What is a company voluntary arrangement?

A company voluntary arrangement (CVA) is a binding agreement between a company and its creditors, and is one of several statutory corporate insolvency procedures.

The CVA is extremely flexible, and the form which a CVA takes will depend on the terms of the proposal agreed by the creditors. For example, a CVA may involve delayed or reduced payments of debt over a set period of time, 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 poorly-performing outlets, and/or to reduce rents on remaining sites in order to ensure the ongoing survival of the company.

The most notable features of a CVA are that, unlike other insolvency procedures, the insolvent company's directors will stay in charge, and creditors have a vote on the terms of the procedure before it begins.

CVAs are the least common of the UK's main corporate insolvency procedures: they accounted for just 2% of all corporate insolvency procedures in 2018.

Why are CVAs used?

As with most other statutory insolvency procedures, CVAs are overseen by a licensed insolvency practitioner.

Unlike other insolvency procedures, in a CVA, the insolvency practitioner does not replace the directors of a company. Instead, the insolvency practitioner will act as a 'nominee' (prior to the CVA's approval) and 'supervisor' (after the CVA's approval). As a nominee, the insolvency practitioner will check to see whether a CVA proposal meets the legal requirements, and as a 'supervisor' they will check whether the terms of the CVA are being met by the company.

How is a CVA agreed?

CVAs are most often proposed by a company's directors. To propose a CVA, directors must approach a licensed insolvency practitioner to act as a 'nominee'. The nominee's role is to give an opinion as to whether the CVA proposal has "a reasonable prospect of being approved and implemented". If the nominee agrees that the CVA would meet this test, the opinion is filed at court and the proposal is put to the creditors of the company. The person acting as the nominee will frequently assist with the drafting of the CVA proposal but in the role of an advisor, separate to their role as nominee.

High-profile CVAs are invariably the product of several weeks of prior negotiations conducted by the company's advisors with principal creditors.

To be implemented, CVAs need to be approved by creditors representing over 75% of the value of the debts owed to those unsecured creditors who vote on the CVA. If this 75% threshold is met, and not more than 50% of the total value of the 'unconnected' creditors vote against it, the CVA becomes binding upon the company and all its unsecured creditors (even those who voted against the proposal). The CVA is then recorded on the company's file at Companies House. Secured creditors are only bound if they agree to be bound and give up their security.

Creditors may apply to the court if the CVA's terms are unfairly prejudicial or if there was some material irregularity in the procedure leading up to its approval.

Once approved, the CVA is given effect to under the supervision of (usually) the nominee (the nominee then becomes the 'supervisor'). The CVA's terms are then carried out in much the same way as any other commercial contract. If all creditors are paid what the CVA has promised, or if the supervisor is satisfied that it has substantially fulfilled its aims, the CVA will complete.

If the company does not satisfy the terms of the CVA, for example, if it is unable to keep up with monthly payments, the CVA's terms will often have provisions for how to deal with its termination. A CVA which terminates may lead to the company entering a subsequent insolvency procedure such as liquidation.