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As a formal alternative to bankruptcy, an Individual Voluntary Arrangement is more flexible in that it allows a company director to remain in their position. Equally, you can be appointed as a new company director if you have an IVA, provided there is agreement from other members, and that existing directors are aware of your financial position.

Are there any exceptions to this?

  • Some companies have a clause in their Articles of Association stating that directors are not allowed to enter into ‘any arrangement or composition’ with creditors. This means that you would have to resign as a director of that company, unless a resolution was passed to remove the clause. This may be made retrospectively if you are an existing director, but in both cases whether this happens or not depends on the company shareholders.

  • If you take a salary from the business, you are effectively an employee as well as a director. Sometimes, restrictions are placed within a contract of employment that make insolvency a dismissible offence.

If the terms of your IVA are not adhered to, bankruptcy is the likely outcome, which means an immediate ban on being a company director, with no exceptions apart from when specific agreement is obtained from the court.

Personal and company bank accounts may be an issue

With so many people experiencing financial problems on a personal level, demonstrating receipt of a reliable income is vital to the success of any formal insolvency measure.

Problems may still arise, however, if your personal and company bank accounts are held at the same bank. Should you fail to meet the terms of your IVA at any point, the bank will take precautionary action as protection from further default. This may include reviewing the existing credit arrangements and borrowing facilities for the company’s account.

This has a knock-on effect with regards to your IVA. If the company is seen to be struggling financially, the reliability of your income will probably come into question. As part of your Individual Voluntary Arrangement, you will have had to prove to your personal creditors that you are in receipt of an income that could support the repayments.

If this fact becomes questionable, it could lead to further concern about your ability to repay. Additionally, if you have provided personal guarantees for company loans, this could present a problem further down the line.

Personal guarantees for company loans

Any personal guarantees that you have made for company loans should be mentioned in your IVA as a contingent liability, and a copy of the agreement sent to the company’s lender. If the company itself experiences financial problems, the personal guarantee can then be absorbed into your IVA as the issue has already been addressed.

If personal guarantees have not been included within the IVA, you may become liable for any loans called in. That is one of the reasons why you need to appoint a professional Insolvency Practitioner to deal with all aspects of personal and company debts, as there is always a danger of them becoming entwined at some point in the future.

Begbies Traynor has years of experience in this regard, and can negotiate on your behalf with creditors. We will ensure that all contingent liabilities are addressed in your agreement, to prevent potential problems later on.

A separate legal entity – most of the time

Being the director of a limited company offers a clear divide between personal and company financial issues most of the time, which is often the main reason why this business structure is chosen.

If the company starts to experience financial problems, however, this ‘veil of incorporation’ can be lifted in certain circumstances. This includes the liability for some or all company debts being placed with the directors.

This can be a particular issue for some directors if they fear accusations of wrongful trading or unfit conduct, having serious repercussions if an investigation is undertaken by the Insolvency Service following liquidation of the company.

To help you understand the rights and responsibilities of company directorship in more detail, call our expert team at Begbies Traynor. We can help you gain a better understanding of how an IVA might affect your position as a director. We offer a same-day consultation at any of our offices nationwide.

Contact our team

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Advice You Can Trust

Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland