For anyone facing difficulties paying the bills, you will know the worry and stress associated with accumulating debt. However, if you are a company director the implications are slightly different.
When debt spirals out of control, some turn to bankruptcy which is a way of dealing with money commitments that you can’t pay. In this instance, your assets may be used to pay your creditors and you will be given various spending restrictions for a determined length of time. This is not the easy way out and it can be incredibly difficult to secure any form of credit for many years to come, but it does mean your debts are cleared.
However, for a company director, bankruptcy isn’t an option if you wish to continue as a director.
According to the Company Directors Disqualification Act 1986, someone with an un-discharged bankruptcy – i.e. their bankruptcy conditions are still in place – cannot be a company director.
In fact, you’re legally prohibited from managing, forming or promoting a limited company unless you have been granted permission by the courts.
If you have made some poor decisions with money and this has crossed over into the business, it is possible that long term effects could come into force. For example, if you were to blame for the insolvency of your company, to be determined by a court, then you risk being disqualified from being a director for up to 15 years.
With this in mind, and with bankruptcy not an option, an IVA is one possible alternative for company directors who have acquired uncontrollable debts.
An IVA, or Individual Voluntary Arrangement, is a formal agreement with creditors to pay off a percentage of your debt over a fixed period of time. Some debts may be cleared altogether and you are able to lower monthly outgoings, which is a huge appeal to this solution.
After taking into consideration what you can afford to pay back monthly with your debt advisor, your creditors will be alerted to the situation. If more than 75% of them agree to the proposals you discuss with your debt adviser, the IVA is binding and your creditors cannot chase you for payment anymore.
Your paperwork and debts will be taken care of and in return you are contracted to pay a fixed monthly payment to your debtor for an agreed number of years.
Not only is an IVA more flexible than bankruptcy, but it also allows you to continue to trade as a director, and keep hold of your essential assets.
For many, it’s not necessarily the loss of money that is the major pitfall in this situation, although this is of course a distressing event, but it’s the loss of a title, role and identity that can be really devastating. An IVA can help avoid this further disruption in an already painful situation.