What insolvency means for a supplier

Insolvency means a company cannot pay its debts as they fall due. In the UK, there are several formal insolvency processes, each with different implications for whether the company can continue trading, whether suppliers will be paid, and what happens to existing contracts.

For anyone managing a supplier relationship, the type of insolvency process matters. Some processes aim to rescue the company. Others aim to wind it down as quickly as possible. Understanding the difference helps you make informed decisions about whether to continue working with the company, seek alternative suppliers, or take legal advice.

Administration

Administration is a rescue-oriented process. An independent administrator is appointed to take control of the company with the aim of either saving it as a going concern or achieving a better result for creditors than immediate liquidation would.

Can the company still trade? Usually, yes. The administrator may continue trading to preserve value, fulfil existing orders, and keep the business running while exploring options. However, all decisions about trading, contracts, and payments are made by the administrator, not the company's directors.

Will suppliers be paid? Debts incurred before the administration began are frozen. The administrator decides how to deal with pre-administration creditors, and they are often paid only a fraction of what they are owed. Debts incurred during administration (for goods and services the administrator has ordered) are treated as expenses of the administration and are paid in priority.

What should you do? If a supplier enters administration, contact the administrator to understand whether the company will continue trading and whether your contract will be honoured. Do not assume the relationship is over, but do not assume it will continue on the same terms either.

Creditors' Voluntary Liquidation (CVL)

A CVL happens when the company's directors and shareholders accept that the company cannot pay its debts and voluntarily agree to wind it up. A liquidator is appointed to sell the company's assets and distribute the proceeds to creditors.

Can the company still trade? Generally not in any meaningful way. The liquidator may complete existing contracts where it makes financial sense, but the company is winding down. No new business will be taken on.

Will suppliers be paid? Creditors are paid from the proceeds of asset sales, in a strict order of priority. Secured creditors are paid first, followed by preferential creditors (mainly employees), then unsecured creditors (which includes most suppliers). Unsecured creditors often receive very little.

What should you do? Treat this as the end of the supplier relationship. Begin sourcing alternatives immediately and submit any outstanding invoices to the liquidator as a claim.

Compulsory Liquidation

Compulsory liquidation is similar to a CVL in outcome, but it is triggered by a court order rather than a voluntary decision. The most common route is a winding-up petition, usually filed by HMRC or an unpaid creditor.

The process. A creditor presents a petition to the court. If the petition is granted, the court makes a winding-up order and the Official Receiver is appointed as liquidator (an insolvency practitioner may be appointed subsequently). The company ceases trading, its bank accounts are frozen, and the liquidation process begins.

Implications for suppliers. The same priority rules apply as in a CVL. If you are owed money, you should submit a proof of debt to the liquidator. Recovery rates for unsecured creditors are typically low.

Company Voluntary Arrangement (CVA)

A CVA is a formal agreement between the company and its creditors to repay debts over an agreed period, often at a reduced rate. The company continues to trade while the arrangement is in place, under the supervision of an insolvency practitioner.

Can the company still trade? Yes. The purpose of a CVA is to allow the company to trade its way out of difficulty. The company remains under the control of its directors, though the insolvency practitioner monitors compliance with the arrangement.

Will suppliers be paid? Debts covered by the CVA are repaid according to its terms, which may mean receiving less than the full amount owed, spread over several years. New debts incurred after the CVA is approved should be paid on normal commercial terms.

What should you do? A CVA indicates financial distress, but it also indicates that the company is attempting to manage the situation rather than giving up. You may choose to continue the relationship with adjusted terms, such as shorter payment periods or reduced credit exposure.

Receivership

Receivership is an older process in which a secured creditor appoints a receiver to take control of specific assets that have been pledged as security. Unlike administration, which covers the whole company, receivership typically relates to particular assets or classes of assets.

Receivership has become less common since the Enterprise Act 2002 restricted the ability of floating charge holders to appoint administrative receivers. However, it still occurs, particularly under older security arrangements.

Moratorium

A moratorium is a newer mechanism, introduced by the Corporate Insolvency and Governance Act 2020. It gives a company a temporary breathing space from creditor action (initially 20 business days, extendable) while it explores rescue options. During the moratorium, creditors cannot take enforcement action, wind the company up, or enforce security.

A moratorium is a warning sign. It means the company is in serious difficulty and is seeking time to find a solution. The outcome could be a rescue (perhaps through a CVA or restructuring plan), or the company may ultimately enter administration or liquidation.

How Senserity flags insolvency

Senserity monitors insolvency events through several data sources: Companies House status fields, gazette notices (which often appear first), Creditsafe data (where available), and court records.

Active insolvency is classified as Critical severity. It can trigger Red Flags at Tier 1 (dissolution, liquidation, compulsory winding-up) or Tier 2 (active insolvency, administration) depending on the specific circumstances. The impact on the risk score is substantial, and a company in an active insolvency process will almost always be graded D or E.

Historical insolvency (past events that have concluded) is treated as a Medium-severity finding. A company that went through administration five years ago and emerged successfully is in a different position from one that is in administration today.

Last updated 29 April 2026.