What is a CVA (Company Voluntary Arrangement)?

If your law practice is facing severe cashflow problems and pressure is growing from HMRC or trade creditors, it is time to ask for professional help.At RMT, we have been rescuing, restructuring, and closing law firms since 2003. Talking to turnaround and insolvency experts is entirely free, and understanding your options will take a significant weight off your mind.See our case studies on law firms we have rescuedIf your law firm's cashflow is under severe pressure, call our support centre on 0800 9700539 for a confidential, no-obligation chat. We will help you manage the SRA and rescue your business.What is a CVA and How Does It Help a Law Firm? A Company Voluntary Arrangement (CVA) is a powerful, legally binding agreement between an insolvent (or under-pressure) company or LLP and its unsecured creditors. It allows a proportion of historic debts including HMRC liabilities, VAT, PAYE, and trade debts to be ring-fenced and repaid over a period of 12 to 60 months out of future cashflow.For a law practice burdened by historic debt but fundamentally viable going forward, a CVA is often the best rescue tool available in the UK. Features of a Law Firm CVA: Management Maintains ControlUnlike administration or liquidation, the directors or designated members of the LLP remain in complete control of day-to-day business operations.Continuous TradingThe company or LLP carries on trading as usual while driving a structured turnaround.Single Monthly PaymentAll unsecured debts are bound into one affordable monthly payment made to a Supervisor (who must be a Licensed Insolvency Practitioner).ConfidentialityA CVA is not publicly announced in the same aggressive manner as an administration. You do not have to proactively tell your clients that your law firm is in a CVA, meaning informed client consent is not required to continue operations.  Note on Credit Ratings: A CVA will negatively impact your company's credit rating. If maintaining a clean credit profile is critical, a hive-down strategy may resolve this issue. Contact our team to see if this applies to your structure.Advantages and Disadvantages of a Law Firm CVA A CVA is an effective restructuring framework, but it is a rigorous process. Directors must understand both sides of the mechanism before proceeding. The Advantages Immediate Cashflow ReliefIt rapidly stops pressure from HMRC and trade creditors while the proposal is being prepared. We handle HMRC on your behalf to halt winding-up petitions.SRA ComplianceThe SRA accepts well-structured CVA proposals. By involving the regulators early, we ensure they have the necessary oversight of client accounts and file issues. They typically will not intervene.Exit Onerous ContractsUnder a CVA, you can terminate expensive property leases, onerous supply contracts, and employment obligations with nil cash cost.Redundancy Cost ReliefRedundant staff or expensive managers can be removed with redundancy and lieu-of-notice costs paid by the Government's Redundancy Payments Service, not your firm's cashflow.Lower CostA CVA is significantly less expensive than administration or a formal Scheme of Arrangement. The Disadvantages Credit RatingThe firm will have a severely damaged credit rating after entering a CVA. However, creative corporate restructuring (such as a group structure or a hive-down) can often mitigate this.Banking PressuresYou may need to secure new banking facilities. If your bank holds security (like a charge over debtors), they are not bound by the CVA. We routinely negotiate with banks to secure loan holidays, debt write-downs, or long-term conversions from overdrafts to loans.Increased OversightThe SRA will require regular reporting on your progress leading into and throughout the CVA.Professional Indemnity Insurance (PII)Your PII premiums may become more expensive following the arrangement.Is Your Law Practice Suitable for a CVA? A CVA is a powerful tool, but it is not a magic wand. It requires a united, determined board prepared to change business practices to focus entirely on profitability.A CVA is Suitable If... A CVA is NOT Suitable If...The practice has a viable, underlying profitable core business. The firm has never made a profit and overheads consistently outpace revenue.You have disposable assets that can be sold for better value over the medium term than a liquidator could achieve. There are no realistic prospects for generating new fees or billing.The board is completely united and ready to make tough operational cuts. Creditors have already advanced winding-up petitions past the point of negotiation.What if your firm is an ordinary partnership? If you practice as a traditional partnership rather than an LLP or Limited Company, most of these principles still apply, but we would advise you on a Partnership Voluntary Arrangement (PVA) instead.Drafting a CVA Proposal That Creditors Will Accept The law expects the debtor to write the CVA proposal and nominate an Insolvency Practitioner to act as the Nominee. Because this document is legally complex and you have a practice to run, RMT handles the drafting process for you. The 4 Rules of a Law Firm Proposal:Be Conservative: Base all forecasts on realistic, proven cashflows. Do not gamble on sudden, dramatic spikes in fee income. Expect a Difficult Year 1: Plan for the reality that fee income may initially dip while the firm is being re-shaped. Back-load Payments: Do not promise large contributions to creditors in the first 12 months; give your cashflow room to stabilize. Prioritize Affordability: Never promise more than the restructured business can comfortably deliver.The Statement of Affairs (SOFA) Your proposal must include a Statement of Affairs (SOFA). This financial snapshot demonstrates to creditors that the firm is technically insolvent but proves that a CVA will yield a better financial return for them than liquidation.Because SRA intervention costs during a forced liquidation often result in a nil return for unsecured creditors, a CVA is almost always preferred by creditors—even if it represents a "Hobson’s choice."Once the Nominee signs off on the proposal, it is filed at court to ensure legal transparency before being circulated to your creditors for a vote.Exploring Alternative Options: Plan A, B, and C If a CVA (Plan B) or an informal turnaround (Plan A) isn't the right fit for your firm's financial layout, you must act quickly before creditors force your hand.Plan C (Pre-Pack Administration): If the historic liabilities are too big for a CVA, a pre-packaged administration can preserve the underlying business, protect client files, and maintain employment by seamlessly transferring viable assets to an acquiring firm or a new corporate vehicle. Winding Up / Liquidation: If the business is fundamentally unviable, it should be wound up cleanly. Delaying this step when personal guarantees are active can lead to Individual Voluntary Arrangements (IVAs) or personal bankruptcy for the partners.Our Fees Our fees usually come directly from the cashflow savings we create for your practice during this process. We often structure our fees over several weeks and can include an agreed success fee once targets are achieved. All fees are quoted in writing.Time is your enemy act before your creditors do. Contact RMT today to explore how we can protect your practice, your partners, and your legal career.