A CVA is deal struck between an insolvent company and its creditors. It is brokered by an Insolvency Practitioner (“IP”). It is designed as an alternative to liquidation, administration and receivership. It allows a company that cannot pay its debts to cut a deal with its creditors to pay a percentage of those debts back and write off the rest. The management of the company remains with the board of directors and the company avoids shutting down.


An example case best serves to illustrate how CVA’s work:

A company trades successfully for several years. The company grows, as does its client base. Whilst still dealing with its core small clients, the company begins to rely on one large client for 40% of its turnover. This large client enters liquidation and stops trading. The company is left with a significant bad debt write off, a large body of creditors (incurred as a result of the largest client), and a 40% reduction is turnover.

Result – the core business is good, but the company is insolvent because it cannot pay its debts. What are the options for the directors?

Cease trading and liquidate, or, keep the company going with a CVA.

The directors know that if they cut their cloth accordingly (restructure the business), they will have a profitable company (albeit doing 60% of the turnover it used to). A CVA acts as the vehicle to allow this restructuring. The directors’ approach an IP who agrees to broker the CVA.


The IP will assist the directors in drafting a business model and cash flow forecasts based on the new reduced turnover. Typically, if a company does not have to service its historic debt, it will have surplus funds available. The IP works out what this surplus is. The IP creates an Outcome Statement based on reasonable trading forecasts that will allow the company to pay in this example £500 per month, for 60 months into a CVA pot. This pot will form the funds that will be available to creditors. It is also where the IP draws his fees. The return to creditors will normally be a fraction of their total debt. A 20 pence in the pound return is not uncommon. The IP will assess whether the projected return is suitable to be put to the creditors. Assuming this to be the case:


Headcount. The directors make the redundancies required to leave sufficient staff to deal with the reduced turnover. The redundancy costs will largely be met by the Government. The Government will then become an unsecured creditor in the ensuing CVA.

Landlord. The company operates from two sites. Both sites are owned by the one landlord. The IP assists the directors in negotiating with the landlord. The ideal outcome being that the back rent on the retained lease is met and continues to be paid, whilst the landlord agrees to a surrender the unwanted lease. The back rent (and other disposal costs such as dilapidation) on the unwanted lease forming part of the CVA unsecured creditors.

Creditors. The company is in trouble because it cannot pay its creditors. The company will put forward a CVA proposal in which only a percentage of their debt will be repaid (and repaid over a 5 year period). However this will only be accepted if 75% of the creditors that vote at the meeting approve it. It is vital that the creditors are “kept on board.” The IP will assist the directors in negotiating with the key creditors – to ensure that they will vote in favour of the CVA and (equally importantly) – to ensure they continue to supply the company after the CVA has been approved.

HMRC. HMRC are invariably a major creditor in any CVA. They must therefore be kept on side at all times. The IP will liaise directly with HMRC to gauge their appetite for the proposal and to determine whether they have any specific requirements.

The bank. Like HMRC, the bank will have a big stake in any CVA. The bank’s secured debt is protected and takes no part in the CVA. Its unsecured debt will however. As they are a sophisticated interested party, they too will need to be kept up to speed by the IP (and bought in) throughout the process.


Meetings of both the shareholders and creditors are required in a CVA. The shareholders’ meeting is invariably a formality. The creditors’ meeting is make or break. This meeting will be a ‘virtual’ meeting. The creditors are issued with the CVA proposal. The proposal details how the company is expected to trade over a 5 year period and what surplus funds should be expected. Within the proposal will be the Outcome Statement – this details what the return to the creditors would be if the CVA is successful. The Outcome Statement also shows what the creditors could expect to receive in a liquidation (being the alternative to the directors if the CVA is rejected). The return to creditors under liquidation will normally be significantly lower than the CVA return.

At the meeting the creditors can question the directors. They may well interrogate the directors on previous performance (as in why the company became insolvent). They ought to question the directors on their trading assumptions for the next 5 years. This will enable the creditors to determine whether they think the CVA viable – and whether they want to continue to supply the company in future.

75% of unsecured creditors who vote at the meeting must vote in favour in order to approve it.


Assuming the CVA is approved, the directors carry on trading. Their duty to the CVA is to continue to make the monthly contribution. If they do so for the agreed 60 month term, then after this time all unpaid CVA debts are written off and the company trades on unencumbered by debts or a CVA. The IP’s role is to collect the money, draw their fee (which will have been agreed by creditors at the meeting), and make regular payments (distributions) to the creditors.

Advantages of the CVA

  • The directors’ keep control of the business
  • Once approved, CVA creditors cannot take action to recover their debt
  • The company is saved
  • Debt forgiveness leads to an immediate cash flow benefit
  • The business repays what it can comfortably afford.
  • Debts are written off
  • The CVA can be varied throughout the 5 year term to suit changing circumstances

Disadvantages of the CVA

  • Five years is a long period in which to be tied
  • Trading projections may well change over a 5 year period
  • IP’s fees will be incurred


What will the company pay – is there a minimum amount?

The company will be expected to pay over its surplus profits. If those profits over a 5 year period produce a pot of money that will provide a very low return to creditors, then the IP will advise that a CVA is not viable.

Can creditors wind up the company?

No. Once a CVA is approved all creditors are “bound.” They cannot take any enforcement action against the company

How long will it last?

Every CVA is different, but the market usually sets a 5 year time frame. This normally allows the company to make sufficient payments that will lead to a reasonable creditor return.

What are the voting rules?

75% of unsecured creditors by value must approve a CVA. This is 75% voting on the day. So if only one creditor votes, and they approve the CVA, then it is deemed to be approved.

Who controls the company?

The existing directors and management retain control of the business throughout the process.

What are the costs?

The IP will charge a percentage of the funds generated for their fee.

The fee is drawn from the funds paid into the CVA pot.

How long will it take?

The whole process normally takes about 6 weeks.

What happens if the company can’t make the monthly payments?

If the circumstances have changed such that the company can make a contribution, albeit significantly less, then a revised proposal can be made (midway through the CVA) to vary the terms of the CVA.

Ultimately though if no payment is made the Company will be liquidated.

Do they work?

Not always. It depends on the company’s ability to trade profitably and meet the monthly contribution.

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