An individual voluntary arrangement (IVA) is a legally binding contract between you and your creditors that allows you to pay off your debts at an affordable amount.  As part of the contract, you agree to make payments over a fixed period, usually five to six years, as well as providing regular updates on your financial circumstances to confirm the payments are affordable and reasonable.  At the end of the IVA, any remaining debt is written off.

Your creditors will be prevented from taking further legal action against you if you have an IVA and follow the terms of the agreement to the letter. Additionally, some of your debt will be written off once you complete the terms.

If you live in Scotland, you will not be able to use an IVA. In Scotland, a trust deed with legal protection would be required. Even if this is a comparable choice, it's important to remember that it comes with its own set of advantages, hazards and expenses to consider.

If you're considering an IVA, you should speak to a qualified professional, or authorised debt advisor, to determine whether it is an appropriate solution for you.

Can The Self Employed Have An IVA?

Self-employed people can present an individual voluntary arrangement (IVA) to their creditors in order to settle their debts. The IVA will cover personal and self-employed business debts, such as credit cards and loans.  There are certain debts that cannot be included, such as secured debts, child maintenance arrears and debts arising from fraud.  In addition, if the debts relate to a limited company, you will not be able to include these in the IVA.

The IVA is an alternative to bankruptcy.  In bankruptcy, continuing to trade can sometimes be an issue as some of your assets will form part of the bankruptcy estate, although reasonable tools of trade would usually be excluded, and there are other restrictions imposed by bankruptcy.  The IVA allows you to avoid the restrictions of bankruptcy, as well as allowing you to keep your assets, although this is subject to creditor approval.  The IVA can also allow you more flexibility in the treatment of your trade creditors and suppliers.

Although there are no formal qualifying requirements for an IVA, an insolvency practitioner will review your circumstances and determine the available options so that you may make an informed decision about whether an IVA is an appropriate option.  For an IVA, you would usually need to be in a position where you can make monthly contributions, although you can sometimes offer a lump sum instead.

What Is The Procedure For Obtaining An IVA As Self Employed?

You'll need to instruct a licensed insolvency practitioner to set up an IVA. They'll conduct a fact-finding exercise, taking into account all aspects of your situation and discussing all of your choices. As part of the review, the insolvency practitioner will work with you to put together a realistic income and expenditure for both yourself and your business, which is called the projected cashflow. This will help the insolvency practitioner to determine the payment you can afford to make, as well as making sure it is sustainable for the term of the IVA. 

As part of this process, you should also provide the insolvency practitioner with any commercial contracts you have entered into.  This will enable the insolvency practitioner to review the terms to ensure that they are not terminated as a result of entering an IVA.  In addition, you should also consider whether the field you work in has any specific conditions relating to entering into an insolvency process such as an IVA or bankruptcy.

Once the information has been reviewed, and an affordable payment agreed, a proposal will be prepared and sent to you for your approval.  You should read this document carefully, and once you are happy with it, this will need to be signed and returned to the insolvency practitioner.

Once you have signed and returned the proposal, the insolvency practitioner will then confirm they are happy for it to be presented to your creditors, and will become the Nominee.  The insolvency practitioner will need to ensure that the proposal offers a fair balance between your interests and the creditors' interests.  A decision procedure is convened to give your creditors the opportunity to have their say on the proposal.  At the decision procedure, 75% of the creditors who attend will need to agree for the proposals to be approved.  Creditors may also request modifications, however, you will need to agree to these before the IVA is approved.

If your creditors agree to your IVA, it will begin on the day of the decision procedure. At that moment, the insolvency practitioner will become the Supervisor. The Supervisor's job is to make sure that the terms of the IVA are adhered to, and the relevant funds are distributed to your creditors.

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What Are The Benefits Of A Self-Employed IVA?

An IVA for a self-employed person may have the following benefits in addition to relieving immediate creditor pressure:

With the approval of other creditors, the IVA can include a legal provision exempting vital suppliers from being included, who can then be paid any arrears in order to assure the continuous delivery of critical supplies, therefore allowing you to continue trading.

As historic tax liabilities will be incorporated in the IVA, only future taxes will need to be paid on a regular basis. It should be emphasised, however, that HMRC will always require that all outstanding tax returns be brought up to date before considering a proposal for an IVA.

Your creditors may agree to more flexible payment terms. You may have a project or contract that is due to end in 12 months (for example, the sale of a property or the receipt of funds from a third party), and the IVA may stipulate that you will make affordable monthly payments until the project or contract is completed, after which creditors may be paid in full or receive a lump sum from the project or contract's proceeds. Other similar considerations for seasonal or irregular income can be made depending on the type of your business.

Third-party contributions might be submitted as part of your proposal, or in some situations, as the entire proposal.

For self-employed people, an IVA is a popular alternative to bankruptcy. It is not assured that you will be able to continue functioning as a sole trader after petitioning for bankruptcy, as the Trustee may refuse to allow you to do so, and there will be legal constraints on your ability to get credit without reporting the bankruptcy to the creditor. An IVA, on the other hand, would allow you to continue to trade your self-employed business in order to pay back your creditors, without the restrictions of bankruptcy.

What Are The Difficulties For A Self-Employed?

The following are some of the difficulties that a self-employed person could have with an IVA:

You may work in a field where authorisation from your regulator is necessary to trade within an IVA, and permission will be required to propose and enter an IVA.

You may not be able to use your business bank account if it is overdrawn, and you will need to open a new trading account.

Individuals with an IVA cannot often obtain credit in excess of £500 without the agreement of their Supervisor. As a result, if you need future trade credit, you'll need to get your Supervisor's permission beforehand. If you believe you will need to utilise a credit facility on a regular basis, such as a trade account, this should be included in your proposal for an IVA, and discussed with the insolvency practitioner.

Even if a creditor is exempt from your IVA because they are a critical supplier, you may find that because you are in an IVA, you have restricted credit terms.

If you finish your IVA successfully, you may find that your credit lines/facilities are restricted in the future, particularly with any creditors who were previously compromised during your IVA.

Failure to adhere to the terms of your proposal can result in the failure of your IVA and the Supervisor may be required to petition for your bankruptcy; however, this can be avoided by making the Supervisor aware of any change in your circumstances, to enable them to contact the creditors to request a change to the terms of the proposal.

Summary

If you are self-employed and considering an IVA, contacting an insolvency practitioner is a good place to start. They will try to understand you and your business, how they can help you, and what the benefits and drawbacks of each option, including an IVA, are so you can make an informed decision about how to resolve your affairs.