Key takeaways:
- A UK company is generally considered insolvent when it cannot repay its debts as they fall due or when its liabilities exceed its assets.
- Early advice from a licensed insolvency practitioner may increase the number of recovery and restructuring options available, such as informal agreements with creditors, Company Voluntary Arrangement (CVA) or going into administration.
- In April 2026, there were 2,085 registered company insolvencies (The Insolvency Service, 2026) comprising of 1,510 Creditors Voluntary Liquidation (CVLs), 371 Compulsory Liquidations, 183 Administrations, 20 CVAs and one Receivership appointment.
- Directors of insolvent companies are able to start or manage another business in the future, so long as they are not disqualified.
What does it mean when a UK company becomes insolvent?
A company is generally considered insolvent when it can no longer pay its debts as they become due or when the total debts surpass the value of available assets.
Signs of insolvency can include:
- Struggling to pay suppliers, staff, or HMRC tax liabilities.
- Persistent cash flow issues.
- Creditor pressure or legal action.
- Falling behind on loan repayments.
- Receiving statutory demands.
If your business is experiencing financial difficulty, seeking advice from a licensed insolvency practitioner as early as possible is essential. Acting sooner may increase the number of options available to the company.
What should company directors do if a business becomes insolvent?
If your company is showing signs of insolvency, speaking to a licensed insolvency practitioner is one of the most important first steps. They can assess your company’s financial position, explain the available solutions and help determine whether the business may be viable moving forward.
The right option for the company will depend on several factors, including:
- The level of company debt.
- Cash flow position.
- Whether creditor pressure is increasing.
- The long-term viability of the business.
- The difference between company assets and liabilities.
In some situations, businesses can recover and continue trading. In others, closing the company may be the most suitable option.
Can an insolvent company continue trading in the UK?
Yes, in some cases, an insolvent company may still be able to continue trading, particularly where the underlying business remains profitable.
There are several potential solutions that may help businesses manage debt, restructure finances and recover over time, such as:
- An informal agreement with creditors.
- Company Voluntary Arrangement (CVA).
- Going into administration.
- Pre-pack administration.
The most suitable solution will depend on your company’s financial position, level of debt, creditor pressure, and whether your business is considered viable long-term.
Can you negotiate with creditors before formal insolvency?
One option for an insolvent company is to make an informal agreement with your creditors to repay debts under revised terms. This is a private arrangement between your company and creditors that may involve:
- Extending your repayment deadlines.
- Agreeing reduced monthly payments.
- Temporarily pausing collections or enforcement action.
This approach is typically considered when financial difficulties are expected to be temporary, and there is no immediate threat of formal action from your creditors.
However, informal agreements are not legally binding which means creditors are not required to agree to them. They can still take legal action and may withdraw from the agreement at any time.
Due to this, informal arrangements offer less long-term security for businesses facing more serious financial pressure. If you are in this situation, you may wish to consider alternatives such as a Company Voluntary Arrangement (CVA) or going into administration.
What is a Company Voluntary Arrangement (CVA)?
A Company Voluntary Arrangement (CVA) is a formal, legally binding insolvency procedure that allows a company to repay debts over an agreed period while continuing to trade.
A CVA is overseen by a licensed insolvency practitioner and usually involves making affordable repayments based on the company’s projected future profits. This provides the opportunity for businesses to recover financially while avoiding liquidation.
Key features of a CVA include:
- Legally binding terms once approved by creditors.
- Protection from certain creditor actions.
- Structured repayment plans over a fixed period.
- Enables unaffordable debt to be written off.
- The ability for the business to continue trading while addressing its debts.
For a CVA to proceed, at least 75% (by value of debt) of voting creditors must approve the arrangement. Once approved, all unsecured creditors included within the arrangement are generally bound by its terms, offering security and protection to the company.
What happens when a company goes into administration?
Administration is a formal insolvency procedure where licensed insolvency practitioners, known as administrators, are appointed to take control of a company while recovery or restructuring options are explored.
The aim of administration is usually to protect the company from creditor pressure while determining whether the business can be rescued, sold or restructured.
During administration:
- Creditors are generally prevented from taking legal action against the company.
- The administrators take control of company operations and financial decisions.
- Options for recovery, restructuring or sale are explored.
In some situations, the business may continue trading during administration if doing so is likely to improve the outcome for creditors.
Administration can provide valuable breathing space for businesses facing serious financial pressure and may help preserve business value, jobs and customer relationships where recovery remains possible.
The outcome of administration will depend on the company’s financial position and whether recovery is considered achievable. In some cases, the company may recover and continue trading, while in others the business may be sold or moved into liquidation.
What is pre-pack administration and how does it work?
Pre-pack administration is a specific type of administration that involves arranging the sale of a company’s business and assets before administrators are formally appointed. The sale is then completed shortly after the company enters administration.
In some cases, the business is sold to a new company connected with the existing directors, allowing trading operations to continue under a new structure. Because the sale is arranged in advance, pre-pack administration is often quicker and can help minimise disruption to the business.
Pre-pack administration may help:
- Preserve jobs and customer relations.
- Protect the business’s value and goodwill.
- Reduce disruption to trading and operations.
- Allow the business to continue operating under a new company structure.
The debts of the insolvent company remain with the original company that entered administration, while the new company may continue trading using the purchased assets and operations.
A common use of pre-pack administration is to enable no gap in trading to maximise the value of the trade for sale. The insolvent company is then usually placed into liquidation.
Speaking to a licensed insolvency practitioner can help you better understand your options and determine which solution may be suitable for your situation. If your business is no longer viable, solutions such as voluntary liquidation may be more appropriate.
What happens if an insolvent company cannot be saved?
If your business is no longer viable and recovery is not considered achievable, a Creditors’ Voluntary Liquidation (CVL) may be the most appropriate solution.
A CVL is a formal insolvency procedure where the directors of an insolvent company voluntarily choose to close the business in a structured and controlled way. Typically, the company ceases to trade shortly prior to the liquidation. A CVL is often chosen over compulsory liquidation as it gives directors the option to choose a prospective liquidator (must be independent), so they retain control and avoid the stress of the court process led by creditors.
For a CVL to proceed, at least 75% of shareholders (by value of shares) must agree to place the company into liquidation.
Once the company enters liquidation, its assets are sold and the business is eventually removed from Companies House. The process is overseen by a licensed insolvency practitioner, who is responsible for managing the company’s affairs and communicating with creditors throughout the liquidation.
A CVL typically involves:
- Ending company operations.
- Selling business assets.
- Collecting money owed to the business.
- Conducting an investigation into the affairs of the company and the conduct of the directors.
- Settling legal and financial matters.
- Repaying creditors where possible.
- Closing the company and removing it from Companies House.
Once the process is complete, the company will cease to exist as a legal entity.
Although liquidation can feel overwhelming, a CVL can provide directors with a clear and structured way to deal with company debts and bring financial pressure to an end.
Seeking professional advice early may help you better understand your responsibilities and the options available to your business.
What happens to directors after company insolvency?
If a company becomes insolvent (e.g. from the point the company cannot pay its debts as they fall due) directors have a legal responsibility to act in the best interests of both creditors and the company. Seeking professional advice early can be important, as the decisions made during this time may affect both the business and its directors personally.
Once a company is considered insolvent, directors should take steps to minimise further financial loss and avoid worsening the position of creditors.
This should include:
- Monitoring the company’s financial position closely.
- Keeping accurate financial records.
- Avoiding taking on additional credit that the business may be unable to repay.
- Seeking advice from a licensed insolvency practitioner as early as possible.
If directors continue trading when they knew, or reasonably should have known, that the company could not avoid insolvency, this may be considered wrongful trading and, in some cases, may lead to disqualification from acting as a director in the future or personal liability.
While company directors are usually not personally liable for company debts, exceptions can apply where personal guarantees have been signed.
Following insolvency, the conduct of directors will be reviewed to assess how the company was managed before financial difficulties occurred. In serious cases, directors may face disqualification which prevents them from acting as a company director for a set period.
However, many directors successfully go on to run or manage businesses again after insolvency, particularly where they have acted responsibly and sought professional advice early.
Can you recover financially after insolvency?
Yes. While insolvency can feel like a major setback, many people successfully rebuild their financial position over time.
Improving your credit profile, maintaining stable finances and making consistent, responsible financial decisions can all help strengthen your position following insolvency.
Recovery takes time, but insolvency does not mean a permanent barrier to future financial goals but can rather be the reset needed to start recovering financially.
With careful planning, it may still be possible to access business or personal borrowing in the future, depending on your circumstances and credit profile.
How can Cooper Associates Accountancy help?
If your business is facing financial pressure or potential insolvency, seeking professional advice early can make a significant difference to the options available to the company.
Our experienced accountants work closely with business owners to understand their financial position, explain the available routes forward clearly and provide practical, straightforward support tailored to their circumstances.
Whether you are exploring recovery options, managing creditor pressure or considering company closure, our team of expert advisers can help you navigate the process with confidence and clarity.
Get in touch today to discuss your situation and discover how our experienced accountants can support you and your business.
