Company Voluntary Arrangements (CVA): How to Tackle Debt

Running a business is rewarding, but even the most diligent business owners can face tough financial times. Whether it's late payments, unexpected downturns, or unforeseen challenges, business debt can quickly spiral and put your long-term ambitions at risk. But insolvency doesn’t have to mean closing the doors for good. In the UK, a Company Voluntary Arrangement (CVA) offers a powerful way for companies to manage debt, keep trading, and work towards financial recovery - all within a clear, legal framework. If you're feeling overwhelmed by mounting business debts but not ready to throw in the towel, keep reading. In this guide, we’ll demystify CVAs - what they are, how they work, and how they could help you take control of your company’s future.

What Is a Company Voluntary Arrangement (CVA)?

A Company Voluntary Arrangement (CVA) is a formal, legally binding agreement between an insolvent company and its creditors. Rather than shutting down or facing liquidation, this process allows your company to negotiate and compromise with creditors - usually by agreeing to pay a reduced sum over an agreed period. CVAs are governed by the Insolvency Act 1986, which sets out the rules and ensures the process is supervised by a licensed Insolvency Practitioner (IP). The aim? To give your business the breathing space it needs to restructure, repay what’s affordable, and continue operating. This debt solution isn’t just for large companies - many small and medium businesses use CVAs to avoid closure and safeguard jobs. In essence, it’s a way to reset your finances and get back on track, while still keeping your business open. For a comprehensive look at common mistakes small businesses make when tackling debt and compliance, see our guide on 10 Small Business Mistakes.

How Does a CVA Work in Practice?

Let’s break it down:

• You work with an Insolvency Practitioner (IP) to create a proposal outlining how debts will be dealt with. This often means paying smaller amounts over a period - typically between 3 and 5 years.
• The IP presents the proposal to all creditors (everyone your company owes money to), and calls a meeting for them to vote on the plan.
• If at least 75% (by value) of those who vote in favour, the CVA is approved and becomes legally binding on all creditors eligible to vote - even those who voted against it, or didn’t vote at all.
• Your company then makes regular repayments as set out in the agreement. As long as these are maintained, creditors can’t take legal action to recover the old debts.
• When all repayments have been made, any remaining qualifying debt is written off and your company returns to full control.

At any stage, if the company fails to keep up with the agreed repayments, the CVA can fail. If this happens, creditors may seek to force the company into liquidation. It's important to be clear on the difference between a creditors' voluntary arrangement and other insolvency processes - see that guide for more on how CVAs compare to liquidation processes.

What Are The Key Features of a CVA?

If you’re considering a company CVA, here’s what you need to know:

• Debt Restructuring: CVAs provide a structured, affordable way to repay debt. Instead of trying to pay everything at once, you negotiate payments that match what your business can realistically afford.
• Business Continuity: Your company can usually keep trading throughout the CVA. This helps protect jobs, customer relationships, and brand reputation.
• Legal Protection: With a CVA in place, creditors are bound by its terms. This means they cannot chase your company for payment outside of the agreement or start winding-up proceedings (as long as you comply with the CVA).
• Creditor Approval Is Crucial: The arrangement only goes ahead if at least 75% (by value) of voting creditors agree. This is why clear communication and a solid proposal are key to success.
• Supervised by an Insolvency Practitioner: A licensed IP handles everything from drafting the plan to overseeing payments, ensuring the process is fair, lawful, and transparent.
• Binding on All Creditors: Once a CVA is approved, all unsecured creditors are bound - regardless of whether they voted for or against the proposal.

When Might a CVA Be Right for My Business?

A Company Voluntary Arrangement is best suited where:

• Your business is fundamentally viable, but is struggling with cash flow due to significant debts.
• You want to avoid administering a voluntary administration or liquidation.
• You have ongoing contracts, valuable customer relationships, and a good chance of returning to profitability if debts can be restructured.
• Creditors are likely to get a better return through a CVA than via liquidation or winding-up.

It’s not a magic bullet. A CVA won’t solve underlying issues with your business model or revive a company with no real prospects. But if you’re dealing with a short-term financial hit and can show a credible, realistic plan for debt repayment, a CVA could buy you the space needed to recover. For some companies, other restructuring routes (such as administration or informal arrangements) may also be worth considering. For an overview of business structure options and their pros and cons, see our article here.

What’s The CVA Process? Step-by-Step Guide

Here’s what you can expect if you pursue a company CVA:

1. Contact An Insolvency Practitioner (IP): The first step is to appoint an IP - only a licensed IP can propose a CVA.
2. Proposal Drafting: Working with the IP, you’ll develop a detailed proposal. This includes your company’s financial position, forecasts, causes of current issues, and a plan for future repayments.
3. Proposal to Creditors: The IP sends the draft proposal to creditors and convenes a creditors’ meeting to vote.
4. Voting: Creditors vote on the proposal (either by attending a meeting or submitting their votes in advance). For the CVA to pass, at least 75% (by value) of those who vote must approve it.
5. If Approved: The arrangement becomes legally binding, and your company starts making payments as scheduled under supervision by the IP.
6. Reporting: The IP monitors your business and reports back to creditors regularly. If your company meets its obligations, any remaining debt is usually written off at the end of the term.
7. If Not Approved or Not Followed: If creditors reject the proposal, or if payments fall behind, the CVA may fail. This could push your company towards administration or liquidation.

Want to understand more about key legal documents involved in company reorganisations? Check our guide to assignment, deeds and novation.

What Are The Benefits of a CVA?

Choosing a CVA over other insolvency options can offer major advantages:

• Keep Your Business Trading: Unlike liquidation, a CVA lets you continue running your business - safeguarding jobs and client relationships.
• Reduce Overall Debt: Creditors often accept a lower repayment via a CVA than what they’d recover through insolvent liquidation.
• Single Affordable Payment: Streamline all your outstanding debts into a single monthly repayment, rather than juggling multiple creditors.
• Protect Your Brand and Reputation: Continued trading suggests a business is resilient and committed to a solution, rather than shutting up shop and leaving creditors unpaid.
• Less Public Stigma: Administration and liquidation are highly public. While a CVA is recorded at Companies House, it’s generally seen as a positive step to rescue your business rather than close it down.
• Directors Stay in Control: Company directors remain in day-to-day control, unlike administration where an external administrator takes over.

If you want to explore other avenues for restructuring your business, our article Changing Company Ownership covers other options for reorganising and rescuing a business.

Are There Any Downsides or Risks to CVAs?

A Company Voluntary Arrangement isn’t a free pass. Here’s what you need to consider:

• Not All Creditors Will Agree: If key creditors vote against the proposal, your CVA may not be approved. Creditors commonly scrutinise your long-term viability and repayment plans.
• Damage to Credit Rating: While a CVA avoids the reputational hit of liquidation, it will still negatively affect your company’s credit record and may make borrowing harder in the short-term.
• Impact on Contracts: Some contracts or trade agreements may include clauses triggered by insolvency proceedings, such as a CVA. These could restrict access to credit or require renegotiation.
• Strict Adherence Needed: If payments under the CVA are missed, the agreement may fail and receivership or liquidation may follow.
• Public Notice: The CVA will appear on the public register at Companies House, and must be disclosed to stakeholders, suppliers, and (in some cases) customers.
• Dividend Restrictions: The company may be prohibited from paying dividends to shareholders until the completion of the CVA.

It’s essential to get tailored professional advice and to involve the right experts from an early stage. Even a well-intentioned CVA can fail without careful planning, creditor engagement, and robust agreements. Learn more about compliance and ongoing reporting requirements to ensure you meet all legal duties during a CVA.

What Legal Documents And Advice Will I Need?

A CVA is a complex legal process, so you’ll need to work with professionals and have the right documentation in place. Here’s what’s essential:

• CVA Proposal: The detailed repayment plan and supporting evidence - prepared with your Insolvency Practitioner.
• Insolvency Practitioner Appointment: Only a licensed IP can draft and supervise a CVA. They’ll act as your guide and intermediary.
• Board and Shareholder Approvals: In some cases, the company’s directors and/or shareholders will need to formally approve entering a CVA.
• Communication with Creditors: Clear, legally compliant notices to creditors and regular progress updates are critical to keeping everyone onside.
• Other Key Agreements: If your company’s finances are being restructured more broadly, you may also need to update or negotiate agreements such as profit share arrangements, franchise agreements, or supply contracts.

It’s essential to avoid the DIY route with these documents. Not only are the legal requirements strict (and errors can invalidate the process), but a mishandled CVA can weaken your company’s position and reduce support from key creditors. Always speak with a legal expert who understands CVAs and business restructuring to ensure you’re protected from the start. For advice on preparing or reviewing key company documents, see our service pages on Contract Review.

How Will a CVA Affect My Company’s Future?

Opting for a CVA is a big step, but it can set up your business for recovery and growth. Here’s what to expect after completion:

• Debt Relief: Once the agreed repayments are made, outstanding qualifying debts are written off – giving you a fresh start.
• Rebuilding Credit: Your company will need time to restore its credit rating, but a successful CVA demonstrates your commitment to honouring debts and managing challenges.
• Management Control: The directors remain in the driver’s seat, increasing stability and continuity compared to administration or liquidation.
• Opportunities for Growth: With debts restructured and creditors satisfied, many businesses find themselves in a stronger position to seek investment, renegotiate contracts, or explore new markets.

Remember, communication and professional advice are essential at every stage. Keeping creditors, stakeholders, and employees informed and engaged will strengthen trust and prevent unnecessary bumps along the way. To protect your new position and avoid future legal risks, be proactive with regular compliance checks and ensure your trading terms and legal documents are up to date.

Key Takeaways

• A Company Voluntary Arrangement (CVA) is a structured, legally binding way to manage company debt and avoid insolvency, supervised by an Insolvency Practitioner and governed by the Insolvency Act 1986.
• The process allows companies to continue trading, protects jobs, and offers creditors a better return than instant liquidation in many cases.
• CVAs require approval by at least 75% (by value) of creditors who vote and become binding on all eligible creditors once passed.
• While CVAs can provide a lifeline, they also come with risks - including the need for creditor approval and the obligation to comply strictly with the agreement.
• You’ll need professional guidance at every stage, from drafting the proposal to legal document review and ongoing compliance.
• Choosing the right legal structure and keeping contracts up to date can help secure your business’s future post-CVA.
• Don’t go it alone - legal and insolvency experts can guide you to make the best choice for your company’s circumstances.

If you need help with a Company Voluntary Arrangement, or want advice on your options for tackling company debt, we’re here to help. Call us at 08081347754 or email team@sprintlaw.co.uk for a free, no-obligation chat with a friendly legal expert.