Avoiding Bankruptcy – Three Recovery Procedures That Really Work

Sun, Sep 30, 2012

Financial Advice

Image Credit: Creative Commons – VectorPortal.com

Going bankrupt can seriously affect your financial reputation, making it extremely difficult to obtain approval for any type of loan, and possibly hindering your chances of finding future employment. After being declared bankrupt you’ll lose control of your assets and can no longer act as a company director or participate in the formation/management of any limited (LTD) company without a court’s permission. You’ll also probably sustain damage to your credit rating that can remain apparent for many years after annulment. Fortunately, such consequences can be avoided by recognising the need for urgent action and pursuing one of the following solutions:

Individual Voluntary Arrangement (IVA)

If you are dealing with personal debt issues, an Individual Voluntary Arrangement (IVA) could allow you to come to an agreement with your creditors and avoid bankruptcy. This procedure involves cooperating with a licensed Insolvency Practitioner (IP) to present a formal repayment proposal to your creditors, thereby renegotiating payment terms and giving you the time and leniency needed to recover. If you’ve been unable to get your creditors to agree to informal requests for repayment extensions, proposing a contractual arrangement in the form of an IVA will typically offer better results. Individuals who are not facing a legitimate threat of bankruptcy may want to consider devising a debt management plan with the help of an advisor instead.

Company Voluntary Arrangement (CVA)

If your company is facing corporate debt problems and is on the verge of being deemed insolvent or bankrupt, a Company Voluntary Arrangement (CVA) could help you improve cashflow and fend off creditor pressures during recovery. This contractual arrangement allows you to reschedule tax, PAYE, and VAT payments, while also facilitating reduced expenditure by allowing you to terminate leases and employee/supplier contracts at no cost. This method of business rescue is often preferred over receivership or administration because it is more affordable, and you don’t have to make clients or partners aware of the fact that the company is operating under a CVA, as is the case when you enter into an administration procedure.

Pre-Pack Administration

A pre-pack administration procedure entails selling your company into new ownership, and then using some (or all) of the proceeds of the sale to repay existing debts. The new owners would assume all of the company’s assets, including existing employees, clients, and contracts. The assistance of a licensed IP or turnaround specialist is needed to ensure that the transaction is conducted lawfully – so that you’re not accused of wrongful trading or being duplicitous – and to help preserve the value of the company during transition.  Although you would be essentially selling your business to get out of debt, this option is far more ideal than being declared bankrupt, and you may even be able to transfer ownership to a member of the company’s current Board of Directors.

Author Bio: Allan Keaney is an avid blogger who enjoys helping others escape the stress of financial difficulties by providing free and useful advice pertaining to personal and corporate finance. He specialises in matters related to business rescue and debt management.

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