Company Director IVA Advice
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Company directors are particularly exposed to debt problems. Personal credit lines are often used to build a business or to pay bills during tough trading periods.
This debt exposure has only been magnified during the Covid-19 crisis.
Company directors can use a variety of effective debt solutions to get their finances back under control. An IVA (individual voluntary arrangement) is one of the common debt solutions used to regain financial control.
Company directors can (and do) use the IVA debt solution and retain their directorship. You cannot remain in post if you become bankrupt instead.
There are however important extra considerations that apply specifically to directors considering using an IVA.
For direct personal advice about beginning an IVA please contact us.
Limited companies have written rules about the running of the company called the Articles of Association.
These Articles may (but don’t always) include a provision restricting its directors from entering into “any arrangement or composition” with their creditors.
An IVA falls within this definition of an “arrangement or composition”.
If you control the company you could arrange to remove any such clause from the Articles of Association.
If you don’t control the company, you’ll be reliant upon the controllers agreeing to make a change to the Articles of Association that allows you to remain in your post.
Many directors are also an employee of their company. Employment contract clauses may (but will not always) restrict your ability to enter into a personal insolvency process like an IVA.
If you control the company you could arrange to amend your employment contract terms.
If you don’t control the company, you’ll be reliant upon the controllers amending your employment terms (or agreeing to not enforce any personal insolvency clauses).
Banks often request information about the personal financial standing of a firm’s directors.
They may also monitor the public records of personal insolvencies and/or run checks with credit reference agencies.
This topic is especially relevant for smaller firms because the financial standing of the firm and its director(s) may be perceived to be closely entwined.
A bank may become unwilling to provide credit to a firm if a director’s financial position worsens.
Banks might also withdraw any existing credit facilities, potentially posing a significant threat to firms that rely upon credit to operate.
Banks often require personal guarantees (a “PG”) from the director(s) when lending to a company.
If a firm cannot repay this loan the bank is entitled to seek repayment from the guarantor(s).
If you’re being chased to repay company debt that you personally guaranteed, this liability can be included in your IVA.
Inform your debt adviser about any other personal guarantees you have signed but which you’re not currently being chased for.
These are known as “contingent debts” or “contingent liabilities” that might become payable in the future. An IVA can protect you from this type of future personal liability if the business later becomes unable to repay these debts.
Many directors also own shares in their company. An IVA takes account of the assets you own, so the value of your shareholding will be assessed.
An asset assessment is unlikely to pose a problem for shareholders of smaller companies that are only modestly profitable (or loss-making) and/or which own few assets.
If your shares have significant value the situation may be different. Your IVA may have to be adapted to take some account of the value of your shareholding.
An IVA is a flexible arrangement so it’s often possible to address assets (like shares) without actually losing them. A similar type of flexibility is regularly applied for homeowners with equity in their property.
Anyone entering an IVA must provide evidence of their income. Directors may receive cash from their firms by way of salary, dividends, or via a director’s loan account.
You’ll need to gather together the appropriate evidence of income in advance of your IVA going ahead.
The IVA provider also needs to assess your potential future income to ensure any agreed monthly payment will remain affordable.
If you operate a smaller firm, the IVA provider may request prior year business accounts and your future trading projections. Trading projections might be especially important for newer firms with a limited trading history.
Some of the larger IVA providers only handle straightforward cases such as employed persons with a consistent and regular level of income.
Handling an IVA for a company director is generally a little more complex for the IVA provider. It’s best to select a professional firm that welcomes more complex IVA cases.
These types of provider will usually give you a named personal contact. This avoids the need to dial into a call-centre environment and speak with somebody different on each occasion.
Our IVA-Guide.co.uk partners welcome more complex IVA cases and will provide you with a friendly personal service. They also offer business-orientated insolvency advice in case your company also has debt-related concerns.
You cannot serve as a company director if you become bankrupt.
A bankruptcy trustee will also review your assets, including any shares you own in a business. You might be required to sell your shares if the proceeds could help to repay your creditors.
It is possible to remain as an employee of a company while bankrupt.
Debt Relief Order:
You cannot serve as a company director if you enter a debt relief order.
This debt solution will be unavailable if the value of your shareholding (plus any other assets you own) exceeds £1,000.
It is possible to remain as an employee of the company while using a debt relief order.
Debt Management Plan:
A debt management plan (DMP) is a more flexible type of debt solution. It will usually present no obstacle to continuing to serve as a company director.
Because a DMP is not personal insolvency, it takes no account of your assets (including any shareholding in your firm).
Debt management is also popular when people have too much equity in their homes to enter an IVA.
No debt gets written off, so a debt management plan could be a long-term debt solution if you owe a lot of money.
We’ve assisted many company directors to deal with their debts.
Our advisers are fully qualified and all advice provided is 100% confidential. There is no obligation to proceed with any debt advice we provide you with.
For expert advice about an IVA and other debt solutions please get in touch.
Author: Andrew Graveson
Qualified Debt Adviser & IVA-guide.co.uk Founder
Page Last Updated: 24/06/2020