Glossary · UK
What is Company Voluntary Arrangement (CVA)?
A formal, legally binding agreement between an insolvent company and its creditors to repay some or all of its debts over an agreed period, allowing the company to keep trading.
Full Definition
A Company Voluntary Arrangement (CVA) is a formal insolvency procedure that allows a company in financial difficulty to reach a legally binding agreement with its creditors to repay all or part of what it owes, usually through affordable instalments over a period of typically three to five years, while continuing to trade. A CVA is proposed by the company's directors, usually with the help of a licensed insolvency practitioner who oversees the process and, once appointed, acts as the "supervisor" of the arrangement, and it becomes binding on all unsecured creditors (including those who voted against it) if at least 75% by value of creditors who vote approve the proposal. Because a CVA allows the underlying company to keep operating, keep its existing contracts, and keep its employees, it is often used as an alternative to more drastic outcomes such as a winding-up petition or full liquidation, particularly for businesses with a viable core operation that is simply weighed down by historic debt -- it has been widely used, for example, by high-street retail and hospitality chains to exit expensive leases while continuing to trade from profitable locations. If the company fails to keep up with the agreed payments, creditors can apply to have the CVA terminated, which typically then exposes the company to the insolvency action, such as a winding-up petition, that the arrangement was originally designed to avoid.