Sole trader rescue options

If you don’t operate through a Limited Liability Company or Limited Liability Partnership, then you will either be working through an old-style Partnership or you will be a Sole trader.

Crucially a Sole trader will have no protection for their personal assets from their business liabilities. To translate, this means that anything owned personally, simply put, is available to pay both money owed personally by you and money owed within your business.

Sole trader insolvency services

Economic or market conditions are often held out as the cause of business difficulties. In many cases events beyond the control of a sole trader leads to their business facing difficulties. Many individual reasons can lead to a business needing to use an insolvency procedure.  Sole traders face their own unique pressures and it is our experience in dealing with these matters that sets us apart.

Sole trader insolvency options have a variety of uses.  Court protection from a creditor’s enforcement action can be obtained which would buy time for restructuring a business and its finances.

All insolvency procedures require the involvement of Licensed Insolvency Practitioners.  Of particular relevance to Sole traders is a Business IVA (“Individual Voluntary Arrangement”), the flexibility of this structure lends itself well to the wide variety of Sole Trader operating styles.

Sole trader insolvency options

The reasons for needing to review sole trader insolvency options are likely to be varied.  The identification of these issues is vitally important in being able to understand what is required to take steps to prevent a repeat of such problems.

Once reasons are identified then it will be possible to dissect the symptoms (usually cash flow related) from the causes (trading conditions, bad debts etc..).  It may be simply that the causes of the insolvency position are not resolvable and that further trading will only worsen the position.  This doesn’t however mean that Bankruptcy is the only option.

Where it’s possible to rectify the causes of the insolvency position then it may well be possible to see the business moving forwards whilst being able to make a monthly contribution towards older creditors.  Such a monthly contribution could be the basis of a Business IVA.

Informal voluntary arrangements for sole traders

Commercial negotiation with your creditors (those you owe money to) should always be the first option.

Such informal voluntary arrangements will allow precious time for business rescue solutions for sole traders to be put in place.

Business IVA – Individual Voluntary Arrangement

A business Individual Voluntary Arrangement follows the format of a Personal Individual Voluntary Arrangement. The Individual Voluntary Arrangement was introduced by the 1986 Insolvency Act.  The main differences between a Business Individual Voluntary Arrangement and Personal Individual Voluntary Arrangement are the source of payments into the Voluntary Arrangement and the type of creditors who are owed money within the Voluntary Arrangement.

A business IVA will typically be funded by income into the sole trader’s business.  Creditors (those who are owed money) of a business IVA will typically be principally business creditors but it is not uncommon for personal creditors to have built up to fund trading losses in the sole trader’s business. Both types of creditors could be included in an IVA.

Bankruptcy

Bankruptcy continues as an effective method to clear unresolvable personal debt, whether as the result of trading as a sole trader or personal borrowing.

Highly effective in removing unwanted debt but its lack of flexibility can be its downfall.  All creditors whether business or personal are taken away from the sole trader and passed to the trustee in bankruptcy.  The same applies to all assets of the sole trader.

The sole trader is then left without creditors and without assets of any value above what is owed.

The sole trader will be left with necessary assets to live and work but not anything that is considered to be of excess value over what is necessary.

BusinessSupport.co.uk can advise sole traders on all aspects of insolvency procedures from planning to implementation.

However unique your circumstances are, we can offer commercial and professional advice. Please get in touch.



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