A full and final Individual Voluntary Arrangement can solve personal debt problems for Self Employed and Sole Traders A lump sum settlement IVA may be the perfect solution for directors and sole traders who have personal debt but cannot afford the monthly payments required of a standard IVA because their business is struggling.
An Individual Voluntary Arrangement (IVA) is a legal debt solution which enables debts to be settled through monthly payments of your agreed disposable income, usually over five years, and the remaining debt being wiped clear at the end of that time.
For a Director, Sole Trader or someone who is self employed, if your business has failed, you may not be in a position to maintain monthly payments into an IVA. However, this does not mean that you will not be able to use an IVA as a solution to your personal debt problem.
There is an alternative to the standard monthly payment Individual Voluntary Arrangement which is the full and final settlement IVA, more commonly known as a lump sum IVA
A full and final settlement IVA is based on the debtor making an upfront lump sum payment to their creditors instead of monthly payments over sixty months. If a lump sum can be raised, possibly through personal reserves, home equity release or with the help of friends and family, then this can be used so settle the debt in a single payment. The creditors accept the lump sum as full and final settlement of the IVA and the arrangement is completed or satisfied immediately on receipt of the lump sum.
How much will the lump sum need to be ?
Each case is decided on its own merits and for this reason there is no magic formula that can be used for this calculation. Quite often creditors will accept a lump sum which is slightly less than the sum of the 60 monthly payments. This is because it is received up front therefore cutting out the risk of the debtor defaulting on their agreed payments. As the saying goes "a bird in the hand is worth two in the bush".
The next question to be considered is why would creditors not accept a lump sum offer but still require sixty monthly disposable income payments to try and get more of their money back? The answer to this is that generally any available disposable income will be required to pay back the person who made the lump sum possible, or to fund the mortgage repayments if it was generated through equity release.
Once creditors have agreed to accept a full and final settlement of an IVA, you will normally have 3-6 months to produce the agreed lump sum. During this time none of your creditors can reappear and demand further payments. However, if the lump sum is not produced within the agreed timescales, the IVA is likely to fail at this point probably leaving you worse off than before.
If a lump sum can be made available, it can be seen that this form of IVA settlement has significant advantages for both creditors and debtors. Creditors receive the agreed funds straight away and debtors are released from the restrictions of the IVA and their debt immediately.
Therefore a lump sum settlement IVA is often seen as an ideal personal debt solution, particularly for those whose business troubles leave no certainty of regular income. Where a sufficiently large lump sum can be made available, there is very little reason why creditors would not be inclined to accept this form of IVA proposal.
What happens to the directors if a company is wound up?
Once a company is being wound up a Liquidator will be appointed. The liquidator will undertake an investigation into the conduct of the directors to see whether they have knowingly allowed the business to trade while insolvent thus making the creditor's position worse. If this is the case, a director may face being disqualified and held personally liable for the company's debts. As a Director we look at the options you have.
What will having a County Court Judgement do to my company
If a county court judgement remains unpaid, this could lead to more serious action being taken against the business. We look at the impact and what you can do.
Company debt restructure to improve cash flow
Ensuring that enough cash is available to maintain their business must be a priority for companies. Those that do it well will survive. Those that do not are likely to fall. As such identifying problems and implement solutions which may require a radical restructuring of debt must be a priority. We discuss some of the solutions available.
