What’s the Difference and Which Applies to You?
When people start looking for a way through serious debt, the abbreviations can add another layer of confusion. IVA and CVA both describe formal insolvency arrangements that allow debts to be managed and eventually resolved, but they apply to different situations and work in different ways. Understanding which one is relevant to your circumstances is a practical starting point.
What Is an IVA?
An Individual Voluntary Arrangement is a formal, legally binding agreement between an individual and their creditors. It’s designed for people, rather than companies, and that includes sole traders who are personally liable for their business debts as well as individuals dealing with personal debt.
Under an IVA, an individual agrees to make regular payments towards their debt over a set period, typically five to six years. Those payments are based on what the individual can genuinely afford after essential living costs, and at the end of the arrangement, any remaining unsecured debt covered by the IVA is written off. The arrangement is supervised throughout by a licensed insolvency practitioner and requires approval from creditors holding 75% of the debt by value.
An IVA stays on the Individual Insolvency Register for the duration of the arrangement and for three months after it concludes. It also affects credit history, which is an important consideration for anyone thinking about borrowing in the years ahead.
What Is a CVA?
A Company Voluntary Arrangement operates on a similar principle but applies to limited companies rather than individuals. The company proposes a repayment plan to its creditors, agrees to pay what it can over a set period (usually three to five years) and continues to trade throughout.
This is one of the key distinctions. A CVA is not a winding up of the business: the company keeps operating, retains its staff and continues to serve its customers while working through the arrangement. Like an IVA, it requires creditor approval, again at the 75% by value threshold, and it’s supervised by a licensed insolvency practitioner.
A CVA works best when the underlying business is viable, the financial problems are attributable to specific pressures rather than a fundamental issue with the model, and the directors want to preserve what they’ve built. It’s not a guarantee of survival, but it’s a structured way to address debt without immediately closing the company.
Which One Is Right for You?
The short answer is that the legal structure of your business determines which option is available to you. If you’re an individual or a sole trader, an IVA is the formal voluntary arrangement route. If you run a limited company, a CVA is the equivalent at company level, though as a director you may also face personal considerations depending on whether you’ve given personal guarantees or have individual debts alongside the company’s.
In practice, the right solution also depends on the size and nature of the debt, whether creditors are likely to support an arrangement, and what the realistic repayment capacity looks like. These are questions an insolvency practitioner can help you work through properly.
If you’re not sure where you fit or what your options look like, speaking to an adviser before things escalate further is always the better approach. The Adcroft Hilton team is here to help you work out what’s possible. Get in touch and we’ll have an honest conversation about your situation.
Adcroft Hilton: Debt, Insolvency & Bankruptcy Specialists
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