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Voluntary Arrangement (CVA)

Company Voluntary Arrangements (CVAs) are an insolvency procedure designed to rescue a business through a re-structuring of its liabilities to creditors.

There have been a number of high-profile CVAs recently where large retailers have used the procedure to restructure their debts and in particular their property portfolios including leases and rent obligations. CVAs are an important insolvency procedure, when used in the right circumstances. If a business has a viable future but is hampered by legacy debts, then a CVA is often the best way of ensuring that the company can continue to trade, through a formal restructuring of its unsecured debts.

What is A CVA?

A CVA is a legally binding agreement between the company and all of its unsecured creditors (including HMRC) to pay them a monthly contribution from future profits, or from the realisation of assets. It can be used in situations where the company is technically insolvent – that is, it either cannot pay its debts as they fall due, or its realisable assets are less than its liabilities.

A CVA typically lasts for 5 years, depending on the terms of the arrangement and in many cases, a proportion of the debt owed to creditors is written off when the CVA is completed. The key principle behind a CVA is that it preserves the company as a going concern, giving it the potential to rebuild sales and profits and in doing so, paying something back to legacy creditors. In the vast majority of cases therefore, creditors will receive a better return from a CVA than if the company went into liquidation.

A CVA requires the support of at least 75% of the company’s unsecured creditors to approve the proposal, and once implemented the CVA is monitored by a Licenced Insolvency Practitioner who acts as Supervisor.

The Advantages of a CVA

The key advantages of a CVA, compared with liquidation and starting a new company (the most likely alternative) are:

  • There is no real disruption to the business and the directors remain in control (although the CVA Supervisor may hold certain company assets in trust)
  • The monthly payments into the CVA are based on what the company can realistically afford – this is normally established from a cash flow forecast
  • Secured creditors are unaffected, assuming they continue to rely on their security
  • Once approved the CVA will be legally binding on all unsecured creditors (even those who may have voted against it) and the company is protected from creditor enforcement
  • Any debts not fully paid once the CVA is completed will be written off
  • The company is not obliged to tell its clients that it is in a CVA (unless they are also creditors)
  • Interest and charges on all unsecured debts will be frozen

The Disadvantages of a CVA

The disadvantages of a CVA, when compared with liquidation are:

  • The CVA is a long-term commitment (typically lasting 5 years) and the solution will only work if the company is able to continue making profits over the medium term
  • The CVA will have a significant negative impact on the company’s credit rating. Suppliers may insist on “cash on delivery” which can have a damaging effect on supplies and cash flow immediately after the CVA is approved
  • The company is unable to take further credit whilst in the CVA (other than secured loans)
  • The company’s performance is reviewed each year by the CVA Supervisor – if the company is making more profits, then it is likely that the contributions into the CVA will need to increase
  • If the company is unable to maintain the required payments then the CVA Supervisor is likely to be required to fail the CVA and/or petition for the winding up of the company
  • If HMRC are a creditor then a key condition of the CVA will be that all future returns are filed and liabilities paid on time

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Bridgewood is a trading style of Bridgewood Financial Solutions Limited (Company No: 06957765). Registered Office: Poynt South, Upper Parliament Street, Nottingham, NG1 6LF. Registered in England and Wales.

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Thomas Grummitt and Andrew Smith are licensed to act as Insolvency Practitioners in the UK by the Insolvency Practitioners Association. In carrying out all work related to an insolvency appointment, insolvency practitioners are bound by the insolvency code of ethics and are subject to the regulations and guidance of their authorising body. Details of the code of ethics, statements of insolvency practice and other regulations and guidance issued by the Insolvency Practitioners Association can be found here: