Voluntary Arrangements

Voluntary Arrangement enables individuals or companies to manage debts through structured repayments, overseen by an insolvency practitioner. This process aids in avoiding insolvency, enhancing financial liquidity, and alleviating creditor demands.

What types of Voluntary Arrangements are there?

Voluntary Arrangements offer tailored solutions for both individuals and companies facing financial challenges. There are two main types of voluntary arrangements, each catering to specific situations:

Individual Voluntary Arrangement (IVA): Designed for individuals, an IVA enables them to repay their debts over a set period, usually around five to six years. This arrangement helps individuals manage their debts without resorting to bankruptcy. For instance, an individual with diverse debts, such as credit cards, personal loans, and overdrafts, can consolidate them into a single manageable monthly payment under the IVA.
Company Voluntary Arrangement (CVA): Geared towards companies, a CVA allows them to continue trading while repaying creditors over an agreed timeframe. This arrangement can assist companies facing cash flow challenges due to historical debts. For example, a retail business experiencing financial strain due to accumulated rent arrears and supplier debts might opt for a CVA to restructure payments and restore financial stability.

In both cases, an insolvency practitioner plays a crucial role in facilitating the arrangement, ensuring compliance, and overseeing the distribution of funds to creditors. Voluntary Arrangements provide a structured path to address financial difficulties, prevent insolvency, and regain financial footing.

What is the Process for a Voluntary Arangement?

Step One

When opting for a Voluntary Arrangement, whether as an individual or a company, a meticulously crafted proposal becomes essential for assessment by creditors and stakeholders.

This proposal is expertly fashioned by turnaround practitioners or an insolvency practitioner and encompasses crucial aspects such as:

Present financial circumstances and underlying factors.
Defined payment contributions.
Estimated duration of the arrangement.
Strategies for averting similar challenges in the future.

Step Two

Next, a decision must be made whether it is necessary to secure a moratorium. In corporate proceedings it will be necessary to also place the company into administration. In individual matters, it will be necessary to apply to court for an interim order. Although the benefits of this include protection from all forms of legal proceedings (including winding up or bankruptcy petitions), securing a moratorium inevitably increases the complexity of the case.

Step Three

Subsequently, contact is made with creditors to secure their involvement, maximise their engagement and ultimately secure their approval of the Voluntary Arrangement.

Step Four

A meeting will be convened for creditors, ensuring a notice period of a minimum of 14 days for both creditors and shareholders prior to the meeting.

During this meeting, a vote will be conducted to ascertain the approval of the voluntary arrangement. To move forward, at least 75% of the voting creditors must endorse the CVA or IVA.

A subsequent vote will then occur, excluding the participation of "connected creditors." These connected entities could encompass affiliated companies, company directors, staff offering unsecured financial assistance, or their relatives.

For the IVA or CVA proposal to proceed, approval from a minimum of 50% of "unconnected" creditors is required.

Step Five

The voluntary arrangement commences upon obtaining approval. Typically, contributions are remitted on a monthly basis and annually disbursed to creditors by the insolvency practitioner, who acts "Supervisor."

Points to Consider

In the event that the sustained contributions become unfeasible, the entity may need to deliberate options such as restructuring or the supervisor may be prompted to initiate alternative debt resolution procedures.

The flexibility that a Voluntary Arrangements can provide depends upon approval by the creditors.

During the initial 6 to 12 months of the Voluntary Arrangement, obtaining new credit lines could pose challenges.

The Voluntary Arrangement will be noted on the respective credit file and registered with the appropriate authorities. As a result, entities collaborating with you could become aware of your participation in a Voluntary Arrangement, potentially perceiving it as a financial risk. This aspect is often a notable and underestimated drawback of voluntary arrangements.

When is a Voluntary Arrangement a good option?

A Voluntary Arrangement can be a favorable choice when individuals or companies are looking to effectively manage their debts while avoiding the more severe implications of insolvency. It's particularly suitable when there is a steady income or viable business operations, enabling structured repayments to creditors and providing an opportunity for financial recovery.