A Company Voluntary Arrangement (CVA) is a formal legal agreement between a company and its creditors.  A financially distressed company will agree a reduction in the amount it owes to its creditors and agree a repayment period (typically 2 – 5 years).

What does the agreement entail?

Usually, the agreement will include the introduction of new money by a third party or the existing shareholders and will allow for a restructuring of the company to return it to financial strength.  The aim of the agreement is for creditors to be repaid more under the terms of the CVA than they would get if the company went into liquidation.

Creditor approval and oversight

If 75% of shareholders (by value) agree to the terms of the CVA then it will be binding on all creditors.  The CVA is overseen by a Licensed Insolvency Practitioner to ensure that the company adheres to the terms of the agreement or, if necessary, to oversee any variations. 

When CVAs are used in retail

CVAs are commonly used in retail scenarios where a company has a number of unprofitable leasehold stores/units that the company cannot afford to keep on. The CVA may propose that the landlords of the loss-making stores will take back the leases on better terms than if the company were wound up, while the remaining landlords will continue to be paid and may receive a larger proportion of their arrears than would have been the case in a liquidation.  The retailer will use the profits from ongoing trading and any third party contributions to pay the compromised claims. 

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