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Corporate insolvency: Company Voluntary Arrangements (CVAs) explained

There are various routes which can be taken if your business gets into financial difficulty, some of which are designed to rescue the company and/or business and others which return value to the company’s creditors and result in the winding-up and dissolution of the company and business. For an overview of these procedures, please see Corporate insolvency: what are the options for your business?

A company voluntary arrangement or CVA is an insolvency procedure which aims to rescue an insolvent company and/or its business. Here, we explain the procedure and practical issues to be considered, however if you would like legal advice on insolvency and creditor priority we recommend you speak with our insolvency and corporate recovery solicitors.

What is a CVA?

A CVA or company voluntary arrangement results in an agreement between an insolvent company and its unsecured creditors concerning the company’s debts. It is put in place and managed by an insolvency practitioner.

The arrangement will usually cover the amount to be repaid by the company and the timescale of those repayments. Often, the company will pay a fixed monthly amount to the insolvency practitioner who will then pay the unsecured creditors according to the terms of the CVA.

A CVA is usually a fairly lengthy arrangement, three to five years is fairly standard, and aims to provide a company in financial difficulties with breathing space in order to rethink its strategy and business plan, restructure and/or implement any other changes required to turn the business around.

A CVA can be a standalone insolvency procedure but it can also be used in conjunction with other insolvency procedures. For example, it is fairly common for a company in administration to put in place a CVA.

Does a CVA result in a moratorium?

A CVA does not automatically result in a moratorium, which prevents creditors of the company from bringing any legal proceedings or other action against the company, while the moratorium is in place. An automatic moratorium will apply, for example, if a company is placed in administration (see Corporate insolvency: administration).

That said, certain small companies are able to apply for a moratorium if they are considering a CVA, provided that they comply with specified conditions. If the application is successful, the moratorium will be in place for 28 days. Government proposals have been published to replace this option with a new process, but they have not yet been finalised.

What is the effect of a CVA on creditors?

An agreed CVA binds all unsecured creditors (known and unknown) who were entitled to vote on the CVA proposals, regardless of whether they knew about the proposals or not.

Any secured creditor who does not agree to the CVA is not bound and this can be a potential issue for the company which will need to negotiate with any such secured creditor separately.

How much does a CVA cost?

The cost of a CVA will depend on various factors, such as the size of the company, the number of employees, the number of creditors and value of the debts owed to them, and so on. A more complex position will obviously incur greater costs and if combined with another insolvency procedure, such as administration, CVAs can be fairly expensive. That said, a CVA on its own is quite a cheap insolvency option compared to other insolvency processes.

Applying for a CVA – the process

The process for putting in place a CVA is fairly straightforward, provided that the unsecured creditors are on-board with the plan.

Who initiates?

If the company is already in administration or liquidation, the administrator or liquidator can propose a CVA.

If the company is not in administration or liquidation, the company’s directors can propose a CVA (see Criticism of CVAs below).

Written proposals and statement of affairs

The proposer produces a set of written proposals detailing the suggested arrangement and a statement of affairs about the company, which are then sent to the insolvency practitioner (if written by the directors). The arrangement must provide that any preferential creditors will be repaid before any other unsecured creditors.

If the company is not already in administration or liquidation, the insolvency practitioner must, within 28 days, submit the proposals to the court and give an opinion as to whether the creditors and members (shareholders) of the company should consider the proposals or not. (There is no need to submit the report to the court if the insolvency practitioner is the administrator or liquidator of the company.)

Creditors’ decision procedure

Assuming that the creditors and members are to consider the proposals, the insolvency practitioner will then arrange a decision procedure in order to obtain creditor approval to the proposals.

The insolvency practitioner will notify every known creditor, provided that he has their address, of the decision procedure. The procedure itself can take various forms, such as email or other correspondence, but the most usual form is a virtual meeting of the relevant creditors.

Approval of the CVA will be obtained if more than 75% (in value) of the creditors who respond vote in favour (unless more than 50% (by value) of all the unconnected creditors who may vote are against the proposals). Secured creditors are not permitted to vote in relation to their secured debt.

Members’ meeting

Within five business days of the creditors’ decision, the insolvency practitioner must also call a meeting of the members of the company to approve the CVA proposals by a simple majority. This is, however, a formality as it is the creditors who decide whether to approve the CVA or not. Provided that the creditors have approved the proposals, the CVA will be binding on them. 

Implementation of the CVA

The CVA takes force from the date of the creditors’ approval or the date that they have otherwise agreed. Often, certain conditions precedent may be set out which need to be satisfied before the CVA comes into effect.

Once the CVA has been implemented by the insolvency practitioner, he will circulate a final report to the creditors and members of the company. This must be sent within 28 days.

What happens if the CVA is not approved?

If the creditors do not approve the CVA they may request amendments to the proposals. Through discussion and compromise an agreement between the company and creditors may be reached. If no agreement is reached, other insolvency procedures, such as administration or liquidation, could be commenced. It is possible that the company may still recover using another rescue insolvency procedure, but the company should take advice before making any decisions.

Can a creditor challenge a CVA?

Although all unsecured creditors are bound by an approved CVA, the CVA can nevertheless be challenged in court if a creditor considers that:

  • it has been unfairly prejudiced by the CVA, that is, it has been treated differently to other unsecured creditors and such treatment was unfair; or
  • there has been a material irregularity in the CVA procedure, such as timescales not being followed or votes not being counted correctly

What happens if the debtor company defaults?

The position if the company defaults under the CVA is usually set out in the CVA documents. It is usual for default to result in:

  • liquidation of the company
  • distribution of the company’s assets by the insolvency practitioner to the creditors to satisfy or partly satisfy the amount owed
  • the CVA no longer binding the creditors

Advantages of a CVA

Cashflow improvements and ability to trade and restructure

By agreeing a CVA with creditors, the company cashflow situation can improve quickly and the company should be in a better position to continue trading and to put in place restructuring actions and strategies to enable it to recover from its financial difficulties.

Directors retain control

A CVA allows the directors to retain control of the management of the business and there is no investigation into the directors’ conduct, unlike administration, for example. This allows people who understand the business to continue running it, although in some cases, this could be a disadvantage (see Disadvantages of a CVA below).

May prevent liquidation and gives better return to creditors

A CVA allows the company time to make any changes to its business and management in order that it can recover from its financial difficulties and minimise the risk of such problems arising again in the future. In addition, it may result in a better return for the creditors than the alternative insolvency options.

Informality and cost

Implementing a CVA is a relatively informal insolvency procedure. It can, therefore, be a cheaper rescue option and result in more funds being available to repay creditors or to rescue the business.

Although a moratorium is not automatically put in place under the CVA procedure, legal proceedings against the company will be halted if a CVA is approved and for small companies there is the moratorium option (see Does a CVA result in a moratorium? above). For larger companies, an automatic moratorium may be put in place if the CVA forms part of the administration process.

No publicity

Neither the consideration or implementation of a CVA requires a public announcement to be made and so a company in financial difficulties is able to preserve its reputation in the public eye more easily than with other insolvency procedures, such as administration.

Disadvantages of a CVA

Despite the advantages of CVAs (see Advantages of a CVA above), they are not to be proposed lightly and may not always be the best option for a struggling business. Some disadvantages include:

Secured or preferential creditors not bound

Because CVAs only bind unsecured creditors, creditors with secured debt could, potentially, initiate another insolvency procedure, such as administration, regardless of the CVA. Companies will need to negotiate separately with secured creditors to reduce the chances of this.

CVAs do not always rescue a company and liquidation of the company may still occur. If a CVA fails, there is the risk of legal action being brought against the company.


Although CVAs themselves are a fairly cheap insolvency procedure, they often form part of the administration insolvency process and this can result in high costs for the company and consequently, less money for the creditors.

Directors retain control

Although this can be an advantage (see Advantages of a CVA above), if the company’s financial difficulties have arisen as a result of poor management, retaining the same board may not solve the problem. In addition, a CVA does not result in the investigation of the company’s directors. Again, this can be a benefit but if any of the directors have been acting inappropriately, an investigation could be what is required.

Poor credit rating

A company which has undergone a CVA will receive a poor credit rating.

Lengthy process

A CVA can be in place for a fairly long time; three to five years is quite common.

Criticism of CVAs

There has been recent media criticism that companies are proposing unnecessary CVAs to allow themselves to easily reduce overheads. It should be remembered that this is not the point of the process; CVAs are a rescue mechanism to enable viable companies to continue trading and attempt to overcome their financial difficulties before resorting to more drastic insolvency measures.

What next?

Our banking and finance solicitors can provide expert legal advice on insolvency and creditor priority whether you are a creditor or involved with a company, and we can also refer you to insolvency practitioners.

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