Should I consider a voluntary arrangement?


By Andrew Davidson

I have previously written about bankruptcy law and the importance of obtaining proper advice as early as possible in order to minimise the terms and duration of the order. One option that may be open to you at this point is entering into a formal Individual or Company Voluntary Arrangement with your creditors which will allow you to pay down your debt on more favourable terms. Although voluntary arrangements can still affect your credit rating, the consequences are not as severe as bankruptcy. They may also mean that if it comes to bankruptcy, you will be in a much better position to demonstrate that you acted properly and in good faith.

Formal agreement

Voluntary arrangements must be proposed through an insolvency practitioner. Some specialist solicitors already hold this qualification but most prefer to instruct a dedicated professional, particularly in complex commercial cases where a whole business may be at stake. The solicitor’s role is to advise on the appropriate terms for the Voluntary Arrangement, using their experience of bankruptcy cases to judge what is likely to be accepted, and to advise on the legal effect of entering into the arrangement.


For individuals, the greatest advantage of entering into a voluntary arrangement is that it can prevent the loss of their home. In bankruptcy law, the trustee in bankruptcy can force the sale of the debtor’s assets, including their house, in order to pay down the debt. A voluntary arrangement can be proposed that specifically excludes property from the terms of the agreement and fully binds the creditor to respect those terms.

For commercial enterprises the advantage is that, unlike insolvency, voluntary arrangements will not usually result in the dissolution of the business and they will not bar the directors of the company from holding their positions. This was important to a client of mine whose main income was based on the directorships they held; if they had been disqualified they would have lost most of their means to support themselves!

Not for everyone

There are some disadvantages, however, and voluntary arrangements may not be suitable for everyone. They can often last much longer than bankruptcy, and due to the fees that must be paid to the insolvency practitioner, and the other officials, it can be quite expensive. As with bankruptcy, the cost of obtaining proper advice is a reason to consider instructing a solicitor to advise on the situation before the situation becomes too dire. If you have run out of money, then a voluntary arrangement is unlikely to be accepted and your options will be severely limited.

Andrew Davidson is one of Contact Law’s most knowledgeable case handlers with extensive experience in this matter from dealing with clients on a day-to-day basis.

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