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What is a Company Voluntary Arrangement “CVA”?

A CVA is a procedure which enables a company to place a proposal to creditors for a composition in satisfaction of its debts or a scheme of arrangement of its affairs. A composition is an agreement under which creditors agree to accept a certain sum of money in settlement of the debts due to them. The procedure is extremely flexible and the form which the voluntary arrangement takes will depend on the terms of the proposal agreed by the creditors. For example, a CVA may involve delayed or reduced payments or debt (write-off by creditors), capital restructuring or an orderly disposal of assets.

The proposed arrangement requires the approval of at least 75% in value of the creditors in attendance, or represented by proxy, at the meeting convened to vote upon the CVA proposals. Once approved, the CVA is legally binding on the company and all its creditors, whether or not they voted in favour of it. There is limited involvement by the court, and the scheme is under the control of a licensed IP acting as a supervisor.

Should circumstances change during the course of the CVA, variations are approved by creditors in the same way.

A CVA cannot change the legal rights of creditors e.g. a secured creditor, but is becoming a more popular tool for agreeing a process with creditors that allows a company to survive, albeit in reduced form. It is not as certain as an administration but it is less expensive/cumbersome, and quicker to implement.

The CVA procedure was introduced by the Insolvency Act 1986 and was designed primarily as a mechanism for business rescue.


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