What Is a Company Voluntary Arrangement?

A Company Voluntary Arrangement, or CVA, is a formal agreement between an insolvent company and its unsecured creditors. It allows the company to repay a portion of its debts over an agreed period, usually three to five years, while continuing to trade. A licensed insolvency practitioner supervises the arrangement throughout, acting first as the nominee who prepares the proposal, then as the supervisor who oversees payments once creditors approve it.

Unlike liquidation, a CVA aims to rescue the company rather than close it down. Directors keep control of day-to-day operations throughout the process, which sets it apart from administration and liquidation, where an insolvency practitioner takes over management entirely.

How a CVA Works

1. Proposal

The directors, working with a licensed insolvency practitioner, prepare a formal proposal setting out how much creditors will receive, over what period, and how the company plans to fund the repayments.

2. Creditor vote

Creditors vote on the proposal. It passes if at least 75 percent, by value, of creditors who vote approve it, provided that more than half of unconnected creditors do not vote against it.

3. Implementation

Once approved, the CVA becomes legally binding on all unsecured creditors included in it, even those who voted against it or did not vote at all. The company makes agreed payments to the supervisor, who distributes them to creditors according to the terms.

4. Completion or failure

If the company keeps up with payments, the CVA completes as planned, and any remaining included debt is written off. If the company breaches the terms, creditors can petition to wind up the company instead.

What a CVA Protects You From

Once creditors approve a CVA, it generally protects the company from further legal action by the creditors included in the arrangement, including winding up petitions related to those debts. This breathing space is often the main reason directors choose a CVA over more drastic options, since it lets the business keep trading, keep its staff, and keep its customer relationships while it works through its debts.

Advantages and Disadvantages

Advantages

  • The company can continue trading throughout the process.
  • Directors keep control of daily operations.
  • Creditors often recover more than they would through liquidation.
  • No formal investigation into director conduct, unlike liquidation.

Disadvantages

  • The company’s credit rating and reputation can suffer once the CVA becomes public.
  • It only covers unsecured creditors, so secured lenders and some other obligations are not included.
  • Failure to keep up payments can lead directly to liquidation.
  • Landlords and some suppliers may still be reluctant to deal with a company in a CVA.

Is a CVA Right for Your Company?

Strategic recommendation, not a substitute for personal advice: a CVA tends to suit companies with a viable underlying business that has run into short-term financial difficulty, rather than one facing a fundamental, long-term decline. If the business cannot realistically generate enough income to fund the agreed payments, a CVA is unlikely to succeed and may only delay a more difficult outcome. An insolvency practitioner can assess whether your company’s situation genuinely fits a CVA before you commit to proposing one.

Frequently Asked Questions

Can a CVA stop a winding up petition?

It can, in some circumstances, particularly if proposed before the petition reaches a full hearing. Timing matters enormously here, so speak to an insolvency practitioner as early as possible if a petition is already in progress.

Do all creditors have to agree to a CVA?

No. The CVA only needs approval from at least 75 percent, by value, of creditors who vote, and it then binds all unsecured creditors included in it, whether or not they voted in favour.

What happens if the company cannot keep up with CVA payments?

The CVA can fail, which often leads to the company entering liquidation instead. Speak to your insolvency practitioner immediately if you are struggling to meet payments, since early conversation can sometimes lead to renegotiated terms.

Does a CVA affect director disqualification risk?

A CVA itself does not typically trigger a director conduct investigation in the way liquidation does, which is one of its advantages. However, conduct before the CVA, or conduct that causes it to fail, could still attract scrutiny in some circumstances.

Getting Legal Advice

If your company is struggling with debt but has a viable future, a CVA may offer a way forward. Compare it with other options in our guides to winding up petitions and wrongful trading, which explain what directors risk if they delay taking action.

This article gives general information only. It does not constitute legal advice. Always speak to a licensed insolvency practitioner about whether a CVA suits your company’s specific circumstances.