TRW & Co · Restructuring and insolvency
Company Voluntary Arrangements: How a CVA Works
A company voluntary arrangement lets a struggling company agree a binding repayment deal with its unsecured creditors while directors stay in control. It needs 75% by value of creditors voting, cannot bind secured or preferential creditors without consent, and can be challenged for unfair prejudice. This guide explains the process, voting rules and landlord treatment as of October 2026.
Key pointA CVA can compromise future rent but not a landlord’s right to forfeit, and using unaffected creditors’ votes to outvote affected landlords risks a successful unfair prejudice challenge.
At a glance
75% approval threshold
Creditors approve if at least 75% by value of those voting support it, unless more than half by value of unconnected creditors vote against.
Directors stay in control
The company keeps trading under its directors, with a licensed insolvency practitioner acting as supervisor to collect contributions and pay dividends under the arrangement.
Limits on who is bound
Secured creditors’ enforcement rights and the priority of preferential debts, including HMRC’s secondary preferential status, cannot be compromised without consent.
28-day challenge window
Creditors and members can apply to court for unfair prejudice or material irregularity, normally within 28 days of the reports to court.
Landlord case law
The Debenhams and New Look decisions confirm future rent can be compromised, but forfeiture rights cannot, and differential treatment must be justified.
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The short answer: what a company voluntary arrangement does
A company voluntary arrangement (CVA) is a binding deal between a company and its unsecured creditors, supervised by a licensed insolvency practitioner, under which the company pays some or all of its debts over time or in a reduced amount and keeps trading. It is approved if at least 75% by value of the creditors who vote are in favour, and once approved it binds every unsecured creditor who was entitled to vote, including those who voted against.
CVAs are flexible and relatively cheap, and directors stay in control of the business. Their main limits are that they cannot bind secured or preferential creditors without consent, and they can be challenged in court for unfair prejudice. This guide explains how a CVA works in England and Wales as of October 2026, from proposal to completion.
The legal framework
CVAs are governed by Part I of the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016. The directors can propose a CVA, or an administrator or liquidator can if the company is already in an insolvency process. The proposal must name a nominee, who must be qualified to act as an insolvency practitioner and who becomes the supervisor once the arrangement is approved.
The Corporate Insolvency and Governance Act 2020 added a standalone moratorium in Part A1 of the 1986 Act, which can give the company breathing space while it prepares a CVA or other rescue. The same Act introduced the restructuring plan, which now competes with the CVA for larger cases. The Insolvency Service oversees the regime, and GOV.UK has a short guide to CVAs.
Scotland has its own insolvency rules, although Part I of the 1986 Act applies there; Northern Ireland has separate but similar legislation.
How a CVA works in practice
- Take advice and choose a nominee. The directors consult an insolvency practitioner, review the company's financial position and consider whether a CVA, administration or a restructuring plan fits. If creditor pressure is acute, they may seek a Part A1 moratorium first.
- Draft the proposal and statement of affairs. The proposal explains why the company is in difficulty, what creditors will receive and when, how different creditors are treated, and how this compares with the likely outcome in administration or liquidation.
- Nominee's report to court. Where the nominee is not already the administrator or liquidator, they must report to court within 28 days of receiving notice of the proposal, unless the court allows longer, saying whether it has a reasonable prospect of approval and implementation and should be put to creditors.
- Creditors' decision procedure. Creditors vote through a qualifying decision procedure, often electronic voting or a virtual meeting. A members' meeting also considers the proposal.
- Approval and reporting. If the majorities are met, the chair reports the result to the court and the arrangement takes effect, binding all unsecured creditors entitled to vote.
- Challenge window. Creditors and members have 28 days from the reports to court to apply to challenge the decision.
- Implementation. The supervisor collects contributions, agrees claims and pays dividends under the terms of the arrangement. The company continues to trade under its directors.
- Completion or failure. When all payments are made, the supervisor issues a notice of completion. If the company defaults, the CVA may terminate and the supervisor may petition for winding up or seek administration.
Voting thresholds and who is bound
Under rule 15.34 of the Insolvency (England and Wales) Rules 2016, a company voluntary arrangement is approved by creditors if three-quarters or more in value of those responding vote in favour. There is a second test: the decision fails if more than half of the total value of the unconnected creditors vote against it. That prevents connected parties, such as group companies or directors who have lent money, from forcing it through.
Members also vote, but under section 4A of the 1986 Act the creditors' decision prevails if the two differ, subject to a member's right to apply to court within 28 days.
Some creditors cannot be compromised without consent. Section 4 of the Act protects the right of a secured creditor to enforce its security and the priority of preferential debts. HMRC is a secondary preferential creditor for certain taxes collected on behalf of others, such as VAT and employees' PAYE deductions, so those cannot be reduced below their priority without HMRC's agreement. Where the CVA follows a Part A1 moratorium, moratorium debts and certain pre-moratorium debts must also be paid in full unless the creditor agrees.
CVA compared with other rescue tools
| Feature | CVA | Restructuring plan (Part 26A) | Administration |
|---|---|---|---|
| Who controls the company | Directors, with a supervisor | Directors | Administrator |
| Court involvement | Filing only, unless challenged | Two court hearings and sanction | Out-of-court or court appointment |
| Approval threshold | 75% by value of creditors voting, plus the unconnected creditors test | 75% by value in each class, with cross-class cram down | Administrator's proposals approved by creditors |
| Binds secured creditors | No, without consent | Yes, if the conditions are met | Moratorium on enforcement |
| Typical use | Trading SMEs and lease-heavy retailers | Larger groups with complex debt | Sale of the business or assets |
For larger businesses with secured debt, the Part 26A restructuring plan has often replaced the CVA because it can bind dissenting classes. Our comparison of administration and liquidation explains the formal alternatives.
When a company voluntary arrangement is the right tool
A company voluntary arrangement works best for a business that is fundamentally viable but has a debt or cost problem it cannot solve by negotiation alone. Typical signs include a profitable core trade weighed down by legacy arrears, a portfolio of loss-making leases, or a large one-off liability such as a tax or litigation debt. The company needs enough future cash flow, or new money, to give creditors a better return than they would get in administration or liquidation.
It is less suitable where the main problem is secured debt, because the lender cannot be bound without consent, or where the business has no realistic prospect of returning to profit. In those cases a sale through administration, a refinancing or a restructuring plan may be better.
Using a Part A1 moratorium first
Directors can obtain a standalone moratorium under Part A1 of the 1986 Act by filing documents at court, with a licensed insolvency practitioner acting as monitor. The initial period is 20 business days, which can be extended. During the moratorium most creditors cannot enforce or start proceedings without permission, but the company must keep paying debts that fall due during it and certain pre-moratorium debts. That gives time to prepare a CVA, but it also means a later CVA must pay moratorium and priority pre-moratorium debts in full unless those creditors agree.
What goes into the proposal
A good proposal explains the causes of the company's difficulties, the proposed contributions and timetable, how each class of creditor is treated and why, the estimated outcome in the comparator (usually administration), the supervisor's powers and fees, what happens if the company defaults, and how claims will be agreed. Clear reasoning for any differential treatment is the best defence against a later challenge.
Creditors usually decide whether to support a CVA by comparing the proposed return with the estimated outcome in administration or liquidation. Make the comparator robust and evidence-based, and share it early with major creditors. A weak comparator invites both a no vote and an unfair prejudice challenge.
Landlords and leases in a CVA
Retail and hospitality CVAs have often targeted leases: reducing rent, switching to turnover rent, or allowing the tenant to give up unprofitable stores. Two High Court decisions shape what is possible.
In Discovery (Northampton) Ltd v Debenhams Retail Ltd [2019] EWHC 2441 (Ch), the court held that future rent can in principle be compromised by a company voluntary arrangement even though the tenant stays in occupation, but that a CVA cannot remove a landlord's right to forfeit the lease. In Lazari Properties 2 Ltd v New Look Retailers Ltd [2021] EWHC 1209 (Ch), the court rejected a landlord challenge.
It held that treating landlords differently from other creditors was not unfair where they received at least what they would get in administration and could terminate their leases. It warned, though, that using votes of unaffected creditors to swamp those whose rights are compromised could be unfairly prejudicial.
Landlords facing a CVA should check their lease terms, guarantees and rent deposits, and our guide to forfeiture of a commercial lease explains the landlord's remedies.
Illustrative scenario: a restaurant group
This scenario is illustrative only; the parties are generic. A restaurant group with 30 sites has viable core trade but rising costs and rent arrears on its weakest sites. Its bank has security over the business and is supportive, but some trade suppliers have issued statutory demands.
The directors obtain advice and propose a company voluntary arrangement. Trade creditors are paid in full over time to protect supply. Landlords of profitable sites are unaffected. Landlords of loss-making sites can choose between a turnover rent for a period or termination. Arrears are compromised at a rate higher than the projected return in administration. The bank's security is untouched.
The CVA is approved with the required majorities, including a majority of the affected landlords. One landlord considers a challenge, but because affected landlords voted in favour, the proposal included a termination right and returns were better than the comparator, the risk of a successful unfair prejudice claim is low.
Risks and common mistakes
Unfair prejudice challenges
Under section 6 of the Insolvency Act 1986, a creditor or member can apply to court on the grounds that the CVA unfairly prejudices their interests or that there was a material irregularity in the decision procedure. Applications must normally be made within 28 days of the reports to court. The court looks at whether a creditor is worse off than in the likely alternative, and whether differential treatment is justified. A well-drafted proposal explains the comparator and the reasons for treating each creditor group differently.
Unrealistic projections
Many CVAs fail during implementation because the trading forecast was too optimistic or the contribution schedule left no headroom. A failed company voluntary arrangement usually ends in administration or liquidation, often with worse outcomes for everyone. Build in realistic assumptions, contingencies and a variation mechanism, and keep creditors informed if performance falls behind plan.
Directors ignoring their duties while preparing a CVA
Once a company is insolvent or close to it, directors must have regard to creditors' interests. Continuing to trade and take credit while a CVA is uncertain can expose directors to wrongful trading claims if the rescue fails and the company enters insolvent liquidation. Keep board minutes, take advice early and avoid preferring connected creditors.
Overlooking secured and preferential creditors
A CVA cannot bind a secured lender's right to enforce or reduce preferential debts below their priority without consent. If the bank or HMRC is not on board, the CVA may be approved but leave the company exposed to enforcement or still owing priority debts in full. Engage early with these creditors and build their position into the proposal.
The creditor's perspective
Creditors receive the proposal with notice of the decision procedure and must submit a claim to vote. A creditor that dislikes the terms can propose modifications, vote against, negotiate with the nominee before the decision date, or challenge afterwards. Suppliers should also review retention of title clauses and any personal guarantees from directors, which are not normally released by a company voluntary arrangement unless its terms say so. Our guide to personal guarantees explains how they work.
Cross-border angle
CVAs are available to UK-registered companies and to certain overseas companies, including some whose centre of main interests is in the UK. Since the UK left the EU, recognition of a CVA abroad depends on local law, so groups with assets or creditors overseas need advice on whether foreign courts will recognise it. Bangladeshi creditors of a UK company should file claims promptly and consider whether the proposal treats them fairly. Our UK–Bangladesh disputes team can help with claims across both jurisdictions.
Checklist for directors and creditors
- Directors: take early advice, consider a Part A1 moratorium and compare the CVA with administration and a restructuring plan.
- Prepare a realistic forecast and a clear comparison of returns with the alternative.
- Engage with secured lenders, HMRC and key suppliers before launching.
- Creditors: check the proposal, submit claims and vote within the deadline.
- Landlords: review forfeiture rights, guarantees and the termination options offered.
- Diarise the 28-day challenge period if you may wish to object.
- Throughout implementation, monitor the company's performance against the plan and ask the supervisor for regular reports.
Whether you are a director weighing a rescue or a creditor deciding how to vote, the earlier you take advice the more options remain open. A creditor facing an unpaid debt may also consider a statutory demand, but once a CVA is approved, its terms usually govern recovery.
TRW & Co's restructuring and insolvency solicitors in London advise companies, directors and creditors on CVAs, and our insolvency advice for directors team helps boards act lawfully under pressure. To discuss a company voluntary arrangement, contact us at info@trw.co.
Frequently asked questions
01How long does a CVA last?
There is no fixed statutory term. The proposal sets the period, which depends on how much the company can afford to pay and over what time. Some arrangements involve a lump sum paid quickly, often from new investment or a sale of assets; others involve monthly contributions over several years. The supervisor monitors performance throughout. If the company completes the payments, the supervisor issues a notice of completion; if it defaults, the arrangement may terminate early and the company may enter administration or liquidation.
02Who can propose a company voluntary arrangement?
The directors can propose one where the company is not in administration or liquidation. If the company is already in administration, the administrator can propose it, and if it is being wound up, the liquidator can. The proposal must name a nominee who is qualified to act as an insolvency practitioner. In practice, directors usually work with the proposed nominee to prepare the proposal and statement of affairs before it is formally submitted, because the nominee must report on whether it has a reasonable prospect of approval and implementation.
03Does a CVA bind creditors who vote against it?
Yes. Once approved, a CVA binds every unsecured creditor who was entitled to vote in the decision procedure, or would have been if they had received notice, whether they voted in favour, against or not at all. It does not bind secured creditors’ rights to enforce their security, or reduce preferential debts below their priority, without consent. Creditors who believe the arrangement treats them unfairly can apply to court within the statutory period, but otherwise they are bound by its terms.
04Can a CVA reduce rent owed to landlords?
Yes, in principle. The High Court has confirmed that a CVA can compromise future rent and other lease liabilities even while the tenant stays in occupation. Many retail and hospitality CVAs have reduced rents, introduced turnover rents or given landlords the option to terminate. However, a CVA cannot remove a landlord’s right to forfeit, and landlords must not be unfairly prejudiced compared with the likely outcome in administration and with other creditors. Votes of unaffected creditors should not swamp those of compromised landlords.
05What happens if a CVA fails?
If the company defaults on the terms, the proposal usually gives the supervisor power to terminate the arrangement. The supervisor may then petition to wind up the company or apply for an administration order, and creditors can also take action. Funds already collected are generally distributed under the terms of the CVA. Directors should take advice promptly if the business falls behind, because a variation agreed with creditors may avoid failure, and continued trading without a realistic plan can create personal risk.
06Is a CVA better than a restructuring plan?
It depends on the company. A CVA is cheaper and quicker, involves minimal court process and suits SMEs with mainly unsecured debt. A restructuring plan under Part 26A of the Companies Act 2006 involves two court hearings and higher costs, but can bind secured creditors and dissenting classes through cross-class cram down. Larger groups with complex secured financing often prefer a restructuring plan, while smaller trading companies more often use a CVA. Advice on the comparator and creditor support should drive the choice.
Sources and official materials
- Insolvency Act 1986, Part I — Company voluntary arrangements: proposal, nominee report, decisions
- Insolvency (England and Wales) Rules 2016, rule 15.34 — Majorities required for CVA decisions
- Insolvency Act 1986, section 6 — Challenge for unfair prejudice or material irregularity
- Insolvency Act 1986, Part A1 — Standalone moratorium
- Corporate Insolvency and Governance Act 2020 — Introduced the moratorium and restructuring plan
- GOV.UK: Company Voluntary Arrangements — Government overview of CVAs
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.