COMPANY VOLUNTARY ARRANGEMENT

What Is a Company Voluntary Arrangement (CVA)?

A Company Voluntary Arrangement (CVA) is a formal agreement between a UK company and its creditors to repay debts over a fixed period, usually between 3 and 5 years. It’s designed to help struggling businesses avoid liquidation and continue trading while making manageable payments to creditors.

A CVA can only be set up by an insolvency practitioner (IP) and needs approval from at least 75% (by value) of voting creditors.

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How Does a CVA Work?

1. Assessment – The company works with an insolvency practitioner to review finances and propose a realistic repayment plan.

2. Proposal – The IP prepares the proposal and sends it to creditors for a vote.

3. Approval – If 75% of creditors (by debt value) agree, the CVA becomes legally binding on all unsecured creditors.

4. Repayment – The company continues trading and makes regular payments into the CVA for distribution to creditors.

5. Completion – After the agreed period, any remaining unsecured debt is usually written off.

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Benefits of a CVA

•  Avoids liquidation – The business can keep trading instead of being wound up.

•  Stops creditor pressure – Once approved, legal actions like winding-up petitions are halted.

•  Improved cash flow – Debt repayments are consolidated into affordable monthly payments.

•  Directors stay in control – Unlike administration, directors remain in charge of the business.

•  Debt write-off – Some debt is often written off at the end of the CVA.

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Pitfalls and Risks of a CVA

•  Creditor approval required – At least 75% of creditors (by value) must vote in favour, which can be hard to achieve.

•  Damage to credit rating – A CVA is recorded on the company’s credit file for 6 years.

•  Tough trading conditions – If the company doesn’t stick to the payment plan, the CVA can fail and historically many do.

•  Secured creditors not bound – Secured lenders can still enforce their security.

•  Reputation issues – Clients and suppliers may lose confidence in the business.

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What Percentage of CVAs Fail?

Statistics from the UK Insolvency Service and industry reports show that a large proportion of CVAs do not complete successfully:

• Around 65% of CVAs fail within the first 3 years.

• Only about 30–35% reach full completion.

• Most failures happen because the company cannot maintain payments or trading conditions worsen.

Despite this, CVAs can be a valuable tool for businesses with a realistic chance of recovery and good support from creditors.

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Key Takeaway

A CVA can give a company breathing space and a structured path to recovery, but it is not a guaranteed fix. Careful planning, accurate forecasting, and strong creditor relationships are essential to make it work.