CVA v Bankruptcy How does a CVA compare to bankruptcy?

A Company Voluntary Arrangement (CVA) and bankruptcy are two distinct mechanisms for addressing financial difficulties, but they differ significantly in terms of their applicability, scope, and implications:



CVA (Company Voluntary Arrangement): CVAs are typically used by companies, including limited companies and limited liability partnerships (LLPs), to restructure their debts and continue trading while addressing financial distress. They are not available to individuals.

Bankruptcy: Bankruptcy is primarily a process for individuals, including sole traders and self-employed individuals, who are overwhelmed by personal debts and unable to meet their financial obligations. It is not typically used by companies.



CVA: The primary goal of a CVA is to rescue a financially distressed company from insolvency by restructuring its debts and allowing it to continue operating. CVAs aim to balance the interests of the company and its creditors.

Bankruptcy: Bankruptcy seeks to provide individuals with a fresh start by discharging their eligible debts. It aims to provide relief to individuals who cannot repay their debts and are facing financial hardship.


Continuity of Business

CVA: Companies that enter into a CVA can continue their business operations, which is crucial for preserving their brand, retaining employees, and maintaining customer relationships.

Bankruptcy: Bankruptcy does not allow individuals to continue their business operations if they are sole traders or self-employed. Their assets may be liquidated to pay off creditors, and the business typically comes to an end.


Legal Process

CVA: A CVA is a formal but voluntary agreement between a company and its creditors. It requires approval from at least 75% of creditors (by value) who participate in a vote.

Bankruptcy: Bankruptcy is a legal process initiated by an individual filing a petition in court. It involves the appointment of a trustee who administers the bankruptcy estate and oversees the distribution of assets to creditors.


Debt Repayment

CVA: In a CVA, the company agrees to repay its outstanding debts to creditors over a specified period, often with reduced monthly payments and extended terms. Creditors may receive a portion of their owed amounts, and any remaining debt is typically discharged upon successful completion of the CVA.

Bankruptcy: In bankruptcy, an individual’s eligible debts are typically discharged, meaning they are no longer legally obligated to repay those debts. However, non-exempt assets may be sold to pay off creditors to the extent possible.



CVA: The duration of a CVA is determined by the terms of the arrangement, which may span several years. Once the agreed-upon payments are made, and the CVA is successfully completed, the company can continue without the burden of discharged debts.

Bankruptcy: Bankruptcy typically lasts for a shorter period, often around one year for individuals. After this period, eligible debts are discharged, allowing the individual to make a fresh financial start.


In summary, while both CVAs and bankruptcy address financial distress, they are designed for different entities (companies vs. individuals) and have distinct goals and implications. A CVA aims to rescue a company and restructure its debts while allowing it to continue trading, whereas bankruptcy offers individuals relief from unmanageable personal debts and the opportunity for a fresh financial start.