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Individual Voluntary Arrangement (IVA) FAQs

in Sole Trader

  Q: What is an IVA? A: Think of it is a deal. Closing a business will often result in very little return for its creditors. This is because the costs of closure and the loss of value of its assets leads to very low levels of money being generated for your creditors.If the business can be viable (can generate some profit in the future) doesn't it make sense to use those profits to pay back something to the creditors? This is the basis of an IVA it is a deal between you and creditors to repay back something over time from the business and to ensure that creditors interests are maximised. Q: What is needed to make an IVA work? A: It may be necessary to make changes to the business but if the underlying business idea is sound and you are determined to make it work and succeed, then an IVA can work. If however the business isn't viable, no matter how it is restructured, then you should consider other options such as bankruptcy.Q: Why have I not heard of IVAs? A: Over 6,000 people enter IVAs each year. It is a well regarded, ethical and moral way to deal with debt problems whilst avoiding bankruptcy. Also its not advertised and is discrete so most people are not aware that an IVA is in place.Q: Why not just close the business? A: If your determination is in question or you cannot see how the business can be viable, then closure is necessary. Remember, if you cannot pay off the business debts the creditors can press for action or for your bankruptcy. Of course you should consider the options page to decide what is the appropriate course of action. It is probably better to have considered your objectives before making any decision. Q: Isn't bankruptcy a better option? A: If the business is not viable, possibly. Also consider trading out, refinancing and debt consolidation. But the key test is - is it viable? And are you determined? If you answer no to either of these, then bankruptcy maybe the most sensible option. Consider your objectives and your options first before making such a decision. If you have any doubt as to your current position and what you need to do, please do not hesitate to contact us by e-mail or by our freephone number. Q: What are the benefits of an IVA? A: See IVA guide for detailed discussion of this. In summary: it is a deal that prevents creditors from taking legal or debt recovery action against you and the business. It allows structured repayment based on affordability. It can be relatively cheap and it is a quick process. IVAs can give a breathing space while you work on the business to see if it really can be profitable. This is known as a holding IVA.Q: What is a holding IVA then? A: A "holding" IVA can be used where predictability and forecast ability are not strong in your business. It maybe that the business has only just arrived at a point where sales are at a sensible level and it may take some time before the company or business can be profitable. The holding IVA can be used to freeze the current debts until more realistic forecasts can be made of the business's ability to repay those debts. This is a very specialist area and you should only take advice from experienced turnaround and recovery experts: In this regard please feel free to contact us on 0800 9700539.Q: I have heard that the tax authorities don't like IVAs, so when would they and when wouldn't they support them? A: Whilst the Inland Revenue and VAT will not support badly structured or poorly conceived IVAs, they will support sensible deals. It is our experience that the Inland Revenue and VAT creditors want to see the problem dealt with and crystallised. They may not support a repeat IVA or where they believe that a fraud has taken place. If the debtor (you) does not recognise, or take action to deal with the situation they will eventually take action to recover their debts. This is the key - you must take action to deal with the situation if you're insolvent. Consider warning signs, your objectives, your options and all the other pages on the site. Then decide to act!Q: How much does it cost? A: This is a very difficult one to answer because, of course, this varies on a case-by-case basis. But the main areas of cost are as below. If you have any questions with regard to this please speak to a turnaround practitioner or an insolvency practitioner or call us. Turnaround practitioners or insolvency practitioners fee. This fee is required to pay the advisor who will assist you in structuring the deal. This can vary from as little as 0 (this is where the advisor takes his payment after the success of the deal) up to 6,000. Nominees fees. A fee for the insolvency practitioner who is known as the nominee - see the guide on IVA's - this is typically £500 to £4,000 depending on the complexity of the case. Legal fees. Before the deal proposal is sent to creditors for their consideration it has to be filed at the local county court. This can cost up to 120. The debtor also needs to swear an oath that the document is as accurate as possible: this costs between 7- 10. Supervisors Fee. Once the creditors have agreed the deal the cost of administration of the deal, dealing with creditors and paying out the money to them in order of priority is typically what the supervisor's work entails. It varies from case to case but can be between £750 and £3,000 per annum depending on the length and complexity of the case.Q: How do I work out how much I can pay back to the creditors? A: This is a very important question. It is vital to do a deal with creditors that your business can live with and achieve. There is no point in trying to repay more than the business can afford. In all cases you must talk to and work with an advisor who can understand your business and one who understands the IVA mechanism. If you are speaking to such advisors or insolvency practitioners ask them how would they determine the repayment level. If they answer "you can write off most of your debts without worry" then this is not a good answer and may mean the advisor is not an appropriate person to deal with. If they say that you should pay back as much as possible in a short a term as possible" this may also be bad advice. Ask yourself is this the right advisor to be working with? As a rule of thumb however, the business and your own personal outgoings must be exceeded over a significant period of the IVA period by your profits. This excess (after allowing for future tax deductions) is used as the contribution to your creditors. But, remember seasonality and business shutdowns such as Christmas and ensure that the payments can be made in all periods of the year. We do not usually encourage IVAs that consider making lump-sum payments based on disposal of assets or a large sale or contractual payments. Such a payment is often far too difficult to quantify and forecast. It is important that the business makes modest ongoing payments on a basis of affordability rather than making promises about large lump payments that they may not able to keep. If the business or you personally are subsequently able to produce a larger amount of money, or windfall receipt, then the deal can be structured to allow the supervisor to ask for the larger payments in an achievable time scale.Q: Say I am two years into the IVA and my business has changed significantly and I can't keep up payments any more. What can I do? A: This is a common question. It is rarely possible to forecast businesses accurately and the only thing that can be certain is that CHANGE is inevitable. If the proposal is built round a deal where payments are much too high, perhaps they were wrong in the first place, no matter, a revised deal can sometimes be struck provided the reasons are sensible and creditors agree. But, take care to offer to pay reasonable amounts in the first instance. If the business does become unviable then bankruptcy may be necessary if restructuring of the deal is not possible.Q: I have heard you can write off up to 95 per cent of your debts? A: This is not the aim of the Insolvency Act or the IVA mechanism. The IVA is designed to maximise creditors interests and avoid bankruptcy for the debtor. The deal should be structured to pay back the creditors as much as is possible over a period of time. If you are seeking to "stuff" the creditors: they will spot this. Work up a solid, achievable proposal and if the business cannot afford to repay more than say 10 to 30 per cent and the creditors agree, then this is a deal. However, the ultimate aim should be to repay creditors 100 pence in the pound if at all possible. Be wary of people who seem to want you to hurt your creditors.Q: What happens if a creditor votes against the deal? A: See the detailed guides to voting in IVAs. But briefly, providing more than three-quarters of creditors who actually cast a vote, do vote in favour of the deal, the rejection of other creditors does not matter. They are legally bound by the majority decision. If you have any fears or concerns about this please feel free to talk to us on our freephone number above.Q: What is an interim order? A: See Guide to IVAs for fully detailed guide. Basically it protects the debtor while a deal is proposed, considered and a creditors meeting held to reach a decision on whether the deal is approved. It means that no creditors can take further legal action against the debtor (you) without leave of the court.Q: I have heard the term moratorium used. What does this mean? A: See guides to IVA for full details. Basically this is the same as the previous question. A moratorium is a protective mechanism used to ensure that the creditors, as a whole, have time to consider your proposals.Q: My business is about to start making very good profits. Why not just do an informal deal with the creditors? A: One must weigh up the advantages and disadvantages of an IVA and do the same for trading out and or refinancing. A word of warning. Do not be too optimistic and offer repayment deals that you cannot stick to?! For example if you owe the Revenue £10,000 and your business is forecast to make 15,000 over the next 12 months, by promising to pay the Revenue over 12 months you're going to absorb more than 66% of your profits over that period just paying back that tax. Will this leave the business adequately capitalised?Q: Wont creditors' just reject the deal anyway - I haven't paid them and they will be angry? A: In almost all cases we have been be involved with, the easy answer is no. However some (usually smaller) creditors are intent on rejection out of anger, spite or just to see a competitor removed. Produce a quality, well-structured deal though and it will generally gain majority acceptance.Q: I have had a visit from a bailiff or Sheriff what can I do? A: If the creditors have asked them to visit they have clearly lost confidence in you and the ability to collect their money using conventional means. Consider using the IVA or bankruptcy now. Read the IVA guide and FAQs for bankruptcy and IVA FAQs. Also see legal actions guide.

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Individual Voluntary Arrangement (IVA) FAQs

Individual Voluntary Arrangement or IVA for Sole Traders

in Sole Trader

Individual Voluntary Arrangement (IVA) - a detailed guide An individual voluntary arrangement is a formal deal made between an individual (who is in debt) and the lender or business. Often a sole trader can use an IVA to help reorganise debt and restructure the business.If, as a sole trader, you can’t pay tax payments when they fall due, the business is insolvent or under financial pressure. An IVA could be the best solution.An IVA allows the sole trader to make debt repayments on a regular basis over a number of years, helping combat his or her debt problems in a realistic way which they can afford to pay. It is more beneficial to creditors than other methods, like bankruptcy, as debt will be repaid over time. With bankruptcy, creditors might receive nothing. Think of it this way; if you are owed money by someone and they ask for time to pay it, wouldn't you probably agree? Now, if they said that they had a problem and they want to pay you say 25p in the £1 or they will have to go bankrupt and you would get 0p in the £1, which one would you agree to? My business is viable, can I go into an IVA? Yes, if your business is viable or you have disposable assets that can be turned into cash, you can enter an IVA.If the business has never made profit and sales aren't increasing enough to cover overheads, an IVA is not suitable as the business isn't viable. You should close it as soon as possible and start bankruptcy proceedings. You may be able to arrange a deal with creditors if assets can be sold or liquidated to recover debt for creditors. A guide to IVAs See our flowchart of the IVA process.When a business is struggling, it can be difficult for sole traders as it is the individual who is liable for the business debt, much like partners in a partnership. If problems aren't dealt with straight away, debt can build up and there is a real risk of bankruptcy.For most small businesses, it is not uncommon to suffer from undercapitalisation and lack of finance. Often, there will be only be a few big contracts and if one is suddenly lost, this can put huge financial pressure on the business. Once cashflow begins to suffer, the problems are harder to manage and more time will be spent with worried creditors, giving you less time to focus on marketing, sales and general running of the business.If this sounds familiar, you need any more information, or specific questions answered about IVAs, contact us on 0800 9700 539. We can talk you through, free of charge.If you wish to go into an IVA, you’ll need to prepare some information first, including a list of ALL of your creditors and a list of all of your assets (with estimated values). Ensure you provide estimates of the debt you owe to each creditor – this information will be used in the IVA proposal. Advantages of an IVAIt gives an opportunity to review the business. If is viable and has a future, an IVA can be proposed and the sole trader can move on with the business. Essentially, an IVA can eliminate all worry as it is putting the business back on track. The sole trader can put focus back into the business, rather than dealing with irate creditors from all angles. It’s a short process in the grand scheme of things and can save your business at the same time! An IVA, unlike administration or liquidation, is not advertised so reputation of the business can stay unharmed. Your creditors will of course know about the financial issues but it is best they do know as soon possible so they have a chance to vote and modify plans. We recommend you let trade partners know so they are aware of any restructuring. Call us on 0800 970 0539 for further advice on how to proceed. Opportunity to reduce debt by paying a proportion of what is owed Creditors may get more in return over the long run if the business continues trading and profits rise.Disadvantages of an IVAIt may be difficult to obtain future credit, however it’s likely you've already had problems with this. The more complex the case, the higher the fee. An IVA is often more cost-effective than bankruptcy. There may be some publicity even though it is not advertised as your creditors will know. A plan of action can be set up should this happen. You've been through tough times already and even though an IVA will help relieve problems, it will still be tough over the next year or so. You need to be realistic and ask yourself whether you’re prepared to fight for the business. An IVA on its own won’t simply turnaround your business. You need to be willing to change whatever needs changing to ensure the business is a success. Ensure you don’t go back to old-ways.The IVA process For an IVA, you will need to appoint an advisor or a nominee to prepare the proposal. They will deal with all creditors and collect all necessary information to go forward. In essence, the nominee will take all creditor pressure away which can be a huge relief to clients.If you employ an advisor, you will eventually also need a nominee (nominated supervisor) as you need a licensed insolvency practitioner to present the proposal at court. He or she will review the proposal and if satisfied, will act on behalf of the sole trader and file it at court as well as send it to creditors. Producing the proposal While you can write the proposal yourself, it is best to seek advice and assistance from insolvency advisors as there are complex legal processes involved. The final proposal must show realistic cashflow, sales and cost figures with no high expectations of future sales or contracts. Problems won’t be solved immediately so expect a tough year ahead. Don’t make any promises you can’t keep and don’t make large payment, this could backfire and put you in a worse position. Remember, it’s a marathon, not a sprint.Along with the above, the proposal will need to include reasons why the business is insolvent and how creditors will be repaid as well as how much. Creditors will need to see a statement of affairs (known as SOFA) within the proposal to help them make a decision. This document includes all financial information and figures, giving an accurate account of the business’s position. The SOFA would also include details on the expected outcome of an IVA compared to other options, like bankruptcy.Once everything is prepared, the proposal can be filed at court. It will be circulated among creditors at the same time a moratorium is applied. This protects the sole trader against legal actions during the process up until the creditors’ meeting (which takes place a minimum period of 14 days after the proposal has been posted to creditors.The moratorium or interim order can be applied before the proposal is completed or at the same time the proposal is filed (known as concertina application). The latter is often the most efficient method. Creditors meetings and voting As mentioned above, creditors have 14 days to consider the proposal and to put forward any objections or concerns before the creditors’ meeting. At this meeting, the proposal can be questioned and modified as the nominee and creditors see fit.An IVA can only go ahead if over 75% of creditors (by value) accept the proposals by vote or proxy. Debt of the creditors is added up and each creditor has a vote according to the amount of money he or she is due from the debtor. Please see the example below: Example of Voting at an IVA Creditors' MeetingTotal PAYE debt£5,000.00Total VAT debt£2,000.00Total Unsecured Creditors£37,800.00Total Debt in IVA proposal£44,800.00Present at Creditors MeetingPAYE£5,000.00VAT£2,000.00Unsecured creditors£19,500.00Total votes cast£26,500.00In Favour£25,123.00Reject£1,377.00Total %age in Favour94.80%Total %age Rejecting5.20%Proposal acceptedYesNote that creditors can appoint a different insolvency practitioner to the one nominated by the sole trader if they wish. This rarely happens but it is why nominees usually ask for payment before the creditors meeting. What happens next? Once voting has come to an end, the nominee will state that the proposal has been agreed (if majority vote for) and all modifications and reports will be sent to creditors. The document is filed at court and the interim order is lifted (usually one or two weeks after the meeting).It is then up to the nominee to supervise the arrangement between the creditors and sole trader over the term of agreed years. Information must be reported to the creditors during the IVA and payments will be made accordingly.The deal will propose that a certain amount of money is paid into a trust account held by the supervisor over a period of time to be agreed. If for example you agree to pay £5,000 a year for the next five years, £25,000 will be paid in.At the end of each year, payments will be made to the creditors who have proved their debts to his/her satisfaction and in order of priority. To understand the order of priority see creditors ladder guide.We hope that this guide has been useful for you and that it answers a lot of questions. IVAs are very simple tools in principle but with every case being different we cannot give answers to all questions in this guide. So, please feel free to call us now on 0800 9700539 or e-mail us at info@ksagroup.co.uk to answer your specific business or personal debt problems. We are happy to help and will not charge for this advice.

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Individual Voluntary Arrangement or IVA for Sole Traders

Sole trader – Trading Out

in Sole Trader

Useful links for this page - FAQsIsnt it the most straightforward way of dealing with a cashflow problem?If the business has suffered a downturn in circumstances because of a finite set of issues and the business is not fundamentally weakened, then yes. Including the largest companies, every business faces a cyclic cashflow problem. Measurement of success cannot be short term, but events dictate that every business will suffer at times, witness firms like the top retailers and top telecoms companies recently.If you have been through warning signs, establishing insolvency and dos and dont's and you think your business is not that distressed then look at this option. A key element of this policy is honesty. Be honest with yourself, the employees, your creditors and your customers. Without this there is real risk that you will only make the current problems worse.It is important that you carefully and honestly consider the problems facing the business. Ask yourself the following questions and gauge the answers:Is this business viable? If you could remove the problems or the pressure does it have a real long term future? Is money all it needs to sort the problems? Can you achieve sufficient sales, activity or momentum to cover your costs? We call this critical mass. Have you cut all costs to the minimum efficient level? Can you maintain the key people you need? Are you able to produce your service or product at a price that the market can sustain? Would it be better to close the business and look at other opportunities? Have you got the fight in you to keep battling on without support? Have you taken advice from professionals? Have you involved the key partners in your business? Are you fearful of taking decisions to close, restructure or sell the business and are seeking to trade out to avoid the personal ramifications of closure - such as bankruptcy? If your activity does rise can you:a) Fund it - working capital problems are just as acute for too many sales as too few b) Produce it - if your creditors will not supply will you be able to deliver sales c) Justify any further credit you may have to take - is there a reasonable prospect of repaying that credit.If you now believe that the business HAS a future and that the problems are not insurmountable then read on.Trading out can be a very effective tool if handled correctly. There are a number of ways to do this. The key is to achieve a breathing space for the company. "Informal" deal: Merely calling the key creditors, explaining the position: you want to pay them back in full as fast as possible but cashflow is tight and can you pay them over an affordable timeframe, can work wonders. BUT do not do this without a planned approach. You mustWork out your cashflow - be realistic. If a debtor is due to pay in 30 days check whether they are happy with the invoice and goods, check when they think they will pay. Then add on 10 days at least. Build a daily cashflow, if you cannot write spreadsheets use a simple form on a sheet of paper, but update every figure as you go. Not over promise. If it looks like you can pay all key creditors in 30-60 days ask for 60-90 days. Creditors will usually be happy to work with you if you are honest. Not break deals. But if it is unavoidable, write and call the creditors and explain carefully where the plan has not worked."Formal" deal: This is not a formal insolvency deal such as a IVA. But the use of a professional turnaround practitioner can ensure that the "honest broker" effect achieves workable deal. Once again the deal broker will want to see evidence that the sole trader has planned their recovery and looked long and hard at the business and its cashflow. Some creditors may even accept write-downs of debt if they think the business will survive and prosper long term.If you want to be introduced to such a service please email us. New Finance allied to informal deal As this suggests, the introduction of new money to the company at a time when you are seeking to do a deal with creditors can be a very strong sign that you are serious about the business' future. See refinancing for further details Tips Don't wait until legal actions have been taken against the company to ask for a deal. Try to plan the cashflow of the business well in advance - you have a legal obligation to do this! If you think the business has enough cash to trade they should consider the options and plan a way forward. Once again go to using the site and follow the advice. Worried about legal actions? go to that page for more details.Keep a log of all calls and letters to creditors - that way you can check back.Have a review meeting each week - if you are falling behind take action.If the plan is clearly not working consider the other options on this site.Don't wait too long to get professional turnaround help. Often an IVA can remove the stress and allow you to get back to running the business, not the deals with creditors. Still got questions? then click here for Trading Out FAQs Trading Out - frequently asked questions has much more information - if you consider this to be appropriate then read this page. If there are still unanswered questions contact us by email .

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Sole trader – Trading Out

Sole Trader Lawyers Plan C

in Bankruptcy Law Sole Trader

I am a worried solicitor practising as a sole trader; What options do I have for restructuring? Plan C for lawyers - sole traders There are three options to deal with severe cashflow problems, this page looks at Plan C: Personal Bankruptcy If the debts are very large, your business is no longer viable no matter what steps you take to revive it, then the sensible answer to stop the terrible pressure you face is to enter bankruptcy.Bankruptcy is a powerful insolvency tool that will stop the creditor pressure, ringfence your creditors (that's all your business and personal debts but not a secured mortgage) and take away the pressure.The following guide to bankruptcy cannot be comprehensive given that it is a general discussion of the process, application for bankruptcy and exit from it. This mechanism can be very complex depending on your individual circumstances.Other alternatives are available and it is vital that you consider all of those options by reading about them on this online guide and if necessary talking to us by e-mail or through our telephone support line.If bankruptcy is your preferred option please check that you have gone through our suggested decision-making process before reading on:You have established that you are insolvent. You have considered your personal and business objectives are. You have studied all available options. You have decided to enter bankruptcy because the business is not viable and your assets are outweighed by your liabilities and you're insolvent on the cashflow test.No Fault Bankruptcy Under the Enterprise Act 2002 the UK Government significantly relaxed the rules regarding bankruptcy. From April 2004, the sole trader who has a failed business (where there are no issues of fraud, misfeasance, recklessness etc) will be able to file for bankruptcy (see process below) and be discharged from that bankruptcy within say 12 months. Previously a bankrupt was not discharged until 3 years had elapsed.Provided the bankrupt conforms to the rules and is compliant with the Trustee (see below) the bankruptcy can be a quick and powerful process. It is possible nowadays to obtain mortgages and credit for discharged bankrupts, so this process may be better for your personal future than trying to plough on with an unviable business through Plan A or Plan B options. Bankruptcy: the Process There are three different ways that bankruptcy can be initiated a under the current legislation.A Debtors petition to the court. A Creditors petition to the court. The supervisor of an individual voluntary arrangement petitions the court.If you have considered all the above please ensure that you gather together all available information with regard to your personal and business financial circumstances. Put together a file of information all in one place to include: all legal actions against you, copies of any accounting information, copies of any financial plans and business plans, copies of business and personal creditors statements and a list of all of your assets.Also a good bit of advice, always make notes (or minutes) of meetings, telephone conversations and discussions with creditors. Date them and make sure that you save or file them safely. This will act as a good record if things become difficult in the next few weeks and months.It is also important to draw up a very basic statement of affairs which compares your assets against your liabilities.We thoroughly recommend obtaining professional advice before deciding finally upon bankruptcy. Only cease trading when it becomes impossible to continue through cashflow pressure or when you have taken professional advice. It may be that the situation that has brought this to a head can be dealt with through an IVA or an informal deal with creditors and it is important to keep all avenues open until professional advice has been taken. A Debtor's Petition Find the address of your local County Court in the local telephone directory and visit the Court office to pick up a debtors petition pack. The Court will levy a fee for this but you will find that the court officials are very helpful and can often help you with the completion of the form. The form is necessarily complex and copious and if you require help please contact the court official that gave you the document.Once you've completed the form and supplied all information that it requires, take the completed file back to the court along with filing fee. This is known as a debtors petition basically you're asking the court to hold a hearing at which you will be made bankrupt. This is not as frightening or as daunting as it may sound and you'll find the Court is sympathetic to your situation.If bankruptcy is the only option, it is, in our opinion, better for the debtor to initiate this process. This has the effect of crystallising the position and removing the pressure. This also mitigates the cost for creditors of doing it themselves. A Creditors Petition It is possible for a creditor to issue a petition for bankruptcy if the debt that they are seeking to recover has been proven. Often this requires a County Court Judgment or a Statutory Demand to have been served upon the debtor.The creditor may have also tried to recover the funds due to him or her via a warrant, a bailiff or a Sheriff.Typically this type of action can be initiated by the HMRC where there are outstanding debts - if this is the case, please do not hesitate to contact us because there are other ways to deal with the situation other than through bankruptcy; unless of course the business is not viable.Alternatively if the debtors petition is too expensive or you simply cannot afford to go through that process yourself, it is possible to wait for a creditors petition. We wouldn't recommend this because it demonstrates to the court and to the creditors that you have been burying your head in the sand. This may not, of course, be true but this is the perception. By allowing a creditor to go through the petition process the court will grant the hearing and you may be made bankrupt by the court in your absence. A Supervisor's Petition If you're in an IVA (individual voluntary arrangement) which is failing or under severe pressure please do not hesitate contact us. We may be able to assist by restructuring the IVA or indeed replacing the IVA, you will have of course have to demonstrate viability and a reason why the IVA has not been adhered to. The supervisor will normally issue a petition to bankrupt you when the IVA has failed. This may be because you have failed to keep up with the regular payments prescribed by the IVA or you have failed to supply information or comply with the general terms of the IVA.Prior to commencing this action the supervisor will generally have to issue an abort certificate demonstrating to you and the creditors that the IVA has failed. Of course prior to this he or she is likely to have communicated with you, in writing, several times asking for the voluntary arrangement to be adhered to.If you have ignored all these issues and still believe that the business is viable or that you are still a lot better off in an IVA; once again please do not hesitate contact us. Be prepared to explain to us why you have ignored all of this communication! The Hearing Once the petition (from whichever source) is received by the court a hearing date will be set by, the Court officials. This can be anywhere from one day to two weeks dependent upon available Court time.At the hearing the court will consider the statement of affairs and the documents produced by you or the creditors and grant a bankruptcy order. Typically the Official Receiver is appointed as trustee in bankruptcy. But if there are significant assets an insolvency practitioner (IP) may be appointed trustee in bankruptcy at the by the Official Receiver or by the court directly.The Official Receiver, once trustee, will interview the debtor to check through his/her documents and to establish his or her income and financial position. In the event that there are significant assets, as described above, an official receiver may appoint a local insolvency practitioner as a trustee in bankruptcy. The IP will seek to recover those assets over a period of time on behalf of the creditors.If the practice still has clients and trust accounts it is very likely that the SRA will intervene and remove the files and accounts as soon as it is aware of the likely bankruptcy. This is obviously to protect clients interests. Thus the recovery from your practice (for creditors) is likely to be minimal. The Estate All assets belonging to the debtor and like him are included in the estate. Some of those assets however may, of course, be charged to or have partial ownership by another individual or individuals.Where exclusive ownership cannot be established, you will have guessed or estimated the amount of the asset that you believe to belong to you, in your statement of affairs.Typically items such as motor vehicles (under hire-purchase agreements), mortgage property such as matrimonial homes and assets under a partnership agreement may only be partially available to the trustee on behalf of the creditors. Excluded creditors Bankruptcy does not however dismiss all debts. Items such as CSA (Child Support Agency) payments, maintenance to your spouse, government fines, mortgages or items under hire-purchase arrangements are excluded.The Government has also moved to close a loophole that allowed Student Loans to be written off in bankruptcy. The Matrimonial Home Typically in bankruptcy 50 per cent of the unencumbered equity in any matrimonial home is available to the trustee in bankruptcy for the creditors. But the equity in many houses is modest and the cost of pursuing this equity often outweighs the benefit of collection.It may be possible to maintain, with the permission of the trustee, the matrimonial home. This, of course, is largely dependent on whether the mortgage company is prepared to continue to receive mortgage payments and whether you are able to meet those payments.For example your spouse may have sufficient income to meet the mortgage payments and if there is not a significant chunk of equity available to your estate, as described above, it may be advantageous to maintain the property through the bankruptcy period. Professional Qualifications It is not possible for an undischarged bankrupt to be a Justice of the Peace or a Member of Parliament. Other professional qualifications can also be at risk if you enter bankruptcy such as being a solicitor, a chartered accountant, certified accountant or registered Auditor. Nor may you be member of a local authority. Income Payment Orders Should you obtain a new job with a higher salary than previously, or a higher disposable income than indicated to the court and the trustee, it is possible for the trustee to seek to recover some of this excess remuneration through an IPO (income payments order).For example if you stated that your net disposable income was 200 per month and subsequently obtained a position that gave you 1,200 per month disposable income, then it is likely that the trustee will seek to recover a large percentage of this difference.If you fail to agree he can apply to the court for this order to be ratified by a judge. To fail to maintain such a payment may be an offence. A trustee may seek to recover these amounts directly. If you fail to comply he/she may seek to sell property or other assets that he holds on the creditors behalf. Of course there has also a risk of incurring the wrath of the court and a prison sentence is possible. The Rules Once made bankrupt you may not be, without the permission of the court, a director of a limited company in the United Kingdom. To do so is a criminal offence. You may not act as a manager of a limited company in the United Kingdom or in act in the formation of a company in the United Kingdom during the course of your bankruptcy.During bankruptcy you may not obtain credit of greater than 250 it without disclosing that you are an undischarged bankrupt. To do so as a criminal offence. You he may not be a partner in a partnership.Whilst you may continue to trade as a sole trader or a severe restrictions placed upon the bankrupt. For example you must not trade under a new name or different name to that which you traded under prior to being made bankrupt. If you trade in a different name this is a criminal offence. Discharge Once the bankruptcy term is complete and you have conformed to the wishes of the trustee in bankruptcy; you are discharged from bankruptcy.Although this means that most debts are written off some are not such as government fines, child-support etc as discussed previously. However debts to the Inland Revenue, VAT and other trade creditors in the period up to your bankruptcy are written off.It may be possible to start rebuilding your credit rating and to obtain a position of director or partner in a partnership for example. After say 12 months your personal emotional state, health and enthusiasm may have returned to normal. So it may be a new start. Summary Once again we would reiterate that the above can only be a general guide to bankruptcy. There are many rules and regulations under the Insolvency Act appertaining bankruptcy and with a huge variety of causes of bankruptcy and different structures of bankrupt estates, it is impossible to answer all questions in a computer-aided guide.If you have any doubts as to the current situation you face please revisit the how to use this site page and followed the instructions there.What now? If your business has cashflow problems you must act or the creditors will, sooner or later act aggressively against you.What if neither Plan A or Plan B is suitable?Plan A is to propose an informal time to pay dealPlan B - Individual Voluntary Arrangements with creditorsOf course, acquisition by another firm is a possibility too. Will this acquiror pick up all of the liabilities of your firm?

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Sole Trader Lawyers Plan C

Individual Voluntary Arrangement

in Sole Trader

"What if there was a way I could save the business, get rid of some costs and or staff, rebuild our sales and profits without closing it? I don't want to see all of our hard work destroyed and have the misery of going bankrupt!"There is a great potential solution for your problem and you have found it...An IVA! Individual Voluntary Arrangements - A Simple Guide An IVA is a powerful insolvency tool that will ringfence your creditors (that's all your business and personal debts but not a mortgage) and take away the pressure.It is a deal between the insolvent sole trader and its creditors; this legally binding contract allows you to repay some or all of the historic debts from future profits over a period of time. Debtors (you) stay in control and it stops any legal actions if you use a quality advisor. It has been in UK law since 1986 and is one of the Government's preferred rescue options. Isn't that better than going bust, closing down and every creditor losing their money and an ongoing customer? IVAs are amazing for rescuing a distressed business when you know it can be profitable in future. You can make employees redundant with no cash cost, get out of property leases and problem contracts and make the business profitable again with the IVA and our help!In the time it takes us to organise the IVA for you, we will freeze your payments to VAT, PAYE and creditors. Then together we offer the creditors a deal over time to pay something back from future profits. This improves the cashflow in your business.We are often asked if its so great why doesn't everyone use the IVA if their business gets into trouble? The answer is because very few people know about this fantastic tool and most sole traders with problems end up going bust because they are scared of insolvency.What are the downsides? A fee is payable and your credit rating will be affected for up to 6 years after the IVA. You may have to give your share of the equity in your home to the creditors as part of the deal. All of this is much better than bankruptcy by the way!

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Individual Voluntary Arrangement

Insolvency Test For The Sole Trader

in Sole Trader

Am I, as a sole trader, insolvent? You may think that being under cashflow pressure is not the same as being insolvent. This is not true! Inability to pay debts on time is a definition of insolvency - see below.It is vitally important to understand that, if the business is insolvent, this results in a shift in the sole traders duty of care from acting for the business to ensuring the creditors position is maximised.Use this page to establish if the business (and therefore yourself) is insolvent. There are three methods to determine insolvencyThe Cashflow Test 1.1. Simply - can the business pay its debts when they fall due for payment? For example if you employ people and are not paying the deductions from employees for NIC and Income Tax across to the Inland Revenue on the 19th of the month after the month they were deducted, then the business could be insolvent. 1.2. If your trade creditors sell to you on say 30 days terms and you regularly pay on 90+ days, then the business could be insolvent. 1.3. If you believe that the business has insufficient cash to pay its liabilities on time then you must take advice/action. The Balance Sheet Test 2.1. Simply - do you owe more than you own as a business or are the business's assets exceeded by its liabilities? 2.2. Do you owe more than you own personally? If yes, to either, then insolvency is a probability. 2.3. It is important to point out that this test should include contingent or future liabilities. (If you need advice on these issues call or email us). 2.4. Many people tell us that on a balance sheet test the business is not insolvent therefore they do not need to act. However, under the cashflow test above the business may, of course, still be insolvent. 2.5. In our experience an apparently solvent balance sheet may include items that are overstated, such as stock and work in progress, or debtors that are not really collectable. After deducting these items many balance sheets become insolvent. 2.6. So be prudent - you should present accounts to show a true and fair picture of the business. Legal Action Test 3.1. If a creditor has obtained a County Court Judgment (CCJ)against either the business name or in your name, this may demonstrate the business or the individuals insolvency and the creditor may seek to recover this debt via the bailiffs or the Court may demand that you attend to examine your financial means, or the creditor may petition for bankruptcy proceedings. 3.2. If a creditor has obtained a statutory demand for greater than £750 and it remains unpaid for more than 21 days, then the creditor may petition to make you bankrupt.If you believe that any of the above tests are positive for your business, it is vital that you take action to address the insolvent position. However, don't panic, look carefully at all pertinent issues and consider the rest of this website.Remember, if you are insolvent you must act to maximise creditors interests.If there is no reasonable prospect of the following happening, you may face personal bankruptcy:New or additional capital or finance being introduced to the business to return the balance sheet to a solvent position or to remove the cashflow pressures; A sale or acquisition of the business assets; An individual voluntary arrangement, trust deed, refinancing or trading out.

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Insolvency Test For The Sole Trader

Sole Trader Lawyers Cashflow problems

in Law Sole Trader

I am a very worried solicitor. My legal practice is under growing pressure from all sides. How can you help me solve these problems, restructure and survive? Help for lawyers - sole trader practice. If you are practising as a sole trader you are of course personally liable for the business and personal debts you have built up. What should you do if the practice is struggling?First thing to do is to establish if you are insolvent. see the 3 tests below The Cashflow Test Simply - can you pay all of the debts when they fall due for payment?For example, if you are not paying the deductions from employees for NIC and PAYE across to the Inland Revenue on the 19th of the month following the month they were deducted, then you could be insolvent. Have you met loan repayment dates for practice loans or bank loans?If your trade creditors sell to you on say 30 days terms and you regularly pay on 90+ days, then you may be insolvent.Make sure that you have an up to date list of all debts to helps us advise you on your options. The Balance Sheet Test Simply - do you owe more than you own as an individual or are your business and personal assets exceeded by your business and personal liabilities? If yes, then you are insolvent on the balance sheet test.It is important to point out that this test should include contingent or prospective liabilities. (If you need advice on these issues email us). The Legal Action Test If a creditor has obtained a County Court Judgment, this may demonstrate your insolvency and the creditor may petition to bankrupt you.If a creditor has obtained a statutory demand for greater than £5000 (previously £750 - new ruling came into force 1st October 2015) and it remains unpaid for more than 21 days, then the creditor may petition to bankrupt you. What next? The second thing to do is to use our free daily cashflow spreadsheet and set out the expected cashflow in and out of the business over the next few months.If you need any advice on filling this out we will provide this free of charge. Please call 0845 5194930This tool will set out what the likely cash position is in the business over the next few months and will help YOU decide which is the most appropriate option. If cash is drying up and there is no way to fix it then bankruptcy could be the option, please see Plan C below.If cash is tight but still flowing then Plan A or B should be considered. If you know that good fee income and cashflow is coming through in the next few months then Plan A can be a powerful way to buy that time.Now please read our guides toPlan A trading out and refinancing (avoid insolvency)Plan B IVA or individual voluntary arrangementPlan C Bankruptcy

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Sole Trader Lawyers Cashflow problems

Sole Trader Lawyers Plan B

in Law Sole Trader

I am a worried solicitor practising as a sole trader; What options do I have for restructuring?Plan B for lawyers - sole trader rescueThere are three options to deal with severe cashflow problems, this page looks at Plan B Individual Voluntary Arrangement with creditors.An IVA could be the answer to your problems and could protect you from your creditors. But it is a risky approach and very damaging to your credit rating. It is a powerful insolvency tool that will ringfence your creditors (that's all your business and personal debts but not a secured mortgage) and take away the pressure.It is a deal between the insolvent sole trader and his or her business and personal creditors; this legally binding contract allows you to repay some or all of the historic debts from future profits over a period of time. Debtors (you) stay in control and it stops any legal actions if you use a quality advisor. It has been in UK law since 1986 and is one of the Government's preferred rescue options.IVAs are powerful for rescuing a distressed business when you know it can be profitable in future. You can make employees redundant with no cash cost, get out of property leases and problem contracts and make the practice profitable again with the IVA and our help!In the time it takes us to organise the IVA for you, we will freeze your payments to VAT, PAYE and creditors. Then together we offer the creditors a deal over time to pay something back from future surplus cash. This improves the cashflow in your business.We are often asked If its so great why doesn't everyone use the IVA if their business gets into trouble? The answer is because very few people know about this tool and most sole traders with problems end up going bankrupt because they are scared of insolvency.Useful Guides to IVA:Individual Voluntary Arrangement Detailed Guide - all you need to know about IVAs from framing the deal through to creditors' votes. Individual Voluntary Arrangement FAQs frequently asked questions from our users. Read these and see if your question is answered. Individual Voluntary Arrangement Flowchart a fast and unique pictorial view of the process of IVA. What are the downsides? A fee is payable and your credit rating will be affected for up to 6 years after the IVA. You may have to give your share of the equity in your home to the creditors as part of the deal. All of this is much better than bankruptcy by the way!KSA will always however make sure that the other options have been assessed, a statement of affairs prepared and valuations of properties obtained to counter the why wait for money what if we make the chap bankrupt? questions. The motto is we are prepared for their aggressive questioning.If you have a lot of property equity personally and the practice closes then be prepared as HMRC in particular go after that. Like most people though you probably have little liquidity, having not drawn much recently from the practice, equity is tied up and your spouse is entitled to half anyway. So pointing this out bluntly allows us to prepare a plan for the IVA to return a dividend on the creditors debts over a considerable period of time.We would always insist on the following work being part of our restructuring brief:Detailed DAILY CASHFLOW we can provide the tools and assess this for you. But this MUST be introduced to help survival. You or your admin people must update this every day. Statement of affairs for the business and your own assets. Probably requires a desk top valuation of any property. KSA will do this confidentially as part of the brief. Detailed financial forecasts for the business. What if scenario planning ie what if fee income falls, WIP is not all collected for example? Assessment of your personal property and assess possibility of new debt from property(ies)This process can be delivered in 2-4 weeks from engagement and is led by very pragmatic experts in this field. Before commencing we will set out the strategy plan in writing. This work is always costed in writing in our unique solutions report which is provided FREE after your first meeting with a KSA Director or Regional Manager.Our fees usually come from cashflow savings that we can create for you as part of this process.What now? If your business has cashflow problems you must act or the creditors will, sooner or later act aggressively against you.Call KSA Group's DEDICATED LAWYERS LINE now 0845 5194930What if neither Plan A or Plan B is suitable?Plan A is to propose an informal time to pay dealPlan C bankruptcy, where the practice closes and you go personally bankrupt.Of course acquisition by another firm is a possibility too. Will this acquiror pick up all of the liabilities of your firm?Call KSA Group's DEDICATED LAWYERS LINE now 0845 5194930

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Sole Trader Lawyers Plan B

Sole Trader Rescue Guides

in Sole Trader

I am a struggling sole trader and suppliers are putting pressure on me. What should I do? Helpful guides for sole traders You've come to the right place! Please browse our guides below:Insolvency options for sole traders Insolvency test for sole traders Go options Stop options Warning signs that banks look forIf you want to ask specific questions or want to arrange a free 20-30 minute consultation with an expert, email us or call now. Contact us Email us at help@ksagroup.co.uk, call us on 0800 9700539 or fill in our online enquiry form if you have specific questions. We can arrange a free initial consultation with a regional manager.

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Sole Trader Rescue Guides

Sole Trader Lawyers Plan A

in Law Sole Trader

I am a worried solicitor practising as a sole trader; What options do I have for restructuring? Help for sole traders - lawyers Clearly, any risk of insolvency or cashflow problems is heightened by the lack of limited liability and the risk of the practice closing, is mainly your risk. So we need to try and protect you as much as possible. There are three options to deal with severe cashflow problems Plan A Informal deal with creditors, coupled with possible refinancing; Using the threat of the insolvency options can be like the proverbial Sword of Damocles , you can go bankrupt or enter an IVA (see below) but the creditors would undoubtedly see a compromise or even complete discount of their debts if that occurred.Being prepared to argue with creditors that the informal route means at least some if not all of their debt is recovered and this approach will allow you to practice in future, is the common sense solution.KSA will always however make sure that the options of IVA or bankruptcy have been assessed, a statement of affairs prepared and valuations of properties obtained to counter the why wait for money what if we make the chap bankrupt? questions. The motto is we are prepared for their aggressive questioning.If you have a lot of property equity personally and the practice closes then be prepared as HMRC in particular go after that. Like most people though you probably have little liquidity, having not drawn much recently from the practice, equity is tied up and your spouse is entitled to half anyway. So pointing this out bluntly allows us to prepare a plan for the recovery of the creditors monies over a considerable period of time.Yes, even if HMRC has rejected YOUR own suggested time to pay proposals.We would always insist on the following work being part of our restructuring brief.Detailed DAILY CASHFLOW we can provide the tools and assess this for you. But this MUST be introduced to help survival. You or your admin people must update every day. Statement of affairs for the business and your own assets. Probably requires a desk top valuation of any property. KSA will do this confidentially as part of the brief Detailed financial forecasts for the business. "What if" scenario planning ie what if fee income falls? WIP is not all collected for example? Negotiations with the creditors (usually HMRC and the bank) in writing led by KSAs experienced debt negotiators. Assessment of your personal property and assess possibility of new debt from property(ies)This process can be delivered in 1-3 weeks from engagement and is led by very pragmatic experts in this field. Before commencing we will set out the strategy plan in writing. This work is always costed in writing in our unique solutions report which is provided FREE after your first meeting with a KSA Director or Regional Manager.Our fees usually come from cashflow savings that we can create for you as part of this process.What now?If your business has cashflow problems you must act or the creditors will, sooner or later act aggressively against you.A word of warning. If you have relied upon multiple time to pay deals over recent years with HMRC and have these deals have regularly not been adhered to, then this first option may not succeed but we do believe it is worth trying. What if Plan A does not work? Plan B is to propose an individual voluntary arrangement Plan C bankruptcy, where the practice closes and you go personally bankrupt Of course acquisition by another firm is a possibility too. Will this acquiror pick up all of the liabilities of your firm?Call KSA Group's DEDICATED LAWYERS LINE now. 0845 519 4930

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Sole Trader Lawyers Plan A

Individual Voluntary Arrangement – SIMIVA

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Partnership Simultaneous Individual Voluntary Arrangements (SIMIVAs) 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. 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 workPlease see our SIMIVA flowchart or frequently asked questions guide page for more information. So what is an individual voluntary arrangement (or IVA)? An IVA, simply, is a formal deal between the individual (who is in debt) and the business or person who is owed money, known as a creditor.If the individual cannot pay off debt when payments fall due, he or she is insolvent. Likewise if a partnership is suffering with cashflow, a SIMIVA may be the best option.Going into an IVA or SIMIVA can help the individual as well as the partnership get out of debt over a number of years. It also gives the business the opportunity to restructure and re-evaluate strategies. Who should use a SIMIVA or Interlocking IVAs? A SIMIVA can only be used when the partnership business is viable or where disposable assets can be turned readily into cash. 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.For more information, read out detailed guide (including a step by step process) to IVAs. Alternatively, call us on 08009700539 for advice on your specific circumstances. SIMIVAs - 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 debtors VAs This is complex stuff, get good advice! Call us now on 08009700539

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Individual Voluntary Arrangement – SIMIVA