self-employed retailer and PIA

[Brendan Burgess]

I was advising someone recently to consider a PIA as she has huge property related debts and the rents don't come near to meeting the repayments, so she is insolvent.

But her income comes from a succesful small retail business. She gets a reasonably good income from it and continuing to trade would be in everyone's best interests.

But if she applies for a PIA, would her business creditors be part of it? If they took a big write-down, her suppliers would stop supplying her. She gets some deposits in her business as well and so they would be creditors in the PIA.

All her property loans are with the one lenders, so it will be a relatively easy PIA to organise. They will either approve it or reject it fairly quickly. They probably wouldn't object to the trade creditors being paid in full, but it's hard to know.

Presumably the PIA could allow for the unsecured creditors to be paid in full? It would be a bit unusual, but then it's up to the lender to approve it or not.

Could she set up a limited company in advance of the PIA and move the business to that? Then the creditors would be separate.

 

[Jim Stafford]

Brendan

Sole traders need to be particularly wary of PIAs or DSAs if their business account is with a bank who is also owed monies, as the bank may exercise their right of set off, bounce cheques, cancel direct debits etc. The obvious solution would be for a sole trader to transfer their business to a limited company and ring fence the assets. If transferring a business, then it must be valued, and transferred at an arms length value.

Another solution might be to just simply open a new bank account with a bank that is owed no money by the debtor. (This might be the only solution to sole traders such as solicitors who may not incorporate their business.)

In general terms, a PIA could allow customers who have paid deposits to be treated "normally". However, any such depositor would have to be notified of the PIA etc.

Jim Stafford

 

[Brendan Burgess]

Hi Jim

The separate bank account sounds like a good idea as it stops stuff bouncing.

But the limited company means that the people with depositors and the creditors don't even have to be notified of the proposed PIA. Notifying them could cause a loss of confidence in the business.