This guide is maintained as a current resource for September 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Clear, comprehensive guide to Company Voluntary Arrangements (CVAs) in England and Wales, explaining how a CVA works, the legal process, creditor voting, benefits, risks and practical steps for companies facing insolvency.
When a company faces financial difficulties and cannot meet its debts as they fall due, there are statutory procedures designed to address the problem. One such mechanism in England and Wales is a Company Voluntary Arrangement (CVA) - a formal insolvency process that allows an insolvent company to reach a binding agreement with its creditors about how its debts will be repaid over time while the business continues to trade. CVAs can offer a structured route to turnaround and creditor recovery without the immediate disruption of liquidation or administration. This article explains the legal framework governing CVAs, how the process works step by step, rights and risks for companies and creditors, and practical considerations for stakeholders.
What Is a Company Voluntary Arrangement?
A Company Voluntary Arrangement is a legally binding agreement between a company and its creditors under the Insolvency Act 1986 and supporting rules which enables a company in financial distress to restructure and repay its debts over an agreed term. A CVA proposal must be drafted and overseen by a licensed insolvency practitioner acting as the nominated adviser and supervisor. If the requisite majority of creditors approve the arrangement, it becomes binding on all unsecured creditors included in the proposal, whether or not they voted in favour.
The purpose of a CVA is to give a financially troubled company a practical route to survive, address cash flow problems and negotiate a manageable repayment structure with creditors - often avoiding the need for immediate liquidation or compulsory winding up.
Why Companies Use CVAs
Companies may consider a CVA where:
- They are insolvent or likely to become insolvent but have viable trading prospects if debt pressures can be eased.
- Immediate creditor pressure, such as a winding‑up petition, threatens the business.
- A structured repayment plan could improve cash flow, preserve customer and supplier relationships, and protect employment.
- Alternative insolvency procedures, such as liquidation, would result in closure and a worse outcome for unsecured creditors.
A CVA enables directors to retain operational control of the company rather than handing it over to an administrator or liquidator, provided they can secure creditor support for the proposal.
Step‑by‑Step: How a CVA Works
1. Initial Assessment and Insolvency Practitioner Appointment
The process begins when the directors engage a licensed insolvency practitioner (IP) to assess the company's financial position. The IP reviews debts, assets, cash flow forecasts and determines whether a CVA is a viable restructuring option.
2. Drafting the CVA Proposal
If a CVA is appropriate, the insolvency practitioner (acting initially as the nominee) works with the board to draft a detailed proposal. This sets out:
- A breakdown of outstanding debts and how they will be repaid;
- The duration of the arrangement (commonly three to five years);
- Forecasts showing how the company will meet repayments;
- Any proposed restructuring of business operations or assets to improve viability.
The nominee also prepares a formal statement of affairs and a report on the prospects for the CVA's success for creditors to consider.
3. Sending the Proposal to Creditors
After drafting, the IP sends the proposal and supporting documents to all known unsecured creditors. Secured creditors, such as holders of fixed charges, may be informed but are not bound by the arrangement unless they agree to be included.
4. Creditor Voting and Approval
Creditors vote on the proposal either in a meeting or by correspondence. For the CVA to be approved, the following thresholds must be met:
- At least 75 % (by value) of voting creditors must vote in favour; and
- No more than 50 % (by value) of independent unsecured creditors vote against (in certain formal requirements).
These votes are calculated based on the value of debts claimed and not the number of creditors. A successful vote binds all unsecured creditors, including those who opposed or did not vote.
5. Implementation and Supervision
Once approved, the nominee becomes the supervisor of the CVA, responsible for overseeing its implementation. The company makes regular payments (often monthly) in accordance with the agreed schedule. The supervisor distributes funds to creditors as specified by the proposal.
6. Completion or Failure
If the company adheres to the terms throughout the arrangement, and the agreed payments are made, the CVA will conclude on or before the scheduled end date. Any remaining unsecured debt covered by the CVA may be legally written off at completion.
However, if the company fails to meet its obligations under the CVA - for example by missing payments - the arrangement may fail, giving creditors the right to enforce their claims through other insolvency routes such as liquidation.
Legal Effect of a CVA
A CVA, once approved and implemented, is a binding contractual agreement between the company and its unsecured creditors. All unsecured creditors included in the arrangement are obligated to accept the agreed terms of repayment, even if they did not consent to the vote.
Secured creditors generally remain outside the CVA unless they specifically agree to be bound by its terms. They retain their enforcement rights over secured assets unless the CVA includes provisions otherwise agreed with secured lenders.
Advantages of a Company Voluntary Arrangement
A CVA offers several potential benefits:
- Continued trading: Unlike liquidation, the company can continue normal business operations under its existing management.
- Structured repayment: Debts are repaid over a manageable period, which can ease cash flow pressures.
- Legal protection: Once in place, a CVA prevents individual creditors from pursuing separate enforcement action against the company's assets, providing breathing space for recovery.
- Potential higher returns for creditors: A successful CVA may deliver better returns to unsecured creditors than immediate liquidation.
Risks and Limitations
While CVAs can be effective, they also carry risks and potential drawbacks:
- Not suitable for all companies: A CVA requires that the business has a credible plan for repayment and sufficient future earnings to meet payments.
- Creditor objections: Creditors may vote against a CVA if they believe it offers poorer returns than alternative insolvency procedures.
- Ongoing scrutiny: The company's financial performance is monitored by the CVA supervisor, and irregular payments or breaches can lead to termination of the arrangement.
- Reputational impact: Entering a CVA can signal financial distress, potentially affecting supplier confidence and commercial relationships.
Timeframes and Practical Considerations
There is no fixed statutory time limit for a CVA, but arrangements are often structured over a period of three to five years. The precise length depends on the company's financial circumstances and the terms negotiated with creditors.
Directors should engage insolvency practitioners early to assess viability, prepare realistic forecasts and present credible proposals. A well‑prepared CVA increases the prospects of creditor approval and long‑term success.
Common Questions About CVAs
Can a CVA stop creditor action?
Yes. While a CVA is being prepared and once it is approved and implemented, it provides legal protection against separate enforcement actions by unsecured creditors included in the arrangement.
Are secured creditors bound by a CVA?
Not unless they agree to be bound. Secured creditors maintain their rights to enforce security unless they voluntarily surrender or restructure those rights as part of the proposal.
What happens if the CVA fails?
If the company cannot meet its payment commitments under the CVA, creditors may pursue alternative insolvency procedures such as liquidation or administration, depending on the company's position.
Summary
A Company Voluntary Arrangement (CVA) is a statutory insolvency tool in England and Wales that allows a financially troubled company to negotiate a structured repayment plan with its creditors while continuing to operate. Proposed and overseen by a licensed insolvency practitioner, a CVA requires approval by a significant majority of unsecured creditors and becomes legally binding on all affected parties once approved. Key benefits include continued trading, structured debt repayment and potential for greater creditor returns compared with immediate liquidation. Risks include creditor resistance, ongoing compliance requirements and potential failure leading to liquidation. Early expert advice and careful planning are essential to maximising the prospects of a successful CVA.
