When business debts become overwhelming, directors often think the only options are liquidation or closure. However, there is a less drastic route that can allow a struggling company to survive and repay creditors in a manageable way. A Company Voluntary Arrangement (CVA) could be the lifeline your business needs.

What Is a CVA?

A CVA is a legally binding agreement between a company and its creditors to restructure debts. Unlike liquidation, where assets are sold to pay creditors, a CVA lets you keep trading while paying back what you owe over a fixed period. It is overseen by a licensed insolvency practitioner, who ensures the terms are fair and realistic. This approach can be especially helpful for businesses that are viable in the long term but temporarily under financial strain.  

How Does the CVA Process Work?

First, a detailed financial review is conducted to see if a CVA is realistic. If it is, your insolvency practitioner will draft a proposal outlining how much will be repaid and over what timeframe. Creditors then vote on this proposal and it must be approved by at least 75 per cent (by debt value) to become legally binding. Once approved, the company continues trading while it sticks to the agreed payment plan.  

A CVA offers key benefits. For example, creditors are prevented from taking legal action while the arrangement is in place. This protection can give your business breathing space and time to recover. It can also improve cash flow by consolidating liabilities into structured payments.  

When a CVA Makes Sense

A CVA can be particularly useful if your company is fundamentally viable but struggling with short-term pressures. Examples include seasonal downturns, temporary supply chain issues, or one-off costs that have buckled your budgets. Compared with formal insolvency procedures, a CVA allows you to retain control of the business and its operations.  

However, a CVA may not be appropriate for businesses with no realistic future prospects. If your company is deep in financial distress with little chance of recovery, insolvency procedures such as a Creditors Voluntary Liquidation may be more appropriate. Learn more about when liquidation becomes necessary at https://www.parkerwalsh.co.uk/articles/when-to-act-early-warning-signs-that-your-company-may-be-insolvent.  

Risks and Considerations

Entering a CVA affects your company’s credit rating. This could make future borrowing difficult, so it is essential to consider the long-term implications. Also, if a CVA fails because payments are not met, creditor action can resume and the company may still face liquidation. Early advice is key to understanding these trade-offs.

Could This Be Your Best Option?

If you are trying to avoid closure and retain business continuity, a CVA could be a realistic solution. It is worth discussing with a professional who can assess whether your company qualifies. For free, confidential guidance tailored to your situation, visit https://www.parkerwalsh.co.uk/articles/free-insolvency-advice.