Of course running your own debt management plan isn’t the only game in town. You might decide after reading all of this that it isn’t the right one for you. You might struggle to get your proposal accepted by enough of your creditors to make it sensible. So, take a minute and lets look at the other options available to you, just in case.
These have been split into two sections – one for Limited Company debt and one for personal debt, if you are a sole trader or partnership then you have the same options as a personal debt.
Limited Company Alternatives
CVA (Company Voluntary Arrangement)
A CVA is similar to a debt management plan as it allows you to repay your debts over time (any time up to 5 years). It can offer limited legal protection, however this is normally not needed. It is used heavily to stop a Winding Up Petition from going through the high courts.
You create a proposal (not dissimilar to the one for a debt restructuring plan) and submit this to your creditor through an Insolvency Practitioner. With a CVA it is quite normal for the whole debt NOT to be paid, you offer what you can genuinely afford, anything outstanding after the CVA term is then written off. Unlike many debt management plans, your assets are considered and so will be valued for sale purposes. However, this is mainly for a point of comparison as you may find it difficult to continue to trade without your business assets.
Once an Insolvency Practitioner has submitted to your proposal to creditors, there will be a meeting called. This gives creditors the chance to ask any questions about your proposal, although the truth of it is that hardly any of these meetings go ahead as creditors will have already decide how to vote beforehand.
Provided 75% of your voting debt is in favour of the CVA then it is ratified. It doesn’t matter how the rest of your debt votes, as long as you get over 75%.
Dissolution
Dissolution is an informal alternative to Voluntary Liquidation, and has only recently been considered as an acceptable option by HMRC.
Compared to Liquidation, Dissolution is:
-Cheaper – you can do it yourself for about £25 including all the postage whereas Liquidation will cost about £5,000
-Slower – with a following wind it takes 3 months, where as Liquidation takes about 4-5 weeks
-Less onerous – there are no Liquidators involved, no investigations, it really comes down to trust.
Liquidation
Really the ultimate debt solution for a Limited company. Although it has a bad reputation, many businesses go through it, and you would never know. It’s just like they carried on trading as normal. Certainly Liquidation is the most popular way to handle debts for a Limited Company.
Quite simply, the assets of the company are sold (this can be to a Director), and the debtors it has called in. The money this yields is divided up between creditors, and the balance owed written off.
Seems simple doesn’t it? Well it is, it’s certainly a well trodden path.
Usually the directors start up a new company straight away to reap the benefit of the lessons learnt from the old company. Used in the right way, Liquidation is an excellent way to turn a struggling business around.
There are many myths surrounding Liquidation:
-You are NOT personally liable for the company tax bill
-You will NOT be made bankrupt because you Liquidate your company
-You normally CAN go back into business
There can be issues with it, too many to cover here. If you are considering Liquidation, speak to a professional, either agent or Liquidator. Although, due to the law, agents are free to give you advice that Liquidators never could.
Personal Debt Alternatives
Formal Debt Management Plan
With a formal Debt Management Plan, you instruct a professional to do what we’ve just gone through. This can add credibility to your proposal, however it also adds costs. Whether you use one or not will generally come down to why your creditors haven’t accepted your proposal. If it’s down to trust, and they want someone to validate your figures than this can be worthwhile.
A Debt Management firm will generally have access to solicitors and professional advisors that you may not have (unless you’re willing to come up with a fee). This means that for more complex situations, they can be resolved quickly and easily.
There is some weight to the argument that their reputation can help get your proposal through, however, not every Debt Management firm has a good reputation with creditors and it can count against you if you use one with a bad reputation. Unfortunately, there is no way of knowing what their relationship with creditors actually is until it’s too late.
IVA (Individual Voluntary Arrangement)
This a full blown big brother to a debt management plan. It is run by a licensed Insolvency Practitioner and offers a lot more than a standard Debt Management plan, unlike a Debt Management plan an individual voluntary arrangement can:
-Offer you legal protection
-Put a payment plan in place, even if not all creditors support it
-Mean you don’t have to repay all the debt (yes that’s what all those adverts for writing your debt off are about)
However, this all comes at a price. An IVA is a last ditch attempt to resolve your debt problems without resorting to bankruptcy. If you don’t keep up with payments, you could end up being made bankrupt.
As it is a comparison to bankruptcy, everything that would be available under bankruptcy will be deemed to be available under an IVA. In practical terms this means if there’s equity in your house, it will form part of the proposal.
An IVA works by offering what you can genuinely afford for a maximum term of 60 months. At the end of the 60 months the balance of the debt is written off. It is seen that it is better for your creditors to get something rather than whatever they would get under bankruptcy.
