Voluntary arrangements for sole traders

As a sole trader, you are unfortunately more limited in your options for dealing with business debt than for example, a limited company. In terms of formal insolvency procedures, you only really have a choice between bankruptcy, a voluntary arrangement or an informal arrangement. Our article ‘insolvency and sole traders will give you a little more information on what constitutes a sole trader if you’re unsure; it also outlines the main procedures available to you. However, if you are a sole trader that wants to continue in business, and you have debts of over £15,000, you should be giving consideration to a sole trader voluntary arrangement.


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What are sole trader voluntary arrangements?

A Voluntary Arrangement (IVA) for sole traders uses the same legislation as consumer IVAs (that is, an IVA based around personal debt such as credit cards, as opposed to personal and business debt combined).  However, a well formulated sole trader IVA won’t follow the one-size-fits-all approach of a consumer IVA, but will be tailored to your business and personal circumstances.

Many aspects of how we deal with sole trader voluntary arrangements are a mirror of our approach to company voluntary arrangements (CVAs). With that in mind, our article, ‘What makes a successful CVA proposal? provides a good reference point for how to prepare for a sole trader IVA. Essentially, our approach is to gain a more detailed understanding of your business and to propose a flexible approach to monthly contributions that provide a considerably higher chance of your IVA reaching a successful conclusion.how-does-a-sole-trader-IVA-work?

How does a sole trader voluntary arrangement work?

Although we find that most people seeking advice for voluntary arrangements for sole traders do so in relation to their businesses debt, their proposals must be based around all debt in their name. Therefore, any voluntary arrangement must also include any credit card, personal loan or other debt, such as council tax arrears. The proposal is normally based around a flexible monthly contribution payable for 5 years. If there is equity in the family home, or other assets, then a remortgage may also be required.

What information do we need from you? Initially, we’ll ask you to collate information relating to:

  • Your creditors
  • Your assets, business and personal, including an estimate of value
  • Business management accounts (where available)
  • Financial projections
  • Self-assessment returns
  • Financial agreements and leases

From that information, we’ll work with you to prepare proposals for your arrangement. These are forwarded to your creditors and a meeting of creditors is called.

How much will I have to pay into my sole trader IVA?

The level of monthly contribution you pay into your IVA will be based upon:

  • Business financial projections
  • Other household income
  • Your personal outgoings

We prefer to make your contributions fit around your businesses requirements, so if you run a seasonal business your monthly amount will vary throughout the year. For example, we would expect a garden centre to pay a lower monthly amount in the winter. In general, however:

  • Most IVAs are set to last for 60 months, though this can be altered to suit circumstances
  • You’re likely to be able to continue to use any required business assets for your on-going trade
  • If you have equity in your home, or other property, you may be required to release some of this within the IVA.

What are the benefits of an IVA to sole traders?

  • An IVA can help you avoid bankruptcy. Sometimes bankruptcy can be a better option, but where you have assets to protect, and a business to trade, an IVA can work better.
  • It will freeze interest and charges on your debts.  
  • It will stop legal actions from continuing. If CCJs are mounting up, or bailiffs are at the door, an IVA can deal with all of these problems, and leave you to concentrate on your business.
  • You may pay back less than you owe. The IVA is set so that you pay back what you can afford over a set period. This may mean that your creditors agree to receive back less than they are owed.
  • HMRC liabilities are included within the IVA
  • It will improve cashflow. Rather than paying back amounts you can’t afford to whoever is pushing you the hardest, the IVA will set at an affordable level that is flexible around your business’ needs.
  • It is legally binding on all creditors. Once agreed at the creditors meeting, and IVA is binding on all your creditors.

 

If you have any questions, don’t hesitate to contact one of our business rescue experts directly.