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What is Voluntary Insolvency?

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A very broad definition of voluntary insolvency simply means that the person or company sees no prospect of paying debts and is therefore seeking to go bankrupt. According to R3, a company would be considered insolvent if they unable to pay debts as they come due or does not have adequate value in assets to cover existing debts. Likewise, R3 states that the individual can be considered insolvent if he/she is unable to pay debts as they come due.

Rather than being made bankrupt by creditors, individuals and businesses can seek a voluntary insolvency agreement with creditors to pay debts usually within a 12 month period. Bankruptcy, on the other hand, would mean that some debts are discharged by the courts and creditors may not realise all the monies owed to them. Of course it should be noted that a voluntary insolvency arrangement may not be able to provide for all debts owed, but creditors often willingly enter into the agreement as they would realise more than they would in the case of bankruptcy.

Voluntary insolvency UK regulations are strictly enforced and as a result, only an Insolvency Practitioner should be hired to advise and oversee the insolvency procedure. As a matter of fact, only an IP has legal authority to oversee liquidation of assets and to file with the courts any papers and proposals.

Most debt relief companies either have Insolvency Practitioners on staff or as referrals to assist those faced with debts which have no prospect of being paid. Bear in mind that insolvency laws governing England and Wales are different from those governing Northern Ireland and Scotland. If you are considering entering into a voluntary agreement, take the time to talk to a debt relief company and/or an Insolvency Practitioner in order to see if this is the best course of action for you.

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