If your business is struggling financially but has a viable core, a Company Voluntary Arrangement (CVA) could be an effective way to manage debts while continuing to trade. At BRI Business Recovery and Insolvency, we guide directors through the CVA process, helping businesses restructure debts, protect jobs, and maintain their reputation. If you’d like to discuss whether a CVA could work for your company, contact our team today for a confidential conversation.
What is a Company Voluntary Arrangement?
A Company Voluntary Arrangement is a legally binding agreement between a company and its creditors. It allows a business to repay some or all of its debts over an agreed period, typically three to five years, using future profits. Unlike liquidation or administration, the company’s directors remain in control, while an insolvency practitioner as the Nominee and, later the Supervisor, oversees the arrangement.
Once a CVA is approved:
- Creditors are bound by the terms; even those who voted against it.
- Legal action against the company for the debts included in the CVA is stopped.
- The company can continue to trade and work toward long-term recovery.
How Does a Company Voluntary Arrangement Work?
How Does a Company Voluntary Arrangement Work?
1. Proposal Preparation
Directors work with an insolvency practitioner to prepare a CVA proposal, including detailed cash flow forecasts showing the company can meet its obligations under the plan.
2. Consultation with Lenders
Secured creditors are consulted, though they are not bound by the arrangement.
3. Proposal Review
The insolvency practitioner acting as Nominee reviews the plan for fairness and viability, producing a report for creditors.
4. Filing and Distribution
The proposal and Nominee’s report are filed with the court and sent to all creditors.
5. Shareholders and Creditors Meeting
A meeting is held at least 14 days after delivery to discuss the proposal.
6. Voting
Approval requires 75% by value of each class of creditors. Connected creditors are then excluded from a separate vote, where 50% of unconnected are required to approve the proposals
7. Binding Agreement
Once approved, the CVA is legally binding on all unsecured creditors entitled to vote.
If you’d like to discuss your situation with a member of our experienced insolvency team, contact us today for a confidential conversation. They will be happy answer your questions.
Advantages of a Company Voluntary Arrangement
A CVA can offer significant benefits to businesses and directors. These include:
- Continuation and Brand Preservation – The company can continue trading, protecting jobs and reputation. Unlike liquidation, the CVA process is not publicly advertised however will be disclosed on companies house.
- Control and Flexibility – Directors remain in charge, and proposals can be tailored to suit the company’s specific circumstances.
- Debt Management and Forgiveness – Debts are consolidated into a manageable monthly payment, and remaining unsecured debts may be written off once the CVA concludes.
- Legal Protection – Creditors are bound by the arrangement, preventing winding-up petitions or other enforcement action.
- No Director Investigation – Unlike liquidation, there is no investigation into directors’ conduct.
- Cost-Effectiveness – CVAs are generally cheaper than alternative restructuring insolvency procedures such as administration.
Disadvantages of a Company Voluntary Arrangement
While CVAs offer many benefits, there are some drawbacks to consider:
- Impact on Credit Rating – A CVA negatively affects the company’s credit rating, which may make it harder to secure new supplier credit.
- Duration – CVAs typically last three to five years, requiring consistent monthly payments for the entire period. Although the length of the arrangement can be for a short period if circumstances allow for it.
- Customer and Supplier Perceptions – Some contracts may include termination clauses triggered by a CVA, and customer confidence may be affected.
- Potential for Failure – If the company defaults, the CVA fails and creditors can take action, possibly leading to liquidation or administration. For example, failing to file your HMRC return and settling the liability following the CVA process being approved, could be considered a breach of the arrangement.
- Not Suitable for All Businesses – A CVA only works for businesses with a viable core; companies that cannot generate sufficient income may need alternative solutions.
If you’re unsure what steps you should take to resolve the business challenges you’re currently facing, chat with a member of our experienced team today. They will be happy to discuss your circumstances with you.
What Does a Company Voluntary Arrangement Mean for Employees?
Employees are not automatically made redundant during a CVA. Many staff are usually required for the business to continue trading. However, some redundancies may be necessary as part of cost-saving measures or to restructure parts of the business. Any redundancies must comply with employment law, and BRI – Business Recovery and Insolvency can provide guidance on managing this process sensitively.
Is a CVA Right for Your Business?
A Company Voluntary Arrangement is most suitable for companies that are viable but burdened by historic debt. The process can:
- Freeze debts into a manageable monthly payment.
- Allow directors and shareholders to retain full control.
- Protect against winding-up petitions if proposed promptly.
- Offer breathing space to trade and recover.
If your business cannot realistically meet ongoing payments, other rescue or insolvency options may be more appropriate. Early advice from an insolvency practitioner is crucial to determine the best course of action.
How BRI Business Recovery and Insolvency Can Help
At BRI Business Recovery and Insolvency, we have extensive experience helping directors navigate the CVA process. Our team can:
- Assess whether a CVA is suitable for your business.
- Prepare and review the CVA proposal with detailed financial forecasts.
- Liaise with creditors and secure approval.
- Act as Supervisor to monitor compliance and manage payments.
We provide confidential, no-obligation advice so you can make informed decisions about the future of your company.
Get Professional Advice Today
A CVA can be a powerful tool to rescue a business from financial distress, allowing it to trade, restructure, and protect both jobs and reputation. However, it carries responsibilities and risks, and early professional advice is essential to maximise the chance of success.
If you are considering a CVA, contact our team at BRI Business Recovery and Insolvency today. Our experienced practitioners can guide you through the process, help you understand your options, and support your business every step of the way.