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What a CVA means for the company's ability to borrow
A Company Voluntary Arrangement is a formal insolvency procedure in which the company proposes a repayment plan to creditors, supervised by a licensed insolvency practitioner. The company continues to trade, but it operates under constraints agreed in the arrangement document.
Those constraints typically include restrictions on taking on new financial commitments without the supervisor's approval. Directors should read the specific terms of their CVA document carefully before approaching any lender, because entering new debt in breach of those terms can amount to a breach of the arrangement.
Why lenders are cautious about CVA companies
A lender to a CVA company faces a complex priority question. The CVA creditors have an established claim that is being worked through. A new lender's security will only be effective if it ranks ahead of the CVA creditors, which typically requires a first charge over specific assets not already encumbered. If those assets are unavailable or insufficient, the lender's exposure is effectively unsecured behind the CVA creditors.
When new borrowing during a CVA makes sense
There are genuine circumstances where a CVA company needs short-term finance to fulfil contracts, purchase stock, or bridge a cash flow gap that would otherwise cause a CVA default. In these cases, asset-backed finance — where the lender takes security over the specific asset being purchased — is more structurally tractable than unsecured working capital lending. The lender's security is identifiable and, if properly documented, can rank ahead of the CVA creditors in respect of that asset.
- Obtain written supervisor consent before approaching a lender
- Identify specific assets available as security that are not already charged
- Ensure directors have independent legal advice on the implications
- Prepare current management accounts and a CVA compliance update
Post-CVA lending
Once a CVA is completed — creditors have been paid in accordance with the arrangement — the company returns to normal trading status. The completed CVA will remain on the company's credit record for some years, but lenders will generally give greater weight to post-CVA trading performance. A company that has honoured a CVA and returned to profitability is in a materially stronger position than one mid-arrangement.
Frequently asked questions
Do we need to disclose the CVA to a prospective lender?
Yes, and in any event the lender will identify it through Companies House and credit agency searches. Failing to disclose a CVA would be a material misrepresentation and would likely invalidate any facility agreement.
Can the CVA supervisor approve new borrowing unilaterally?
The supervisor's powers are defined in the CVA document and in the terms agreed with creditors. In many cases the supervisor can approve routine operational borrowing without returning to creditors, but larger or unusual commitments may require a creditors' meeting or formal variation to the CVA.
Funding for UK limited companies
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