Frequently Asked Questions

Question 1

What is a Company Voluntary Arrangement (CVA) and how does it work?

Accepted Answer

A Company Voluntary Arrangement, or CVA, is a legally binding agreement between a financially distressed company and its creditors. It allows the company to repay a proportion of its debts over an extended period, typically three to five years, while continuing to trade. The process is designed to give businesses breathing space, restructure their liabilities, and avoid liquidation. A CVA must be supervised by a licensed insolvency practitioner who acts as the nominee and later as the supervisor...

Question 2

Who can propose a CVA and what is required to start the process?

Accepted Answer

A CVA can be proposed by the company’s directors, administrators, or liquidators, but in practice it is most often initiated by directors seeking to save their business. To start the process, directors must engage a licensed insolvency practitioner (IP) who assesses whether the business is viable and capable of sustaining repayments under the proposed plan. The insolvency practitioner then drafts a detailed proposal that includes the repayment schedule, financial forecasts, and an explanation of...

Question 3

How do creditors vote on a CVA proposal?

Accepted Answer

Creditors play a central role in deciding whether a CVA goes ahead. Once the insolvency practitioner has drafted the proposal, all known creditors are invited to vote. For the CVA to be approved, at least 75% by value of those voting must support it. Importantly, this threshold is based on the value of the debt represented by those creditors who actually vote, not the total creditor base. This means that engaging with key creditors early in the process is vital to ensure they understand the bene...

Question 4

What types of debts can be included in a CVA?

Accepted Answer

Most unsecured debts can be included in a CVA, making it a highly flexible restructuring tool. These typically include trade creditors, HMRC arrears, rent arrears owed to landlords, and outstanding supplier invoices. In many retail CVAs, landlords are often among the largest creditors, and the arrangement can be used to restructure lease obligations by reducing rents or terminating unprofitable leases. Secured debts, such as mortgages or loans backed by fixed charges, are usually excluded becaus...

Question 5

How long does a typical CVA last?

Accepted Answer

Most Company Voluntary Arrangements run for a period of three to five years, although the exact duration depends on the company’s financial situation and the terms agreed with creditors. During this time, the company makes regular contributions, usually monthly or quarterly, to the insolvency practitioner, who then distributes the funds to creditors. The length of the CVA is carefully negotiated to balance affordability for the company with the need to return value to creditors. A shorter CVA ma...

Question 6

What happens if a company fails to meet the terms of its CVA?

Accepted Answer

If a company defaults on its CVA, serious consequences can follow. The insolvency practitioner supervising the arrangement has the power to terminate the CVA if payments are missed or terms are breached. Once terminated, creditors are no longer bound by the arrangement and can pursue enforcement action to recover debts. This may include issuing statutory demands, filing winding-up petitions, or appointing bailiffs. For directors, failure of a CVA can mean losing the protection from legal action ...

Question 7

Why are CVAs popular among struggling retailers?

Accepted Answer

Retail is one of the sectors where CVAs are most frequently used, largely because they allow businesses to restructure onerous property leases. Many large retailers operate multiple sites with long-term lease obligations, and when trading declines, these costs can quickly become unsustainable. A CVA provides a legal mechanism to renegotiate rent terms, close unprofitable stores, and reduce overall property overheads while avoiding liquidation. High-profile retail chains in the UK have successful...

Question 8

Can employees vote in a Company Voluntary Arrangement?

Accepted Answer

Employees are not generally involved in voting on a CVA unless they are also creditors of the company. For example, if wages, redundancy pay, or expense reimbursements are owed, then employees are considered unsecured creditors and can take part in the process. In practice, trade creditors, landlords, and HMRC are usually the largest groups voting on CVA proposals. The role of employees is therefore more indirect, but still significant, because the arrangement is often designed to preserve jobs ...

Question 9

What is the role of an insolvency practitioner in a CVA?

Accepted Answer

The insolvency practitioner (IP) plays a crucial role in the CVA process, acting first as a nominee and later as a supervisor. As nominee, the IP reviews the company’s financial position and drafts the CVA proposal in consultation with the directors. This includes preparing cashflow forecasts, repayment schedules, and explaining how creditors’ interests will be safeguarded. Once the proposal is filed with the court and circulated, the IP organises the creditor vote. If the CVA is approved, the I...

Question 10

How does a CVA affect company directors?

Accepted Answer

A CVA allows directors to retain control of the day-to-day management of the business, which is one of its main advantages compared to administration. Directors continue running the company but must comply with the repayment terms agreed with creditors and monitored by the insolvency practitioner. This means directors gain breathing space and avoid the reputational damage of liquidation, but they also face strict oversight. Directors are expected to provide accurate accounts, maintain cashflow d...

Question 11

How does a CVA compare to administration?

Accepted Answer

Both CVAs and administration are formal insolvency procedures designed to rescue distressed companies, but they operate differently. A CVA allows directors to remain in control of the business, while an insolvency practitioner supervises the repayment plan. Administration, on the other hand, involves handing control of the company over to an administrator, who takes charge of operations and may sell the business. CVAs are less disruptive and often cheaper, making them suitable when the business ...

Question 12

Can HMRC debts be included in a CVA?

Accepted Answer

Yes, HMRC debts are commonly included in CVAs and often represent a large proportion of the total liabilities. VAT, PAYE, and Corporation Tax arrears can all be compromised under a CVA, giving businesses valuable breathing space to repay over time. HMRC has strict criteria when assessing CVA proposals. They will typically require detailed cashflow forecasts, evidence of affordability, and assurance that the company is compliant with future tax obligations. If the business continues to miss payme...

Question 13

How are landlords affected by a CVA?

Accepted Answer

Landlords are often among the creditors most impacted by a CVA, particularly in sectors such as retail and hospitality. A CVA can restructure lease obligations, reduce rents, or allow the company to exit unprofitable leases. This means landlords may receive less than originally agreed, but the alternative—liquidation—could leave them with empty premises and little to no recovery. The CVA proposal must demonstrate fairness and ensure landlords are not disproportionately disadvantaged compared to ...

Question 14

What businesses are most suitable for a CVA?

Accepted Answer

CVAs are most suitable for businesses that are fundamentally viable but burdened with unsustainable debt levels. Retailers, restaurants, and hospitality companies are common candidates because they often face high property costs and cyclical demand. Professional services firms, such as law practices or accountancies, can also benefit if cashflow is disrupted by late client payments. In general, a CVA works best when the company has a clear path to profitability, strong management, and creditor c...

Question 15

What are the main benefits of a CVA for creditors?

Accepted Answer

For creditors, a CVA offers a more predictable and often higher return than liquidation. In liquidation, unsecured creditors typically receive little or nothing once secured and preferential creditors have been paid. A CVA, by contrast, ensures a structured repayment plan funded by ongoing trading profits or asset sales. It allows creditors to recover part of their debts while preserving their trading relationship with the company. This is particularly valuable for suppliers who wish to maintain...

Question 16

How much does it cost to set up a CVA?

Accepted Answer

The cost of a CVA varies depending on the size and complexity of the business, but it typically ranges from £20,000 to £50,000. This cost covers the insolvency practitioner’s fees for preparing the proposal, filing with the court, organising the creditor vote, and supervising the arrangement over its duration. Larger companies with multiple creditors, property leases, or international operations may face higher costs due to the complexity of negotiations and administration. The fees are usually ...

Question 17

What happens once a CVA is successfully completed?

Accepted Answer

When a company completes its CVA successfully, it is released from any remaining unsecured debts included in the arrangement. This means the business can emerge with a much healthier balance sheet, improved cashflow, and renewed confidence from stakeholders. For directors, successful completion demonstrates responsible management during a challenging period and reduces the risk of future creditor claims. Creditors benefit by receiving structured repayments that are typically higher than liquidat...