Company voluntary arrangement (CVA)—basic insolvency principles
Company voluntary arrangement (CVA)—basic insolvency principles

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Company voluntary arrangement (CVA)—basic insolvency principles
  • General
  • The CVA proposal and procedure
  • Creditors’ and Members’ meetings/decision procedures
  • Modifying and varying a CVA
  • Nominees and supervisors
  • Moratorium and effect on secured creditors
  • Challenging a CVA
  • Failure of a CVA
  • Insolvency issues for landlords

On 6 April 2017 the Insolvency (England and Wales) Rules 2016 (IR 2016), SI 2016/1024 replaced the Insolvency Rules 1986 (IR 1986), SI 1986/1925.

For a summary of the changes to CVAs, see Practice Note: The Insolvency (England and Wales) Rules 2016—Part 2: Changes to company voluntary arrangements (CVAs) [Archived].

General

The applicable legislation in this area is the Insolvency Act 1986 (IA 1986) and the Insolvency (England and Wales) Rules 2016, SI 2016/1024 .

A company voluntary arrangement (CVA) is a contractual agreement between a company and its creditors and is the corporate equivalent of individual voluntary arrangements (IVAs) for individuals. The main benefits of CVAs include:

  1. there's no need to prove insolvency, so action can be taken early at the first signs of distress

  2. dissenting unsecured creditors can be crammed down if the CVA is approved by 75% in value of creditors present in person or by proxy and voting on the proposal (and not opposed by more than 50% of independent creditors ie those who are not associates). The CVA proposal will even bind creditors who are unaware of the CVA proposal/creditors' decision procedures

However, the main limitation is the lack of any automatic moratorium (few companies qualify as small companies for the moratorium; see News Analysis: Government proposes legislation to enhance UK insolvency regime). Accordingly, CVAs are sometimes combined