Creditors’ Voluntary Arrangement (CVA)
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Changes in UK Insolvency Law and Their Impact on CVAs

The UK insolvency landscape has changed significantly in recent years. These shifts are largely due to Brexit, the COVID-19 pandemic, and new demands from businesses facing financial difficulty. One of the most commonly used tools in such situations is the Creditors’ Voluntary Arrangement (CVA). A CVA helps companies restructure debt and avoid liquidation. However, changes in insolvency law now influence how businesses, creditors, and practitioners engage with CVAs.

This article explores these recent changes and their impact on CVAs. It highlights how evolving laws may influence the decisions of those involved in the process.

Understanding Creditors’ Voluntary Arrangement (CVA)

Let’s start with a quick overview of CVAs. A CVA is a legally binding agreement between a company and its creditors. The company outlines a plan to repay part or all of its debts over an agreed period, often between three and five years. An insolvency practitioner manages the process, first as a nominee, then as a supervisor after the CVA is approved.

For a CVA to go ahead, creditors representing at least 75% of the total debt must vote in favour. CVAs allow companies to continue trading and avoid more severe insolvency procedures like administration or liquidation.

Key Changes in UK Insolvency Law

Recent legislation and policy updates have reshaped the way CVAs work. Here are the key changes:

1. Corporate Insolvency and Governance Act 2020 (CIGA)

This Act was introduced during the pandemic to support struggling businesses. Although created in response to COVID-19, it includes long-term reforms that also affect CVAs:

  • Moratorium on Debt Recovery Actions:
    CIGA introduced a new moratorium process. This gives financially distressed companies time to restructure without facing creditor action, such as winding-up petitions. While separate from CVAs, the moratorium allows companies to prepare a CVA plan without immediate pressure.
  • Suspension of Wrongful Trading Rules:
    During the pandemic, the law temporarily removed liability for wrongful trading. Directors could explore rescue options like CVAs without fearing personal legal consequences.
  • Virtual Meetings and E-Voting:
    CIGA modernised the CVA process by allowing digital communication and online voting. This change has made it easier and faster to secure creditor approvals.

2. Changes to Preferential Creditors’ Rights

As of December 2020, HMRC regained its status as a secondary preferential creditor. This means HMRC now ranks above floating charge holders and unsecured creditors for certain tax debts, such as VAT and PAYE. Previously, HMRC was considered an unsecured creditor, just like other suppliers or landlords.

This change has had two major effects:

  • Less for Unsecured Creditors:
    HMRC’s priority status reduces the funds available for unsecured creditors. As a result, many are now less inclined to approve CVA proposals.
  • Increased HMRC Scrutiny:
    HMRC now plays a stronger role in reviewing CVAs. If the company owes significant tax debts, HMRC expects detailed and realistic repayment terms before agreeing to the proposal.

3. Greater Focus on Fair Treatment of Creditors

Courts now pay closer attention to how CVAs treat different creditor groups. Recent legal cases—especially in retail—have shown that creditors will challenge proposals they see as unfair. This has affected how insolvency practitioners draft CVA terms:

  • Landlords and Fairness:
    Landlords often feel unfairly targeted when CVAs propose reduced rent or changes to leases. Courts now expect companies to justify such proposals clearly and to treat all creditor groups fairly.
  • Clear Communication:
    Practitioners must now provide full transparency. CVA documents should explain how each creditor group is treated and why certain terms are included.

4. Small Business Restructuring Scheme (SBRS)

Launched in 2022, the SBRS is a simplified alternative to CVAs for small businesses. It targets firms with lower liabilities and aims to reduce the cost and complexity of restructuring.

  • Lower Practitioner Involvement:
    The SBRS gives companies more control and requires less input from insolvency professionals.
  • Faster Approval Timelines:
    The process moves quickly, which benefits businesses that need urgent support.

The SBRS offers competition for CVAs, particularly among smaller firms. It also puts pressure on traditional CVAs to become more efficient and affordable.

How These Changes Affect CVAs

1. Easier Access for Struggling Companies

Digital tools and the new moratorium have made it easier for companies to propose CVAs. These updates remove common barriers and allow more businesses to consider restructuring as an option.

2. More Complicated Negotiations

Stronger HMRC powers and greater legal scrutiny make negotiations tougher. Companies now need to prepare well-documented and fair proposals to win support from creditors, especially when large tax debts are involved.

3. Challenges for Landlords

Retail and hospitality sectors often rely on CVAs to reduce rent or modify leases. However, landlords are increasingly pushing back. Some now challenge CVAs in court, making the approval process more complex and time-consuming.

4. CVAs Face Competition

The rise of tools like the SBRS offers new restructuring options. Some businesses may choose these alternatives over traditional CVAs, particularly if they offer faster relief at lower cost.

5. Better Protections for Creditors

New laws aim to protect creditors by increasing transparency and requiring fair treatment. While this benefits creditors, it also increases the legal and ethical obligations for companies proposing a CVA.

Looking Ahead: The Future of CVAs

CVAs continue to play a vital role in UK business recovery. But the legal landscape is still changing. Here’s what to watch:

Regulatory Reforms:

The government may introduce more changes to streamline insolvency law or address concerns raised by recent court cases.

Economic Pressure:

Inflation and rising interest rates may push more companies to consider CVAs as a way to reduce debt.

Technology Adoption:

Ongoing digital transformation may lead to more efficient CVA processes. This could benefit both companies and creditors.

Conclusion

Recent legal developments have reshaped how CVAs operate in the UK. These changes provide new tools and protections for businesses and creditors alike. However, they also bring fresh challenges.

Companies must now take a more strategic and transparent approach when preparing CVA proposals. Creditors, in turn, have more power and better information to make informed decisions.

For businesses considering a CVA, it’s essential to seek expert legal advice early in the process. Doing so increases the chances of success in today’s complex and evolving insolvency environment.

To learn more about Creditors’ Voluntary Arrangements or to get professional legal support, contact Blake-Turner LLP.