Individual Voluntary Arrangements (IVAs) for Sole Traders
- What is it?
An IVA (Individual Voluntary Arrangement) is a legally binding arrangement where a sole trader is afforded time, usually five years, to pay back their business debts at an affordable amount of money each month.
- How does it work?
A realistic repayment proposal is drawn up by the debtor, with the help of an insolvency specialist and is then presented to creditors. It is up to the creditors to decide whether to accept the proposal or not. For an IVA to be accepted, 75% of creditors, in monetary terms, who vote, need to be in favour. If it is accepted then the debtor needs to make the agreed payments each and every month and adhere to any other terms and conditions of the proposal.
- Pros for Directors
- In some circumstances an IVA can help avoid bankruptcy
- A significant proportion of debt could be written off
- It can help some sole traders achieve business continuity
- Pros for Creditors
- They receive a proportion of what they’re owed
- They retain a customer if they so wish to continue to deal with the company
- Cons for Debtor
- It is a long drawn out process during which certain onerous restrictions are placed on the debtor
- If the debtor’s business circumstances improve, i.e. profits are higher than anticipated, then contributions into the IVA will be increased but not necessarily proportionally to profits
- If circumstances worsen and payments are not maintained, then the IVA will fail. In such a scenario the insolvency practitioner supervising the arrangement will often be duty bound to petition for the debtor to be made bankrupt
- Cons for Creditors
- Most of the time they have to write off some of their debt
- Is it for me?
If you are looking to continue trading your business, despite its insolvency, then an IVA is the only way to go about achieving that. As long as you can demonstrate the business is going to become profitable again and remain viable, then it could well be for you. It is, however, worth noting that you could potentially continue trading your business and limit future personal liability by setting up a limited company.