How A Voluntarty Arrangement Can Help A Struggling Business

In England a voluntary arrangement is a legal arrangement made between and their creditors (the people/businesses they owe money to), 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 suitable for anyone who has a significant amount of non-secured debt which they cannot afford to keep up payments on (more than £15,000) they are suitable for the self employed, and members of a partnership or directors of a company, as well as people with personal unsecured debts.

A Partnership Voluntary Arrangement, or PVA is for a business that is a partnership, and covers all unsecured debts that the partnership owes, if there are no personal guarantees, or debts that the individual partners are personally liable for then they as individuals will be in most cases not affected by the arrangement as it concerns only the liabilities of the business itself (as the debtor) . Though it it can often be the case that some or all of the partners have had to give personal guarantees on the partnership's liabilities and so it is not uncommon for an IVA to be setup alongside a Partnership Voluntary Arrangement.

Company Voluntary Arrangements, are for limited companies, and work in much the same way as an IVA or Partnership Voluntary Arrangement but consist of an arrangement between the business and its creditors on debts the business is liable for. Again it is often the case that individual directors have given a personal guarantee on the company's loans and as such an Individual Voluntary Arrangement may be arranged simultaneously with a Company Voluntary Arrangement.

A voluntary arrangement will are designed to last for 5 years, and over the period the subject of the arrangement can be provided an agreed degree of debt forgiveness based on what they can afford, at the conclusion of the arrangement, as long as they have kept to the terms of the arrangement, the remaining amounts will be cancelled.

IVA's, PVA's and CVA's are governed by the Insolvency Act and as such they must be setup, and administered by a Licensed Insolvency Practitioner (IP), who's responsible it is to make sure the creditors are given all the necessary information in order for them to be able to agree the arrangement. Such information will include all the assets and liabilities of the debtor, their current circumstances, reasons for no longer being able to pay, and to detail where each creditor will stand if the arrangement is agreed verses another form of action i.e. bankruptcy.

In most cases an IVA, PVA or CVA will be the best option for the creditors, in terms of the amount of return on the debt that they will realise if the arrangement runs its full course, and as such a voluntary arrangement is not always the best option for the individual, or business that is the debtor.

The main attraction of an arrangement is that, whilst still affording the debtor an element of debt forgiveness, and legal protection from creditors it is a non-public agreement between them and their creditors, so it is not made public. As such an individuals employers and colleagues do not need to be notified, there are no any restrictions on the professional status of an individual, as there may be with other solutions and a business can keep trading.

Once a voluntary arrangement is agreed as the best course of action the IP will consult with their client to complete a full financial statement of affairs, and takeover dealing with their clients creditors. It is up to the IP to get consent from a minimum of 75% of the creditors for an arrangement to be implemented. Therefore it goes without saying that the creditors are going to want to know sufficient evidence for the subject of the arrangement not being able to meet their debts, and have reasonable confidence that a voluntary arrangement will be adhered to and run its full course.

A voluntary arrangement could be the most suitable option if your business has: Itself been the victim of a bad debt Has lost a major customer, or customers Needs time to reorganise its structure Is suffering from significant pressure from HMRC The business leadership recognises mistakes that have been made in the past, and have identified how to do things better in the future but require the time to turn the business around

For limited companies there are additional constraints on the company , voluntary arrangements are designed for helping individuals or small to medium sized businesses. For example a company entering into a voluntary arrangement will need to have less than 50 employees, turnover of under £5million and no significant assets.

Ultimately if the debtor does not meet their contactual obligations of the voluntary arrangement they may face formal bankruptcy, and this is one area for criticism from the Insolvency industry, with many professionals claiming that the terms of the voluntary arrangement should provide for some flexibility if the debtor has a short term setback, but the arrangement still has a good chance of being successful.


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Jacqui Boughton writes on a range of business subjects for Business Debt Help, the UK's No1 website dedicated to providing debt advice for UK businesses.