What is a Company Voluntary Arrangement (CVA)?

A CVA is a tool for businesses to use in order to get out of insolvency and have a chance at recovery.

The CVA is a procedure that is a legally binding agreement between the business and its creditors. It sets out how repayments should be made to creditors and can deliver a better outcome than administration or liquidation.

What are the potential benefits of entering into a CVA?

There are some key benefits of entering into a CVA that you should know about. These include:

  • All / a percentage of the company debts are paid back, depending on affordability. This makes it beneficial to creditors and the business.
  • A CVA can allow the core business to trade under the control of its directors. Thus allowing the company to continue to generate income and pay back the debts.
  • The CVA can allow the business time to reorganise and restructure itself in a profitable way.
  • The "statutory moratorium period" can provide breathing space from creditor action (such as a winding up petition) while the initial CVA proposal is being prepared.
  • The CVA can cost less than other insolvency procedures, but this can relate to how complex the situation is.
  • Secured creditors generally remain outside of the CVA and are therefore more likely to be supportive.
  • A CVA may enable the company to avoid some of the negativity that comes from other insolvency procedures (It's not normally advertised, but it is registered at Companies House and employees must be informed.

The CVA proposal and process

With the help of an insolvency practitioner, directors put forward a feasible CVA proposal which will have to be agreed by the creditors. A key factor with the proposal is it has to be desirable for the creditors, compared to other measures and it should contain details and the contributions and the business' plan moving forward.

Directors may make the following points clear in regards to the business' plans:

  • There are improved credit control procedures.
  • Upfront deposits will be taken in order to reduce loss.
  • There are new contracts in the pipeline.
  • There are fresh marketing plans.
  • Assets will be leased rather than purchased.
  • There will be stronger management in place.


There are three ways in which a reasonable CVA contribution can be made:

  1. Fixed Contributions - a fixed monthly amount over a period, this is calculated from cash flow projections.
  2. Seasonal / trend based contributions - variable amounts are paid as defined by projected peaks and troughs of the business' calendar.
  3. The realisation of company assets or introduction of third party funds into the arrangements.

Once the CVA proposal is complete, it is sent to the creditors for consideration. After 14 days, the creditors are asked to vote, there needs to be at least 75% agreeance.

On approval, a nominee becomes the supervisor of the CVA (this can be the insolvency practitioner). Their role is to collect contributions, and make distributions to the creditors. They also report annually to the creditors and manage any changes or breaches of the CVA.

If the CVA is rejected, it can lead to another insolvency procedure, as such as administration or liquidation.

Directors need to think carefully when considering trading through financial difficulty. When the going gets tough in a company, it is the directors responsibility to put the creditors' interests before those of the company. Early and in-depth discussions with an insolvency professional are advisable in order to keep the business recovery options open.

This post is for information purposes only, and should not be regarded as legal advice. Please seek professional advice before carrying out any activities that are mentioned within this post.

Recent Blog Posts