Company Voluntary Arrangement: A UK director's guide to rescue

A Company Voluntary Arrangement is a formal rescue procedure governed by Part 1 of the Insolvency Act 1986. The directors of an insolvent company, working with a licensed insolvency practitioner, draft a proposal setting out how the company will repay its unsecured creditors over a defined period — typically a percentage of each pound owed, paid out of future trading contributions over three to five years. The proposal is put to creditors, who vote on it. If 75 percent or more by value approve, the proposal becomes a binding statutory contract on all the company's unsecured creditors, including those who voted against and those who did not vote at all.

Under the CVA, the company continues to trade. The directors continue to run the business. A licensed insolvency practitioner acts first as nominee (in drafting and presenting the proposal) and then as supervisor (overseeing the company's performance under the agreed terms). The creditors receive their agreed payments over the contribution period. At the end of the period, the company's liability for the original debts is discharged — the unsecured creditors lose any unpaid balance, and the company comes out of the arrangement with a clean balance sheet.

Where the model works, it is a powerful tool. The company is saved. Jobs are preserved. The underlying trade continues, generating value for the economy and for its stakeholders. The creditors typically recover more under the CVA than they would in a liquidation — which is why they vote in favour. Where the model does not work, the company typically ends up in liquidation anyway, with the additional cost and delay of the failed CVA.

Common confusions worth setting aside:

• Not a debt write-off. The company still pays — typically a meaningful percentage of unsecured debts over three to five years. Creditors agree to less than full repayment because they expect to receive more under the CVA than in a liquidation; if that expectation is not met, the proposal is unlikely to be approved.
• Not the same as administration. Administration places the company under the control of an administrator with the objective of rescue or going-concern sale. CVA leaves the directors in control, with a supervisor overseeing performance. The two procedures can be combined — administration followed by CVA is a recognised pathway — but they are distinct.
• Not a moratorium. A separate Part A1 moratorium procedure was introduced by the Corporate Insolvency and Governance Act 2020, providing a 20-business-day stay against creditor enforcement for distressed companies. The Part A1 moratorium is sometimes used as a precursor to CVA but is a separate procedure with its own eligibility framework.
• Not appropriate for every insolvent company. Where the underlying business is not viable, no CVA proposal will deliver a credible plan for repayment — and creditors will reject it. Where it is unclear whether the business is viable, the right course is typically to test viability with a short period of restructuring or a moratorium before committing to a CVA.

Viability

Underlying business capable of generating positive cash flow once legacy debt is restructured. The most frequently misjudged of the three.

Contribution

Realistic contributions deliverable from future trading over 36–60 months. Conservative modelling separates CVAs that complete from those that fail.

Cooperation

75% by value of unsecured creditors must approve. Pre-engagement with concentrated creditors is essential to a credible proposal.

The underlying business must be viable. "Viable" means: capable of generating positive cash flow once the legacy debt is restructured or written down; with a realistic business plan; supported by management capable of delivering the plan; and operating in a market where demand for the company's product or service is sustainable.

Viability is the most important and the most frequently misjudged of the three tests. Directors of struggling companies often believe their business is viable when, on objective analysis, the underlying problem is not the legacy debt but the trade itself — declining margins, lost customers, structural disadvantage against competitors, or simple absence of demand. Where the trade itself is loss-making, no CVA will rescue the company; the contributions cannot be funded out of operations and the proposal will fail in implementation if it is approved at all.

Honest viability analysis at the proposal stage is therefore essential. We routinely turn down CVA instructions where the underlying business is not viable on the figures — not because we cannot draft the proposal but because the proposal would not deliver value for the directors or the creditors. CVL is the right answer in many of these cases; it is not a worse outcome, simply the right procedure for the facts.

The directors must be able to deliver realistic contributions to the CVA out of future trading. The typical structure is monthly contributions over thirty-six to sixty months, calculated to deliver an aggregate return to creditors that materially exceeds what they would receive in a liquidation.

"Realistic" is the operative word. Contributions that look credible on paper but cannot be sustained in practice produce a CVA that fails in implementation — the company misses payments, the supervisor is forced to terminate, and the company ends up in liquidation. The cash flow modelling at the proposal stage must be conservative, must allow for the operational realities of trading through the contribution period, and must be capable of being delivered alongside the company's ongoing tax and trading liabilities.

In practice, this is the most common reason CVAs fail. The proposal is drafted on optimistic projections, creditors approve on the basis of those projections, and then the company finds it cannot deliver. Conservative modelling at the proposal stage — with contingency built in — is what separates CVAs that complete successfully from those that fail.

The creditor body must be willing to accept less than full repayment. CVA approval requires 75 percent or more of creditors by value to vote in favour. Where the creditor base is concentrated — a single dominant trade creditor, a major secured lender, HMRC owed a substantial proportion of the total — the cooperation of those concentrated creditors is essential. Where they are unwilling, the CVA will fail at the vote regardless of how strong the proposal is.

The cooperation test is fact-specific. Where HMRC is the largest creditor, HMRC's engagement is determinative — HMRC operates under a publicly stated CVA policy and will engage where the proposal is realistic, but will reject where it is not. Where a major trade creditor or finance provider holds a blocking position, their commercial interests must be addressed in the proposal. Pre-engagement with significant creditors before the formal vote is therefore essential; a CVA proposed without this groundwork is materially less likely to succeed.

Where any of the three tests fails, CVA is not the right answer. Specifically:

• If the business is not viable, CVL or administration is the right procedure depending on whether there is going-concern value to preserve.
• If contributions cannot be delivered realistically, the CVA will fail in implementation — and CVL after a failed CVA produces worse outcomes for creditors and directors than CVL from the outset.
• If the creditor body is uncooperative, the proposal will not be approved — and the time spent drafting and presenting it is wasted.
• If the company has been served with a winding-up petition and the hearing is imminent, a CVA cannot typically be drafted and put to creditors fast enough; an interim moratorium or administration may be needed first.

By value of creditors voting

Calculated by reference to the value of debts, not the number of creditors. A 25%-plus minority can defeat the proposal.

By value of unconnected creditors

More than 50% by value of creditors not connected to the directors must also approve. Prevents internal CVAs.

Under the Insolvency (England and Wales) Rules 2016, a CVA is approved if 75 percent or more by value of creditors voting on the resolution agree. The threshold is calculated by reference to the value of debts, not the number of creditors. A single large creditor holding 30 percent of the debt has materially more voting power than ten small creditors holding 1 percent each.

The 75 percent threshold means that a relatively small minority — 25 percent plus a fraction of the voting value — can defeat a proposal. Where there is a dominant creditor or a concentrated creditor base, that creditor or group has effective veto power. Pre-engagement with concentrated creditors before the vote is therefore essential.

To prevent connected creditors (directors, related companies, family members) from voting through a proposal that would not have unconnected creditor support, a separate threshold applies: more than 50 percent by value of unconnected creditors voting must approve. "Connected" includes directors, their associates, and connected companies.

In practice, this rule is the principal safeguard against "internal" CVAs designed to write down debts owed to outsiders while preserving value for insiders. Where directors hold loan accounts owed by the company, those balances are connected debts and their votes do not count for the unconnected-creditor threshold.

The voting rules drive the structure of any CVA proposal. Three implications:

• Creditor analysis at the proposal stage must identify connected and unconnected positions accurately. Mistakes at this stage can mean the difference between a proposal that passes and one that fails.
• Pre-engagement with significant unconnected creditors is essential. A CVA put to vote without this groundwork is at material risk of failure — or, worse, of approval on terms that cannot be delivered.
• Where a single creditor holds a blocking position (more than 25% by value), their support is determinative. The proposal must be designed to be commercially acceptable to that creditor.

Directors retain office throughout the CVA. They continue to manage the company's day-to-day affairs. They retain authority to enter contracts, employ staff, manage operations, and conduct trade. The supervisor's role is oversight — monitoring performance against the proposal, receiving reports, distributing funds to creditors — not control.

This is one of the principal commercial reasons directors choose CVA over administration: continuity. The trading relationships built up over years are preserved. The customers continue to deal with the same people. The staff continue to report to the same management. The brand and reputation — to the extent the CVA does not damage them — are preserved.

Although directors retain control, they operate under supervision throughout the contribution period. The supervisor receives regular management information, monitors performance against the proposal, and engages with the directors where issues arise. Material decisions — changes to the business, significant new commitments, asset disposals — typically require the supervisor's consent under the terms of the proposal.

The relationship between directors and supervisor is collaborative in well-functioning CVAs. The supervisor is professionally invested in the success of the arrangement; the directors have committed to the arrangement and are working to deliver it. Where the relationship breaks down — typically because the company is failing to perform — the supervisor has powers to convene further creditor meetings, propose variations, or terminate the arrangement.

CVA itself does not create personal liability for directors. Personal exposure flows from the same mechanisms that operate in any insolvency context:

• Wrongful trading exposure remains live during the CVA. Where the directors continue to take credit or make payments that worsen the position of creditors beyond what the CVA contemplates, wrongful trading liability can arise.
• Preference and undervalue claims for the period before the CVA can still be pursued by a subsequent liquidator if the CVA fails and the company enters CVL.
• Director loan accounts owed to the company are typically dealt with in the proposal itself — either repaid, written off, or treated as connected debt. Defective treatment can give rise to personal exposure.
• HMRC personal liability notices for unpaid NICs can still be issued where conduct in the period before the CVA gives rise to fraud or neglect findings.

The CVA does not extinguish these exposures. It addresses the corporate debt position, not the personal liability framework that operates around it. Directors with material personal exposure should treat the CVA proposal as one part of a wider strategy that includes managing the personal position separately.

This is the single most important point for many directors. Personal guarantees signed in respect of the company's liabilities are not extinguished by a CVA. The PG is a contract between the director and the lender, separate from the corporate debt. Even where the CVA writes down the corporate debt to a fraction of its face value, the lender retains the right to call the PG for the full amount.

In practice, lenders frequently call PGs at the point of CVA — the company's insolvency triggers the call. Settlement at a discount is often achievable but the position is parallel to the CVA, not part of it. Directors with significant PGs should expect demands during the CVA and should plan their personal financial response accordingly. We address PG settlement on a separate page; for the purposes of this pillar, the key point is that CVA does not solve the PG problem.

Employees are not displaced by a CVA. Their contracts continue. Wages, holiday pay, and pension contributions accruing during the CVA period are paid in the ordinary course — they are not part of the arrangement. Pre-CVA arrears of employee claims (unpaid wages, holiday pay accrued before the proposal date) are typically dealt with in the proposal alongside other creditor claims, often with a higher percentage return given the preferential status of employee claims in a liquidation comparison.

Trade creditors are the typical "unsecured creditor" constituency in a CVA. Their pre-CVA debts are written down to whatever percentage the proposal delivers; in many CVAs, this is between 25 and 60 pence in the pound, paid out over the contribution period. Post-CVA trading is on a fresh-credit basis: suppliers may continue to deal with the company under new terms, and the company's ability to maintain supplier relationships through the CVA is often the principal indicator of whether the rescue will succeed.

Landlords have featured prominently in CVA case law in recent years, particularly in the retail and hospitality sectors. Where the company's lease portfolio includes underperforming properties, the CVA proposal often includes lease modifications: rent reductions, conversion of upward-only rent reviews to market rent reviews, or surrender of the lease in exchange for a discounted creditor claim. Landlords have challenged several recent CVAs in court, with mixed results; the case law continues to develop. The position should be reviewed with insolvency counsel where lease modifications are central to the proposal.

Secured lenders are not bound by a CVA without their consent. Their secured position is preserved. In practice, secured lenders engage with CVA proposals where the alternative is enforcement leading to liquidation — they typically prefer cooperation that preserves the company's ability to service the secured debt over enforcement that destroys the company. Lenders frequently agree forbearance arrangements alongside the CVA, deferring or restructuring secured debt to align with the CVA contribution schedule.

Shareholders retain their shareholdings through the CVA. They typically cannot receive dividends or other distributions during the contribution period — the CVA is for the benefit of creditors, and shareholder distributions during the period are inconsistent with that. Shareholder value is preserved in the underlying equity, which can recover during and after the CVA if the rescue succeeds.

The supervisor terminates the arrangement where the company materially breaches the proposal terms — typically by missing contributions or failing to provide management information. The supervisor files a final report. The CVA is at an end.

Creditors who voted against the CVA, or new creditors arising during the CVA period, can petition for the company's winding-up where the company defaults under the arrangement. The court can appoint a liquidator and the company moves into compulsory liquidation.

Where the directors recognise that the company cannot perform, they can convene a creditors' meeting to terminate the CVA voluntarily. The supervisor reports to creditors. The CVA ends and the company typically enters CVL.

Administration is the other major UK rescue procedure. The differences:

• Control: directors retain control in CVA; administrator takes over in administration.
• Moratorium: administration provides automatic statutory moratorium against creditor enforcement; CVA does not (although a separate Part A1 moratorium can be obtained).
• Speed: administration can be in place within days; CVA typically takes weeks to draft and creditor-approve.
• Outcome: CVA aims at the survival of the company in its current form; administration can result in survival, sale, or transition to liquidation depending on the strategy pursued.
• Cost: administration is typically more expensive than CVA, particularly because administrators have wider operational responsibilities.
• Trading: trading through CVA is largely under the directors' control; trading through administration is at the administrator's direction.

CVA is typically right where the underlying business is operationally sound but the legacy debt is unsustainable. Administration is typically right where there is going-concern value to preserve through a sale, where rapid action is needed, or where directors are no longer in a position to lead the business. Many cases involve elements of both — an initial moratorium or short administration to stabilise, followed by a CVA to deal with the legacy debt.

CVA is appropriate where the underlying business is viable. CVL is appropriate where it is not. The choice between CVA and CVL turns on the viability test set out earlier on this page. Where the trade itself is loss-making, CVL is the correct procedure; CVA will fail in implementation regardless of how it is structured at the proposal stage.

Refinancing is a non-insolvency answer to a debt problem. Where the company can refinance its existing debt at terms that make the going-forward position viable, refinancing is preferable to CVA: there is no insolvency procedure on the company's record, no creditor proposal to put together, and no supervision period to operate under. Refinancing is achievable where the company has assets to support new lending and where the underlying business is generating cash flow that can service the new debt. Where refinancing is not available, CVA is often the next option to consider.

From first instructing a licensed practitioner to creditor approval, a CVA typically takes eight to sixteen weeks. The principal time-consuming components are drafting the proposal (four to eight weeks), pre-engagement with significant creditors, and the 14-day notice period before the decision procedure. Complex cases or those requiring significant pre-engagement can take longer.

From approval to completion, the CVA runs for the contribution period set out in the proposal — typically thirty-six to sixty months (three to five years). The directors' active involvement during this period is concentrated on running the business and meeting contribution obligations; the supervisor's role is oversight rather than day-to-day involvement.

Total duration from first advice to formal completion is therefore typically four to six years for a standard CVA. This is a long-term commitment. Directors considering CVA should be prepared for sustained engagement with the procedure over multiple years, and should evaluate whether they are personally and operationally able to maintain that commitment.

CVA costs include nominee fees (drafting and presenting the proposal), supervisor fees (during the contribution period), and disbursements (legal advice, court filings, advertisements, valuations). Total fees are usually substantial because of the multi-year supervision element.

Indicative ranges for a standard mid-size CVA:

• Nominee fees (drafting and approval): £8,000 to £20,000 plus VAT, depending on complexity.
• Supervisor fees (over the full contribution period): £15,000 to £40,000 plus VAT, depending on duration and complexity.
• Disbursements (legal, court, valuation): £2,000 to £8,000.

Total CVA cost is therefore typically £40,000 to £80,000 for a mid-size case, paid out of the contributions made under the arrangement. Larger or more complex CVAs cost more. See our detailed cost breakdown for case-by-case ranges.

From the directors' perspective, CVA costs are paid out of the company's contributions to the arrangement — not separately by the directors personally. The arithmetic of the proposal must support the IP fees alongside the creditor distributions; if it does not, the proposal is not viable.