Company Voluntary Arrangement (CVA)
If your company is insolvent but the underlying business is still viable, a Company Voluntary Arrangement — usually called a CVA — may allow it to keep trading while dealing with its historic debts.
The company agrees a formal repayment plan with its creditors. If the required majority approve it, the arrangement becomes legally binding and the directors normally remain in control of the business.
For the right company, that can provide a genuine route out of financial difficulty.
But a CVA only works if the business can afford its future costs, new taxes and the agreed CVA payments.
If the company is continuing to lose money every month, a CVA may simply postpone liquidation.
What is a CVA?
A CVA is a formal insolvency procedure that allows a company to reach an agreement with its creditors about how its debts will be dealt with.
The arrangement might provide for:
- Debts to be repaid over a longer period
- Creditors to receive only part of what they are owed
- A combination of regular contributions and lump-sum payments
- Asset sales or other funding to contribute towards creditors
The exact terms depend on what the company can realistically afford and what creditors are prepared to accept.
A licensed insolvency practitioner must be involved in proposing and supervising the arrangement.
Does the company carry on trading?
Usually, yes. That is the main reason for using a CVA.
Unlike liquidation, the objective is not to close the company and realise its assets.
The directors normally remain in control and continue running the business while the CVA supervisor monitors compliance with the arrangement.
That makes a CVA most suitable where there is a worthwhile business to preserve.
What type of company is suitable for a CVA?
A good starting point is a company that is struggling with historic debt but can trade profitably going forward.
For example, a CVA may be worth considering where:
- The core business is profitable
- There is a strong order book or recurring customer base
- A temporary setback created substantial arrears
- Costs have already been reduced
- The company can pay future wages, rent and taxes
- There is sufficient cash flow to make meaningful payments to old creditors
- Creditors are likely to receive more than they would in liquidation
The company does not need to be perfect. It does need a credible route back to financial stability.
When is a CVA probably the wrong solution?
A CVA is much harder to justify if the underlying business itself is not viable.
Warning signs include:
- The company is losing money before paying historic debts
- New VAT and PAYE cannot be paid as they arise
- Key customers or contracts have been permanently lost
- The company needs unrealistic sales growth to survive
- There is no working capital to continue trading
- Suppliers will no longer support the business
- The proposed CVA contribution is based on hope rather than evidence
A CVA should fix a debt problem around a viable business. It cannot turn a fundamentally loss-making business into a profitable one simply by restructuring old creditors.
How much does the company have to repay?
There is no fixed percentage.
The proposal needs to reflect what the company can genuinely afford and why creditors should accept it.
Creditors will normally want to compare the CVA with what they are likely to receive if the company instead goes into liquidation.
For example, if creditors might receive very little in liquidation but the continuing business could provide a meaningful return over time, a CVA may produce a better outcome for everyone.
The offer still needs to be the company’s best realistic proposal — not simply the lowest figure the directors hope creditors will accept.
How many creditors have to agree?
The main voting threshold is 75% or more by value of the creditors who vote.
There is also an important protection against connected creditors controlling the outcome: a CVA cannot be approved if more than half, by value, of the unconnected creditors voting oppose it.
This means you do not necessarily need every creditor to agree.
But before proposing a CVA, we would want to understand who the major creditors are and whether there is a realistic prospect of achieving sufficient support.
What happens to creditors who vote against the CVA?
If the CVA is properly approved, qualifying creditors within the arrangement can be bound even if they voted against it or did not vote.
That is one of the major differences between a formal CVA and an informal payment arrangement.
You do not need every supplier individually agreeing to the same deal.
There are important protections for secured and preferential creditors, whose rights cannot simply be altered in the same way without the required consent.
Can HMRC be included in a CVA?
Yes, and HMRC is often a very important creditor in company CVAs.
HMRC considers each proposal on its merits.
Its current published guidance says it will only support a proposal where it believes there is a realistic prospect of the arrangement succeeding.
HMRC will expect:
- Tax returns to be up to date
- The company’s finances to be disclosed honestly
- A realistic cash-flow forecast
- The best achievable offer to be made to creditors
- A clear explanation of why tax arrears arose
- All future HMRC liabilities to be paid in full and on time
If the company cannot pay its new taxes while making CVA contributions, HMRC is unlikely to regard the proposal as sustainable.
Is a CVA the same as HMRC Time to Pay?
No.
A Time to Pay arrangement is an agreement with HMRC about HMRC’s debt.
A CVA is a formal insolvency procedure capable of dealing with a much wider group of company creditors.
Time to Pay may be sufficient where HMRC is the main problem and the company can repay the tax in full over time.
A CVA may be more relevant where significant debts are spread across HMRC, suppliers, landlords and other unsecured creditors and simply extending one tax bill will not solve the problem.
Does proposing a CVA stop creditor action?
Not automatically.
Simply deciding to propose a CVA does not, by itself, give every company immediate protection from creditor enforcement.
There are separate statutory procedures that can provide a temporary moratorium from certain creditor action in suitable cases, but that is not something directors should assume applies simply because a CVA is being considered.
If the company is already facing sheriff officers, bank arrestment or a winding-up petition, tell us immediately.
The rescue strategy needs to take the enforcement stage into account from the outset.
What happens to suppliers during a CVA?
The company normally needs suppliers to continue supporting it if the business is to survive.
That means the commercial plan matters as much as the legal arrangement.
Some suppliers may continue offering credit. Others may insist on:
- Payment upfront
- Shorter payment terms
- Smaller credit limits
- Additional security
A cash-flow forecast that assumes every supplier will continue providing the same credit terms after a CVA is announced may therefore be unrealistic.
Do the directors lose control of the company?
Normally, no.
The existing directors continue to manage the company and its business.
The insolvency practitioner becomes the supervisor of the CVA and monitors the company’s compliance with the arrangement.
That is fundamentally different from administration or liquidation, where an insolvency practitioner takes control of the formal insolvency process.
How long does a CVA last?
There is no single statutory duration that applies to every CVA.
The period forms part of the proposal put to creditors and should reflect what the company can realistically deliver.
A longer arrangement may reduce the monthly payment, but it also requires the business to remain successful and compliant for longer.
The objective should be a term that is both affordable to the company and commercially acceptable to creditors.
What happens if the company misses a CVA payment?
The consequences depend on the terms of the arrangement and the seriousness of the breach.
A temporary problem may sometimes be capable of being addressed under the CVA’s terms.
But if the company cannot maintain the arrangement, the CVA can fail.
That may leave creditors able to pursue the company again and can ultimately lead to liquidation or another insolvency procedure.
This is why we would rather recommend liquidation at the outset than construct a CVA around payments that the company is unlikely to maintain.
Will a CVA affect the company’s credit rating?
Yes, creditors and credit-reference providers can become aware that the company has entered a formal insolvency procedure.
That may make future credit more difficult or expensive.
But for a company already seriously in arrears, the more useful question is whether the business can survive and return to sustainable trading.
Protecting a damaged credit score is not a good reason to avoid dealing with insolvency.
CVA or liquidation — which is better?
Neither is automatically better. They solve different problems.
A CVA may be appropriate where:
- The underlying business is viable
- There is enough cash to continue trading
- Historic debt is the main problem
- Future liabilities can be paid on time
- Creditors are likely to support a realistic proposal
A CVL may be more appropriate where:
- The business is no longer viable
- Losses are continuing
- New debts cannot be paid
- There is no realistic working capital
- A rescue would simply create further creditor losses
The right answer comes from the numbers, not from choosing the procedure that sounds more attractive.
What do we need to assess whether a CVA is realistic?
You do not need to arrive with a finished CVA proposal.
We would normally start with:
- Rough total creditor balances
- HMRC arrears
- Recent management accounts
- Current bank position
- Expected sales and cash receipts
- Normal monthly costs
- Employee costs
- Details of secured lending
- Major contracts and customers
- Assets available to the company
- A realistic view of future trading
From that, we can usually establish quite quickly whether a CVA deserves more detailed work or whether another option is more realistic.
CVA FAQs
Can a Scottish company use a CVA?
Yes. Company Voluntary Arrangements are available to Scottish companies and are governed by the Insolvency Act 1986 together with specific Scottish insolvency rules.
Does the company have to repay all of its debt?
Not necessarily. The proposal can provide for creditors to receive part of what they are owed, provided the required creditors approve the arrangement.
What percentage of creditors must agree?
At least 75% by value of creditors voting must support the proposal, subject to the additional rule protecting unconnected creditors.
Can HMRC vote against a CVA?
Yes. HMRC assesses proposals individually and can vote for or against. Its current guidance makes clear that future taxes must be affordable and paid on time.
Do I remain a director?
Normally, yes. Directors continue running the company while the insolvency practitioner supervises the CVA.
Does considering a CVA automatically stop creditors?
No. A proposed CVA does not itself automatically give every company protection from enforcement. Separate rescue protections may be available in appropriate circumstances.
What happens if the CVA fails?
Creditors may regain enforcement rights and the company may ultimately enter liquidation or another formal insolvency process, depending on the circumstances and the CVA terms.
Could a CVA save your company?
The quickest way to find out is to look at whether the business can make money going forward.
If the core business is sound and historic debt is holding it back, a CVA may deserve serious consideration.
If the business cannot pay its normal running costs and new liabilities, we will tell you that rather than trying to force the company into an arrangement that is unlikely to succeed.
Bring us the numbers and we can help you work out whether there is a business worth rescuing.