What is a Company Voluntary Arrangement (CVA)? A UK Credit Controller's Guide

What is a Company Voluntary Arrangement (CVA)?

A Company Voluntary Arrangement (CVA) is a formal insolvency procedure that allows an insolvent or financially distressed UK company to reach a legally binding agreement with its unsecured creditors. Under the arrangement, creditors accept a reduced repayment — typically 30p to 70p in the pound — paid over an agreed period, usually three to five years, while the company continues trading under existing management.

The CVA was introduced by the Insolvency Act 1986 and remains one of the more commonly used rescue procedures in the UK. Unlike administration or liquidation, it does not remove directors from control. Instead, a licensed insolvency practitioner (IP) is appointed as supervisor to monitor the arrangement and ensure the company meets its agreed payment schedule.

For credit controllers and suppliers, a CVA is both a formal insolvency event and a signal that the company's unsecured debts have been officially compromised. Understanding what it means for outstanding invoices is essential before deciding whether to continue trading with that business.

How a CVA Works: The Four Stages

1. Proposal

The company's directors, working with a licensed insolvency practitioner, prepare a written proposal for creditors. This sets out the total amount owed to each class of unsecured creditor, the proposed repayment rate, the payment schedule (typically monthly contributions from trading profits or asset realisations), and the supervisor's role and fees.

2. Moratorium (optional)

Under the Corporate Insolvency and Governance Act 2020, eligible small companies can apply for a moratorium of 20 business days before the creditor vote. During this period, creditors cannot take individual legal action to recover debts — giving the company time to finalise its proposal without being pursued.

3. Creditor Vote

The proposal is put to a vote of unsecured creditors. Approval requires 75% or more by value of those voting. Once approved, the CVA becomes binding on all unsecured creditors — including those who voted against it or did not participate. Secured creditors (holding a fixed or floating charge) and preferential creditors such as employees owed unpaid wages are not bound by the CVA terms.

4. Supervision

The insolvency practitioner becomes the supervisor and monitors ongoing compliance. Regular contributions are made to a CVA fund and distributed to creditors per the agreed schedule. If the company fails to make payments, the supervisor can apply to the Insolvency Service or petition for winding-up.

What a CVA Means for Your Outstanding Invoices

When a CVA is approved, the legal position of pre-CVA trade debts changes immediately:

• Pre-CVA invoices become compromised claims. An invoice for £25,000 issued before the CVA approval date is subject to the agreed dividend rate. At 40p in the pound, you receive £10,000 in instalments over the arrangement term — not the full amount, and not quickly.
• Register your debt without delay. Submit a proof of debt to the supervisor before the claims deadline stated in the CVA proposal. Missing this deadline risks exclusion from distributions entirely.
• Post-CVA trading creates new, unaffected claims. Invoices issued after CVA approval are not subject to the haircut. However, if the CVA subsequently fails and the company enters liquidation, those post-CVA debts still rank as unsecured and may recover little.

Critical warning: CVA failure rates are significant. Research from R3, the UK insolvency trade body, indicates that a substantial proportion of CVAs fail before completion, most converting to administration or creditors' voluntary liquidation within two to three years. An approved CVA is a reprieve, not a recovery.

CVA Notices in The Gazette and Companies House

All CVAs must be advertised in The Gazette — the UK's official public record of insolvency events — and registered at Companies House.

The Gazette publishes a notice when a CVA creditor meeting is called, when the arrangement is approved or rejected, and when it terminates or completes. Crucially, a company's status on Companies House remains "Active" while a CVA is in force — it looks no different from any other active company if you only check the status field. You must review the filing history, or monitor Gazette entries, to detect it.

This is exactly why regular monitoring of Gazette insolvency notices for your customer portfolio is a practical necessity, not a nice-to-have. FinancialInsight monitors The Gazette automatically and alerts you the moment a CVA notice is published for any company you track, eliminating the manual monitoring burden.

CVA vs Administration vs Liquidation

A CVA sits at the lighter end of the UK formal insolvency spectrum:

• CVA: Company continues trading. Directors remain in control under IP supervision. Unsecured creditors receive a reduced, time-spread repayment.
• Administration: An administrator takes control from management, either to rescue the company as a going concern or achieve a better outcome for creditors than immediate liquidation. A statutory moratorium prevents creditor action during the process.
• Liquidation: The company winds down. A liquidator realises assets and distributes proceeds to creditors in strict statutory priority — secured first, then preferential, then unsecured. The company ceases to exist.

A CVA can transition into administration or liquidation if the company fails to meet its obligations. This layered risk is why continued monitoring after a CVA is approved matters just as much as the initial response to it.

Warning Signs Before a CVA

The financial deterioration that precedes a CVA is nearly always visible in filed accounts well in advance. Common signals appearing 12–24 months before a formal procedure:

• Declining EBITDA margin — the business is consuming cash rather than generating it (see the EBITDA credit guide)
• Current ratio below 1.0 — current liabilities exceed current assets; the company relies on overdraft or new borrowing to pay suppliers
• HMRC arrears — deferred VAT and PAYE are routinely among the largest unsecured creditor classes in a CVA
• Rising Days Sales Outstanding — customers paying slowly creates inbound cash pressure, compressing the working capital position
• Overdue accounts at Companies House — a filing compliance failure is one of the strongest statistical early-warning signals for near-term insolvency

For a complete balance sheet checklist, see 5 red flags in UK company accounts. FinancialInsight calculates all of these signals automatically from Companies House filing data and alerts you when a company's composite credit score falls below safe thresholds — weeks or months before a formal process begins.

What to Do If a Customer Enters a CVA

1. 1File your proof of debt immediately. Contact the named supervisor and submit a proof of debt with supporting invoices and any accrued interest for all pre-CVA sums owed.
2. 2Reassess credit terms. If you continue supplying, switch to 14-day or proforma terms and limit ongoing exposure to a level you can absorb if the CVA fails.
3. 3Monitor progress quarterly. Check Companies House filing history and The Gazette. A new winding-up petition, supervisor change, or missed distribution are signs the arrangement is in trouble.
4. 4Check director history. A director background check can reveal whether key individuals have prior insolvency associations — important context for evaluating whether this arrangement is likely to succeed.
5. 5Do not extend new large credit lines without security or a personal guarantee for as long as the CVA remains in force.

Key Takeaways

• A CVA is a formal insolvency procedure under the Insolvency Act 1986 that allows a UK company to repay unsecured creditors at a reduced rate while continuing to trade under existing management
• Approval requires 75% by value of voting unsecured creditors and binds all unsecured creditors — file your proof of debt with the supervisor immediately after the CVA is approved
• Pre-CVA invoices are compromised to the agreed dividend rate; post-CVA invoices are unaffected but remain unsecured and at risk if the CVA converts to liquidation
• A company in a CVA retains "Active" status at Companies House — Gazette monitoring is the only reliable way to detect a CVA in time to act on your claims
• CVA failure rates are significant; treat an approved CVA as an ongoing credit risk requiring active monitoring, not a resolved situation
• Financial warning signs — declining EBITDA, HMRC arrears, falling current ratio, overdue filings — typically appear 12–24 months before a CVA is initiated
• FinancialInsight monitors Gazette CVA notices automatically for every company in your portfolio, alerting you the moment a formal insolvency event is published