Company voluntary arrangements

A company voluntary arrangement (CVA) is a binding deal under Part I of the Insolvency Act 1986 that lets an insolvent but viable company pay its creditors over time, or pay part of what it owes, while the directors stay in control. It is approved when at least 75% by value of the creditors who vote agree, provided more than half by value of the unconnected creditors do not vote against it, and it then binds every creditor who was entitled to vote.

What is a company voluntary arrangement?

Section 1 of the Insolvency Act 1986 allows the directors to propose to the company and its creditors either a composition in satisfaction of its debts or a scheme of arrangement of its affairs. In a CVA, the company usually pays an agreed monthly contribution or a share of future profits, sometimes with asset sales, and creditors accept that in place of their full claims. The Insolvency Service describes it as a way for a viable but insolvent limited company to pay its creditors over a fixed period while the directors keep control and the company continues to trade.

If the company is already in administration or liquidation, the proposal is made by the administrator or liquidator instead of the directors. Every proposal must name a nominee, who must be qualified to act as an insolvency practitioner and who becomes the supervisor once the arrangement is approved (section 7).

How is a CVA put together?

The Insolvency Service notes that the board must support the decision to proceed before an insolvency practitioner is appointed to work out what the company can afford and a repayment schedule, and that there is a charge for this. The steps under the Act are:

1. The directors give the nominee the proposal and a statement of the company’s affairs listing its assets, debts and creditors (section 2(3)).
2. Within 28 days, the nominee reports to the court on whether the arrangement has a reasonable prospect of being approved and implemented, and whether it should go to the members and creditors (section 2(2)).
3. A meeting of the company is called, and the creditors are asked to decide through a qualifying decision procedure, with notice given to every creditor whose claim and address is known (section 3).
4. The results are reported to the court (section 4(6) and (6A)).

There is no court hearing to approve a CVA. The court’s role is limited to receiving reports and hearing any challenge.

What voting thresholds apply?

Rule 15.34 of the Insolvency (England and Wales) Rules 2016 sets two tests for creditors:

• Approval. A decision approving the proposal is made when three quarters or more in value of those responding vote in favour (rule 15.34(3)).
• Unconnected creditor block. The decision fails if more than half of the total value of the unconnected creditors votes against it (rule 15.34(4)). A creditor is treated as unconnected unless the convener decides otherwise, and the total is measured by unconnected creditors whose claims are admitted for voting.

The second test stops a company carrying a CVA on the votes of its directors, group companies and other connected creditors against the wishes of independent creditors.

Members vote by simple majority, as the Insolvency Service explains. If the members’ decision differs from the creditors’, the creditors’ decision has effect, but a member can apply to court within 28 days (section 4A).

Which creditors are bound?

Once approved, section 5(2) makes the CVA bind every person who was entitled to vote in the creditors’ decision procedure, or would have been entitled if they had had notice of it, as if they were a party to the arrangement. That includes creditors who voted against or did not vote at all. A creditor who was not told about the CVA is still bound, but if the arrangement ends without having ended prematurely and they have not been paid their share, the company becomes liable to pay it (section 5(2A)).

What can a CVA not do?

• Override security. Section 4(3) prevents approval of anything that affects a secured creditor’s right to enforce its security without that creditor’s agreement.
• Override preferential status. Section 4(4) prevents preferential debts being paid other than in priority to non preferential debts, or one preferential creditor receiving a smaller proportion than another of the same class, without the creditor’s agreement. HMRC is a secondary preferential creditor for VAT and for certain deductions it collects through the company, namely PAYE income tax, employee National Insurance contributions, student loan deductions and construction industry scheme deductions (Schedule 6, paragraph 15D, and SI 2020/983). A CVA that treats HMRC’s preferential arrears as ordinary unsecured debt cannot be approved without HMRC’s consent.
• Cut moratorium debts. If the nominee reports within 12 weeks after a Part A1 moratorium ends, moratorium debts and priority pre moratorium debts must be paid in full unless the creditor concerned agrees (section 4(4A)).

Because secured and preferential creditors cannot be forced into a CVA, a company that needs to compromise them may look instead at a restructuring plan, where the court can bind dissenting classes.

Does a CVA stop creditors taking action?

Not by itself. A CVA has no automatic moratorium while the proposal is being prepared. The older small company moratorium in Schedule A1 was effectively replaced in 2020 by the Part A1 moratorium, according to the government’s evaluation of the Corporate Insolvency and Governance Act 2020.

Under Part A1, the directors can obtain a moratorium with a monitor for an initial 20 business days (section A9). They can extend it once by a further 20 business days without creditor consent (section A10), or for up to one year from the start with the consent of pre moratorium creditors (sections A11 and A12). During the moratorium, creditors cannot generally present winding up petitions, and the directors cannot be pushed into administration by others (section A20). A company already facing a winding up petition must apply to the court for a moratorium. The alternative is to propose the CVA from within administration, which carries its own moratorium.

Can a creditor challenge a CVA?

Section 6 allows a challenge on the grounds that the arrangement unfairly prejudices a creditor, member or contributory, or that there was a material irregularity in the meeting or decision procedure. The application must normally be made within 28 days of the results being reported to the court. A creditor who was not given notice has 28 days from becoming aware that the decision procedure took place. The court can revoke or suspend the approval or direct that a revised proposal be considered.

After approval, the supervisor oversees the arrangement. Any creditor dissatisfied with the supervisor’s acts can apply to court (section 7(3)), and the supervisor can petition for winding up or administration if the company defaults (section 7(4)).

How do the voting numbers work?

Illustration only. A company owes £1,000,000, of which £150,000 is owed to a director’s loan account and a sister company (connected) and £850,000 to unconnected creditors. Creditors owed £700,000 respond: £150,000 connected in favour, £400,000 unconnected in favour and £150,000 unconnected against.

• Approval test: £550,000 in favour out of £700,000 responding is about 79%, so the three quarters threshold is met.
• Block test: £150,000 of unconnected creditors voted against, well below half of the £850,000 total of unconnected creditors admitted for voting, so the CVA is approved.

If £450,000 of unconnected creditors had voted against instead, the CVA would fail under rule 15.34(4) even if the connected votes pushed the total above 75%.

What mistakes do directors make?

• Proposing a CVA that relies on future profits the company cannot realistically earn. Failed CVAs often end in creditors’ voluntary liquidation.
• Assuming HMRC’s arrears can be written down like trade debts, when its secondary preferential debts are protected.
• Leaving a statutory demand or court judgment unanswered while the proposal is drafted. Gov.uk guidance lists 21 days to respond to a statutory demand and 14 days to respond to a court judgment, and names a CVA as one way to respond.
• Falling behind on tax and other liabilities that arise after approval, which typically puts the arrangement into default.
• Continuing to trade while hopelessly insolvent without considering wrongful trading exposure.

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Related Accountapedia entries

• Company rescue options compared
• Individual voluntary arrangements
• The Part A1 moratorium
• Directors as creditors of their insolvent company
• Claiming in an insolvency: proof of debt
• VAT self billing arrangements

Sources

• legislation.gov.uk: Act 1986 c. 45, part I
• GOV.UK: Director information hub company voluntary arrangements
• legislation.gov.uk: SI 2016/1024
• legislation.gov.uk: Act 1986 c. 45, schedule 6
• legislation.gov.uk: SI 2020/983
• GOV.UK: Corporate insolvency and governance act 2020 final evaluation report n
• legislation.gov.uk: Act 1986 c. 45, part A1
• GOV.UK: Print

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.