IVA’s for Self Employed

Voluntary Arrangements for Self Employed Individuals and Partnerships

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 but instead 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 IVA's 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.

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
• 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.

*Our advice is free, any charges for progression of an IVA are approved up front with yourself and your creditors. Missed payments can bring your IVA to an end and could result in bankruptcy. Your home is at risk if your IVA fails