Why an IVA shouldn’t be the first option for a business owner

Recent statistics show the number of people entering an Individual Voluntary Arrangement (IVA) in June 2026 was 22% higher compared to the average monthly figures in 2025.

An IVA is a formal agreement that an individual can reach with their creditors, overseen by an Insolvency Practitioner, to compromise their debts and structure repayments over a manageable period.

Typically, an individual owing money might agree to make contributions at a level they can afford over a period of five years, which will ultimately result in a return to the creditors of a certain percentage in the pound, which creditors are asked to agree to.

Many people find this a more palatable alternative to a bankruptcy as it can allow more flexibility in terms of how the individual’s assets are dealt with. From the creditor’s perspective it can be an appealing option as it will result in a better overall outcome than a bankruptcy.

The IVA procedure is often used by individuals whose outgoings have become disproportionate to their earnings. They may have a large mortgage and perhaps made frequent use of credit cards. However, if their circumstances unexpectedly change, because of redundancy or a downturn in their business, their spending can quickly become unsustainable. Even if they can reduce their future spending in the short term, they may not be able to service debts which have been allowed to build up.

Figures for the same period do not show a corresponding growth in business failures although there will of course be business owners who are struggling to keep their company afloat. Their business may have hit hard times because of issues beyond their control – higher employment taxes or supply-chain issues continue to impact many businesses. Equally, the business may still be at the growth stage – an entrepreneur might have left a role to start a company and now they are working hard to build something new from scratch.  These can be the times when a company director is spending the most time on the business, yet, frustratingly, they may not be able to extract earnings at the level they need.

While an IVA is certainly an option here, there are many reasons to avoid a formal insolvency. The impact on an individual’s credit rating can be long lasting, and the status of the IVA will be listed in the public domain. Before reaching a crisis point, the individual may do better to take proactive steps to engage with creditors to see what can be achieved on a more informal footing:

• They could speak to their mortgage company – are there lower rates available? 
• Will creditors accept reduced monthly payments or a payment holiday? 
• Can interest and charges be frozen? 
• If there are any liabilities with particularly high interest, can a family member help them reach a full and final settlement?

Ultimately the best way to maximise the options available in managing debts is for the individual to generate future income. That may mean obtaining new employment if they have faced a redundancy or, for the business owner, it will mean making changes in the business to allow it to thrive and generate profits which can be used to fund the lifestyle to which the individual aspires. That could involve investment in business development or carrying out a review of existing customer contracts to establish which are profitable and which are a drain on resources.

Business owners will be aware that other companies will face their own problems and that can be another source of unexpected issues. If a customer goes bust and doesn’t settle their debt to you, it can have a knock-on effect which can be difficult to manage. Sometimes in hindsight these events aren’t quite so unexpected, and business owners can learn to look out for warning signs that a customer is facing their own challenges. These include:

• Consistently late payments; 
• Difficulty in reaching anybody to discuss an outstanding payment; 
• Regular excuses as to why payments haven’t been made yet; 
• Staff turnover unusually high.

In conclusion, while the UK insolvency framework provides various options for individuals who are having difficulty managing their debts, it is far more effective to avoid the situation escalating in the first place. 

Individuals can be mindful about whether their lifestyle and spending can cope with some fluctuations in their fortunes. If problems do arise, individuals can act quickly and proactively to engage with creditors and avoid an escalation; and when running their own business, individuals can be watchful and possibly anticipate trouble before it lands at their door. 

If debt is becoming difficult to manage, early advice can make all the difference. Speak to our insolvency specialists to understand your options and find a practical way forward.

*As seen on smallbusiness.co.uk