Solving Directors Personal Financial Difficulties with an Individual Voluntary Arrangement (IVA) Business Turnaround Solution help solve corporate debt problems. But what can be done to help Directors who have got into Personal Financial Distress using their own money to support the business. We look at how an Individual Voluntary Arrangement can help directors out of personal debt problems.
It is not unusual for directors to take on personal debt to support their business. If the company fails, directors are then left holding the can for these debts which they are unable to repay. An Individual Voluntary Arrangement (IVA) could be the answer.
When a business is failing there are a range of options which company directors can us to resolve the business problem. Possible solutions include a company voluntary arrangement where debts are rescheduled and some written off, and pre-pack liquidation where the old business is liquidated and a new one started without the burden of historic debt.
The problem for directors is that corporate rescue solutions do nothing to resolve any debts taken on by them personally. Very often the directors of a company will borrow money in their own name which is then used to support their company. Directors may take a personal loan and transfer the money to the company account. Alternatively and perhaps more commonly, a director will pay company bills and invoices with a personal credit card. Because these debts are in the director's name and not that of the company, the director remains personally liable for them even if the company is closed.
When their company goes wrong often directors are struggling with debt due to this personal liability. The director will then have to find a solution for their debt problem. One answer which should be considered is an IVA (individual voluntary arrangement).
An individual voluntary arrangement is a formal legal agreement with creditors. It allows a director (or indeed any individual) in debt to offer a settlement payable over a fixed period of time. Creditors agree to accept reduced payments and freeze further interest and charges. At the end of the arrangement which is generally five years, any outstanding debt is written off and the individual is able to carry on with their life debt free.
The IVA works very well for company directors because there are no restrictions on them regarding their ability to continue to act as directors for other companies. However, an IVA should not be undertaken lightly. If the director is a home owner, then equity in the property may have to be released to put towards the debt. In addition, once entered into, if the terms of the agreement are not met, the director is at risk of being made bankrupt.
The availability of personal debt solutions such as IVA mean that after the failure of a company, directors who have taken on personal debt to help support the business can also be helped. In these circumstances, an individual voluntary arrangement could be an excellent solution depending on the specific personal situation. However, if you are considering undertaking an IVA, you need to understand exactly what this will mean and the implications. As such, you are always advised to speak to a specialist personal debt advisor who will be able to analyse your circumstances and talk through the various different options available.
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.
