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When a business is under financial pressure, directors often look for a way to restructure debt while continuing to trade. One option is a Company Voluntary Arrangement (CVA) — a formal insolvency procedure designed to give viable companies a chance to recover.
At Henderson Loggie we help directors explore whether a CVA is the right solution, guiding you through the process from initial assessment to creditor approval.
What is a CVA?
A CVA is a legally binding agreement between a company and its creditors. It allows the business to repay debts over time, often with part of the debt written off, while continuing to trade under the control of its directors.
The CVA Process: Key Steps
While every case is different, the broad process usually includes:
- Initial review – Directors meet with an insolvency practitioner to assess whether a CVA is appropriate.
- Proposal drafting – A repayment plan is prepared, setting out how creditors will be repaid over an agreed period.
- Moratorium (optional) – In some cases, a moratorium can be obtained to give the business breathing space while the CVA is considered.
- Creditors’ decision – Creditors vote on the proposal. If 75% (by value) of those voting agree, the CVA is approved and becomes binding on all unsecured creditors.
- Implementation – The company continues trading while making agreed contributions, overseen by the insolvency practitioner.
When is a CVA Suitable?
A CVA can be particularly effective for businesses that:
Have a fundamentally viable business model but are struggling with debt
If your company’s core operations are profitable or have the potential to be, but historic debts or one-off financial shocks are making it difficult to move forward, a CVA can provide the structure needed to address those liabilities while allowing you to focus on recovery and growth.
Want to avoid liquidation and preserve jobs
Liquidation often means the end of the business and loss of employment for staff. A CVA offers an alternative route, enabling directors to protect jobs, maintain continuity for customers and suppliers, and safeguard the company’s reputation.
Need breathing space to restructure finances and rebuild
A CVA can give your business the time and space to reorganise its finances, renegotiate terms with creditors, and implement operational changes. This breathing space is often crucial for stabilising cash flow and restoring confidence among stakeholders.
Have supportive creditors who recognise that continued trading offers a better outcome than immediate insolvency
Creditors may be willing to accept a CVA if they believe that supporting the company’s ongoing trading will result in a better return than liquidation or administration. The process relies on creditor cooperation and a realistic proposal that demonstrates how debts will be repaid over time.
When a CVA May Not Be Suitable
A CVA is unlikely to be appropriate where:
The business has no realistic prospect of returning to profitability
If the underlying business model is fundamentally flawed, or market conditions mean that future trading is unlikely to generate profits, a CVA will not address the root issues. In these cases, more decisive insolvency procedures such as liquidation or administration may be necessary.
The company cannot generate sufficient cash flow to maintain ongoing trading
A CVA relies on the company’s ability to make regular contributions to creditors from future trading profits. If cash flow is consistently negative or unpredictable, the arrangement is likely to fail, leaving creditors and the company in a worse position.
Key stakeholders (such as landlords, major suppliers, or HMRC) are unlikely to support the arrangement
Successful CVAs depend on the cooperation of major creditors. If key stakeholders are unwilling to accept revised payment terms or are likely to vote against the proposal, it may be impossible to secure the required approval threshold.
Directors are seeking an immediate exit rather than a long-term recovery
A CVA is designed for companies that wish to continue trading and work towards financial recovery. If the directors’ objective is to close the business and move on, other insolvency options, such as liquidation, may be more appropriate.
Taking the Next Step
If your company is facing financial difficulties, it’s important to act early. A CVA may provide the lifeline you need — but it isn’t suitable for every situation.
We can review your options and advise on the most effective route forward, whether that’s a CVA, administration, or another restructuring solution.