A Company Voluntary Arrangement is an agreement between a business and its creditors that allows the business to remain trading in the event of crippling financial trouble. The agreement states that a business may continue in solvency as long as it is able to repay a certain percentage of the value of its debts to the creditors each and every month until the arrangement ends.

The first step to organizing a CVA is for the company directors, a liquidator or an administrator to propose a CVA. After proposition, an insolvency practitioner that has been nominated by the company must report to the courts to decide on if a meeting can be arranged between the company’s shareholders and its creditors.

Once the meeting takes place, creditors and shareholders must vote on whether the CVA should be approved. If 75% or more of the creditors that have been notified of the meeting, agree to the CVA, then it becomes a legally binding agreement. The nominee or another insolvency practitioner then becomes the supervisor of the CVA.

An approved CVA means that your business can continue trading to try to overcome the financial difficulties that have suppressed its production and profits. A CVA is like a protection/redemption plan for businesses that have fallen on hard times and are expected to turn a profit at some point in the future. Whilst in place, the CVA will protect the business against insolvency as long as the business continues to make the minimum repayments to its creditors.

A CVA is only advisable for a business that has either experienced a period of short term cash flow problems or is likely to be in profit in the near future. If a business has shown no signs of recovery for an extended period of time then the chances of being granted a CVA are quite slim as creditors will see no advantage compared to the insolvency of the company, which will grant them some money back through the sale of the company’s assets.

To summarize, a CVA is perhaps the last line of defense that your business has against liquidation due to irrecoverable losses, though it can also be the best chance for your company’s resurgence.

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