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Operating a self employed business is stressful especially if you have debt
problems. Debts can accumulate for a range of reasons; bad debts, lost contracts,
or just poor financial control. The debts may be a combination of business
and personal, as often personal loans and credit card debt is accrued trying
to support the business.
Voluntary Arrangements can be used in a number of ways:-
Arrangements based on contributions
The most common IVA involves the trader retaining his or her business assets
in return for offering to pay monthly contributions out of future earnings
over
a fixed period of time, usually 5 years. Where there is a personal property
with equity, creditors will expect that a sum is introduced at the end of the
arrangement in place of a share of the trader's equity.
Partners can propose interlocking IVAs which essentially provide for the
partners to make one monthly contribution to settle all debts irrespective
of whether the debts are in either partner's name or owed jointly or a Partnership
Voluntary Arrangement - see later (PVA's).
Arrangements based on a full and final settlement
Generally these type of arrangements offer creditors a lump sum to settle
their debts.
For example:-
Helen is a publican and has around £40,000 of debt consisting of Inland
Revenue Self Assessment tax, loans and credit cards. She has a property which
she has rented out and will generate around £25,000 if sold. She has
built up the trade at the pub which is now trading profitably. The pub income
can cover future trading expenses but is insufficient to cover debt repayments.
Solution
A full and final IVA offering creditors a lump sum of £25,000 to settle
debts of £40,000. After costs creditors would receive around 50p in the £.
Partnership Voluntary Arrangements “PVA's”
A partnership that cannot meet its debts can put forward payment proposals
on behalf of all it's partners to repay debts owed by the partnership business.
The proposals can be based on the following:-
• Contributions only or
•
A lump sum settlement or
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A combination of contributions and assets realisations.
A PVA is particularly appropriate for partnerships with a large number of
partners. The personal assets of the partners are usually excluded and as long
as the repayment proposals to creditors are acceptable, it could mean
that
personal assets do not need to be realised. Depending on the Partnership
Deed, it is likely that unanimous approval of all partners is required.
Unlike an Individual Voluntary Arrangement there is no interim order to protect
the partnership from creditors taking action. The partnership may have to consider
applying for a Partnership Administration Order to gain the necessary protection.
This is a court led procedure which is appropriate for trading partnerships
where it is appropriate to salvage the business and protection is needed from
creditor action.
There are other options for partnerships including debt consolidation and
bankruptcy. Do give us a call, we will be pleased to advise on all relevant
solutions.
Click here for to see if you could qualify
for an IVA>>
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