process. A solicitor will assess the options and advise on the most effective route.
Company administration — moratorium and rescue
Administration places the company under the management of a licensed insolvency practitioner (the administrator), who takes control of the company's affairs with the objective of rescuing the company as a going concern, achieving a better result for creditors than immediate liquidation, or realising assets to pay a secured or preferential creditor. From the moment a notice of intention to appoint an administrator is filed (or the appointment is made), a statutory moratorium takes effect — preventing creditors from taking enforcement action, including presenting or continuing a winding-up petition. Administration provides an immediate breathing space. A solicitor will advise on whether administration is the most appropriate response and manage the appointment process.
Company Voluntary Arrangement — CVA
A CVA is a formal agreement between the company and its unsecured creditors — proposing repayment of a proportion of the total unsecured debt over a defined period (typically 3–5 years), with the remainder written off on completion. A licensed insolvency practitioner acts as nominee and then supervisor. If creditors representing 75% of the total unsecured debt (by value) vote in favour, the CVA binds all unsecured creditors — including those who voted against. The company continues trading under the control of its existing directors throughout. A CVA is particularly appropriate for companies with a viable underlying business burdened by legacy debt — HMRC arrears, rent arrears, and historic trade debt are all commonly restructured through a CVA.
Pre-pack administration — business sale in administration
A pre-pack administration is a process in which the sale of the company's business and assets (or selected assets) is agreed before the administrator is appointed — and completed immediately on appointment. This allows the viable parts of the business to continue without the damage caused by a public administration process (loss of key staff, supplier credit, and customer confidence). The sale must be at market value and must be reported to creditors. Pre-pack sales to connected parties (existing directors, shareholders) are subject to additional scrutiny. A solicitor will advise on whether a pre-pack is appropriate, manage the valuation and marketing process, and document the sale in a way that withstands creditor challenge.
Creditors' Voluntary Liquidation — CVL
A CVL is used where the company's directors have concluded that the company cannot continue and the most appropriate course is an orderly wind-down — realising assets in an organised way and distributing the proceeds to creditors in the correct statutory order. A CVL is initiated by the shareholders (by special resolution) and a liquidator is appointed to manage the wind-down. The CVL process provides an orderly exit — avoiding the stigma and additional costs of a compulsory winding-up order — and allows directors to cooperate fully with the liquidator's investigation, reducing the risk of adverse findings or misfeasance claims. A solicitor will advise on the CVL process and the directors' conduct throughout.
Directors' duties in insolvency — wrongful trading and misfeasance
Once a director knew (or ought to have known) that there was no reasonable prospect of avoiding insolvent liquidation, the duty to act in the best interests of creditors is triggered. A director who continues to trade and incurs further debts after that point, without a genuine belief that the position could be recovered, may be liable for wrongful trading — personally liable for the increase in the company's net deficiency during the period of wrongful trading. Misfeasance claims can also be brought for breach of duty in the period before liquidation — preferring certain creditors, transferring assets at undervalue, or paying excessive remuneration. A solicitor will advise directors on their duties and exposure — and represent them where claims are brought by a liquidator.
Receivership — asset-based lending and enforcement
Where a company has given a fixed or floating charge over its assets to a lender, the lender may appoint a receiver (now typically an administrative receiver under the 1986 Act, or an LPA receiver under the Law of Property Act 1925 for land) where the company defaults on the secured debt. The receiver's primary duty is to the appointing lender — not to the company or its other creditors. A solicitor will advise the company's directors on the receiver's powers, the rights of other creditors, and whether administration is a more appropriate alternative to receivership — which provides protections for the company that receivership does not.