IVA's for the Self Employed
Phillip Allen, Licensed Insolvency Practitioner at Debt Lifeboat
People often ask; "can self-employed people do an Individual Voluntary Arrangement?"
The truth is that in the 1980's when the Insolvency Committee, Chaired by Kenneth Cork, was considering a positive alternative to bankruptcy; the Individual Voluntary Arrangement ("IVA") was devised as a means of preserving businesses. No one in those days really contemplated the man in the street having consumer debt of over £20,000, let alone debts in excess of the £100,000 we now see on a daily basis. The answer is therefore "yes", but it does involve a greater degree of preparative work than for an employee. You have to demonstrate your ability to earn a living; unlike an employee, you cannot just produce pay-slips for the last three months. If your business is anything other than a one-man self-employed operation, using only "tools of trade" then it is likely to be closed immediately if you are made bankrupt, so you should seek appropriate advice at the earliest opportunity. It is a requirement that you must have a face-to-face meeting with the Insolvency Practitioner who is advising you in respect of your IVA. The very nature of being self-employed means that H M Revenue and Customs are likely to be a creditor who will certainly vote on whether or note the Arrangement should be approved. H M Revenue and Customs have issued guidance notes which state that they will vote in favour of proposals where:
- You are honest in your financial disclosure.
- An optimised and achievable offer is made to the creditors.
- Provision is made for payment of all future debts on time.
- All creditors within the same class are treated equally.
- There are no exceptional reasons for rejection.
H M Revenue and Customs do expect to see valuations from reputable agents to support the values placed on the assets in the proposals. Profit and cash flow forecasts that stand up to scrutiny to be available to support any proposal that includes monthly or periodic payments. Arrangements involving contributions would normally be expected to last for five years unless payment in full or retirement age warrants a shorter period.
H M Revenue and Customs will vote to reject a proposal where:
- You have deliberately defaulted or erode statutory liabilities or had a past association with a continued insolvency.
- You have operated a policy of withholding payment of Crown money.
- You have failed to meet obligations under a prior Voluntary Arrangement.
- You have excluded creditors who were entitled to receive the same treatment as all others within their class.
- A purchaser of the business or assets assumes responsibility for payment of some of your debts rather than paying monies that would be available for the general body of creditors.
- You have not brought all your tax and VAT returns up to date.
In considering future trading. You will need to consider to what extent you will need to obtain future supplies, who will supply them and on what terms. The cash flow forecast would normally be prepared on the basis of not obtaining any further credit.
Self-employed people that Phillip Allen has dealt with by means of Individual Voluntary Arrangement include;
- Builders.
- Couriers.
- Accountants.
- Doctors.
- Solicitors.
- Financial Advisors.
- Market Traders.
- Farmers.
- Taxi Drivers.
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