A struggling company that could survive has four formal tools: the Part A1 moratorium (a short breathing space with the directors still in charge), a company voluntary arrangement (a deal with unsecured creditors approved by 75% by value), administration (an insolvency practitioner takes control), and a Part 26A restructuring plan (a court sanctioned deal that can bind dissenting classes). For most small companies the realistic choice is between a CVA and administration, sometimes with a moratorium first; restructuring plans have been used by small companies but are widely seen as costly.

What does each procedure do?

  • Moratorium under Part A1 of the Insolvency Act 1986 gives an initial 20 business days’ protection from most creditor action while the directors explore a rescue, overseen by a licensed insolvency practitioner acting as monitor. It does not compromise any debt by itself. See the Part A1 moratorium.
  • Company voluntary arrangement under Part 1 of the Act is, in the Insolvency Service’s words, a way for a viable but insolvent company to pay its creditors over a fixed period while the directors keep control and continue trading. See company voluntary arrangements.
  • Administration under Schedule B1 puts an administrator in charge with a statutory hierarchy of objectives: rescue the company as a going concern, failing that achieve a better result for creditors than a winding up, failing that realise property to pay secured or preferential creditors. See company administration.
  • Restructuring plan under Part 26A of the Companies Act 2006 is a compromise or arrangement with creditors or members, proposed where the company has or is likely to have financial difficulties affecting its ability to carry on as a going concern, and sanctioned by the court. See restructuring plans.

Who stays in control?

In a moratorium the directors remain in control and must keep filing at Companies House; the monitor watches the company’s affairs to form a view on whether rescue as a going concern remains likely (section A35). In a CVA the directors also keep running the business, while the nominee, who becomes the supervisor once the arrangement is approved, oversees its implementation (sections 1 and 7). A restructuring plan is proposed by the company (or a creditor, member, liquidator or administrator may apply to the court), and management usually stays in place. Administration is different: once a company is in administration, neither the company nor its officers may exercise a management power without the administrator’s consent (Schedule B1, paragraph 64).

What creditor approval does each need?

Procedure How it starts Creditor approval
Moratorium Directors file documents at court, including the monitor’s statement that rescue is likely None to start or for the first 20 business day extension; creditor consent needed for longer extensions, to a maximum of one year from the start
CVA Directors’ proposal reported on by a nominee 75% or more by value of creditors responding, and not more than half by value of unconnected creditors against; members by simple majority, with the creditors’ decision prevailing
Administration Court order, or out of court appointment by a qualifying floating charge holder, the company or its directors Creditors vote on the administrator’s proposals, which must be sent out within eight weeks
Restructuring plan Application to court, class meetings, sanction hearing 75% by value of those voting in each class, but the court can sanction over a dissenting class

The key difference between a CVA and a restructuring plan is what each can override. A CVA binds all unsecured creditors entitled to vote, including those who voted against, but it cannot affect a secured creditor’s right to enforce its security, or pay preferential debts other than in priority, without that creditor’s agreement (section 4(3) and (4)). A restructuring plan can bind a dissenting class if no member of that class would be worse off than in the relevant alternative and at least one class with a genuine economic interest in that alternative has approved it (section 901G). The Insolvency Service’s evaluation notes that priority rules do not apply in a restructuring plan, and gives the example of Re Houst Ltd, a small company whose plan crammed down HMRC as a preferential creditor.

How long does each last?

The moratorium’s initial period is 20 business days. After the first 15 business days the directors can extend it once by a further 20 business days without creditor consent, by filing statements that moratorium debts and non payment holiday debts have been paid and that the monitor still expects a rescue (section A10). Longer extensions need creditor consent or the court, and the revised end date must fall within one year of the start (section A12). Administration ends automatically after one year unless extended by the court or, for up to one year, by creditor consent (paragraph 76). A CVA lasts as long as its terms provide, and a restructuring plan takes effect once sanctioned.

What does each cost?

No official fee scale exists, and costs depend on the case. The moratorium, a CVA and administration each need a licensed insolvency practitioner, as monitor, nominee and supervisor, or administrator (section A6, section 1(2) and Schedule B1 paragraph 6), and the Insolvency Service notes that there is a charge for putting a CVA in place. The government’s final evaluation of the Corporate Insolvency and Governance Act 2020 found that 90% of survey respondents thought restructuring plans too expensive for the SME market, while moratorium costs appeared reasonable and were linked to a daily monitoring cost. The same evaluation found that the cost of challenging a plan deters dissenting creditors.

Which option suits a small company?

Some practical filters narrow the choice quickly:

  • Is there a winding up petition? Directors cannot obtain a moratorium simply by filing if the company is subject to an outstanding winding up petition (section A3); a court application is needed instead. See served with a winding up petition.
  • Recent procedures. A company is not eligible for a moratorium if it had one, a CVA or an administration in the previous 12 months (Schedule ZA1, paragraph 2).
  • What must still be paid? A moratorium gives no payment holiday for the monitor’s fees, goods and services supplied during the moratorium, rent for that period, wages, redundancy payments or debts under financial services contracts such as bank loans (section A18). A company that cannot keep up with those cannot use it.
  • Who are the main creditors? If HMRC is the largest creditor, its approach decides most CVAs. HMRC has said it will reject a voluntary arrangement that excludes or modifies any creditor’s preferential treatment, and for restructuring plans it expects all tax returns to be filed and a realistic chance of success.
  • Is the business viable without new money? A CVA spreads or reduces existing debt but does not fund losses. Where the business must be sold to survive, administration, sometimes as a pre pack, is often the route.

How might this look in practice?

Illustration only. A restaurant company has a profitable core but owes £180,000 to HMRC (VAT, PAYE and corporation tax), £60,000 to suppliers and £40,000 of rent arrears, and a landlord has threatened a petition. The directors obtain a moratorium to stop the petition while an insolvency practitioner prepares a CVA proposal paying 40p in the pound over four years, funded from trading profits. During the moratorium they must still pay current rent, wages and the monitor. The proposal pays the secondary preferential part of HMRC’s claim ahead of the unsecured creditors, so HMRC can support it. If creditors with 75% of the value voting approve, it binds the landlord’s arrears claim and the suppliers. If the vote fails, administration with a sale of the business becomes the fallback.

What mistakes do directors make?

  • Waiting too long. Once a winding up petition is filed the company’s bank account is frozen and the directors need a validation order to use it, and the moratorium can no longer be obtained just by filing.
  • Treating the moratorium as a solution. It buys time but compromises no debts, and debts without a payment holiday must still be met.
  • Proposing a CVA that cuts preferential claims. It cannot be approved without the preferential creditors’ consent.
  • Assuming control is kept in administration. The administrator takes over management powers.
  • Forgetting personal exposure. A director who carries on after they knew or ought to have concluded that insolvent liquidation or administration could not be avoided risks a contribution order under section 214; see wrongful trading.

Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant’s fees with Solar Protect. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.