Advantages and Disadvantages of a Company Voluntary Arrangement (CVA)

1. The Company Can Continue Trading

One of the biggest advantages is that a CVA is designed to rescue the company rather than close it.

The business can normally continue operating while dealing with historic financial pressure.

That may help preserve:

• customer relationships;
• goodwill;
• supplier relationships;
• employee jobs; and
• the value of the underlying business.

For a viable company experiencing temporary or historic debt problems, this can be significantly more attractive than liquidation.

2. Directors Usually Remain in Control

In a CVA, the directors generally remain responsible for running the company.

The insolvency practitioner supervises the arrangement rather than taking control of the business.

This is different from administration, where an administrator takes control of the company.

For directors who understand the business well and have a credible recovery plan, retaining operational control can be a major advantage.

3. Repayments Can Be Structured Around Affordability

A CVA can restructure qualifying debts into an agreed repayment arrangement.

The amount the company contributes should be based on realistic future cash flow rather than simply what creditors are owed today.

This can improve cash-flow visibility and make historic debt more manageable.

However, the arrangement only works if the proposed contributions leave enough money for the company to continue paying its new liabilities as they arise.

4. Creditors May Receive a Better Return

Creditors may support a CVA where they expect to recover more than they would if the company entered liquidation.

That comparison is an important part of the proposal.

If creditors believe the business is viable and the arrangement offers a better financial outcome, supporting a rescue can be commercially sensible.

5. It Can Avoid Immediate Liquidation

A successful CVA can allow a company to avoid being wound up.

That gives directors an opportunity to restructure the business, improve profitability and address the causes of the financial difficulty.

This does not mean the company has avoided insolvency altogether — a CVA is itself a formal insolvency procedure — but it may allow the company to survive rather than close.

6. Jobs May Be Preserved

Because the company continues trading, employees do not automatically lose their jobs simply because a CVA is approved.

A restructuring may still be necessary, and redundancies can still occur, but a successful rescue may preserve more employment than a company closure.

1. Creditors Must Approve the Proposal

The company cannot simply decide to enter a CVA on its own terms.

At least 75% by value of the creditors who vote must support the proposal, subject to additional protections involving unconnected creditors.

A major creditor can therefore have a significant influence over whether the proposal succeeds.

If creditors consider the forecasts unrealistic or believe they would receive a better outcome elsewhere, they may reject it.

This can be especially significant where HMRC is a major creditor, as its voting position may determine whether the required approval threshold is reached. See will HMRC accept a CVA? for more detail.

2. The Arrangement Can Last Several Years

Many CVAs run for around three to five years, although there is no fixed statutory duration that applies to every arrangement.

That can represent a significant long-term commitment.

The company must continue making the agreed contributions while also paying its normal operating costs and new liabilities.

For more detail, see How Long Does a Company Voluntary Arrangement Last?.

3. The Company’s Credit Profile Will Be Affected

A CVA is a formal insolvency procedure and becomes part of the company’s public record.

That can affect:

• supplier credit;
• borrowing;
• finance applications;
• insurance;
• commercial contracts; and
• how customers or counterparties assess the business.

Some suppliers may require payment upfront or reduce existing credit limits.

This can put additional pressure on working capital during the recovery period.

4. The CVA Can Fail

If the company cannot maintain the agreed payments, the arrangement may fail.

Possible causes include:

• unrealistic forecasts;
• continued trading losses;
• new tax arrears;
• loss of a major customer;
• unexpected costs; or
• insufficient working capital.

If the CVA fails, creditors may regain enforcement rights and the company could ultimately face administration or liquidation. GOV.UK specifically warns that creditors may apply to wind up the business if scheduled payments are not maintained.

5. The Company Must Maintain Strict Financial Discipline

A CVA is not a payment holiday.

The company still has to meet its new obligations, including:

• VAT;
• PAYE;
• Corporation Tax;
• wages;
• rent; and
• new supplier invoices.

A company that continues building up new arrears may simply replace one debt problem with another.

This is why viability and realistic forecasting matter so much.

6. Not Every Creditor Is Treated in the Same Way

A CVA primarily restructures debts covered by the approved arrangement.

The rights of secured and preferential creditors cannot simply be altered without the required consent.

Directors should therefore not assume that every liability will automatically be rolled into one affordable monthly payment.

Neither option is automatically better.

A CVA may suit a company where:

• the directors are capable of continuing to run the business;
• the main problem is historic debt;
• the business remains viable; and
• stronger court-backed protection is not required.

Administration may be more appropriate where immediate creditor protection, significant restructuring or a business sale is needed.

We will cover this separately in our CVA vs Administration guide.

A Company Voluntary Arrangement can be a powerful rescue tool, but only where the underlying business is genuinely viable.

Business Helpline provides free, confidential and unbiased initial advice to limited company directors.

We can help you understand:

• whether a CVA may be suitable;
• the advantages and disadvantages in your circumstances;
• whether repayments appear sustainable;
• how creditors may respond; and
• whether administration or liquidation should also be considered.

Call our free 24-hour helpline on 0800 088 2142 or request a confidential call back.