What are your options when in financial difficulty?

Gareth BuckleyBlog

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Strike off

You can close down your limited company by getting it ‘struck off’ the Companies Register if it:

  • has not traded or sold off any stock in the last 3 months
  • has not changed names in the last 3 months
  • is not threatened with liquidation
  • has no agreements with creditors, e.g. a Company Voluntary Arrangement (CVA)

The company may not make an application for voluntary strike off if (at any time in the last 3 months) it has engaged in any other activity except one which is necessary for the purpose of:

  • making an application for strike off or deciding whether to do so (for example, seeking professional advice on the application or paying the filing fee for the strike off application)
  • concluding the affairs of the company, such as settling trading or business debts
  • complying with any statutory requirement
  • a disposal for value of property or rights that, immediately before ceasing to trade or otherwise carry on business, it held for the purpose of disposal for gain in the normal course of trading or otherwise carrying on business (For example, a company in business to sell apples could not continue selling apples during the 3 month period but it could sell the truck it once used to deliver the apples or the warehouse where they were stored).

 

Debt Management Plan

Benefits of a DMP

  • DMPs are often fee-free – however some companies charge a fee for their DMPs
  • You’ll only pay what you can afford to your creditors after you’ve put together a monthly household budget
  • If you’ve fallen behind with your household bills you can add the arrears to your DMP to help get your accounts back up to date. You’ll still need to make your regular ongoing monthly payments.
  • You’ll make one monthly payment

Risks of a DMP

  • Some of your creditors may still contact you
  • Most creditors will agree to reduce or stop interest and charges, but they don’t have to
  • If creditors continue adding interest and charges, this could increase the total amount you currently owe
  • Your creditors don’t have to agree to your reduced payments
  • Your creditors may still take further court action against you, such as a County Court judgment (CCJ)

 

Bankruptcy

Benefits of bankruptcy

  • Your unsecured debts will be written off, giving you a fresh start
  • Your creditors can’t take any further legal action against you to recover your debts
  • They must also stop demanding payment, charging interest and adding other charges
  • You won’t receive any further contact from your creditors

Risks of bankruptcy

  • Assets such as your home or vehicle may be included in your bankruptcy
  • Some jobs are affected, such as legal or financial roles
  • Bankruptcy will have a negative impact on your credit file and appear on it for six years
  • Your bankruptcy will be recorded on a public register

 

Debt Relief Order (DRO)

Benefits of a DRO

  • A debt relief order can be a low-cost alternative to bankruptcy
  • You don’t pay anything towards your debts for 12 months. After that they’ll be written off
  • Your creditors can’t pursue you for your debts during the 12-month period
  • Although a DRO is a formal debt solution, you don’t need to appear in court

Risks of a DRO

  • A DRO is only available if you owe less than £20,000 and live in England, Wales or Northern Ireland
  • You’ll need to pay the Insolvency Service a one-off fee of £90.
  • You can’t apply if you’re a homeowner
  • A DRO will appear on a public register and will affect your credit report negatively

 

Members’ Voluntary Liquidation (MVL)
  • MVLs are often used as an exit tool when a profitable company has reached the end of its useful life, where shareholders are keen to extract the profits of their investment, or if its directors are approaching retirement or otherwise looking to depart from the business for any other reason.
  • Even if the company has more than £25,000 after all creditors have been paid, this can be distributed as a capital distribution to shareholders via an MVL which allows for significant tax savings, especially if the shareholders are higher rate taxpayers.
  • The costs of an MVL are relatively low and are easily off-set by the tax savings obtained by the shareholders.

 

Individual Voluntary Arrangement (IVA)

It is important to recognise there are two varieties of IVAs. Firstly, they can be paid monthly over 5 or 6 years based on your income and expenditure. However, many people are unaware, but you can pay a lump sum. This is suited for those with equity in a property or other assets and that are not sure what their financial situation will be in the years to come, such as if you plan to retire.

Benefits of an IVA;

  • You make affordable monthly payments, usually over five or six years if you have equity in your property.
  • If you’re a homeowner you’ll usually be able to keep your home, as long as you maintain the mortgage payments and any secured loans on your property
  • There are no set up fees to be paid before your IVA is agreed
  • There are fees once your IVA is in progress, but these will be included in your monthly repayments and are set by your creditors
  • If you have a lump sum to offer, this can be paid as a one-off ‘full and final’ settlement, or a combination of a lump sum payment followed by monthly payments
  • Once you’ve made your final payment any remaining unsecured debt is written off and your creditors can’t pursue you for payments

Risks of an IVA

  • If there’s equity in your home, you’ll need to try to re-mortgage which may result in a higher interest rate but if you’re unable to re-mortgage you can make a maximum of 12 extra payments or a third party can offer a sum equivalent to the equity.
  • If your IVA fails, creditors may request the supervisor of your IVA petitions for your bankruptcy
  • Your credit rating will be negatively affected
  • Your creditors may not approve your IVA
  • At the end of your IVA, only unsecured debts included will be written off, any not included will remain outstanding
  • Your IVA will be recorded on a public register
  • Once your IVA is set up your spending will be restricted until the IVA comes to an end

 

If you have any questions regarding any of these options then do get in contact.

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