What is a company voluntary arrangement (CVA)?

For a company that is fundamentally viable but weighed down by debt, a CVA can be a lifeline: it ringfences the past, sets affordable repayments, and lets the directors keep running the business. This guide explains how a CVA works, who votes, and where its limits lie.

How a CVA works

A CVA is built around a single idea: the company proposes to pay creditors what it can realistically afford, over a fixed period, and creditors accept that in place of forcing the company into liquidation. The proposal is drawn up with a licensed insolvency practitioner, who reviews the figures, tests whether the plan is achievable, and presents it to creditors. The directors remain in control of day-to-day trading throughout — one of the CVA’s biggest attractions — but the arrangement itself is monitored by an insolvency practitioner called the supervisor, who collects the contributions and distributes them to creditors. Typically the company pays a set monthly amount out of future profits, sometimes topped up by asset sales or a lump sum, and at the end any remaining unsecured balance is written off.

The approval vote

The proposal is put to creditors in a decision procedure. To be approved, it needs the agreement of creditors representing at least 75% by value of those who respond and vote. A second statutory check prevents a small group of connected creditors — for example, the directors’ own associated companies — from forcing a deal through: the proposal must also not be opposed by more than 50% of the value of creditors who are unconnected to the company. Once both tests are met, the CVA binds all unsecured creditors who were entitled to vote, including any who voted against it or did not vote at all.

• 75% by value — the headline threshold for unsecured creditors who vote.
• The 50% unconnected check — stops connected creditors out-voting genuine ones.
• Members — shareholders also vote, but creditor approval prevails.
• Secured and preferential creditors — cannot be bound without their consent.

When a CVA is the right tool

A CVA suits a company that is insolvent now but has a credible plan to trade profitably once its historic debt is restructured — a fundamentally sound business carrying the weight of a bad period, a lost contract or a one-off shock. It is not a way to escape debt the business can never realistically afford. If the underlying model does not work, an arrangement will simply fail: the company will default, and it is likely to end up in creditors’ voluntary liquidation anyway, having lost time and money in the process. A good insolvency practitioner will say so honestly before a proposal is ever put to creditors.

The advantages and the limits

The appeal of a CVA is real: the company keeps trading, the directors stay in charge, contracts and goodwill are preserved, and a single affordable monthly payment replaces a tangle of unmanageable demands. Legal action by bound creditors stops, and at the end of the term the remaining unsecured debt is written off. But the limits matter just as much. A CVA does not bind secured or preferential creditors without their agreement, it relies entirely on the company hitting its forecasts month after month, and it appears on the public record, which can affect supplier confidence and credit terms. It is a discipline, not a holiday from debt.

How it compares to other rescue routes

A CVA is one of several rescue options and is not always the right one. It keeps the existing company and directors in place, where administration hands control to an administrator and can be used to sell the business behind a protective moratorium. A CVA has no moratorium of its own for most companies, so it works best where creditors are not already pressing with court action. For a side-by-side view of the rescue and closure routes, see liquidation vs administration vs CVA.

Frequently asked questions

Sources & further reading

• Insolvency Act 1986 — Part I (company voluntary arrangements)
• GOV.UK — Company voluntary arrangements
• The Insolvency Service — guidance for company directors
• Insolvency (England and Wales) Rules 2016

This guide is general information, not formal insolvency advice. Your situation must be assessed by a licensed insolvency practitioner before you act.