A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
What is a Company Voluntary Arrangement (CVA)?
A Company Voluntary Arrangement is a formal, legally binding deal between an insolvent company and its creditors - typically to repay a proportion of its debts over three to five years from future profits - allowing the company to keep trading under its existing directors.
In this guide you'll learn how a CVA is proposed and approved, its genuine advantages and disadvantages, and the profile of company a CVA actually suits - which is narrower than the marketing around them suggests.
A CVA lives or dies on the reliability of future profits, so it's a good idea to stress-test the forecasts honestly before proposing one - a failed CVA usually ends in liquidation with creditors worse off and goodwill exhausted.
How does a CVA work?
The directors, with a licensed insolvency practitioner acting as nominee, prepare a proposal: what creditors will receive, over what period, funded from what.
Creditors vote - approval requires 75% or more by value of those voting - and once approved, the CVA binds all unsecured creditors, including those who voted against.
The company then trades on under its directors, making the agreed contributions to a supervisor (the IP), who distributes them to creditors; complete the arrangement and the balance of the bound debts is written off.
What are the advantages of a CVA?
The company survives - trade, contracts, brand, and jobs continue, and directors remain in control day to day.
Creditor pressure stops - legal actions by bound creditors are stayed, and the constant firefighting of creditor triage ends.
It's often cheaper and less disruptive than administration, avoids the finality of liquidation, and is comparatively private - no "in administration" over the door.
What are the disadvantages?
Five years is a long time - the company commits its future profits, and trading through a CVA with tight cash and a visible credit record is genuinely hard.
Approval isn't guaranteed - HMRC, frequently the largest voter, applies real scrutiny, and a proposal that fails at the vote leaves the company exposed and its position public.
Credit is affected - the CVA is registered, suppliers may tighten terms, and winning new credit during the arrangement is difficult.
And the failure statistics deserve respect: a large share of CVAs don't complete, usually because the forecasts were hopeful rather than honest - and a failed CVA typically converts into a liquidation that could have happened years earlier with less money burned.
Which companies genuinely suit a CVA?
The realistic profile: a business that is viable at the operating level - it makes money before historic debt service - with a debt pile created by a past event (a bad contract, a lost customer, the pandemic) rather than a broken model, dependable forward revenue, and directors capable of running a disciplined turnaround.
Where the trade itself no longer works, a CVA merely schedules the failure - the honest options conversation matters more than the mechanism.
Where the business is viable but the pressure is immediate - a winding up petition, enforcement - administration's moratorium may be needed first or instead, sometimes with a CVA following.
How does a CVA compare with the alternatives?
Against informal deals and Time to Pay arrangements: a CVA binds everyone and writes off the shortfall, but costs more and marks the record - informal routes suit smaller, simpler problems.
Against administration: the directors stay in control in a CVA, but there's no moratorium during the proposal (unless separately obtained) and no mechanism to sell the business - administration suits rescue-by-sale, a CVA suits rescue-by-trading.
Against liquidation: a CVA preserves the company; liquidation ends it - and the choice between them is simply the viability question answered honestly.
Where can I get advice on a CVA?
Call our licensed insolvency practitioners in Manchester on 0333 023 5090. We'll test the numbers with you before anything is proposed - and if a CVA is the right tool, you'll go to creditors with a proposal built to survive contact with reality.
InsolvencySupport.co.uk is operated by Xeinadin Corporate Recovery Limited (company no. 11415156), 8th Floor, 100 Barbirolli Square, Manchester M2 3BD. Our insolvency practitioners are licensed and regulated by the ICAEW.
This article is intended for general information purposes only and does not constitute financial, legal, or professional advice. Always take advice from a licensed insolvency practitioner about your specific position.
Reviewed by Alan Fallows, Licensed Insolvency Practitioner, ICAEW.