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IVAs for sole trader debts
An individual voluntary arrangement (IVA) is a formal deal between an individual who is in debt and his creditor(s). Many people assume that IVAs can only be used by consumers for their debts but if you are self-employed, these can be a useful tool for dealing with any business debts you may have.
Many sole traders use IVAs to manage debt and also restructure their businesses to make them stronger and more resilient going forward. If you are a sole trader whose business is insolvent, under financial pressure or can’t pay tax/liabilities when they are due, then an IVA may be a good solution for you and your business.
Criteria for a sole trader IVA
To be able to enter into an IVA as a sole trader, your business should be viable even if it has cash flow problems. However, if your business has never made a profit or is struggling then get in touch with us and we can discuss options available.
As a sole trader you will pay an affordable amount each month which will be distributed among your creditors. This should result in an improved cash flow situation for your business. If the initial proposal is rejected by your creditors, we will help to re-draft and negotiate terms on your behalf.
The IVA process
When your cash flow begins to suffer and financial problems in the business become harder to manage, get in touch with Personal Debt Solutions to discuss the possibility of an IVA and other options. The process is relatively simple and in most cases is quick to set up; below is a general idea of how sole trader IVAs will take shape.
- We will request and help you to put together all the necessary information required in the initial meeting with one of our licensed insolvency practitioners (IP). The information we will require includes: a list of creditors and how much you owe to each one and a list of your business’ assets with estimated values.
- Our IP will then be appointed as nominee and will deal with your case by preparing a proposal based on the information you have provided to us. The nominee will also deal with creditors from now on taking the pressure away from you.
- Once the proposal has been put together, it will be sent to creditors for their consideration, court involvement will be minimal. They will have 14 days to review the proposal and put forward any objections before they are required to vote on whether they accept what you are proposing or not.
- The proposal should include cash flow, sales and any relevant figures, reasons why your business is insolvent and how you intend to repay creditors. We will help you to put together a Statement of Affairs to be given to your creditors so that they can have an accurate account of your business’ position.
- If 75% of creditors (by value) vote in favour of the IVA proposal then it can go ahead. However, if creditors reject it, you are free to put together another proposal with your nominee for consideration.
- Once accepted, all reports will be sent to creditors and the proposal documentation will be filed at court. The nominee will supervise the IVA agreement for the agreed length of time and will provide creditors with information, such as reports, as and when necessary.
- You should pay your IVA repayments into the trust account which your nominee manages who will distribute that money to your creditors on a pro rata basis.
How can a sole trader IVA help you?
Alongside helping you manage your business debts, a sole trader IVA can help you to do many things including:
- Putting the focus back on your business as you have the opportunity to review the way your business works and make changes for the better, if necessary.
- Potentially saving your business through what is a relatively short process.
- Protecting your business as an IVA as it puts a halt to creditor pressure and action such as CCJs and statutory demands.
- Having the opportunity to maintain goodwill with your creditors as they may receive more in return through an IVA if your business continues trading and profits start to rise.
What you should keep in mind
An IVA can be a great option for a sole trader with business debt to pay off creditors and get back on track, however there are things to keep in mind before and during this process.
- There is a fee to pay which usually comes out of your monthly payments to your nominee before it is passed along to creditors. As a result, you pay the same amount you proposed, and which was agreed to, meaning that your creditors will technically be paying the fees for you.
- An IVA will help to relieve the financial problems you are dealing with but it will still be tough for you and money will still be tight. You will need to remain realistic and make sure you are prepared for what lies ahead.
- It may become more difficult for you to obtain credit in the future which may be an issue should you require funding to grow your business at a later date.
- You will need to be willing to put any necessary changes in place to ensure your business is a success as an IVA will not fix all the problems of the business.
To find out more about IVAs for sole traders or to discuss your business’ financial problems, call us on 0800 901 2488. Our friendly, professional advisers will be able to provide you with all the help and advice you need confidentially and at no cost.