Company Voluntary Arrangement
Explainer
Think of a Company Voluntary Arrangement as consolidating your debts and paying instalments for a fixed period in full and final settlement of them.
Risk Management
A CVA demonstrates directors are taking steps to try and pay back creditors as much money as possible. ​
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If the CVA is approved, creditors bound by it cannot take any action against the company as long as the company complies with its CVA obligations.
A Company Voluntary Arrangement or CVA is a legal process which enables a company facing financial difficulties to avoid going out of business by making a formal, legally binding deal with its creditors. Creditors have to agree to the process but generally, it allows the debts of the company to be put to one side and paid or part paid over a period up to 5 years. It enables a company to continue trading under the control of its directors.
How does a Company Voluntary Arrangement work?
It is a contract between the company and its creditors. The company (often facing financial difficulties) proposes a plan to its creditors being the people or organisations it owes money to. This plan could include repaying a reduced amount or giving the company more time to pay.
For the plan to go through, 75% (by the value of debt) of the creditors who vote must agree to it. If they do, the CVA becomes legally binding for all creditors involved.
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During the CVA, the company can keep trading, which means it can continue to operate, generate revenue, and ideally get back on track financially. The CVA typically runs for a fixed period (e.g., 3 to 5 years).
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A licensed insolvency practitioner is appointed to oversee the CVA. They make sure the company sticks to the agreed repayment plan and reports to creditors on progress.
How does it help?
A company can be rescued and continue trading.
There is an organised, legal process to pay back creditors and management can stop firefighting financial difficulties and concentrate on building the business.
How long does it take for the Company to be in a CVA
Typically, from the point you contact us, the company could be in a CVA within 4-6 weeks. It depends on how quickly financial information can be provided and how much creditor pressure there is.
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If the company has, for example, received a winding up petition, that will not stop a CVA being proposed to creditors and the process will be likely to enable any immediate creditor action to be paused pending the outcome of creditors on the CVA. ​​​​
What are the potential outcomes of a Company Voluntary Arrangement?
If it is rejected:
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Nothing happens except the company will need to take alternative steps to resolve its financial situation.
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If it is accepted:
Rescue - the company completes the CVA process and is deemed to have paid those CVA debts in full (even if creditors were only part paid their debt under the arrangement).
Failure - if the business fails to meet its CVA obligations, or encounters new financial difficulty with creditor arising after the CVA was approved, it may need to enter into a process such as Administration or Liquidation.