Understanding Company Voluntary
Arrangements (CVAs)

A Company Voluntary Arrangement (CVA) is a formal agreement between a company and its creditors to pay debts over time. It's a statutory procedure under the Insolvency Act 1986 that allows financially distressed but viable companies to:

• Continue trading: Business operations continue normally
• Restructure debts: Agree new payment terms with creditors
• Retain control: Directors remain in charge of the company
• Avoid liquidation: Provides an alternative to winding up

CVAs typically involve paying creditors a percentage of what's owed (usually 30-50p per £1) over 3-5 years, allowing the business to recover while providing better returns than immediate liquidation.

CVAs and administration are both business rescue procedures, but they differ significantly:

CVAs are often preferred when directors want to retain control and the business doesn't need immediate protection from creditor actions.

A CVA requires approval from 75% of creditors by value who vote on the proposal. This means:

• 75% threshold: Must be achieved by the total value of debts held by voting creditors
• Voting creditors only: Only creditors who actually vote count toward the percentage
• By value, not number: It's based on debt amounts, not the number of creditors
• Binding on all: Once approved, it binds all creditors, including those who voted against

Example: If creditors owed £100,000 vote, you need approval from creditors owed at least £75,000.

Important: Secured creditors and preferential creditors (like employees and HMRC) have special rights and may need separate consideration in the proposal.

CVAs typically last 3-5 years, though the exact duration depends on several factors:

• Debt amount: Larger debts may require longer repayment periods
• Company cash flow: Available funds for creditor payments
• Creditor preferences: Some prefer quicker returns, others accept longer terms
• Business recovery time: How long the company needs to stabilize

Common durations:

• 3 years: Smaller debts, strong cash flow recovery
• 4-5 years: Most common duration for medium-sized companies
• 5+ years: Large debts or slower recovery businesses

The CVA can be completed early if all payments are made ahead of schedule, or extended if creditors agree to modifications.

If a company breaches its CVA terms, several options are available depending on the severity:

Minor breaches:

• Supervisor discussion: Work with the supervisor to resolve issues
• Catch-up payments: Make up missed payments if possible
• Temporary arrangements: Agree short-term payment holidays

Serious breaches:

• CVA modification: Propose changes to terms with creditor approval
• CVA termination: Supervisor or creditors can terminate the arrangement
• Alternative procedures: Move to administration or liquidation
• Legal action: Creditors regain rights to pursue individual claims

Prevention is key: Regular communication with the supervisor and early warning of potential problems helps avoid breaches and find solutions.

Yes, CVAs can be challenged, but only on specific grounds and within strict time limits:

Grounds for challenge:

• Material irregularity: Serious procedural errors in the process
• Unfair prejudice: CVA unfairly prejudices certain creditors
• Lack of information: Creditors not given adequate information
• Fraud or misrepresentation: False information provided to creditors

Who can challenge:

• Any creditor who was entitled to vote
• Company directors or shareholders
• The nominee or supervisor

Time limits:

• 28 days: From the end of the creditor meeting
• Court application: Must be made to the High Court

Successful challenges are relatively rare, as courts generally support properly conducted CVAs that offer creditors better returns than liquidation.