In a voluntary arrangement, a company reaches an agreement with its creditors as a whole. There is limited involvement by the Court and the scheme is under the control of a supervisor, who is a licensed insolvency practitioner. A CVA is usually used to rescue companies which, whilst they are insolvent, have an underlying business that would be profitable in the future if only suitable arrangements could be made to deal with its old debts.

A proposal is drawn up by the directors, or if the company is in liquidation or administration, by the liquidator or administrator. The proposal must name an insolvency practitioner who will act as nominee. The nominee reports to the court on whether in his opinion meetings of creditors and shareholders should be called to enable them to consider the proposal, and whether the proposal has a reasonable prospect of being approved and implemented. It is then the nominees responsibility to call and act as chairman at the meetings of creditors and shareholders.

The creditors can propose modifications to the proposal. If at least 75% in value of creditors and 50% in value of members voting at the meetings approve the proposal then it is approved and takes effect. The CVA is binding on all creditors and it is for the supervisor to ensure that the terms of the arrangement are adhered to.

If needed, a moratorium can be obtained between the issue of the proposal and the meetings of creditors and shareholders whereby the nominee oversees the running of the company and creditors are prevented from taking legal or recovery action against the company until the CVA proposal has been considered at the meetings.

A CVA will usually require the company to make contributions to the supervisor over a period specified in the proposal, usually up to 5 years, so that creditors will receive a percentage of their debt by way of a dividend. The company must also pay all its new debts as they fall due.

Once the company has met its obligations under the CVA then it is released from its debts to the creditors bound by the arrangement. This will exclude any creditors who hold security (legal charges) over the assets of the company.


  • Directors remain in control. Unlike administration, which involves an administrator managing the recovery of your company, a CVA gives control to the company directors.
  • Lower costs compared to other insolvency procedures. The costs of setting up a CVA, and on-going management/administration of the agreement, are significantly less than those associated with other insolvency procedures, including receivership and liquidation.
  • Less public than other insolvency processes. It is essentially a private matter between the company and its creditors. There is no requirement for businesses to tell customers about their Company Voluntary Arrangement. It does not have to be disclosed on company correspondence. Your company gains the opportunity to restructure and recover without negative publicity affecting its business.
  • Legal action by creditors stayed. Entering into a CVA protects your company against pressure from its creditors, such as statutory demand notices. Your company can not be wound up by its creditors while a CVA is being prepared by an insolvency practitioner. In some cases, a CVA can prevent legal action thats already been initiated. If your company has received a winding up petition from a creditor, proposing a CVA may result in the creditor agreeing to an alternative to the liquidation process.
  • The improvement in cash flow a CVA offers can make it far easier for your company to continue trading and raise funds to pay its creditors.
  • In a CVA, your company will be required to make a realistic monthly payment based on its cash flow. Since creditors want your company to keep trading and generating cash, its in their interest to agree to a realistic monthly payment.
  • No investigation into directors conduct. A CVA avoids company liquidation and, therefore, requires no investigation of directors conduct leading up to insolvency.


  • The companys credit rating is affected. A CVA adversely affects the companys credit rating, making it harder to obtain credit from new suppliers, and potentially more difficult to renegotiate terms on existing contracts. This means that accessing credit, whether from a bank or from a supplier, becomes significantly more difficult for your company and can make cash flow an issue.
  • Action can be taken if the terms of the arrangement are not adhered to. If your company fails to meet the terms of its CVA and misses a payment, creditors can take legal action against the company. This is why it is important to make sure the terms of the agreement are feasible for the company in the long term.
  • The fact secured creditors are not bound by the terms of a CVA leaves companies open to administrators being called in, even when the agreement is adhered to.
  • Obtaining approval can be difficult. A minimum of 50% of members and 75% of creditors (by value of debt) need to agree to the terms of the Company Voluntary Arrangement before it can be passed. Convincing both groups that a CVA is in their best interests is, therefore, paramount.

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Specific advice should be obtained before taking action, or refraining from taking action, on any of the issues covered above.

For further information, please contact one of our Partners who will be able to assist you.