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Deed of Arrangement
What Is A Deed of Arrangement?
A Deed of Arrangement is a relatively little used procedure nowadays, but can be highly appropriate when dealing with only a handful of creditors. In these circumstances, in our opinion, it is an under utilised procedure in favour of IVA’s or the instruction of debt management companies.
Who can benefit from it?
All individuals, Sole Traders or Partners experiencing financial difficulty but with only a small number of creditors. Unlike the debt management products available, creditors who accept the Deed of Arrangement are bound by the agreement reached.
The Procedure in Brief
Deeds of Arrangement are very simple to draft. The Debtor decides on the offer he wishes to make to his creditors and these are forwarded in the form of a Deed to them. Only a majority in value is required for the arrangement to be approved, however, unlike IVA’s, only those creditors who voted in favour of the arrangement are bound by its terms. The dissenting creditors remain entitled to continue or commence enforcement action against the debtor irrespective of the arrangement, which can result in its failure.
Key Components for a Successful Deed Of Arrangement
The smaller the number of creditors, the more likely it is to succeed.Often utilised where discussions have already been held with creditors and the basis of agreement reached subject to implementation of the Deed of Arrangement.
Advantages Of A Deed Of Arrangement
Individual, Sole Trader or PartnerOnly requires approval of a simple majority of creditors in number of value.
Cheaper and simpler solution for dealing with a small number of creditors as does not require appointment of a Nominee or same level of involvement of Licensed Insolvency Practitioner as in an IVA, there being no requirement to appoint a Nominee, report to court, or hold meetings of creditors. The procedure can all be done by post.
Creditors
Formalises offer in respect of its debt which should provide enhanced dividend than could otherwise be expected in a bankruptcy.
Disadvantages Of A Deed Of Arrangement
Individual, Sole Trader or PartnerDoes not bind those creditors who do not formally agree to the arrangement.
Little used nowadays and therefore not easily recognised or understood by creditors.
Fees for the procedure can be high therefore the procedure is only really suitable, except in exceptional circumstances, to those debtors with unsecured liabilities of at least £10,000. Please note however, that fees can be paid out of the proceeds paid by the Debtor into the arrangement and unlike many firms offering this service, BRA requires only payment of £350, this being required to settle the costs of the court application and the postage and stationery costs involved in circulating creditors. This up front cost is the equivalent of that payable by a Debtor’s petitioning for his own bankruptcy.
Creditors
No opportunity for a Trustee in Bankruptcy to investigate the actions of the Debtor or possibility of hidden assets.