Risky Business

In these politically and financially turbulent times, even the best businesses can run into trouble and dead certainties can quickly turn into dead ducks. Companies can sometimes weather temporary downturns through additional borrowing, but financial institutions may demand increasing levels of security in return, such as personal guarantees. These can work well for small to medium-sized companies, but the potential impact can also be very high should a business fail. Although losing your business can be a bruising experience, the stakes become so much greater when personal guarantees are involved as you also risk losing personal assets, such as your family home.

When a business fails and creditors call in personal guarantees, it can be easy to bury your head in the sand or incur even more debt in an attempt to keep hold of your personal assets. Although finding yourself personally liable to creditors following a business failure can be daunting, there are options available to deal with the debt and enable those involved to draw a line under it and plot a course to a debt-free future.

Individual Voluntary Agreements (IVAs) are contractual agreements with creditors under which the debtor agrees to pay specified regular payments into a central fund which will be shared between the creditors. IVAs usually operate for three years after which time the debt is considered to have been cleared. The advantage of an IVA is that a debtor can potentially avoid surrendering their personal assets and can continue to act as a director without the financial restrictions which apply in bankruptcy. However, IVAs are only possible where at least 70% of the creditors agree to one and only realistic where a debtor knows they are likely to be able to meet or exceed the regular payment schedule for the whole period.

Personal bankruptcy has lost much of its historic stigma and offers a potentially shorter alternative route to clearing debt. It is not an easy option - a bankrupt will have to surrender their assets and, during the bankruptcy, they will be unable to act as a director or obtain any credit such as an overdraft facility or a credit card. On the plus side, after 12 months the bankrupt is usually discharged and is able to start again, free of any residual debt.

Working out which is the best option can be difficult and our insolvency team offers specialised, practical advice tailored to an individual's specific circumstances. If you would like to discuss your circumstances, the insolvency team can be contacted on 01603 723 799 or

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