An individual facing extreme financial difficulty may wish to avoid bankruptcy in the following circumstances:
To avoid the stigma of bankruptcy
To avoid the possibility of losing a professional qualification by virtue of bankruptcy if he or she is a member of a professional body.
To continue trading the business to generate contributions for the benefit of creditors.
Where creditors will receive more than if the individual becomes bankrupt
Where it is not possible to enter into an informal arrangement with creditors.
An IVA is a formal agreement between an individual (“the debtor”) and his creditors. The debtor agrees to make contributions from income or from profits of his business to a Supervisor (who must be a licensed insolvency practitioner) for the benefit of creditors.
In most situations, unless the debtor is an undischarged bankrupt, it would be sensible to seek a moratorium on creditors taking enforcement action by obtaining an Interim Order from the court. Once the Interim Order is in place creditors can not commence recovery action against the debtor. This gives a breathing space whilst creditors consider the proposal that has been presented to them and which will have been drafted with the assistance of an Insolvency Practitioner. A creditors’ meeting is called to consider the proposal which, to be accepted, must be approved by 75% in value of creditors voting at the meeting.
If the required approval is obtained the arrangement will be binding upon any creditor who voted against the proposal and any creditor who did not attend the meeting either in person or by proxy.
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