Resolving directors personal debt problems with an Individual Voluntary Arrangement (IVA)

Directors often take on substantial personal debt to support their business. If the company fails, directors are then left with responsibility for these debts which they are unable to repay. An Individual Voluntary Arrangement (IVA) could be the answer.

When a business is failing there are a range of options which company directors can us to resolve the business problem. Solutions such as company voluntary arrangement or pre pack liquidation are often used to rescue a business. Business debts can be rescheduled using a company voluntary arrangement or written off all together when the old business is liquidated as part of a pre pack liquidation process.

The problem for directors is that corporate rescue solutions do nothing to resolve any debts taken on by them personally. Very often the directors of a company will borrow money in their own name which is then used to support their company. Directors may take a personal loan and transfer the money to the company account. Alternatively and perhaps more commonly, a director will pay company bills and invoices with a personal credit card. Because these debts are in the director's name and not that of the company, the director remains personally liable for them even if the company is closed.

Given this personal liability, it is often the case that directors will find themselves struggling with debt when their company goes wrong. The director will then have to find a solution for their debt problem. One answer which should be considered is an IVA (individual voluntary arrangement).

An individual voluntary arrangement is a formal legal agreement with creditors. It allows a director (or indeed any individual) in debt to offer a settlement payable over a fixed period of time. Creditors agree to accept reduced payments and freeze further interest and charges. At the end of the arrangement which is generally five years, any outstanding debt is written off and the individual is able to carry on with their life debt free.

The IVA works very well for company directors because there are no restrictions on them regarding their ability to continue to act as directors for other companies. However, an IVA should not be undertaken lightly. If the director is a home owner, then equity in the property may have to be released to put towards the debt. In addition, once entered into, if the terms of the agreement are not met, the director is at risk of being made bankrupt.

The availability of personal debt solutions such as IVA mean that after the failure of a company, directors who have taken on personal debt to help support the business can also be helped. In these circumstances, an individual voluntary arrangement could be an excellent solution depending on the specific personal situation. However, if you are considering undertaking an IVA, you need to understand exactly what this will mean and the implications. As such, you are always advised to speak to a specialist personal debt advisor who will be able to analyse your circumstances and talk through the various different options available.

Derek Cooper - September 2009

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Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.

Cooper Matthews specialise in Business Refinancing and Business Recovery Services Advice providing practical insolvency advice for businesses with financial problems and to Directors with Personal Financial troubles. They have significant experience in working with small to medium sized businesses.

Derek's experience of both corporate insolvency and business management puts him in a position to be able to understand the challenges facing businesses in today's economic climate.

Find out more about how this solution could help you at http://coopermatthews.com/individual-voluntary-arrangement.html