Hello all, my name is Paul and I am new to this group. my wife and I have just gone into the IVA process after months of trying to service interst payments of £3,500. I run a small recruitment business that has the potential to be very lucrative, my wife works and earns a good salary. Through trying to support the business we have incurred personal credit card debts of around £100K, which seems like an awful lot of money but this has just seem to spiral out of all control. My company lost around £25K of business in done deals just before Christmas (the money I was going to use to pay off the highest interst rate cards!) hence we ar now in this position. All our papers have gone off the Grant Thornton so that the proposal can be put together and hopefully approved at the Creditors meeting.
My question is this, my business tends to make big fees but these can be sproradic hence I take dividends when there is money to do so along with the tax threshold salary. What I wanted to know is if my company had a good year would I be able to make an offer of full and final settlement at the end of the year or would any large dividend be viewed as a payrise or windfall? I ask this as the thought of being in this for five years brings me out in a cold sweat! I am aware that they may view this as money I should take out and give to them anyway, would they take a business decision and allow me to make an offer to settle from a large dividend or would they want it and then want me to carry on for five years. If the answer is the later as a Ltd company am I entitled to keep the money in the business?
I've no idea on this I'm afraid. You need to run this past GT - they are best placed to help.
One of our experts may be able to give some advice.
Sharing from experiences of dealing with debt
The greatness of a man is not in how much wealth he acquires, but in his integrity and his ability to affect those around him positively.
Bob Marley. http://kallis3.blogs.iva.co.uk
Your IP will expect you to draw maximum dividends without putting your business under pressure. You can't offer a full and final settlement from earnings unless you are repaying 100p in the £
Good luck with your IVA proposal
Hi Kallis3, thank you for your kind words. Thank you Andy for your reply, I have asked Grant Thornton these questions but they seem a little vague and non committal in their answers. If my wife and I are both going into an IVA can one be paid off before the other?, i.e. my debt liability is less than hers and if the business has a good year I may be in the position to pay my liability in full therefore achieving 100% in the £, or are we jointly liable for each others IVA? As mentioned the thought of being in an IVA for five years + fills me with terror. I have plans to expand my business and am worried that if I have to pay over any excess profit in my company then our situation is never going to change and my business will never move forward. An IVA is the only way I can see that will protect our position legally as I have heard horror stories of Creditors selling debts on a few years into a DMP.I would be really grateful for some advice as no one thus far has been able to provide me with any definative answers, all GT have said that if I were to make a sensible offer later down the line it would be in the Creditors interest to consider it.
Unless the shares are a 50/50 split an IVA may not be the best option for you. A DMP may be a better option as it gives flexibility which a business such as yours may need. An IVA for your wife may be more appropriate and if your business developes you could offer a full and final to her creditors after settling with your own.
With a DMP you will be repaying in full perhaps with ongoing interest as well. In an IVA the interest is frozen, so there may still be some advantages to that process - but if the company does earn good profits expect creditors to want their share.
It is important to leave sufficient capital in the business by way of reserves, and a good IP experienced in dealing with SMEs will be able to advise you on this matter - I am sure that GT have their own specialist business unit so it may be an idea to chat further to those guys if you can track them down.
If it's a ltd company the notion of your personal debt having some obligation to it, I find unlikely. Also my IP excluded divi's from my proposal, to keep things simple!
Melanie I think your confusing me with the original posters question was just me in my IVA
My reasoning with a ltd company not having any attraction to personal debt creditors claims, is the same reason that if a ltd company goes belly up for £1 or 10million the creditors to the ltd company have no claim to the individuals of the ltd company either. (fraud aside) If you like a ltd company is its own entity with it's own profit or loss. The suggestion that you take money out to service personal debt creditors does not balance unless loss for any given period was also taken into consideration. So by the same reasoning I assume that the divi's are written out of some proposals as it can work both for and against creditors.
Dividends form part of income and creditors would not allow shareholders to leave the money in the company until the IVA was completed and then take it out. It is not a question of using the money for personal debt butbeing fair to creditors.
The balance sheets of limited companies should be examined by the IP to see if the company owes or is owed money. It should also be made clear that the company must pay affordable dividends and not retain the money specifically to avoid paying the shareholder's creditors. Dividends should never be excluded where a shareholder is in an IVA although the shareholding should and can be excluded.
Sorry Sponge - memo to self to read the post thoroughly in future!!
If you are a shareholder in the company, then the company's profits are effectively yours to draw dividends against, and failure to do so would leave money which creditors ought to be entitled to share from away from them. So are you saying that your own IP deliberately caused you to misdeclare an income source?
I don't beleive that any IP would do that deliberatly or otherwise. I'm sure the IP acted with the upmost due diligence in respect to the structure of the proposal.
Michaels response is interesting, can you explain a little more?
Not too sure what to explain. If you have a shareholding in a company large or small and it pays a dividend that income forms part of your surplus. If you owe the company money or it owes you money that is an asset or a liability. If you own all the shares you can control what is paid in dividends and it would be wrong to retain the money in the company just to avoid paying crditors.
Your shareholding should be excluded to prevent creditors demanding the sale of the company but other than that it is straightforward.
