Company insolvency occurs when a business cannot pay its debts as they fall due (cash flow insolvency) or when its liabilities exceed its assets (balance sheet insolvency). UK insolvency law provides several procedures depending on the company's circumstances and whether rescue is possible.
Administration is a rescue procedure where an insolvency practitioner (the administrator) takes control of the company to achieve one of three objectives: rescuing the company as a going concern, achieving a better result for creditors than immediate liquidation, or realising assets to make a distribution to creditors.
Liquidation (winding up) is the process of closing a company, selling its assets, and distributing proceeds to creditors. It can be voluntary (initiated by shareholders) or compulsory (ordered by the court, typically after a winding-up petition from a creditor).
A Company Voluntary Arrangement (CVA) allows a company to reach a binding agreement with its creditors to pay debts over time while continuing to trade. This is often used by retail and hospitality businesses seeking to restructure lease obligations.