Options for a company in debt: rescue or close
Every company in difficulty has the same main routes open to it, from an HMRC Time to Pay arrangement to liquidation. Here they are side by side, with a short path to the one that fits, so you can see where you stand before you call.
What options does a company in debt have?
A company in debt has eight main routes: two informal ones, an HMRC Time to Pay arrangement and a strike-off for a company with no debts, and six formal procedures under the Insolvency Act 1986, which are a CVA, administration, pre-pack administration, a creditors' voluntary liquidation, compulsory liquidation and a members' voluntary liquidation.
Which one fits comes down to four questions about solvency, viability, repayment and whether a creditor has already gone to court. The short path below takes you to the likely answer; the table under it sets every option side by side.
Can the company pay all its debts in full, with interest, within 12 months?
Yes: it is solvent
With assets or cash to pass to shareholders, a members' voluntary liquidation. With no assets and no debts, a strike-off at Companies House.
No: it is insolvent
Go to question 2.
Could the business make a profit if its old debts were dealt with?
Yes: it is viable
Go to question 3.
No: it has no future
Go to question 4.
Can it repay what it owes over time from future trading?
Yes
For tax arrears alone, an HMRC Time to Pay arrangement. For debts to several creditors, a company voluntary arrangement.
No: it needs protection or a sale
Administration, or a pre-pack administration where a buyer for the business is already lined up.
Has a creditor already presented a winding-up petition?
No
A creditors' voluntary liquidation, chosen by the directors with a liquidator they nominate.
Yes
Act before the hearing, or the court is likely to order a compulsory liquidation. See what to do about a winding-up petition.
How do the options for a company in debt compare?
The options for a company in debt differ on five points that matter most to directors: whether the company is solvent, who controls it during the process, what it typically costs, how long it takes, and what happens to the directors themselves. The table compares all eight on those points.
| Option | Solvent or insolvent | Who is in control | Indicative cost | Typical timescale | What happens to directors |
|---|---|---|---|---|---|
| HMRC Time to Pay | Behind on tax but able to pay over time | The directors | No HMRC fee; interest runs on the arrears | Often up to around 12 months | Stay in charge; new tax must be paid on time |
| CVA | Insolvent but viable | The directors, with a supervisor | £5,000 to £10,000 plus VAT to set up | Usually 3 to 5 years | Keep running the company |
| Administration | Insolvent, with a business worth rescuing or selling | The administrator | £5,000 to £20,000 plus VAT, often more | Ends after 12 months unless extended | Powers pass to the administrator; conduct is reported on |
| Pre-pack administration | Insolvent, with a buyer lined up | The administrator | £10,000 to £30,000 plus VAT | Business sold the day the administrator is appointed | Can buy the business back, subject to safeguards |
| CVL | Insolvent with no future | A liquidator the directors nominate | £4,000 to £7,000 plus VAT | In liquidation within 1 to 2 weeks | Powers end; conduct is reported on |
| Compulsory liquidation | Insolvent, with a creditor's petition | The Official Receiver | About £3,000, paid by the petitioning creditor | Around 8 to 12 weeks from petition to order | Powers end; conduct is investigated |
| MVL | Solvent | A liquidator the shareholders appoint | £2,000 to £5,000 plus VAT and disbursements | Around 9 to 12 months to close | Shareholders receive the assets, often as capital |
| Strike-off (form DS01) | Solvent, with no debts | The directors, until dissolution | A Companies House filing fee | Usually around 3 months | Company dissolved; it can be restored if creditors were missed |
Fees are indicative ranges for a straightforward small company, to confirm at a free consultation, not fixed prices. Each procedure's own page explains what drives the cost.
Can a company in debt be rescued?
A company in debt can be rescued when the underlying business is viable, meaning it would make a profit without its historic debt, and the rescue routes are an HMRC Time to Pay arrangement, a company voluntary arrangement, administration and a pre-pack administration. Each one deals with the debt in a different way.
Time to Pay spreads tax arrears alone. A CVA binds every unsecured creditor to a repayment plan while the directors stay in charge. Administration puts an administrator in control behind a moratorium that stops creditor action, and a pre-pack sells the business on the first day of the administration so it keeps trading under new ownership. Our page on company rescue options looks at each in more depth.
When does a company in debt need to close?
A company in debt needs to close when it is insolvent and has no realistic prospect of trading its way out, and the proper route is then a creditors' voluntary liquidation chosen by the directors or, if a creditor acts first, a compulsory liquidation ordered by the court. A solvent company that has served its purpose closes through a members' voluntary liquidation or a strike-off.
Strike-off is cheap, but it is only appropriate for a company with no debts. Creditors can object to it, and a company struck off while owing money can be restored to the register. For an insolvent company, a creditors' voluntary liquidation is the safe way to close, and our page on closing a limited company compares the routes in more detail. If the choice is between closing the company and trying to save it, see liquidation vs administration.
How do you tell whether a company is insolvent?
A company is insolvent when it fails either of the two tests in section 123 of the Insolvency Act 1986: the cash-flow test, meaning it cannot pay its debts as they fall due, or the balance-sheet test, meaning its liabilities, including contingent ones, are greater than its assets. Failing either one changes what the directors must do.
The cash-flow test is the one most directors notice first: wages, suppliers, rent or an HMRC payment that cannot be met on time. Once a company is insolvent, the directors' duties shift towards protecting the creditors as a whole, which is why the timing of advice matters.
What should a director do first when a company is in debt?
A director whose company is in debt should first take advice from a licensed insolvency practitioner, and in the meantime avoid taking on credit the company cannot repay, avoid paying one creditor ahead of the others, and keep a written record of board decisions. These steps protect creditors and protect the director.
Carrying on trading when there is no reasonable prospect of avoiding insolvent liquidation is what exposes directors to claims for wrongful trading and, in serious cases, director disqualification. Paying a connected creditor, or yourself, ahead of the others can be challenged later as a preference. Acting early keeps every option on the table.
Which option for a company in debt costs least?
The cheapest options for a company in debt are an HMRC Time to Pay arrangement, which carries no fee beyond interest, and a strike-off, which costs only a Companies House filing fee, but both only suit a company that can pay what it owes. Among the formal procedures, a members' voluntary liquidation from around £2,000 to £5,000 plus VAT and a creditors' voluntary liquidation from around £4,000 to £7,000 plus VAT cost least.
Rescue procedures cost more because there is a business to protect, and in a CVL the fee is usually paid from the company's assets rather than by the directors personally. Our guide to how much it costs to liquidate a company explains who pays in each case.
Why speak to NTF before choosing an option?
NTF Corporate Solutions is a specialist insolvency practice whose two licensed insolvency practitioners, James Kaye and Nick Morgan, can carry out every formal procedure on this page, so the advice you get is not steered towards the one route a firm happens to offer. Both are licensed by the Institute of Chartered Accountants in England and Wales.
As part of the NTF group, we have helped company directors since 2009. The first conversation is free, confidential and without obligation, and we will tell you plainly which of the eight routes fits your company and why.
Frequently asked questions
Can I close a company with debts without liquidating it?
Not safely. Strike-off is meant for a company with no debts, and creditors can object to it. A company struck off while still owing money can be restored to the register, and the directors' conduct can still be investigated, so an insolvent company should be closed through a creditors' voluntary liquidation.
Do I need an insolvency practitioner for every option?
No. An HMRC Time to Pay arrangement and a strike-off can be dealt with by the directors. A CVA, administration, a pre-pack and every kind of liquidation need a licensed insolvency practitioner, who is appointed to carry out the procedure.
Is liquidation or administration better for my company?
Administration suits a company whose business is worth saving or selling as a going concern, while liquidation suits a company with no future. Our comparison of liquidation vs administration sets out the differences in cost, control and outcome.
Talk to a licensed insolvency practitioner today
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