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HomeBusinessCompany Voluntary Arrangements: What Are They & Who Do They Effect?

Company Voluntary Arrangements: What Are They & Who Do They Effect?

Company Voluntary Arrangements
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Insolvency is a very real problem for companies in the UK. In May 2023, the number of registered company insolvencies was 40% higher than the previous year and the number of Company Voluntary Arrangements (CVAs) were a whopping 121% higher than in May 2022

In this article, Lawhive’s expert solicitors provide insight into the CVA process. Including what they are and the impact they have on companies and their creditors. 

Dealing with company insolvency 

A company is insolvent when it can’t pay its debts. When this happens, company directors may have the ability to take action to continue trading including: 

  • Reaching an informal agreement with creditors; 
  • Entering a company voluntary arrangement; 
  • Putting the company into administration; 
  • Liquidating the company. 

What is a Company Voluntary Arrangement (CVA)?

A Company Voluntary Agreement (CVA) is a legally binding agreement between a company And its creditors to pay back all, or some, of their outstanding debt while the company continues trading. 

A CVA can be proposed by the company’s directors. But before it is agreed the majority of creditors have to vote in favour of this proposal for it to take effect. 

In recent years, a number of struggling companies have proposed CVAs. This includes household names like Debenhams, Poundstretcher, Paperchase, Monsoon Accessorize, Homebase, Mothercare and Clintons. 

How to apply for a CVA

A company or limited liability partnership (LLP) can apply for a CVA if the directors or members agree to it. This is done through an insolvency practitioner. Whose role is to work out the amount of debts to be repaid and the timescales involved. 

The insolvency practitioner then writes to the creditors about the arrangement and they vote on it. If 75% (by debt value) of creditors agree, the CVA is approved and implemented and the company makes the agreed payments through the insolvency practitioner until they are paid off. 

If the majority of creditors don’t agree then a company could face voluntary liquidation. Alternatively, if a company does not meet the agreed payments or stick to the schedule. Its creditors can apply to wind up a business. 

Recent CVA examples

CVAs are a common way for retail businesses to stay afloat when they’re struggling financially. Here are a few examples of CVA proposals by UK retail brands: 


In March 2019, the stationery retailer Paperchase launched a CVA in a bid to turn its fortunes around. It agreed with its creditors to reduce rent and occupancy costs, however further difficulties saw the chain collapse into administration in the start of 2023 before the brand and intellectual property was bought by Tesco. 

Monsoon Accessorize 

In 2019, 90% of Monsoon Accessorize’s creditors  approved the retailer’s CVA, which proposed rent reductions to 135 of its 258 stores after the company saw a period of difficult trading. As part of this agreement, Monsoon Accessorize offered their commercial landlords up to £10 million in a profit-sharing scheme if it returned to the black in the future. 


High street giant Debenhams also proposed a CVA a few years ago. In it they proposed to close around 20 of their stores and requested lower rent to many others. Commercial landlords challenged the CVA on five separate grounds, of which the court rejected four of them. The court only agreed that removing the landlords’ right of forfeiture encroached on their proprietary rights, something a CVA can’t do. As a result the CVA was modified but otherwise upheld. However, on 5th May 2021 liquidators announced that all remaining UK stores would close. Marking the end of Debenhans as a department store retailer in the UK. 

Benefits of a CVA for struggling companies

As can be seen from the above examples. CVAs can be used effectively to save companies from liquidation or administration by: 

  • Allowing the company to continue trading while repaying its debts;
  • Letting directors maintain control of the company;
  • Protecting companies from legal action like CCJs and other creditor pressure;
  • Writing off unsecured debt when the CVA is ended;
  • Freezing interest rates for the duration. 

Furthermore, creditors have a much better chance of recovering unpaid debts through a CVA. So may be more favourable to them in the long term. 

Disadvantages of CVAs 

While there are benefits to a CVA for insolvent companies, there are also some drawbacks to be taken into consideration. 

For companies: 

  • Adverse effects on credit rating; 
  • Secured creditors (i.e. banks) are not bound by the agreement leaving companies open to administration even when they stick to the agreement; 
  • Creditors can take legal action if the CVA fails. 

For commercial landlords

A number of recent high-profile CVA proposals have been challenged by commercial landlords, in particular how they calculate and compromise rent debts, and modify the terms of a commercial lease

The main thrust of the argument is that CVA proposals which reduce lease payments have been approved by creditors who are not affected or compromised by the agreement. Which they deem to be unfair.

However, a report by The Insolvency Service concluded that commercial landlords were equitably treated in CVAs compared to other unsecured creditors.


CVAs can be a fast and effective way for companies to start to resolve their money matters while satisfying their creditors. This gives them a better chance at staying in business. While commercial landlords may still feel like they’re getting a rough deal when it comes to CVA proposals and commercial leases. It seems the CVA will remain an important tool for companies facing money troubles and trying to turn things around. 

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