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Company Voluntary Arrangements (CVA) – Advantages v Disadvantages

A Company Voluntary Arrangement is a legal mechanism to save a limited company. It sounds good initially but can be very difficult to achieve. Often a pre-pack Administration or just liquidating and starting again is easier. The main disadvantage to a CVA is that it can go on for five years and fail at a later date and result in an out of control, of the directors, liquidation. 


It is easier to list the advantages and disadvantages of a Company Voluntary Arrangement as a list. 

Advantages 

  • The limited company is preserved. 
  • You can keep certain company qualifications e.g. accreditations. 
  • You will probably not breach contracts with customers and you do not need to tell them about the financial restructuring. 
  • The directors stay in control. 
  • There is no report to the Insolvency Service on directors’ conduct. 
  • Often you can keep the same bank account and suppliers. 
  • It binds all creditors even those that vote against it or have been forgotten about (unless they are of material value). 
  • The forgiven debt is a windfall and tax-free income. 
  • The utility companies must continue to supply a company in a CVA. 

Disadvantages 

  • It can be hard to get the 75% agreement needed from creditors. 
  • If there are high HM Revenue and Customs debts, they tend to not favour CVA proposals without a lot of modifications. 
  • It affects your credit rating and is registered at Companies House. 
  • There is not protection from legal action when you are trying to get a CVA proposal finalised and sent to creditors.  
  • They can be approved but fail later (and often do because of 2 or 3 missed monthly payments). 
  • Most suppliers will only continue to supply you on very tight terms of cash on delivery only. 
  • They can be expensive to put in place in professional fees. 
  • CVA’s cannot vary the rights of secured creditors such as factoring companies.

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