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17.04.2018

Can I be a Company Director with an IVA?

Understandably, one major concern among business-owners struggling with debt is what they can do to stay in control of their company. IVAs were originally designed to allow business-owners to deal with their debts whilst continuing to trade, and without resorting to bankruptcy. Today, they continue to give both sole traders and owners of limited companies a second chance to write off their debt and flourish.

Below we address a few of the most commonly asked questions about what happens when you enter into an IVA as a company director.

If you are the Sole Owner

If you are self-employed (as a sole-trader), the protocol for setting up an IVA is very similar to a standard IVA. Unlike with bankruptcy, you will be able to retain control over your company and continue as director. The process of assessing your income and expenditure will be slightly more complex, however, because of the fluctuating income of business-owners compared to employees paid a standard salary. You will need to work with an Insolvency Practitioner (IP) to produce a twelve-month cash-flow projection, after which your IP will work out how much you could afford to pay to your creditors each month.

Self-employed IVAs usually last for five years, at the end of which any remaining debt is written off, but they can be extended if irregularities in cash-flow mean payment breaks need to be taken. No matter what your employment status is, it is vital to make your IP aware of any changes in your financial circumstances. If you simply miss payments without explanation, you run the risk of your IVA failing, so it is vital to keep your IP up to date.

If you are in a Business Partnership or own a Limited Company

If you are in a business partnership, both partners are jointly responsible for any debts associated with the business. For a partnership which is struggling with debt, a PVA, or Partner Voluntary Arrangement, could be a viable option for dealing with it.

A PVA is an agreement made between two or more business partners and their creditors, to pay back a proportion of their business debts. PVAs should only be undertaken if the partnership is likely to be profitable again in the near future, since both parties are locked into agreed upon monthly payments to creditors. PVAs progress in essentially the same way as IVAs, with partners using the help of an IP to propose a repayment plan to creditors. If creditors representing 75% of the partnership’s debt agree to the PVA, all are bound by it. PVAs usually last from three to five years.

Creditors are unlikely to agree to a PVA unless the partnership has clear plans for cutting costs and increasing profitability in the near future. This might involve making redundancies unfortunately, but could be better in the long-term than dissolving the company altogether.

If you a director of a limited company, and want to deal with business rather than personal debt, a CVA (Company Voluntary Arrangement) is likely to be a more appropriate solution than an IVA. CVAs work along the same principle as IVAs, but all company directors must vote in favour of it.

For more information about self-employed IVAs, get in touch with one of Creditfix’s friendly advisors on 0808 2085 198.