Company Voluntary Arrangement: Can the Business Continue Trading?
A CVA can allow a viable but insolvent company to continue trading while paying creditors under an agreed arrangement.
A CVA can allow a viable company to continue trading while dealing with debts under a formal arrangement. It requires an insolvency practitioner. For creditor approval, at least 75% by value of creditors voting must vote in favour. There is an additional safeguard for unconnected creditors: the proposal will not be approved if more than 50% by value of the unconnected creditors voting vote against it. Once approved, the arrangement becomes legally binding on creditors within its scope.
What this means for the director
A CVA is not a device for keeping an unviable business alive. The central question is: can this company generate enough future cash to trade, meet current obligations and perform the proposed arrangement?
If the answer is no, restructuring historic debt may not solve the underlying problem.
What happens next
Directors assess viability. An insolvency practitioner is appointed. A proposal and payment structure are developed. Creditors receive and vote on the proposal.
If approved at the required threshold, the CVA takes effect. The company continues trading subject to the arrangement. Payments and ongoing obligations must be maintained.
Issues to establish
Historic debt. Current monthly profitability. Working-capital requirement. HMRC position. Future tax obligations. Secured creditors. Critical suppliers. Lease commitments. Creditor composition. Realistic monthly cash generation. Management changes required.
CVA suitability checklist
- Worth investigating: the underlying business is genuinely viable.
- Worth investigating: historic debt is a major part of the problem.
- Worth investigating: future cash flow can support an arrangement, management has credible forecasts, and directors understand the ongoing obligations.
- Needs harder scrutiny: losses continue every month, or forecasts depend on unrealistic growth.
- Needs harder scrutiny: new taxes cannot be paid, or working capital remains unavailable.
- Needs harder scrutiny: the underlying business model is broken.
Questions directors usually ask
Do I keep control?
Directors retain control while the company continues trading under a CVA.
Do all creditors have to vote yes?
No. The statutory voting rules apply, including the required creditor majority.
What happens if the company cannot maintain the CVA?
Failure can lead to further creditor action, including potential winding-up action.
Related authority pages
General information disclaimer
General information only. Insolvency, tax and director-liability outcomes depend on individual circumstances. Nothing on this page constitutes legal, tax or insolvency advice. Where insolvency is suspected, advice from an appropriately qualified professional should be obtained promptly.
Establish your position
A CVA restructures debt. It does not repair a business model. Establish viability first.