CVA, Prepack or
Phoenix liquidation?

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Company Voluntary Arrangement v Prepack or Phoenix liquidation

We compare a Company Voluntary Arrangement (CVA), Prepack and Phoenix

If you are struggling with historical debt, but have a business that you think can be viable, and want to restructure the business so that you can have a more secure financial future there are a number of tools available to legally write of debt. The two most common are a Company Voluntary Arrangement (CVA) or an insolvency procedure such as administration or liquidation, where you buy back the assets and start again.

How does a Company Voluntary Arrangement (CVA) work?

A Company Voluntary Arrangement (CVA) is an agreement with your creditors where you pay back what you can afford, with the balance written off. The arrangement stops creditors from pursuing their debts and you carry on running the business making payments to a CVA fund, which is used to pay back the agreed amount of the debt, over an agreed period. It is flexible tool that helps to restructure debts to make them affordable, whilst you remain in control.

How does a Prepack work?

Unlike a Company Voluntary Arrangement, with a Prepack your company goes into administration or liquidation and you are able to buy the assets from the insolvency practitioner at their market value. Provided you are able to bid more for the assets than anyone else, you can use the assets to restart the business in a new company and do not have to pay the debts of the old company. So long as your offer for the assets is acceptable, they can be transferred to the new company without a break in trading.

Comparison of Company Voluntary Arrangement v Prepack or Phoenix liquidation

Company Voluntary Arrangement (CVA)
Prepack or phoenix liquidation
Directors remain in control. If a phoenix is planned the purchaser needs cash to acquire the assets and working capital to fund the new company
Time to put together a plan for survival with expert help Difficult to continue trading whilst the liquidation or administration process is underway
CVA terms designed to suit the company Landlord may terminate the lease
Creditors are more likely to look favourably upon directors The Directors personal guarantees will automatically be called upon
Less reputational damage to the company and directors New company must register for VAT and tax
No risk of directors’ disqualification New bank account will be required, which can be problematic following administration or liquidation
Less likely to default on bank debt, so personal guarantees not activated Directors’ conduct will be investigated
Typically self funding as the current assets of the company available for working capital Once completed the new company is free of debt
No new capital needed to re-start, simply use existing assets No ongoing commitment to old company's creditors


How does a Company Voluntary Arrangement (CVA) affect my ability to continue to trade?

A Company Voluntary Arrangement allows the existing company to ‘postpone’ payment of its existing debts, but use the income still being generated from debtors and work in progress to pay future costs including new supplies, wages, rent etc.

A prepack or phoenix, means that the existing creditors stay in the old company, but the new company will have to buy the assets it needs to trade and will not have the benefit of the debtor income, although the work in progress is often included as a transferred asset.

Whether a Company Voluntary Arrangement or a Prepack or a phoenix liquidation is best for you, depends on the nature of the business and the overall financial position. A Company Voluntary Arrangement does not usually require any new funding, where in a Prepack or phoenix liquidation, funding will be required to purchase the assets and for the initial working capital to fund future business costs, whilst waiting for income from customers. Some of the purchase price can be deferred (paid over an agreed period) provided that the creditors are getting a fair amount ‘up front’. 

As may be appreciated from this summary, there are a lot of different issues to consider and in all cases expert advice is required. Our priority is to ensure that you are able to make an informed decision on what is right for you and your circumstances. We are able to advise fully on both options and are licenced, regulated and professionally insured to carry out a Company Voluntary Arrangement or a Prepack or Phoenix liquidation. For more information on a CVA visit the Company Voluntary Arrangement (CVA) page on our Cashsolv website and download our 10 page free CVA guide.

If you are considering a Prepack or phoenix liquidation, more information is available on our Portland Business Support and Advice website.


View our relevant Company Voluntary Arrangement pages for more information:

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