What type of arrangements allow a company to continue trading while making agreements with creditors?

The correct answer is Company Voluntary Arrangements (CVAs). CVAs are a formal procedure that allows a company in financial difficulty to reach an agreement with its creditors to pay all or part of its debts over a specified period of time. This process provides a structured framework for the company to continue its operations while negotiating payment terms with its creditors, ultimately aiming for a more favorable outcome than would be possible through liquidation.

In a CVA, the terms are set out in a proposal which must be approved by a majority of the creditors. Once approved, the CVA binds all creditors, which prevents them from taking individual action against the company during the term of the arrangement. This not only gives the company breathing space to stabilize its finances but also often leads to better recovery rates for creditors compared to other options, such as liquidation.

Other options, such as moratorium, liquidation, and voluntary liquidation, serve different purposes. A moratorium provides temporary relief from creditor actions, but it does not facilitate ongoing trading or agreements with creditors. Liquidation refers to the process of winding up a company, which halts trading and typically results in the sale of assets to pay creditors. Voluntary liquidation is similar, representing the process initiated by a company’s own decision to