Settlement Using Collateral Question

[Tracie]

Hi All,

first post here, but have sought lots of information by trawling the forum previously - thanks.

Myself and my husband - also business partners - both have an IVA, started June 2006. The assets in the Arrangement are £43,708 comprising of monthly contributions and £10,474 equity release. This produces a dividend to creditors of 21p in the £. Our arrangement is variable.

In August 2006 we managed to buy our business premises, this was allowed by the IP because we had an Option to Buy at a set price within the contract when we bought the business in 2003, and it was very cheap compared to 2006 market value, plus the mortgage worked out no more than what we were paying in rent.

We were told at the time of purchase that if we sold during the IVA, the equity would be classed as a windfall and payable to creditors - unless the equity was put back into our business, i.e. we couldnt gain personally from it.

A year later, we are struggling to make the IVA payments and fear bankruptcy,so have decided to sell the building pay off the IVA and some outstanding N.I. and be left with a moderate amount to act as a cushion in the business - cash flow so to speak.

We anticipated that if we offered the full £43,708 as F&F this would suffice, but I have today contacted our IP for 'where do we go from here' advice and she has told me it's not as straight forward as just paying off the £43,708, because the creditors will only be getting 21p in the £ and if they see you have more money available you may have to give it them all.

This makes our lifeline of selling the building not a lifeline and pointless. We will have business re-location costs etc to pay and will end up worse off if we dont have any collateral left.

Can anyone advise on this, I know it's a peculiar situation because of the collateral, but our business is struggling, we bought the building after the IVA as a safety net and doesnt seem entirely fair.

Appreciate your help.
Thanks
Tracie

[Adam Davies]

Hi
I think the problem that you have is that your IP previously stated that the equity that your business property makes will be classed as a windfall and windfalls are payable in addition to the original proposal of 43K.During an IVA you still owe your original debt and it,s not until your IVA is concluded that your creditors write the money off.
I fear that you may have to negotiate with your IP a way forward,perhaps you can raise some equity from your house as I presume that the equity release of £10k,agreed at the time of your IVA,is from your home.
Regards
Regards

Andy Davie
IVA.co.uk Spokesperson

About me:
http://www.iva.co.uk/andy_davie_profile.asp

IVA Helpline: 0800 197 4838
http://www.iva.co.uk/iva_helpline.asp

[MelanieGiles]

Your creditors initially accepted the proposal with an expectation of a return of 21p in the £. So that offer was good enough at that time. Things have now changed which have lead you to reconsider the situation, and you believe that your only way forward is to sell and after-acquired asset, using some of the money to pay off the IVA and retaining sufficient money as working capital in order to preserve your business.

In principle, there should be no problem in getting creditors to accept this offer, however you will need to make a re-declaration of your current statement of affairs, and a proper justification for the money you wish to retain. And as Andy says, if you are able to offer a bit more, you may have more chance of acceptance.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[Tracie]

Thank you Melanie/Andy for your replies.

I felt during and after the conversation with our IP that she was trying to put the frighteners on me a bit (it worked)and pointed out to me that they work on behalf of, not only us, but the creditors as well and have to seek the best for them.

I do understand this, but we are not unreasonable people, we chose an IVA over bankruptcy after considering both for a long time, because we felt better that we were going to pay at least something back to other businesses, like ourselves, as opposed to a quick get out with bankruptcy, we had next to no equity in our house and didn't stand to loose a lot through bankruptcy, but decided against it.

I think it is because of this, we feel a little miffed, that we are only trying to 'get on' in life by opting to sell what was suppose to be our nest egg, only to be told 'quite bluntly' that we may have the door slammed in our face.

I didnt feel our IP was very supportive compared to some of the posts I have read on here, and I'm wondering how much of it is the scare tactics and how much is genuine.

I have just read another thread on here, where someone wanted to sell their house to pay F&F, the equity left was about £71k, the debt was £36k and he was offering £20k, this is a similar situation to ours, although I dont know the outcome of that one.

I suppose the only way to find out is to offer the £43,708 and wait for the response.

Thanks again, will let everyone know the outcome in case anyone else finds themself in this situation.

Regards
Tracie

[MelanieGiles]

And your IP is right to say that she is responsible to creditors as well. This does not always make us the most popular people, but we have to act impartially balancing both sets of interests.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk