Recovery Matters Autumn 2020: individual voluntary arrangements in the Coronavirus pandemic
As we enter the ‘new normal’, it is useful to highlight recent advisory matters that Moore Kingston Smith Licensed Insolvency Practitioners has been involved in. This is an ongoing case so some details have been removed to protect anonymity.
Individual voluntary arrangements in the Coronavirus pandemic
We have recently been contacted by a couple who found themselves in financial difficulty. The husband runs a small financial services company from a lease where the landlord has postponed, but not cancelled rent, while the wife has some part-time income. The company has a large loan from an alternative funder that had fallen into arrears, which they have both personally guaranteed.
They recently took out a bounce back loan (available to all small businesses up to £50,000) which they used to bring those arrears up to date. Business has fallen away in the pandemic and now the company is insolvent, requiring a liquidation. This will impact on their own finances as the company loan is to be treated as a personal debt which they cannot pay. They are both looking at an individual voluntary arrangement (IVA) to avoid bankruptcy, thus agreeing structured payment plans with their creditors.
We know the alternative lender and hope to clarify terms with them to avoid the need for the wife’s IVA, whose material debt is the personally guaranteed loan. We will need to show that the IVA provides for a higher recovery and more practicable solution than the bankruptcy option. Bankruptcy has greater costs and an in-built delay to house repossession because the couple has young children which prevents such action for at least 12 months. The husband’s ability to earn will be affected by bankruptcy, so an IVA may be a good solution for all
The bank who provided the bounce back loan will not be happy about the funds being used to pay off loans subject to a guarantee because such loans are not supported by guarantees. In these current times, it will be almost standard practice for these loans to have been taken out to cover more pressing payments. This transaction is likely to be a preference where the liquidator considers making such a claim to recover this money.
The liquidator will also need to look at any furlough monies received to ensure they were received in good faith and within the rules. There are several new factors to consider alongside our “usual” practices when advising clients and determining recovery actions for the benefit of creditors.