Company Voluntary Arrangements (CVA) – An Overview

The past 14 months or so have obviously been a difficult one for the retail sector with a number of companies struggling financially due to the pandemic. Due to this, many retail companies are having to consider insolvency proceedings, in particular a Company Voluntary Arrangement (CVA).

What is a CVA? How does it work?

A CVA is a process outlined in the Insolvency Act 1986. It allows a business to enter into an arrangement that permits it to restructure its assets and estate. Essentially, it allows a business to make a proposal to creditors to compromise their debts and claims while continuing to operate/trade. The proposal needs to be approved and supported by 75% of the creditors, by value.

At the point where a business will consider a CVA, there only other form of action would be to consider entering into administration.

The proposal put forward to its creditors will also outline what the consequences would be for the business if the CVA is not agreed/approved, e.g. the company entering into administration.

If the CVA proposal is approved, it will be supervised by a licensed insolvency practitioner and will remain in place for three to five years.

Can a CVA help a business in the long term?

A CVA doesn’t eradicate all the financial difficulties that a business is encountering but it does allow it time to re-evaluate its business strategy and improve how it operates. Having a good management team in place to do this is paramount.

Any business considering a CVA, or a creditor who receives a CVA proposal, should seek legal advice at the earliest opportunity.