Considering a CVA? Understand how a Company Voluntary Arrangement works, whether your business qualifies, and how it can help you avoid liquidation.
Your business has a viable core. The problem is the debt sitting on top of it.
Maybe it’s HMRC arrears that built up during a rough trading period. Maybe it’s a handful of aggressive creditors who won’t wait any longer. Either way, you’re not looking at a business that needs to close. You’re looking at a business that needs breathing room.
This is exactly the situation a Company Voluntary Arrangement (CVA) is designed for.
CVAs are one of the most common tools used to help directors keep trading while dealing with historic debt. This blog explains what a CVA actually is, how it works, and whether your business might qualify.
What Is a CVA?
A CVA is a formal agreement between your company and its creditors to repay debts over an agreed period, usually with a reduced total amount and always on revised terms.Crucially, the company keeps trading throughout. Directors stay in control.
It’s not a complete write-off. It’s not a way to avoid paying what you owe. It’s a structured, legally binding plan that gives creditors more than they’d get in liquidation, while giving your business the space to recover.
The CVA is flexible, and the terms of a CVA will depend on those proposed and agreed by the creditors. For example, a CVA may involve delayed or reduced payments of debt over a set period of time, employee redundancies, capital restructuring, or an orderly disposal of assets. In cases where a company has a number of sites, for example a retail chain with multiple shops, a CVA may be used to terminate lease agreements on low performing outlets in order to ensure the ongoing survival of the company.
How a CVA Works
- Proposal drafted. Working with an insolvency practitioner, you put together a proposal setting out what the company can realistically afford to pay, over what period (usually 3-5 years), and what happens to the remaining debt.
- Creditors vote. The proposal is sent to all creditors, including HMRC if applicable. It needs approval from creditors representing 75% of the debt by value.
- If approved, it’s binding. Once passed, all creditors are bound by the terms, including those who voted against it or didn’t vote at all.
- You make agreed payments. Usually monthly, from ongoing trading income, supervised by the insolvency practitioner (who becomes the “Supervisor” of the CVA).
- Debt is settled on the new terms. Complete the arrangement and the remaining debt is written off. Miss payments repeatedly and the CVA can fail, often triggering liquidation.
Is Your Business a Candidate for a CVA?
A CVA isn’t right for every struggling business. It works when:
- The underlying business is viable. Strip away the historic debt and the company makes money.
- Cashflow can support ongoing payments. You need enough trading income to fund the arrangement alongside normal running costs.
- The problem is debt. If customers are gone, the market’s changed, or the core offer doesn’t work anymore, a CVA won’t fix that.
- Creditors are likely to get more than in liquidation. This is what wins votes. If a CVA offers 40p in the pound over three years and liquidation offers 10p, the maths does the persuading.
If your business ticks these boxes, a CVA can be transformative. If it doesn’t, it’s worth an honest conversation about other options before you commit time and cost to a proposal that won’t get approved.
What a CVA Actually Solves
Directors often come to us assuming a CVA is just about HMRC arrears. It can include HMRC, but it’s usually broader:
- Multiple creditor pressure. Suppliers, landlords, and lenders all chasing at once. A CVA consolidates them into a single, manageable arrangement.
- A winding-up petition threat. A credible CVA proposal can sometimes stop a petition in its tracks, because creditors can see a better outcome than forcing liquidation.
- Legacy debt from a bad period. Lockdown, a lost contract, a bad debt from a customer who went under. A CVA lets you draw a line under it while the business moves forward.
What a CVA Doesn’t Solve
Worth being direct about this, because we’d rather you knew upfront:
- It doesn’t fix a broken business model.
- It doesn’t remove personal guarantees. If you’ve personally guaranteed a loan or lease, that liability usually survives a CVA on the company’s debt.
- It doesn’t happen quietly forever. Creditors, and in some cases the public, can see that a CVA is in place. It’s not invisible, though it’s far less disruptive than liquidation.
Why Timing Matters
The earlier you propose a CVA, the more credible it looks to creditors, and the more options you have in shaping it.
Wait until a winding-up petition has already been issued, and you’re now trying to negotiate a rescue plan from a position of real weakness. Creditors are less patient. The court timeline adds pressure. What could have been a straightforward proposal becomes a rushed one.
If HMRC arrears or supplier pressure have you thinking “maybe we need a proper restructure,” that thought is the trigger to get advice. Not the winding-up petition.
What Happens Next
If you’re considering a CVA, the first step is an honest assessment: is the underlying business viable, and can it support a repayment plan?
We’ll look at your numbers, talk through the realistic options, and tell you straight whether a CVA is likely to work, or whether something else fits better. No jargon, no pressure.
Contact us today for a Free Insolvency Consultation 0116 2994745 or email kishan.r@springfields-uk.com
