A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
What are my options if my company is insolvent?
An insolvent company has more options than most directors assume - from informal negotiation and HMRC payment plans through to administration and liquidation - and the right one depends on a single question: is the underlying business viable?
In this guide you'll learn each option in turn, what each requires, and a straightforward way to work out which fits your company.
One thing changes the moment insolvency is a realistic prospect: your duty as a director shifts towards protecting creditors' interests - so it's a good idea to take advice at that point, not months later, because the timing itself is judged.
First: confirm the company is actually insolvent
Two tests define insolvency.
The cash flow test - can the company pay its debts as they fall due? Missed VAT or PAYE, stretched suppliers, and juggling which bill to pay are all failures of this test in practice.
The balance sheet test - do total liabilities exceed total assets, including contingent liabilities?
Failing either means the company is insolvent - and the options below apply.
Option 1: Informal solutions - if the problem is temporary
Where a fundamentally sound business has hit a cash bump, informal fixes may be enough: negotiating extended terms with key suppliers, chasing debtors hard, cutting costs, an injection of funds, or invoice finance against the debtor book.
These work when the problem is genuinely temporary and modest - and become dangerous when they merely fund continued losses, deepening the eventual shortfall.
Option 2: HMRC Time to Pay - if tax arrears are the pressure point
Where HMRC is the main creditor, a Time to Pay arrangement spreading arrears over months is often achievable for a viable business - and it's the single most-used tool on this list.
The test is affordability with headroom: instalments plus current taxes plus normal running costs, sustainably.
Option 3: Company Voluntary Arrangement - if debts need restructuring
A CVA is a formal deal with creditors - typically paying a proportion of debts over three to five years from future profits - approved by 75% of voting creditors and supervised by a licensed IP.
It suits businesses with reliable future earnings and a debt pile that history, not the current model, created; it fails where the underlying trade can't fund the contributions.
Option 4: Administration - if a viable business needs rescuing
Where the business has real value but the company is being overwhelmed - enforcement, a winding up petition, debts no restructuring can bridge - administration provides a legal moratorium while the business is rescued or sold as a going concern.
It costs more than the alternatives and needs something worth saving; our liquidation vs administration comparison sets out the tests.
Option 5: Creditors' Voluntary Liquidation - if the business has no future
Where the honest answer is that the business model no longer works, a CVL closes the company in an orderly way: a liquidator of your choosing, employees' claims processed promptly, and a clean line drawn.
Debts without personal guarantees generally die with the company, directors can move on and start again, and acting voluntarily - before a creditor forces compulsory liquidation - is itself evidence of responsible conduct.
How do I choose between them?
Ask three questions in order.
Does the business make money at the operating level, before historic debt? If no - Option 5, and sooner rather than later.
If yes, can the profitable trade fund the debt over a reasonable period? If yes - Options 1-3, sized to the problem.
If the trade is viable but the debt is unbridgeable or the creditors are at the door - Option 4.
A licensed insolvency practitioner is professionally required to walk every option with you - which is why the first conversation costs nothing and commits you to nothing.
What should I not do while deciding?
Don't take new credit you doubt the company can repay, don't pay favoured creditors ahead of others, don't move assets, and don't go quiet on HMRC - each of these is precisely what the conduct review later examines.
Call our licensed insolvency practitioners in Manchester on 0333 023 5090 - one confidential conversation, directly with an ICAEW-licensed IP, and you'll know which of these five options actually fits your company.
InsolvencySupport.co.uk is operated by Xeinadin Corporate Recovery Limited (company no. 11415156), 100 Barbirolli Square, Manchester M2 3BD. Our insolvency practitioners are licensed and regulated by the ICAEW.
This article is intended for general information purposes only and does not constitute financial, legal, or professional advice. Always take advice from a licensed insolvency practitioner about your specific position.
Reviewed by Alan Fallows, Licensed Insolvency Practitioner, ICAEW.