IVA or CVA?
If you are a business-owner struggling with debt, it may be unclear which solution is the right one for you. Both IVAs and CVAs work by similar processes and have similar benefits, so which one is available to you will ultimately depend upon the type of debt you have, and the type of business you have.
When a CVA is the right choice
CVA stands for Company Voluntary Arrangement. It is an agreement made between a limited company and its creditors to pay back a proportion of its unmanageable debts over a predetermined period of time, based on what is affordable. During this repayment period, the company can continue to trade, and all interest on its debts are frozen, and once the CVA has been successfully completed, any remaining debts are written off. Like IVAs, these plans usually last for five years, but they can be as short as three. For a CVA to begin, creditors representing 75% of the company’s debt must vote in favour of it. If this stipulation is met, all creditors are bound by the arrangement even if they voted against it. To propose a CVA, all of a company’s directors, whether this is one person or multiple people, must agree to the plan.
CVAs are only available to limited companies, which are registered with Companies House. The company must also have one or more directors. Because limited companies are separated from their directors’ personal finances, when a company enters into a CVA, the personal credit scores of its directors are not usually affected. Directors are also able to enter into IVAs separately without their position being affected.
When an IVA is the right choice
If you run your own business as a sole trader, you will not be able to use a CVA to clear your debts. This is because, unlike with a limited company, your personal finances cannot be separated from your business and you are personally liable for any debts incurred.
IVAs work through a similar process to CVAs, but all of your personal unsecured debts must be included alongside your business debts. Unlike a CVA, an IVA will have a negative impact on your personal credit score. This is because all IVAs are recorded online on the public Insolvency Register. This means that lenders and credit reference agencies can see that you have had trouble paying back credit in the past.
Despite this, IVAs do have certain advantages over CVAs. Since all of your unsecured debts are included, IVAs can allow you a fresh financial start for yourself and your business at the same time. IVAs are also better suited to sole traders than larger, limited companies. To enter into a CVA, a company must have at least £15,000 of debt, whereas to be eligible for a self-employed IVA, an individual must have only £6,000 of debt.
If you think a self-employed IVA might be the right solution for you, you can talk to a friendly Creditfix advisor for further information, by calling 0808 2085 198.