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Company Voluntary Arrangement (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.

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 company voluntary arrangement?

A CVA or company voluntary arrangement is an agreement between an insolvent company and its unsecured creditors covering when and how to pay the company’s current debts. It is supervised by an insolvency practitioner (a ‘Supervisor’).

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

Often, to make the arrangement more attractive to creditors than their alternatives, (such as suing the company for money owed, or putting the company into a permanent insolvency process) the company will arrange for a lump sum to be put into the company, either from third party funds or from the sale of a company asset.

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 to move out of the administration and return to solvency.

Does a company voluntary arrangement result in a moratorium?

A CVA does not automatically result in an official moratorium which would prevent any creditors of the company from bringing any legal proceedings or other action against the company. An automatic moratorium will apply, for example, if a company is placed in 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.

When should you consider a company voluntary arrangement?

You should only consider a CVA if you are confident that your financial issues are relatively short term, and that you are very likely to recover your business to profit, while repaying your creditors.

If you are not confident of this, then a CVA may simply extend the company’s problems and may not be the best solution for your business.

Why would you put a company into a company voluntary arrangement?

The main benefit of a CVA is that it provides a company in financial difficulties with some breathing space in order to rethink its strategy and business plan, restructure and/or implement any other changes required to turn the business around without the immediate threat of proceedings being brought by its unsecured creditors.

While an overall moratorium is not given, all unsecured creditors that were in existence prior to the CVA will be bound by it if voted in, and this means they can’t take any proceedings against the company for the debts owed to them up to the date of the CVA.

What is the effect of a company voluntary arrangement 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.

Does a company voluntary arrangement affect all creditors?

No - any secured creditor who does not agree to the CVA is not bound, and this can be a potential issue for the company, who will need to negotiate with any such secured creditor separately to ensure they don’t force the company into another insolvency process such as liquidation while the CVA is in working.

Any credit incurred following the date of the CVA is also not bound, unless there is some specific agreement in the CVA that says otherwise.

How much does a company voluntary arrangement 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 because a Supervisor is required to supervise the process. That said, a CVA on its own is quite a cheap insolvency option compared to other insolvency processes.

How long does a company voluntary arrangement normally take?

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

What is the difference between a company voluntary arrangement and a scheme of arrangement?

A scheme of arrangement does not require the company to be insolvent.  It can be used by both solvent and insolvent companies to agree any issue or matter with its creditors and/or members, although they are often used by insolvent companies to restructure debts or to agree a way forward with creditors to avoid formal insolvency.

The main difference is that a scheme of arrangement applies to all creditors and/or members of the relevant class or classes, which means that secured creditors are also bound by the scheme, unlike CVA, with the result that debts owed to secured creditors may be cancelled or reduced without their unanimous consent.

Applying for a company voluntary arrangement – 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.

Written proposals and statement of affairs

The company will set out some written proposals detailing the suggested arrangement, together with a statement of affairs detailing the company’s financial position, which are then discussed with the proposed Supervisor. The arrangement must provide that any preferential creditors will be repaid before any other unsecured creditors.

The Supervisor must, within 28 days, submit the proposals to the court and give an opinion as to whether the creditors and shareholders should consider the proposals or not.

Creditors’ decision procedure

If everything is ok, the Supervisor will then arrange a ‘decision procedure’ in order to obtain creditor approval to the proposals. This is where the creditors are able to vote.

The Supervisor 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.

Implementation of the company voluntary arrangement

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

What happens if the company voluntary arrangement 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 company voluntary arrangement?

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, because 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 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 Supervisor to the creditors to satisfy or partly satisfy the amount owed
  • the CVA no longer binding the creditors.

Advantages of a company voluntary arrangement

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 actions and strategies to enable it to recover from its current 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 give a better return to creditors

A CVA provides the company with time to make any changes needed to its business and management to enable it to recover from its financial difficulties and minimise the risk of such problems arising again in the future. In addition, it is likely to 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.

Prevents legal proceedings

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 up to date for unsecured creditors.  

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 more easily than with other insolvency procedures, which must be advertised, such as administration.

Disadvantages of a company voluntary arrangement

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 against the company, regardless of the CVA. Companies will need to negotiate separately with secured creditors to reduce the chances of this.

Legal action if the CVA fails

CVAs do not always rescue a company and if a CVA fails, there remains the risk of legal action being brought against the company by its creditors.


Although CVAs themselves are a comparatively cheap insolvency procedure, they often form part of the administration insolvency process and/or can go on for a long period, 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.

Poor credit rating

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

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 happens after a CVA?

Once the provisions of a CVA are all met, and all the creditors owed money under the CVA are paid, then the CVA will come to an end.  The company will be able to continue to trade without a risk that the creditors that were bound by the CVA are able to bring a claim for any unpaid amounts due from before the CVA was put in place.


At Harper James our Recovery and Insolvency Solicitors have many years’ experience in acting for companies in using CVAs as a restructuring tool to help their business.  If you believe this may be a route you would like to take, we can look at the options with you to assess if this is the best option for your business. We frequently work with insolvency practitioners in this area who are happy to look at the circumstances of your business and your creditor position, and advise if a CVA might be a realistic option for you.  Contact one of our team for a chat today.

About our expert

Eleanor Stephens

Eleanor Stephens

Senior Recovery & Insolvency Solicitor
Eleanor Stephens is a senior insolvency solicitor with over 20 years' specialist knowledge in all aspects of insolvency, both corporate and personal, covering contentious and non-contentious matters.

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