A CVA Meeting taking place

What is a CVA (Company Voluntary Arrangement)?

A CVA is a legally binding proposal in which companies agree with creditors on a appropriate payment agreement spanning up to 5 years.
In this period, the company agrees to pay back the debts owed, allowing a company to save itself from severe financial distress by paying arears in instalments rather than large lump sums.

The catch of a CVA is often the creditors’ approval. In order for a CVA to be approved and agreed the creditors must agree in a majority of at least 75%, which can sometimes be more difficult than envisioned.
However, the appointed IP (Insolvency Practitioner) is an expert in these procedures and will assess the situation and formulate an appropriate plan to increase the chances of approval.

This recovery solution has been a popular choice since its inclusion in UK law in 1986, as it allows companies and their Directors to retain the majority of their powers and remain trading.

Why a CVA?

CVAs are best suited to insolvent limited companies with a desire to address financial troubles before these accelerate to an irreversible state. They allow companies to both continue trading and address arrears simultaneously.

If a company can verify (with the help of an IP) that there is viable proof of their ability to uphold the financial commitments of the CVA as well as the current commitments such as HMRC payments, a CVA is likely to be the most appropriate option.

What can I Expect?

Phase 1: The Proposal

Once a company has appointed their chosen IP, this expert will assess the company’s financial affairs to devise the most appropriate proposal moving forward. An initial proposal is drafted for review by the Directors. Once reviewed and approved the IP will contact the creditors themselves to notify them of the upcoming creditors’ meeting.

Phase 1a: Moratorium

Not always, but more often than not, the company/IP can apply a moratorium, which temporarily pauses the threat of legal action and gives the company safety whilst negotiation proceedings move forward.

Phase 2: Creditors’ Meeting

This is a meeting held between the IP and the creditors, although all do not have to attend it is at their discretion. They will hold a vote on the proposal and discuss any concerns and conditions relating to the CVA.

In order to be approved, 75% (by debt value) of creditors must agree to the conditions of the proposal. Once this is approved there is a secondary meeting for separate creditors involved with the operation of the company such as employees or Directors. In order for the proposal to pass fully, a majority of 50% or more (by debt value) must agree to the terms.

Once external creditors have approved, it is more than likely that internal creditors such as the above examples, will agree to the conditions of the proposal as well.

Phase 3: IP’s Report

Upon approval of the proposal, the IP will formally be appointed as Supervisor. Their first act once officially appointed, is to create and circulate a report disclosing the conditions of the proposal as well as any information from meetings and votes. This document is shared with both the courts and the creditors themselves, ensuring all parties have the information they need.

Phase 5: The CVA

The CVA comes into effect once successfully approved.

The company will adhere to the payment schedule and make payments to creditors via their IP. The safety of the CVA protects the company as long as the payment conditions are met, if they fail to meet these conditions creditors may pursue other action such as Compulsory Liquidation.

Who is included?

Once a CVA is approved, it is legally binding for any and all company creditors.
The majority vote speaks on behalf of all creditors, ensuring both the company and creditors are in agreement moving forward.

If they have issue with the proposed CVA, creditors can exercise their right to challenge within a 28-day period from commencement.

Typically, challenges are only considered by the courts in two instances:

  • The CVA procedure was not followed correctly, resulting in a flawed proposal
  • The CVA demonstrates unfair prejudice and does not treat all creditors fairly under its conditions

What is the Timeframe?

The process of arranging a CVA takes roughly 8 weeks, from phase 1 to phase 5.

CVAs grant the company protection within the agreed terms for a period of 5 years (maximum). On average, most CVAs will span between 2 and 5 years, although the circumstances of each company will dictate their ability to settle arrears and at what pace.

General CVAs do not exceed a period of 5 years, however occasionally circumstantial extensions are permitted, in rare cases.

Risks and Impacts

CVA’s can and will impact the company’s credit score for a period of up to 6 years.

Creditors such as HMRC or banks (loans etc.) are not always covered by the terms laid out in  a CVA, meaning they can still explore other options to access payment

If unsuccessful, the company has already declared a state of insolvency or predicted insolvency in the near future. This means that they may have to consider other options such as a Voluntary Liquidation or risk being forced into Liquidation involuntarily.


If you are concerned about pursuing a CVA as an option to address HMRC arrears, don’t be.

Providing the proposal is curated with consideration and is proven to be a viable solution, HMRC will consider this as a path to repayment. While it is impossible for HMRC to accept all proposed CVAs they are likely to accept the majority of viable proposals.

Directors and Employees

In the vast majority of cases, Directors will continue any day-to-day operations of the company. Unless they themselves request a restructure within management, protecting themselves and their personal interests from any fall-out.

A CVA does not place the Directors and their conduct under any scrutiny, a process which is involved within other Insolvency Procedures.

It is important to note that any guarantees made to creditors by the Directors remain valid throughout a CVA. While most creditors understand that respecting these formal processes serves as the best way for them to receive payment, some may still pursue payment through personal guarantees. Failing to act in this situation can seriously impact Directors in this position. If you have concerns relating to this situation, contact an Insolvency Practitioner immediately to discuss the appropriate solutions.

As a Business Recovery Solution, a CVA is intended to enable a company to survive and in essence protect the jobs of any employees. However, in some cases restructuring and redundancies are an unavoidable loss in the recovery process. Should employees face redundancy as a result of a CVA, they will be eligible for Government funded redundancy payments.

If you have growing concerns about the financial future of your company and require advice on recovery options available, speak to a member of our team. Our Business Recovery Experts and Insolvency Practitioners will arrange a no obligation consultation enabling you access to solutions and peace of mind.

Don’t bury your head in the sand, acting fast with the appropriate procedures can often save a company.

Get in touch today for immediate advice and guidance.