Back to Basics: Are CVAs the Comeback Kid?

As restructuring plans become more complex, contested and costly, their broad appeal as a rescue tool is fading, particularly for SMEs and the mid-market. Increased judicial scrutiny, valuation disputes and an expanding body of case law have injected uncertainty into a process once seen as a fast-track to recovery. Against that backdrop, company voluntary arrangements (CVAs) are re-emerging as a pragmatic alternative: quicker to implement, cheaper to run and well suited to operational restructurings, especially in the retail and property-heavy sectors. While restructuring plans will no doubt remain the weapon of choice for large, sophisticated and international debt restructurings, CVAs seem set to reclaim popularity for businesses seeking cost-effective and straightforward restructurings.

Why have restructuring plans lost their shine?

The ability of restructuring plans to bind dissenting creditors was one of their most appealing attributes when introduced in 2020. Ironically, it is also why they are now so often contested.

There are a number of reasons why a disgruntled creditor may be incentivised to challenge a restructuring plan. When the potential surplus under a plan is minimal, challenges can centre around value distribution, the formation of creditor classes, lack of engagement with creditors, or valuation evidence.

Recent Court of Appeal authority has fanned the flames of potential creditor challenge. It had been hoped that a Supreme Court decision in the Waldorf appeal would lead to clarity in relation to fair allocation of value and the requirement for meaningful engagement with “out of the money” creditors; however, that appeal has unfortunately now been abandoned. As a result, plan companies must still negotiate with all classes of creditors, including those who are “out of the money”; ensure a fair and proportionate distribution of value; and produce equitable outcomes as a whole. Satisfaction of the “no worse off” test will not guarantee sanction. Meanwhile, the court’s discretion remains central, and plan companies must be prepared for uncertainty and potentially lengthy (and costly) battles where creditor challenges are made.

Why are restructuring plans less appealing for SMEs?

Although restructuring plans were initially heralded as a potentially transformative tool for businesses, there are several barriers to access for SMEs, such as time, cost and complexity. SMEs often lack the financial headroom to fund a contested court process and the sophisticated valuation evidence now expected, particularly where creditors are well‑resourced and legally represented. Creditors are also unlikely to face adverse costs for contesting a restructuring plan at first instance (although they may be liable for costs on an unsuccessful appeal), which reduces the deterrent for creditor challenges. `

The revised Practice Statement governing schemes of arrangement and restructuring plans, which is effective for convening hearings listed on or after 1 January 2026, reflects the increasingly litigious nature of restructuring plans. For SMEs, this does little to reduce cost or uncertainty and may reinforce the perception that restructuring plans are a tool best suited to larger corporates.

The residual attraction of restructuring plans

Despite these challenges, restructuring plans retain important advantages. They are uniquely placed to compromise complex structures, bind secured and dissenting creditor classes through cross-class cram down and implement outcomes that cannot be achieved through a CVA. For a company with sufficient resources and liquidity to manage the risk of potential litigation, restructuring plans remain a powerful option. This makes larger and international companies better placed to use restructuring plans to their advantage.

CVAs: a simpler alternative

CVAs, on the other hand, offer a simple contractual based alternative to restructuring plans, which if unchallenged, can be implemented quickly between the directors and nominee insolvency practitioners without court involvement. Businesses laden with heavy rent obligations (such as retailers and other consumer‑facing businesses) can use a CVA to reset lease obligations and restore financial viability. Hospitality, leisure and casual dining businesses often fall into this category.

However, CVAs are not without risk. They do not cure fundamentally broken business models and may simply defer insolvency if underlying issues are not addressed. The success of a CVA is bound to the debtor company’s ability to continue trading successfully for the relevant period. CVAs will also not bind secured or preferential creditors, meaning HMRC cannot be bound (in respect of its secondary preferential debts) without its consent. Where a company has substantial tax debts, HMRC can largely drive the CVA’s terms and ultimately determine its viability.

Recent Insolvency Service statistics show a modest but notable increase in CVA numbers in recent months. While volumes remain low by historical standards, there are signs of an uptick. CVAs offer a more proportionate and cost‑effective solution for SMEs and mid‑market businesses, which have trading and property liabilities rather than complex financial debt. CVAs are particularly effective where speed and pragmatism are required.

Conclusion

As restructuring plans become more contested, costly and uncertain, CVAs are likely to regain prominence as a practical restructuring tool for SMEs and mid‑market businesses. Restructuring plans will remain part of the toolkit but are increasingly only likely to be utilised for larger, international companies. In a challenging consumer and global environment, with continued pressure on margins and fixed costs, CVAs may yet see a resurgence.

By Lucy Trott, Managing Associate at Stevens & Bolton