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What is a Company Voluntary Arrangement?

Posted on: Monday 29th June, 2020

What is a Company Voluntary Arrangement?

A Company Voluntary Arrangement, or CVA, is a mechanism via which struggling companies can repay all or a proportion of their debt. It’s a formal insolvency process that can only be instigated by a licensed insolvency practitioner (IP), and eligibility is limited to businesses deemed to be viable in the long-term.

Company Voluntary Arrangements effectively remove the financial pressure a company is under by legally preventing creditor action. The company is safeguarded as long as the CVA repayments are made as agreed, and it continues to trade whilst paying off some or all of the debts.

So how does a CVA work in practice, and when might it be an option for companies in financial distress?

How does a CVA work?

A licensed insolvency practitioner is appointed to assess the company’s finances and determine whether a CVA is the best option. They make a repayment proposal to creditors, and if at least 75% agree, it comes into force straight away.

Once the CVA is in place, the company’s directors resume control and carry on trading. The CVA will typically last between three and five years, and as long as the conditions are met, any debt remaining at the end of the term will be written off.

CFS Redundancy Payments are a very professional company, Caroline who is dealing with our case is friendly, compassionate and very clear in explaining everything during this difficult time. The service we have received has been amazing, Thank you.
Tina Hill
Tina Hill

What are the eligibility requirements for a Company Voluntary Arrangement?

  • The company must be officially insolvent
  • Its financial difficulties must be temporary
  • The company’s income needs to be relatively stable and predictable
  • Directors must be able to demonstrate they’ve implemented new business plans, such as a change of management

When is a CVA used?

A CVA may be an option if a company is experiencing cash flow problems that just require time to rectify - even though the company is insolvent, a CVA can prevent further slide towards liquidation and ultimate closure.

It may also be a good solution if a company has fallen behind with rent payments, as the CVA is typically a more attractive proposition to commercial landlords than liquidation. Although they receive lower payments, it means their premises are occupied and they can save the cost of finding new tenants.

Advantages and disadvantages of a CVA


  • All or a proportion of a company’s debt can be repaid
  • A CVA offers protection from creditor legal action
  • Interest and charges are frozen
  • Trade continues under the control of directors
  • It’s a cheaper option than liquidation

Potential disadvantages

  • It can be challenging to obtain approval from 75% of creditors
  • The CVA negatively affects the company’s credit rating
  • The timescale of up to five years can make it difficult to maintain payments
  • If the CVA fails, creditors can act to wind up the company

If you would like more information on Company Voluntary Arrangements and their benefits and drawbacks, CFS Redundancy Payments can help. We can also advise on your eligibility for director redundancy should your business enter liquidation. Call one of our expert team to arrange a free same-day consultation. CFS are Authorised and Regulated by the Financial Conduct Authority. Authorisation No 830857. You can check our registration here.

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