The Ultimate Company Voluntary Arrangement (CVA) Frequently Asked Questions Guide

Preparing a CVA does not automatically give the company protection from creditors or permission to stop paying every bill.

The company must agree on a payment strategy with its insolvency advisers.

The immediate task is often to preserve enough cash to keep the viable part of the business trading. That may mean buying essential new supplies on a cash or pro-forma basis while advisers negotiate with creditors over existing arrears. New trading costs and historic debts need to be considered separately.

Directors should avoid making ad hoc decisions about who gets paid. The advisers need a complete picture of creditors, security, threatened enforcement and available cash so that payments can be considered in the interests of creditors as a whole. Simply announcing an intention to propose a CVA does not prevent a creditor taking action.

They may do so, particularly where they want to retain the company’s future business and can supply without extending further credit.

Continued supply should nevertheless be discussed rather than assumed.

For example, a supplier owed money for earlier deliveries may agree to provide new goods on pro-forma terms. The company pays before delivery, so the supplier’s exposure does not keep increasing. The historic claim is dealt with under the CVA’s terms.

Clear communication helps suppliers assess the plan. They will want to understand how new orders will be paid for and why the company is expected to survive. The cash-flow forecast should allow for the possibility that suppliers will offer little or no credit initially. A business that depends on immediately recovering its previous credit terms may need more working capital than its directors expect.

Sometimes different treatment can be justified where retaining a particular supplier is essential to the rescue and benefits creditors overall. Website hosting, specialist IT or a supplier with no practical replacement may raise this issue.

However, describing a supplier as essential does not automatically allow its old debt to be excluded or paid in full. The commercial reason, alternatives, legal position and effect on other creditors must be assessed. Any proposed different treatment should be explained transparently in the proposal and considered for unfair prejudice and other insolvency risks.

There are also statutory restrictions on terminating certain supply contracts because of insolvency, subject to exceptions. Advisers should check whether those protections apply before assuming a supplier can demand payment of all arrears to continue. Paying for new supplies and paying historic arrears are separate questions.

A bank may review, reduce, or withdraw an overdraft when it learns a company is in financial difficulty. A CVA does not guarantee that the facility will remain available.

The bank should therefore be part of the restructuring plan. Directors and advisers need to explain what has gone wrong, what will change and how the business will fund its future trading. The timing of that conversation depends on the circumstances and any notification obligations. An urgent problem may require immediate contact, even before the full proposal is ready.
The forecast should also test whether the business can operate with a smaller overdraft or a different source of working capital. Invoice finance may be an option for some companies, but its availability and suitability need to be established rather than assumed.

A CVA cannot affect a secured creditor’s right to enforce its security without that creditor’s agreement.
Secured borrowing therefore needs separate attention when planning the rescue.
The company may need to continue making contractual payments or negotiate changes, such as a temporary payment holiday. A lender can consider whether supporting the rescue is likely to produce a better outcome than enforcing its security, but it is not obliged to accept the directors’ preferred approach.
Advisers need to examine the security documents and identify any unsecured shortfall as well as the secured element. The proposal, forecast and lender discussions should reflect the actual position. Directors should not assume every bank debt is fully secured or that CVA approval removes the lender’s enforcement rights.

An invoice-finance facility can be central to a company’s ability to keep trading. The provider may control collections from customers, hold security and have contractual rights triggered by financial distress or a proposed CVA.
The company should discuss whether the provider will maintain funding during preparation and after approval. The forecast needs to reflect realistic drawdown levels, charges, reserves and any restrictions the provider requires.
If the existing provider will not continue, replacement funding may be possible. That is a separate funding exercise: a new provider will assess the debtor book, customer quality, business prospects and security arrangements. A CVA may reduce historic creditor pressure, but it does not guarantee finance. Directors should also check any personal guarantee or indemnity associated with the facility.

Normally, no. A CVA deals with the company’s liabilities. A personal guarantee is a separate obligation given by an individual, and a compromised company debt does not usually release that obligation.

The lender’s ability to claim, the amount recoverable and when payment can be demanded depend on the guarantee and related documents. Security realisations and payments received through the CVA may affect the outstanding balance; the lender cannot recover more than it is entitled to.
Directors should provide their advisers with copies of every guarantee and indemnity early in the process. Personal exposure needs to be considered alongside the company rescue. Depending on the circumstances, separate negotiations over repayment or settlement may be possible, and the director may need independent personal insolvency or legal advice.

It may be able to make a demand promptly, depending on the documents and events that have occurred. There is no automatic period of grace while a CVA is prepared.

In practice, a lender may agree to wait for the proposal or discuss repayment terms with the guarantor. Knowing the likely company dividend can help those discussions, but negotiations do not themselves suspend the lender’s rights.
In some cases, directors can negotiate repayment of their personal exposure over time while the company continues with its CVA. That is a possible negotiated outcome, rather than an entitlement. Do not ignore a demand or assume that the company advisers are also acting for you personally. Confirm who is advising on the guarantee and respond within any relevant deadlines.

HMRC’s debt collection activity and its assessment of a formal CVA proposal serve different purposes. Receiving payment demands does not necessarily mean that HMRC will reject a rescue proposal.

HMRC’s Voluntary Arrangement Service considers proposals case by case. Its published criteria emphasise realistic prospects of success, up-to-date returns, an achievable offer and payment of future tax in full and on time. The proposal must explain the earlier non-payment and what will change.

Preparing a proposal does not automatically stop enforcement. Advisers need to liaise with HMRC during that period, and a pause cannot be guaranteed. The practical task is to demonstrate a credible rescue while addressing immediate collection risks.

No. HMRC can have both secondary preferential and ordinary unsecured claims.

VAT, PAYE income tax, employee National Insurance contributions and certain other deductions have secondary preferential status. Corporation Tax and employer National Insurance contributions do not. HMRC penalties and interest are also generally non-preferential.

The distinction affects the proposed creditor return. HMRC’s published policy expects preferential debts to be paid in full before distributions to non-preferential unsecured creditors. Directors should not assume that an offer of 30p or 50p in the pound applies to the whole HMRC balance.

The tax debt must be broken down accurately when the proposal and estimated outcome are prepared. This can have a substantial effect on whether the company can afford a CVA.

The realistic comparison is often between the proposed CVA return and the amount creditors would receive if the rescue did not proceed. That alternative might be liquidation or administration.

For example, a proposal may estimate a return of 40p in the pound for ordinary unsecured creditors over its term, compared with a much smaller return in liquidation. Creditors still suffer a loss, but the CVA may offer the better commercial outcome. They may also retain a customer for future business.
The comparison must be supported by credible information about assets, liabilities, costs and trading prospects. A higher forecast dividend is of little value if the company cannot deliver it. Equally, a CVA does not always involve writing off debt: some arrangements provide for full repayment over time.

The starting point is what the restructured company can sustainably afford, rather than selecting an arbitrary percentage of its debts.

Forecasting examines future sales, margins, staffing, premises and working capital. It should test changes such as losing a customer, paying suppliers upfront or reducing the number of sites. Those assumptions need to be realistic and supported by the directors’ understanding of the business.

Accounting profit is not the same as available cash. The company must still pay ongoing tax, wages, essential suppliers and other new liabilities. It also needs to fund the costs of the arrangement and any separately agreed lender payments.
The proposed contribution should leave sufficient headroom for ordinary trading setbacks. The estimated dividend then depends on the contributions, other funds available, costs and the treatment of different creditor claims.

The approved CVA determines how affected debts are compromised, when any release takes effect and what happens if the arrangement fails. Directors should understand those provisions before approval.

For example, an arrangement might offer ordinary unsecured creditors an estimated 50p in the pound. Creditors bound by it must deal with their affected claims under its terms rather than insist on their original payment timetable. The treatment of the balance follows the proposal; it should not be described as automatically and permanently written off on day one in every CVA.

The estimate may also change if claims differ from expectations or the proposal includes additional contributions. A company debt compromise does not normally release a third-party guarantor. Creditors’ accounting and tax treatment is a separate issue for their own advisers.

It is our opinion that you must involve them when the time is right, they’re the people who are going to help deliver management’s plans.

Not unless they want to suffer financial hardship; Voluntarily leaving will negate their chances of benefits. If they have a new job to go to, there is little, however, to be done to stop disgruntled employees leaving. But if the employees can be involved as part of the recovery – perhaps by offering a share package as part of the long-term strategy, the key employees can often be retained.

Yes, restructuring may involve redundancies where the company needs a smaller workforce to become viable. Entering a CVA does not remove employment-law obligations.

The company must consider the appropriate consultation, selection and notice procedures, including collective consultation requirements where applicable. Directors should take employment advice before implementing changes.
Employees who leave may have claims for wages, holiday pay, notice and redundancy. The treatment depends on the type of claim, when it arises and the arrangement’s terms; not every employee claim has the same insolvency ranking.
Communication matters. Employees need a clear explanation of what is happening, what they may be owed and how any claims will be handled. The purpose of reducing employment costs is to protect a viable remaining business, but the process must still be carried out properly.

Where the statutory conditions are met, eligible employees may claim certain payments through the Insolvency Service’s Redundancy Payments Service.

These can include statutory redundancy, qualifying wage arrears, holiday pay and statutory notice pay, subject to the relevant limits and rules.

It is not a guarantee that every contractual entitlement will be paid in full. Eligibility, the timing of dismissal, statutory caps and deductions all matter. Any unpaid balance and the government’s resulting claim need to be considered in the insolvency process.

The insolvency practitioner should explain the claim route, provide the necessary case information and confirm which claims qualify in the particular circumstances. Directors should not promise employees a payment amount or date before this has been checked. The forecast and proposal should also allow for the resulting claims.

Potentially, but employment and holding office as a statutory director are separate matters.

Ending a person’s employment does not automatically remove them from the board. Equally, removing them as a director does not necessarily bring their employment contract to an end without further consequences.

The company needs to consider the employment contract, articles, any shareholders’ agreement and the relevant company-law procedures. A director may also be a shareholder, which adds another relationship to address.

The forecast may show a clear commercial need to reduce management costs, but that does not replace the correct legal process. Take appropriate advice before acting and assess the timing and treatment of any resulting claims. A CVA should not be assumed to compromise every future employment or legal claim automatically.

A CVA becomes public information, so directors should plan on the basis that customers may learn about it.
Important customers may prefer to hear a clear explanation directly from the company.

The communication plan should reflect the relationship, contractual notification obligations and the importance of that customer to future trading. Some customers may require reassurance about delivery, service continuity or advance payments. Others may have contractual or regulatory requirements that need separate attention.

A useful explanation sets out what is changing, how the rescue will support continued service and what advice the company is receiving. Advisers can help directors prepare for questions or attend key meetings.

Keeping customers depends on continued performance as well as communication. Avoid promising that nobody will leave; assess customer retention realistically in the forecast.

It can help restructure certain lease liabilities, but approval does not automatically surrender every unwanted lease or remove every property obligation.

The proposal may address rent arrears and future liabilities associated with premises the business no longer needs. The effect depends on the lease, the proposal and the landlord’s rights. Legal advice is needed on how occupation will end and which obligations can be compromised.

Landlord claims may include arrears, future rent, service charges and dilapidations. Security, guarantees and rights against other parties need separate consideration. Business rates should also be assessed separately: leaving premises or proposing a CVA does not automatically end all rates liability.

The forecast must reflect a legally workable exit plan. Directors should not remove every future property cost simply because they intend to vacate the site.