Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement (CVA) is a formal arrangement between the company and its creditors for settlement of its debts over an agreed time scale where the business is suffering cash flow difficulties but is otherwise fundamentally sound.
In simple terms, a CVA is an arrangement between the company and its creditors to repay the debt over a period of time – typically 5 years.
Once a CVA has been agreed by creditors, all interest and charges on company unsecured debts will be frozen.
Payments into the CVA are made on a regular basis and normally last for five years although it is possible if a lump sum payment can be raised to shorten the term.
Positives of a Company Voluntary Arrangement:
- It is a legally binding arrangement between the company and its creditors. No further action can be taken against the company by its creditors once the CVA is approved.
- It is an accepted format for dealing with debt and does not carry the stigma that is associated with company liquidation or company administrative receivership.
- The company can continue to trade and generate income.
- Creditors can claim tax relief against bad debts.
- As long as 75% of the creditors vote for the arrangement all other creditors are bound.
- Creditors acknowledge that they must accept a reduced sum.
Negatives of a Company Voluntary Arrangement:
- Creditors representing 75% of the value of money owed must agree to the proposal.
- CVAs usually last for five years.
- If the CVA fails, the company can still go into company liquidation or company administrative receivership.
- CVAs will appear on the company credit file which could affect future credit.
For further detail on the debt options for limited companies see:
Or for debt options for sole traders and partnerships click here.