What is Company Voluntary Arrangement (CVA)?

A Company Voluntary Arrangement (CVA) is a legally binding agreement between a struggling business and its creditors to repay a portion of its debts over a set period. For a UK audience, understanding CVAs is crucial for businesses facing financial difficulties and seeking a viable alternative to insolvency.


Key Aspects of a Company Voluntary Arrangement (CVA):

  1. Definition:
    • A CVA is a formal insolvency procedure that allows a company to negotiate with its creditors to repay a portion of its debts over time while continuing to trade. It aims to provide the company with breathing space to restructure and return to profitability.
  2. Purpose:
    • Debt Repayment: Enables a company to repay its debts in an affordable and structured manner.
    • Business Continuity: Allows the company to continue trading and potentially return to financial health.
    • Creditor Agreement: Provides a formal framework for creditors to agree on the terms of repayment, often resulting in better returns than liquidation.
  3. Process:
    • Proposal Development: The company’s directors prepare a proposal outlining the terms of the CVA, including how much of the debt will be repaid, the duration of the arrangement, and the operational changes planned.
    • Insolvency Practitioner (IP): An IP is appointed to supervise the CVA process, ensuring that the proposal is fair and feasible.
    • Creditor Meeting: The proposal is presented to the company’s creditors, who vote on whether to accept the CVA. At least 75% (by value) of the creditors must approve the proposal for it to be implemented.
    • Implementation: Once approved, the CVA becomes legally binding. The company makes regular payments to the IP, who distributes the funds to the creditors according to the agreed terms.
    • Monitoring and Compliance: The IP monitors the company’s compliance with the CVA terms and provides regular updates to the creditors.
  4. Benefits:
    • Avoids Liquidation: A CVA allows the company to avoid liquidation and continue operating.
    • Debt Relief: Offers a structured way to reduce and manage debt, potentially writing off a portion of it.
    • Control Retention: The company’s directors remain in control of the business, unlike in administration or liquidation where control is handed over to the IP.
    • Improved Cash Flow: The company benefits from improved cash flow due to reduced debt repayments and extended payment terms.
  5. Challenges:
    • Creditor Approval: Securing the required majority approval from creditors can be challenging.
    • Compliance: The company must adhere strictly to the CVA terms, and any breach can lead to the termination of the arrangement and potential liquidation.
    • Impact on Credit: A CVA can affect the company’s credit rating and reputation, making future borrowing more difficult.
    • Employee Morale: The process can impact employee morale and confidence in the company’s future.
  6. Example:A UK-based retail company is struggling with £500,000 in debt due to declining sales and high operating costs. The company’s directors propose a CVA to repay 60% of the debt (£300,000) over five years.
    • Proposal: The directors work with an IP to develop a proposal that outlines the repayment plan, operational changes, and how the company will improve profitability.
    • Creditor Meeting: The proposal is presented to the creditors, and 80% (by value) approve it.
    • Implementation: The CVA is implemented, and the company makes monthly payments to the IP, who distributes the funds to the creditors.
    • Monitoring: The IP monitors the company’s progress and compliance with the CVA terms, providing regular updates to the creditors.


A Company Voluntary Arrangement (CVA) is a valuable tool for UK businesses facing financial distress, offering a way to restructure debt and avoid liquidation while continuing to trade. By understanding the process, benefits, and challenges of a CVA, businesses can make informed decisions about their financial recovery options. Proper planning, clear communication with creditors, and adherence to the agreed terms are essential for the successful implementation of a CVA.