Can I Include A Business Loan In My IVA?
Understanding which debts can be included in your IVA is a fundamental part of the decision making process.
For the most part, it should be pretty straightforward to establish whether a debt can be included in an IVA but, occasionally, it may not be so easy to tell.
For instance, when is it necessary to include a business loan in an IVA?
Type Of Business
The answer to this question will be determined by the type of business holding the debt.
Each type of business deals with debt liabilities differently, whether you are a 'Sole Trader', in a 'Partnership', or a 'Limited Liability Partnership' or a Limited Company.
So it's important to understand the differences and the way an IVA will tackle each type of business debt.
'Sole Trader' businesses
If you are trading as a 'Sole Trader' you accept the liability to any business debt you take on. As such, there's no difference between your personal liabilities and your business's liabilities.
This means that any personal unsecured debt you have, including your business loans, overdrafts and credit card debts must be included as debts in your IVA.
To avoid their inclusion would create what is termed as a 'preference' in favour of that particular creditor, something your other creditors would find unacceptable.
Sole Traders and their suppliers
If your Sole Trader business relies on a monthly credit facility provided by a supplier, your Insolvency Practitioner has the discretion to allow you to maintain that facility, so long as the balance is cleared at the end of each month.
But if you have a credit facility with a supplier that can't be cleared monthly, you would need to include that debt in your IVA.
Obviously, if that were the case, it would be necessary to find an alternative supplier.
If you are a Partner in a Partnership, you accept personal liability to any debt the Partnership takes on.
All Partnership debts have a 'Joint and Several' liability, which means that each Partner accepts full liability for the full outstanding balance of any Partnership debts.
If a Partner becomes insolvent and needs to enter an IVA, they must deal with their personal liabilities, including those to the Partnership debts.
Liability to the Partnership debts are included in the IVA and any personal liability is therefore removed.
The actual debts themselves still exist and must be maintained by the remaining Partners. It is simply the personal liability of the IVA applicant that is removed by the IVA process.
It would, therefore, be prudent for a Partner considering entering an IVA to discuss their circumstances with their fellow Partners beforehand, as there may be unintended consequences on the other Partners.
Limited Liability Partnership debts
A Limited Liability Partnership (LLP) limits the liability of each Partner in the Partnership.
Unlike a standard Partnership, an LLP does not put the onus of 'Several' liability on the Partners.
Whilst each Partner has a personal liability towards their share of the LLP's liabilities, each Partner's liability is limited to the amount they invested.
Liability to an LLP debt would need to be included in an IVA but the size of the liability would be limited to the percentage share holding of that Partner.
Limited Company debts
If your business is a Limited Company then your business debts will remain outside of your IVA.
The Limited Company is a legal entity in its own right, so the Directors are not liable for the Company's debts.
Personal Guarantee (PG) to a Limited Company debt
However, if a creditor has been given a 'Personal Guarantee', this liability will need to be included in the IVA.
The liability for the repayment of the debt still rests with the Limited Company but, in the event of a default, the personal liability generated by the Personal Guarantee is removed by the IVA process.
If you would like confirmation on whether a business debt you have can be included in your IVA, please call our helpline on 0800 856 8569 where one of our advisers will be able to help you.