I can't propose an IVA as I run my own company IVA Myth
Summary: I can't propose an IVA as I run my own company - This article attempts to reassure the self-employed and Directors of limited companies, that there is no reason why they cannot propose an IVA (Individual Voluntary Arrangement).
Special factors affecting the self-employed
An IVA is perfectly possible for the self employed and those running their own limited companies. Indeed due to some special factors, debt can easily become an issue for such people.
- Recession - in times of national or international recession it's often the sole traders and limited companies who suffer first. Without the guaranteed pay of a paye job, and with less spending power in the economy, it's very easy to run up debts.
- Income - as a result, income becomes erratic and dependent on others surviving tough economic times. It can be difficult to calculate monthly income as it's so variable.
- Seasonal - for some the nature of their business means that profits increase during part of the year. In an IVA (or any debt solution) an average based over the whole year is calculated utilising tax returns and/or annual accounts. However when monthly payments are due, our cash flow doesn't always allow it.
- Unpaid tax - can be an added problem. However individual tax debts can and must be included in an IVA proposal.
Business as usual
Despite the special factors above that may require extra consideration, there is no reason why such people cannot or should not enter an IVA. Those who go for bankruptcy are not allowed to remain company directors for at least 12 months. There is no such prohibition in an IVA. Of course it's in everyone's interests to see that the business thrives in order to repay as much of the debt as possible.
Dividends
Many company directors are paid partly or wholly by dividends. The amount is a decision they can make for themselves. Obviously an individual's income is crucial in establishing the affordable repayment level in an IVA. For that reason, Insolvency Practitioners will want some evidence of the company's performance in order to establish that the dividend drawn is both affordable to the company and reasonable given its profitability.
Monitoring performance
The income/outgoings levels are monitored in IVA's. However for the sole trader and the company director there is special reason to keep track of profitability through annual returns. Clearly this can have an effect on the IVA repayment level.