What Is A Voluntary Arrangement?

Under UK law a voluntary arrangement is a legal arrangement between an individual or business and their creditors, and as such they can be powerful business debt help solutions.

Voluntary arrangements take one of three formats:

Individual Voluntary Arrangements, or IVA's are for individuals who has a large volume of non-secured liabilities that they cannot afford to repay they are suitable for the self employed, and members of a partnership or directors of a limited company, as well as people with personal unsecured debts.

A Partnership Voluntary Arrangement, or PVA is as the name suggests a voluntary arrangement for a partnership, and encompasses any unsecured debts that the partnership owes, if there are no personal guarantees, or debts that the individual partners are themselves liable for they as individuals are in most cases not affected by the PVA as it concerns only the affairs of the organisation itself (as the borrower . That being said it is often case that some or all of the partners have given personal guarantees on the debts of the partnership and as such it is common for an IVA to be arranged alongside a Partnership Arrangement.

A CVA or Company Voluntary Arrangement is for limited companies, and are set out in much the same way as an Individual Voluntary Arrangement or Partnership Arrangement but consist of an arrangement between the business and its lenders on debts the business is liable for. Again it can be the case that the company's directors have in the past given personal guarantees on the organisations debt and therefore an Individual Arrangement may run simultaneously with a Company Arrangement.

A voluntary arrangement will usually last for 60 months, over which the debtor can be provided an element of "debt forgiveness" i.e. their repayments are based on what they can afford to repay, and at the conclusion of the voluntary arrangement, as long as they have kept to the terms of the voluntary arrangement, any unpaid debt will be written off.

IVA's, PVA's and CVA's are all governed by the Insolvency Act and as such they need to be arranged, and administered by an Insolvency Practitioner (IP), with whom responsibility lies to ensure the creditors are provided with all the required information about the debtors circumstances in order for them to agree the voluntary arrangement. Information such as all the assets and liabilities of the debtor, their current circumstances, reasons for no longer being able to meet their liabilities, and history, and to detail where the creditor will stand if they agree the arrangement verses another form of action e.g. administration, liquidation or bankruptcy.

In most circumstances an arrangement is the best option for the creditors, in terms of the amount of return on the debt that they will realise if the arrangement is completed, and therefore arrangement may not always be the best option for the business, or individual that is the debtor.

The main attraction of an IVA, PVA or CVA is that, whilst still affording the debtor an element of debt reduction, and legal protection it remains a non-public arrangement between them and their creditors, so it is not made public. As such an individuals employers do not need to be notified, and there are not restrictions on the professionally qualified, and businesses can continue trading.

Once appointed the IP will liaise with their client to produce a full financial statement , and take responsibility for dealing with their clients creditors. It is up to the IP to gain consent from no less than seventy five percent of the creditors for an arrangement to be able to proceed. As such it goes without saying that any creditor is going to want to be provided with valid reasons for the debtor no longer being able to meet their contractual payments, and have reasonable confidence that an arrangement will be successful and run its full course.

That being said, an arrangement may be the right option if your business has: Been the victim of a unpaid debt Looses a major client, or customers Requires time to restructure Is suffering from significant pressure from HMRC The business leadership recognises that mistakes have been made , and have identified how to do things better in the future but require time to turn things around

For a limited company there are a number of additional constraints on the company in order for it to qualify, voluntary arrangements are primarily aimed at helping individuals or small to medium sized businesses. Therefore a business entering into a Company Voluntary Arrangement will have less than fifty employees, turnover of less than £5million and be without significant net assets.

If a debtor does not meet their contactual obligations of the arrangement they will face further legal action, many Insolvency Practitioners claim that the voluntary arrangement should allow for more discretion if the debtor is subject to a short term setback.

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