If I do an IVA will my company credit rating be affected?

A company director can resolve a personal debt problem using an individual voluntary arrangement. However, care should be taken if the company bank account is held at the same bank as the owner director's personal account.

An individual voluntary arrangement (IVA) is used by many thousands of people each month to resolve serious personal debt problems.

The arrangement is based around an agreement with creditors to reduce the monthly payments they receive for a fixed period of time - normally five years. A home owner may also have to release available equity as part of the deal.

At the end of the agreement, any debt that is left unpaid is written off. Very often up to 70% of the individuals debt is written off using an IVA.

IVA particularly suited to directors

The IVA solution is particularly suited to company directors as there are no legal restrictions on them from continuing in their role in the company.

Because a limited company is a totally separate entity to its directors, if a director carries out an IVA there will normally be no effect on the business whatsoever.

The director's personal credit rating will be damaged and additional personal borrowing will be made more difficult. However, the company itself will be left unaffected.

However, despite there being no direct link between a director's personal financial situation and their company, if you are the owner director of a small limited business and are considering an IVA, you do need to act with greater caution.

Owner Directors and IVA

There may be a particular issue if as an owner director, you hold both your personal and company bank accounts with the same banking institution.

If you owe money to your personal bank, this will normally have to be included if you carry out an IVA. Your bank will therefore be alerted to your financial difficulty. If the reason for the problem is because your business is unable to sustain an income for you, the bank will then be concerned about the viability of your company.

This concern may well mean that the bank is reluctant to lend any further funds to the business.

In addition, if the business currently has credit facilities such as a credit card or overdraft, the bank may demand that these are reduced. This could put further pressure on the company.

To overcome this possibility, depending on the level of debt you have with your bank, it may be possible for you to exclude this from your IVA.

Your other creditors would have to be made aware of the exclusion. However, if the alternative is the possibility of your business being forced to close and the returns to creditors even smaller, they may be mindful to agree.

Generally speaking, if as a director, you undertake an IVA, this should have little or no effect on the credit rating of the company your work for. This is particularly the case if the business is well established and has a number of directors on the board.

However, if you are an owner director and considering an IVA, you need act with greater caution than normal to avoid potential problems with the company banking facilities.

For more information visit http://coopermatthews.com/iva.html

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

Cooper Matthews specialise in Business Debt Rescue providing straight forward insolvency advice for business owners with business and personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.

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