What Is a Company Voluntary Arrangement (CVA)?

A Company Voluntary Arrangement (CVA) is a formal insolvency procedure under the Insolvency Act 1986 that allows a financially distressed company to reach a legally binding agreement with its unsecured creditors to repay some or all of its debts over a fixed period - typically three to five years. A CVA allows the company to continue trading while restructuring its obligations, avoiding formal liquidation or administration.

How Does a CVA Work?

A CVA is proposed by the company's directors and supervised by a licensed insolvency practitioner (the nominee). The proposal sets out how much creditors will receive and over what period - typically a percentage of the total debt repaid monthly or quarterly from trading income. The CVA must be approved by at least 75% of unsecured creditors by value at a creditors' meeting.

Once approved, the CVA binds all unsecured creditors who were given notice of the meeting - even those who voted against it. Secured creditors (banks with charges) and preferential creditors (employees with priority claims) are not bound by the CVA and retain their rights separately.

The company continues trading under director control throughout the CVA period. The supervisor (the insolvency practitioner) monitors compliance with the arrangement and distributes funds to creditors. If the company meets all its obligations under the CVA, it emerges debt-free at the end of the arrangement period.

What Triggers a CVA?

A CVA is typically considered when a company is insolvent or approaching insolvency but has a viable underlying business - the financial problems are temporary or structural rather than fundamental. Common triggers include:

• Accumulated HMRC debt (VAT, PAYE, corporation tax) that cannot be cleared in full but can be spread over time
• A difficult trading period (economic downturn, loss of a major customer) that has created short-term cash flow problems in an otherwise viable business
• A winding-up petition being filed, where a CVA is proposed as an alternative to administration or liquidation
• Lease obligations on properties that are no longer needed, where landlord creditors need to be included in a formal arrangement

What Do Creditors Receive in a CVA?

The return to creditors in a CVA varies enormously depending on the company's trading prospects and the size of its obligations. CVA proposals typically offer unsecured creditors anywhere from 10 pence to 100 pence in the pound over the arrangement period. The test creditors apply is whether the CVA offers more than they would receive in liquidation - if the company's assets in a liquidation would yield 5p in the pound, a CVA offering 25p over three years is likely to be approved.

Creditors who vote against the CVA are still bound by it if 75% by value approve. They cannot take enforcement action against the company during the CVA period.

CVA vs Administration vs Liquidation

	CVA	Administration	Liquidation
Company continues trading?	Yes	Usually yes (short term)	No
Director control retained?	Yes	No (administrator takes over)	No
Creditor vote required?	Yes (75%)	No	No
Court involvement?	Minimal	Sometimes	Sometimes
Outcome if successful	Company continues, debt cleared	Sale or CVA or liquidation	Dissolution

What Happens If a CVA Fails?

If a company fails to meet its CVA payment obligations, the supervisor can report the breach to creditors and the CVA may be terminated. In most cases, a failed CVA leads to the company entering administration or liquidation. Creditors who accepted a partial payment under the CVA can claim the balance of their original debt in the subsequent insolvency.

CVAs and UK Company Data

Companies in a CVA are recorded at Companies House with a status reflecting their arrangement. NewcoHunter tracks these company statuses and can be used to search for companies with distress-related signals including negative net assets, overdue accounts, and proposals to strike off - all of which may precede or accompany a CVA proposal.

Frequently Asked Questions

How long does a CVA last?

Most CVAs run for three to five years, though shorter arrangements are possible for smaller debt levels. The duration is part of the proposal agreed with creditors.

Can HMRC be included in a CVA?

Yes. HMRC is an unsecured creditor for most tax debts and can be bound by a CVA if the required 75% majority is achieved. In practice, HMRC is the largest creditor in many CVAs and its support is critical. HMRC has its own voting policy and will generally support a CVA if it offers a materially better return than liquidation.

Does a CVA affect a company's credit score?

Yes, significantly. A CVA is recorded at Companies House and will appear on the company's credit file, typically resulting in a lower credit rating and restricted access to trade credit for the duration of the arrangement and for some years afterwards.

Can a CVA be used to avoid paying rent?

A CVA can include commercial landlord debts and restructure lease obligations, but only if the required creditor majority approves. CVAs that disproportionately disadvantage landlords relative to other creditors have been successfully challenged in court. Retailers in particular have used CVAs to restructure store portfolios, with mixed success in legal challenges from landlords.

How do I find out if a company is in a CVA?

Companies in a CVA have their status updated at Companies House. You can check any company's status using the Free Company Search tool. NewcoHunter also tracks companies showing financial distress signals that may indicate CVA risk, including negative net assets and overdue filings.