Couple saved from bankruptcy

Bishop Fleming's Luke Venner explains, with the help of a case study, why it is important to take early advice when facing financial challenges.

(The names of the people involved have been changed to protect their identity.)

Mr and Mrs Smith operated their own construction company, which ran into severe difficulty in 2019.

Rather than taking advice at that point, through their company they borrowed in excess of £100,000 from a finance provider, which they personally guaranteed.

The company was insolvent at this time, and the couple had no real plan as to how the company's fortunes would turn around, other than just hope that the cash injection would see them through.

A matter of months later, the company crashed and entered creditors' voluntary liquidation, a formal insolvency process, leaving the directors on the hook for the borrowings, and other personal guarantees with trade suppliers.

Lessons to be learnt

The first message here is, had they taken advice from an Insolvency Practitioner before borrowing the money, a restructuring plan could have been implemented which may well have saved the business and would have prevented the couple from having to put their personal assets on the line.

The finance providers and trade creditors then came calling, demanding payment and threatening bankruptcy action otherwise.

If bankruptcy ensued, the couple would have lost the equity in their property, for which they had worked many years to accumulate - because of this one foolish decision to borrow money.

For a couple fast approaching retirement, with no other savings or investments, this would have been disastrous.

Bishop Fleming steps in

As a consequence, Bishop Fleming was instructed to advise the couple and assess their options in the hope that bankruptcy could be avoided.

This was a tricky task because the creditors knew full well that had they pursued the bankruptcy option they would have seized the couple's equity, although this would have taken some time and cost.

We, therefore, determined that an Individual Voluntary Arrangement (IVA), which is a legally binding agreement with creditors, could help them to address their debts and avoid bankruptcy. An IVA is an insolvency process which must be overseen by an Insolvency Practitioner.

We drafted their proposal such that the couple must seek to sell their property within the next 18 months and introduce into the IVA a share of their net equity for payment to creditors in full and final settlement. 

Importantly, we sought agreement with the creditors that the couple be permitted to retain a significant share of their equity to assist them with their retirement funding and/or next property purchase, which would have been non-negotiable in bankruptcy.

Great news

Their IVA has now been accepted. A fantastic result in the circumstances, which provides the couple with a measure of financial security going forward, but one which may not have been necessary in the first place had they taken advice much sooner when their company first hit troubled waters.

If you feel Bishop Fleming's restructuring team could help you in some way with your financial challenges, please contact us for an initial conversation.