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Voluntary arrangement – what is it?

A voluntary arrangement is a legally binding agreement between an individual, a partnership or company and all its creditors.

A voluntary arrangement is a legally binding agreement between an individual, a partnership or company and all its creditors. They were introduced into legislation in 1986 and are used to avoid bankruptcy or liquidation.

The process to obtain a voluntary arrangement is to ask an insolvency practitioner (like us) to help you put together a proposal to creditors. This proposal includes a history and a financial snapshot of the current position. It also usually includes a projection with a forecast of what could be repaid.

Once the proposal is finalised it is sent to all known creditors with at least 14 days’ notice of a date in which they need to make a decision. Creditors can either accept or reject the proposal or accept it with certain modifications. You need 75% of creditors by value to agree the proposal for it to go through. Creditors who were not notified of the proposal are still bound by the agreement. 

The voluntary arrangement freezes all unsecured and preferential creditors at the date it was approved. All those creditors must now deal with the insolvency practitioner. A dividend, is usually paid to the creditors either annually with a report, or on the sale of the business.

The proposal does not bind secured creditors such as mortgages or higher purchase companies who can still rely on their security.

Voluntary arrangements are a very useful way for businesses to keep going and avoid closure. Quite a few of the voluntary arrangements we have dealt with are for a partnership running a pub. The proposal to creditors is either monthly contributions paid over five years or the proceeds of the sale of the business.

For more information and advice, please contact me on 01392 474303 or david@kirks.co.uk.

David Kirk

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David Kirk ACA FABRP

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David Kirk

Licensed Insolvency Practitioner