This article was first published in the June issue of Corporate Rescue and Insolvency
Key points
- Company voluntary arrangements (CVAs) were a dominant tool for operational restructuring because they are fast, flexible and can reset unsecured liabilities while keeping the business trading and with management retaining control of the business.
- CVAs fell out of favour following a string of high-profile creditor challenges, coinciding with the introduction of Part 26A restructuring plans.
- Restructuring plans provide a mechanism to compromise complex, finance-led capital structures and have risen in popularity despite an increase in creditor challenges.
- As plans become harder to run, CVAs look set to regain prominence as a more proportionate and simpler mid-market solution.
Introduction
The UK restructuring toolkit has expanded rapidly in recent years, and the market is starting to recalibrate. Since their introduction in 2020, Pt 26A restructuring plans (Plans) have been the go-to option for large, complex balance-sheet restructurings, but they are getting harder to implement. Against that backdrop, company voluntary arrangements (CVAs) merit renewed attention. CVAs can be quicker, cheaper and well suited to effect operational restructurings, notably in retail and other businesses which have a large portfolio of rental premises. This Insight article looks at what has changed and where CVAs can still deliver a more proportionate route to rescue.
The CVA era
In the decade before the pandemic, CVAs were a dominant tool for distressed retail, leisure and hospitality businesses. They are quick to implement, comparatively low-cost and adaptable to different business models, enabling trading to continue while compromising unsecured claims without a terminal insolvency. CVAs were especially attractive for businesses with underperforming property estates seeking to reset lease liabilities. Larger retailers often grouped leases by profitability, maintaining full rent on strong sites and imposing reductions on weaker ones. Crucially, CVAs do not require court sanction but bind dissenters if approved by 75% in value of creditors, including the requisite proportion of unconnected creditors.
Around the years prior to the pandemic, there were numerous high profile CVAs in the press, including for Travelodge, Mothercare, HMV and Carpetright. For many stakeholders, these restructurings could be seen as a pragmatic compromise: landlords accepted reduced recovery in exchange for ongoing occupation, while other unsecured creditors fared better than in administration or liquidation.
Litigation and the landlord revolt
Despite their early popularity, CVAs increasingly attracted criticism and challenges from disgruntled creditors (often commercial landlords), who bore the brunt of proposed compromises. The growing use of CVAs to impose steep rent reductions, turnover‑based rents and selective site closures prompted concerns about fairness and unequal treatment between creditors. 2019 saw the start of the first wave of landlord challenges to retail CVAs, with landlords launching an unsuccessful challenge to the Debenhams CVA ([2019] EWHC 2441 (Ch)).
These concerns crystallised in a series of high‑profile court challenges, which had until then been relatively rare. In 2021, there was a flurry of notable retail CVA challenges, culminating in the challenge to the New Look CVA ([2021] EWHC 1209 (Ch)) which was heard alongside the Regis CVA challenge application ([2021] EWHC 1294 (Ch)). While the courts frequently upheld CVAs, they also confirmed that differential treatment between landlords and other unsecured creditors required justification, increasing complexity for CVA companies. The New Look judgment confirmed that the courts would weigh the circumstances of the CVA as a whole when considering any challenge on “unfairness” grounds. In that judgment, the court granted scope for companies to fundamentally alter the terms of their leases and confirmed that such changes would not be deemed automatically unfair. The “landlord revolt” was curtailed when appeals against the findings in New Look and Regis were discontinued in 2022.
Despite a flexible judicial approach to CVAs, it is important to note their inherent limitations. CVAs are incapable of binding secured or dissenting creditors, limiting their usefulness in businesses with layered capital structures. For companies saddled with complex debts to multiple secured creditors, CVAs are unlikely to offer a viable restructuring mechanism. Arguably, they are more appropriate for re-sizing day-to-day unsecured trading or operational liabilities such as rents owing under commercial leases.
In the post-pandemic era, CVAs were viewed by many as landlord‑centric tools, frequently implemented in an adversarial environment and followed by inevitable challenge. The recent Scottish decision in the challenge to Petrofac’s CVA ([2026] CSOH 29) has added new uncertainty for companies seeking to implement a CVA. In that case, the court rejected a strict vertical and horizontal comparator to establish unfairness, instead adopting a more openended approach.
The rise of the plan
The Corporate Insolvency and Governance Act 2020 (CIGA) was implemented amid the panic to introduce financial relief for people and businesses suffering during the pandemic. While this legislation may have been hastily introduced, the Pt 26A restructuring plan under CIGA followed a long‑considered proposal to introduce a restructuring tool capable of delivering a true cross‑class cram down mechanism. Government consultations recognised that existing procedures, including schemes of arrangement and CVAs, struggled to address complex capital structures where dissenting creditors could extract hold‑out value.
Plans were designed to fill this gap. Modelled in part on US Chapter 11, Plans allow the court to sanction a compromise that binds entire classes of creditors and members, which (unlike CVAs) can include secured creditors. For a Plan to be approved, at least one “in‑the‑money” creditor class must vote in favour and the statutory conditions for cram down must be satisfied. For a court to sanction cross-class cram down, dissenting classes of creditors must be “no worse off” under the Plan than they would be under the relevant alternative (often administration or liquidation). However, as the court determined in Re Petrofac Ltd [2025] EWHC 1250 (Ch), the Plan company must also demonstrate that the Plan achieves a fair allocation of the benefits of the restructuring, having regard to the amounts owed to each creditor class.
Plans under pressure
The key attraction of Plans lies in their reach and certainty. They enable companies to compromise secured debt, unsecured liabilities and equity in a single process, with the potential to override dissenting creditor classes. This has made them particularly powerful in finance‑led and capital‑intensive restructurings. Plans have changed the shape of the UK restructuring landscape since their inception in 2020. While they are more court‑led, expensive and procedurally intensive than CVAs, their ability to deliver binding outcomes in complex and contentious restructurings has made them the restructuring tool of choice for large-scale and multinational businesses.
CVAs were introduced prior to the Enterprise Act 2002 which heralded an emerging culture of business rescue. They were not designed for businesses with complex debt capital structures, and their shortcomings came into sharper focus as the wave of landlord-focused CVAs emerged from around 2019 onwards alongside more disputes. The government introduced Plans as a new mechanism capable of dealing with modern restructuring realities while implementing numerous other financial reliefs in the wake of the pandemic. In this context, it is perhaps easy to understand why the government was focused more on introducing new measures rather than reforming the humble CVA.
Why the mid-market is looking back to CVAs
The power of Plans to bind dissenting creditors was one of their most attractive features when they were introduced in 2020. Paradoxically, it is that very feature which has made them increasingly vulnerable to challenge.
There are various reasons why a dissatisfied creditor may be inclined to contest a Plan. Where the surplus available under a Plan is limited, disputes frequently focus on the allocation of value, the constitution of creditor classes, engagement with affected creditors, or the robustness of the valuation evidence underpinning the proposals.
Recent Court of Appeal authority has further emboldened litigious creditors. It had been hoped that the Supreme Court’s judgment in the Waldorf appeal would provide greater clarity on the fair distribution of value and the extent to which meaningful engagement is required with “out of the money” creditors. That appeal has now been abandoned. In the absence of further guidance, Plan companies remain vulnerable. They must continue to engage constructively with all creditor classes, including those said to be out of the money; ensure that value is allocated in a fair and proportionate manner; and deliver outcomes that the court can regard as equitable overall.
Meeting the “no worse off” test alone is no guarantee of sanction for Plan companies. With the court’s discretion remaining paramount, companies must be prepared for uncertainty and the potential for protracted and costly litigation.
The SME gap
While Plans were initially presented as a potentially transformative rescue tool, significant barriers remain for SMEs, particularly in terms of time, cost and complexity. Many SMEs simply do not have sufficient liquidity to fund a contested court process, nor to commission the increasingly sophisticated valuation evidence now expected to support a Plan. Compounding this is the limited adverse costs risk for creditors who challenge plans at first instance, reducing the deterrent to tactical opposition (at least initially).
The Insolvency Service’s statutory review of CIGA identified that the cost and complexity of Plans would limit their use for SMEs. Suggestions were made for a simplified or more standardised approach to Plans for SMEs, potentially supported by model documentation. Those proposals, however, have not been progressed.
The newly revised Practice Statement governing schemes of arrangement and restructuring plans (effective for convening hearings listed on or after 1 January 2026) reflects the increasingly contested nature of the jurisdiction. However, for SMEs, it does little to alleviate the disadvantages identified above. If anything, the additional procedural expectations may reinforce the perception that Plans are a tool best suited to larger corporates with the resources to withstand expensive litigation.
Where CVAs fit – and where they don’t
By contrast, CVAs offer a straightforward, contract-based alternative to Plans. Provided no objections arise, they can be implemented quickly between the directors and nominee insolvency practitioners without court intervention. For businesses burdened by substantial rent obligations, such as retailers and casual dining operators, a CVA offers a mechanism to renegotiate lease terms and restore financial stability. High street retailer Bestway successfully implemented a CVA to rationalise its lease portfolio last year, while Hobbycraft also used a CVA in 2025 to exit unviable venues and revisit lease terms to move its leases to monthly rental payments.
However, CVAs are not without risk. They cannot fix fundamentally flawed business models and may simply postpone insolvency if core issues remain unaddressed. CVAs do not provide a single answer to business underperformance and should ideally be combined with a viable turnaround plan. For some businesses, CVAs have simply provided a short-term breathing space followed by their ultimate demise via administration or liquidation sometime after. The viability of a CVA is closely tied to the debtor company’s ability to trade successfully throughout the arrangement period. In these times of global uncertainty, businesses must remain nimble to succeed.
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 tax liabilities are significant, HMRC’s stance often shapes the terms and can ultimately determine the feasibility of the CVA.
Recent statistics from the Insolvency Service indicate a modest rise in CVA use over the past few months. Although numbers remain relatively low compared to previous years, the lure of CVAs endures for smaller businesses. In comparison to Plans, CVAs deliver a more proportionate and costeffective solution which can be implemented at speed. As Plans become more contested, costly and uncertain, CVAs are likely to regain prominence as a practical restructuring tool among the mid‑market.
