The position on instruction
Many directors who instruct an insolvency practitioner arrive expecting that the answer is a CVA (Company Voluntary Arrangement) — the rescue procedure that allows an insolvent company to continue trading while compromising its debts. CVAs sound more attractive than liquidation: the company survives, the brand survives, the relationships survive. But CVAs only work in specific circumstances. Where the underlying trade is not viable, no CVA proposal will succeed in implementation, and the directors have spent time and money pursuing a procedure that ends in liquidation anyway.
This case study draws on three appointments where the directors initially hoped for a CVA but where the right procedure was Creditors Voluntary Liquidation. The pattern across the three cases illustrates how the viability test operates in practice.
The first underlying case concerned a food takeaway business in the South of England that had been formed in 2021. The business had passed through two directors in three years, with the second director assuming control after the first had stepped back. By the time professional advice was taken, trading had ceased — the business had no realisable assets, no employees, and no resources to fund a rescue procedure.
The second underlying case concerned a restaurant that had operated for less than a year before instruction. The business had taken on a substantial leasehold property, invested in fit-out, and recruited a small team — but had been unable to generate sufficient trade to cover rent and operating costs from the outset. A County Court Judgment from a supplier had been obtained, the landlord had begun forfeiture proceedings, and the director had handed back the keys.
The third underlying case concerned a small cafe in a regional town that had traded for two years from a leased premises. The business had never reached a level of customer demand sufficient to cover its operating costs. Despite the director's marketing efforts and personal investment, the location and market positioning could not generate the traffic the business needed.
The analysis
CVA approval under Part 1 of the Insolvency Act 1986 requires the directors to demonstrate three things to creditors: that the underlying business is viable, that realistic contributions can be funded from future trading, and that the creditor body would benefit more from approving the CVA than from rejecting it (the comparison statement). Each of the three underlying cases failed the first two limbs of this test.
For the takeaway, the business had no continuing trade — the doors were already closed. There was nothing to support a CVA contribution; no future revenue from which to fund creditor payments. A CVA proposal would have been rejected at the vote and the directors would have spent £15,000-£25,000 in proposal costs reaching that outcome.
For the restaurant, the same analysis applied with added urgency. The lease was lost, the supplier had a CCJ, and the director's available cash flow was negative. No projection — however optimistic — could support contributions of the kind that creditors would accept. The viability test was failed at the trading level: the underlying business could not generate positive cash flow at any plausible level of investment.
For the cafe, the trading position was the most marginal of the three. The business could generate some revenue, but the revenue was structurally below the operating cost base. A CVA proposal would have promised contributions the cafe could not deliver, and would have failed in implementation within three to six months. The right answer was to cease trading and to deal with creditors through an orderly closure procedure.
The strategy adopted
In each case, the conversation with the director was structured around the same three points:
- 01Honest analysis of the underlying trade. Was there a credible path back to positive cash flow? In each case the answer was no — the trade was not viable at any reasonable scenario.
- 02Comparison of CVA outcomes vs CVL outcomes. CVA was not free; the proposal cost, the supervisor fees over the contribution period, and the cost of the eventual failure would all have absorbed value. CVL would close the matter at a fixed cost with a definitive outcome.
- 03The personal position of the director. None of the three directors had material assets that the creditors would benefit from pursuing in a CVA framework rather than a CVL framework. The personal position was preserved in each case under CVL.
Once the director accepted that CVA was not realistic, the procedural focus shifted to taking the appointment promptly. Delay where trade had already ceased only narrowed the available recovery for creditors and exposed the director to ongoing wrongful trading risk to the extent any liabilities were still accruing.
Execution
Each appointment was taken via the standard CVL procedure — statement of affairs prepared with the director, s.100 IA 1986 decision procedure convened, creditor notifications issued, and the liquidator appointed. The matters were procedurally straightforward.
The substantive work was in three areas. First, the SIP 6 narrative — documenting honestly that the underlying trade had been marginal, that the directors had attempted reasonable mitigations (marketing investment, cost cutting, personal cash injection), and that the decision to cease and to instruct an IP had been taken at the right time rather than late. Second, the asset position — identifying any realisable assets (in two of the three cases, very limited) and any potential recovery actions (CCJ enforcement against third parties, where applicable). Third, the conduct review under SIP 2 — confirming that no preferential payments had been made, no transactions at undervalue had occurred, and no conduct concerns warranting CDDA referral existed.
The outcome
The three liquidations completed within six to nine months each. Dividend distributions to unsecured creditors were minimal in each case — reflecting the asset position rather than any procedural shortcoming. The directors were released from the companies' debts on closure and were free to pursue their commercial careers without disqualification proceedings.
The point of these cases is that the right outcome was achieved at the right cost. Pursuing CVA in any of the three would have cost £15,000-£25,000 in nominee fees alone, produced rejected proposals or failed implementations, and ended in CVL with worse outcomes for creditors and worse personal positions for directors. The honest assessment at the outset — that the trade was not viable and that CVL was the right procedure — saved time, cost and reputational exposure.
Takeaways for directors in similar positions
- ›CVA is a powerful tool where the business is viable. Where the business is not viable, no CVA proposal will succeed. The viability test is not a marketing question; it is a structural test of whether the trade can generate positive cash flow from continuing operations.
- ›The honest answer at the first consultation is the answer that produces the best outcome. A practitioner who agrees to draft a CVA where the underlying business cannot support it is not serving the director's interests — they are extending the timeline to the same end-point at additional cost.
- ›Marginal trades — businesses operating below scale, in difficult locations, or in declining categories — frequently reach a point where the right procedure is closure rather than rescue. CVL is not a failure; it is the right procedural fit for a business that has reached the end of its commercial life.
- ›Where trade has already ceased, instructing an IP promptly is the correct step. Delay does not improve the position; it usually narrows the procedural options.