Business owners urged to avoid IVAs as a first step
Statistics released for June 2026 show a sharp rise in Individual Voluntary Arrangements (IVA), with the number of people entering these formal debt compromises increasing by 22% compared to the 2025 monthly averages. While an IVA is a structured way to manage unmanageable debt, experts suggest that for business owners, it is often an unnecessary escalation rather than a first step.
The Mechanics of an IVA
An IVA is a formal agreement between an individual and their creditors, overseen by an Insolvency Practitioner. The goal is to compromise debts and structure repayments over a set period, typically five years. During this time, the debtor contributes what they can afford, and creditors agree to a reduced percentage of their total debt in exchange for sticking to the schedule.
This process is often viewed as a preferable alternative to bankruptcy because it offers more flexibility regarding asset distribution and usually results in a higher recovery rate for creditors than a formal bankruptcy proceeding.
Risks for Company Directors
These formal arrangements are frequently used when personal outgoings exceed earnings, a situation often caused by high mortgage payments or accumulated credit card debt. For business owners, this financial strain can intensify when commercial circumstances shift unexpectedly. A downturn in the company or a sudden redundancy can make previous spending habits unsustainable, even if the individual attempts to cut back immediately. While some business sectors face external pressures like higher employment taxes or supply chain disruptions, others struggle simply because the business is in a growth phase where the director is investing capital rather than extracting profit.
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For many business owners, the primary focus remains on the company’s operational health, often leading to a neglect of personal liquidity. When a company underperforms, the natural instinct is to pour more resources into the venture, but this approach ignores the reality that an IVA is a personal financial decision. The long-term damage to personal credit history can outlast the business itself, limiting future opportunities regardless of whether the company eventually succeeds or fails.
Proactive Debt Management
Officials suggest that before reaching a crisis point, individuals should explore informal pathways to manage their obligations. Engaging directly with creditors can sometimes yield better results than a formal arrangement.
Questions to consider include whether the mortgage company can offer lower rates, if payment holidays are possible, or if interest and charges can be frozen. Reducing liabilities with high interest rates might also be possible with assistance from family members to provide a full settlement.
Managing Commercial and Personal Finances
Generating future income remains the most effective way to resolve financial difficulties. This might involve changing business operations to become more profitable or securing new employment.
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Business owners also face the risk of their customers failing to pay, which can create a cascade of problems. Recognizing warning signs early—such as a customer being difficult to reach or consistently making excuses for late payments—allows the business owner to mitigate these financial shocks before they impact their personal balance sheet.
Ultimately, the best way to maximize options for managing debts involves restructuring personal income. When running a business, this means making changes to allow the company to thrive and generate profits that can fund the individual’s lifestyle.
This could involve investment in business development or carrying out a review of existing customer contracts to establish which are profitable and which drain resources.
James Hopkirk, restructuring partner at Kreston Reeves, notes that while the UK insolvency framework provides options for those in distress, it is far more effective to avoid escalation altogether. Acting quickly and proactively, rather than waiting for a formal process, gives individuals the best chance of maintaining financial stability.
