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This section contains detailed plain English guides to this insolvency mechanism
– read down the page or click the little printer icon and the guide will open in
your word processor for easy printing.
If you would prefer a pictorial flowchart click here "SIMIVA". If you would
prefer frequently asked questions guide to help you understand the longer guide
click here "SIMIVA FAQ’s"
Simultaneous (Or Interlocking) Individual Voluntary Arrangement - A Guide
If the partners believe in the fundamental viability of the business and are
determined to fight for the business to help survival then a rescue mechanism
exists that can be a powerful tool or framework for the restructuring of the
business.
It must be understood that this mechanism is not easy; the partners must be
prepared to prove viability of the business and to reveal their personal
financial affairs to their creditors. Above all the partners need to be
determined and united to make this technique work
Basically as the title suggest the mechanism is to link together a number of
simultaneous individual voluntary arrangements to protect the partnership and
the individual debtors. It allows the partnership arrangement to deal with
partnership debts and individual arrangements to deal with any individual debts.
It also protects the individual partners from the "fallout" of the partnership
debts to the individual.
So what is an individual voluntary arrangement (or IVA)?
IVA's: introduction
The best way to think of an individual voluntary arrangement (IVA) is as a deal
between the debtor (the person or partnership that owes the money) and the
creditors; the people or businesses to whom the money is owed.
Where the debtor cannot pay off his or her debts on time or they are insolvent
(for a definition of insolvency click the
insolvent? guide) or if your partnership is under huge pressure and you
cannot deal with the creditors satisfactorily, than a SIMIVA can often be a good
solution.
Making a payment on a regular periodic basis the partnership and the individual
debtors can bring together all of his or her debt problems (except where the
creditor has security such as a mortgage over property) and get on with their
business and their lives.
Who should use a SIMIVA or Interlocking IVA's?
It is imperative that the SIMIVA is used where a partnership’s business is
viable or where it or the debtor has disposable assets that can be turned
readily into money in the short to medium term. Using the IVA can allowed time
to sell such assets for better value than a bankruptcy trustee can obtain.
If the business isn't viable it should be wound up (see
winding up the
partnership) as soon as possible and individual bankruptcy initiated if
required.
To understand the IVA process please read below
IVA's a guide
See IVA's a flowchart for easy-to-follow pictorial view of the IVA process.
Debtors who run small or not so small businesses as a sole trader or as a
partner in a partnership can often find themselves in a position where
the business is struggling financially.
Most small businesses in the UK suffer from being undercapitalised at some
stage. It may be that you did not have enough money to start a business off,
that the bank or other financial providers are unable to fund you to the level
you needed; or that you have had bad debts: failed contracts or simply have not
managed to get the business to a level of making profits yet.
The partnership/debtor is usually under extreme cash flow pressure and cannot
manage the problem. Business is suffering because the partners are fire fighting
and not concentrating on running the business. This can become all-consuming.
Dealing with irate creditors is also a very tiring and lonely process. This can
often lead to a downward spiral towards the closure of the business and
bankruptcy of the individuals.
If you're in this position you should follow this guide,
IVA's FAQ’s and IVA’s
flowchart and also compare the other options. Prior to doing this, it is
best to look at your objectives pages, do's
and don'ts and your options before deciding
which is the most appropriate.
After that if you have decided that the IVA is the most appropriate route, make
a list of all of your creditors. Don't make the mistake of saying a creditor
isn't due for payment now, include all current and future debts.
For example, we often meet partners and sole traders who have habit of
"compartmentalising" their debts. An example is: they know the VAT isn't due
until the end of the month after this and therefore they don't see it as a
liability. It IS a liability now and one should estimate to an appropriate point
in time (say the end of the current month) how much is due to every creditor.
It is possible to estimate these debts because sometimes it’s impossible to make
detailed and exhaustively accurate lists. The law allows for an estimated
statement of your debt to be used as the basis for preparing a proposal to deal
with that problem.
Then make a list of all of the partnership’s assets and all of the individual
partner’s assets. Put reasonable values on them and if you cannot ascertain
values for assets estimate – try getting an idea from similar assets or priced
assets. (Use the internet to get car valuations etc). The law doesn't envisage
you going out get professional valuations for every asset because this would be
too time-consuming and costly.
Perhaps the most important process to go through is to look dispassionately at
the business and decide whether it is viable. For example see
99 marketing questions. Decide whether
there is enough activity for your business to be profitable with its current
overheads or if it were to be restructured.
Often it can be just down to removing a couple of problem areas which if
resolved could lead to the business being viable. If so, we can help in such a
restructuring, please call us on 0800 9700 539 for assistance.
If however the business has never made profit, sales are not rising to the level
where overheads start and known prospects aren’t great then a SIMIVA is not
suitable.
Now that you have established the true position the business' debtors, creditors
and its viability you should consider the IVA process. If you wish to discuss
your information contact us or any local insolvency or turnaround practitioner.
We will talk you through the issues of viability, determination and ability to
structure a deal free of charge. Call now or
email us.
Once a decision is taken to go ahead you will need to appoint a turnaround
advisor and or a nominee. An advisor would assist you in building the proposal,
collating all the necessary information and dealing with all of the aggressive
and passive creditors. The advisor may also seek to discuss the position with
your bank and secured lenders, the Inland Revenue and VAT Office. At some stage
however a nominee is necessary. A nominee is a short name for the nominated
supervisor - this is a licensed insolvency practitioner for licensed by the DTI
and is usually a chartered accountant in this country.
The nominee's job is to review the proposals of the debtor produced either by
the debtor himself or by the advisor in conjunction with the debtor. If he can
satisfy itself that the proposals maximise creditors interests, are achievable
and realistic he or she will put their name to the proposal and sponsor it to
the court and to the creditors. It is important to remember that the proposal
will be your proposal and that you have to swear an affidavit saying that is
true incorrect to the best of your ability.
Writing the proposal
The law envisages that the debtor(s) will write the proposal and then ask an IP
to act for him or her. Of course the legal process is complicated and you have a
business to run. Therefore it is probably best to use experienced, pragmatic and
respected Turnaround practitioners like KSA CompanyRescue or insolvency advisors
to help you write the proposal. Regardless of whom you use the following points
should be remembered:
1. Base it on sensible cashflows, sales and costs. Don't guess, don't expect
large increases in sales.
2. Expect that things in the first year will be a difficult and that sales may
indeed fall.
3. As a result expect to suffer in the first year and do not promise to make
large payments in the first year the maximum amount in we would usually allow
most debtors to repay in the first year is £12,000 for a partnership or less for
an individual debtor.
4. Don't promise too much but as above make sure the repayments are affordable.
IVA Proposal contents
The proposal should include a current description of why the business has failed
and why it is insolvent. It should also detail what the structure of the deal is
and how the creditors are going to be repaid. To help the creditors decide
whether to accept the IVA it must contain what is called a statement of affairs.
Or SOFA for short. A SOFA paints a picture of your financial position and
demonstrates that you are insolvent. It will also show what would happen if you
went into bankruptcy and what the outcome would be if the IVA were approved and
successful.
The document will describe how long the deal is for. Typically most IVA's last
between three and five years. And the document will describe how much the debtor
will pay from the business in the months and years ahead to his/her creditors.
After the document has been completed and the affidavit sworn it can be filed at
court. The purposes of this are to ensure that the document that is filed at
court is the same that is circulated to all creditors and to apply for a
moratorium (called an interim order) to protect the debtor in the period between
the application to court and the date of the creditors meeting.
Once this process has been completed a creditors meeting is called a please see
diagram below for a quicker understanding of the mechanism and the timing.
There are two methods of applying for an interim order to protect the debtor.
The first is to apply or make an application for an interim order prior to the
proposal being completed. The second is to use a method called a concertina
application this just means that the application for the interim order and a
proposal filing happens at same time. This is often the most efficient and
cost-effective method.
The interim order: a description.
As described above if the pressure is intense on the debtor it is possible to
obtain protection from the court or an "interim order". This protection means
that creditors may not petition for your bankruptcy without the permission from
court. All actions by bailiffs or Sheriffs are stayed (which means frozen) until
such time as a creditors meeting can be held. For further details and discussion
on the legal actions discussed above please see our legal actions guide.
Creditors meetings and voting
After the proposal has been filed and posted to every known creditor, a
creditor’s meeting is called. As seen above, there is a statutory minimum period
of 14 days before this creditors meeting can be held from the date of the
receipt of the document by the creditors. This is to allow adequate time for
them to consider the documents contents and to make objections or modifications.
SIMIVA’s – How do they work?
The experienced turnaround advisor or IP will ensure that all work is done
simultaneously and that the proposals are interlinked. Simple explanations for
the creditors and debtors will be necessary. Creditors meetings will be held at
the same time and the votes that are necessary as above will be cast for each
proposal.
Effectively the partnership deal sits as a raft atop the two or more individual
debtor’s VA’s
This is complex stuff, get good advice! Call us now on
01289 309 431 or free on 0800 970 0539
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