Insurers must pay many small firms for Covid lockdown losses

Tens of thousands of small businesses will receive insurance payouts covering losses from the first national lockdown, following a court ruling.

The Supreme Court found largely in favour of small firms receiving payments from business interruption insurance policies.

For some businesses it could provide a lifeline, allowing them to trade beyond the coronavirus crisis.

The ruling could cost the insurance sector hundreds of millions of pounds.

The City watchdog, the Financial Conduct Authority (FCA), brought the test case, with eight insurers agreeing to take part in proceedings.

One of the insurers set to make significant payouts is Hiscox, which was challenged by thousands of its policyholders as part of the case.

Richard Leedham, who represented the Hiscox Action Group - on behalf of small businesses, said: "This is a landmark victory for a small group of businesses who took on a huge insurance player and have been fully vindicated.

"What is important now is that Hiscox accepts the Supreme Court's verdict and starts paying out to its policy holders, many of whom are in danger of going under".

Other insurers involved in the test case are Arch, Argenta, MS Amlin, QBE and RSA - but as many as 60 insurers sold similar products. They will now pay out on many, but not all, policies.

Huw Evans, director general of the Association of British Insurers, said: "All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun.

"We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers."

What is this case about?

In the lockdown of last spring, many small businesses made claims through business interruption insurance policies for loss of earnings when they had to close.

But many insurers refused to pay, arguing only the most specialist policies had cover for such unprecedented restrictions.

It was agreed that a selection of policy wordings should be tested in court, setting the parameters for what would be considered a valid claim.

The ruling provides guidance for a wider pool of 700 policies, potentially affecting 370,000 small businesses - although only some of these will end up with payouts.

Giving the court's ruling, Lord Hamblen said the court accepted the arguments from representatives of policyholders and dismissed appeals from insurers against an earlier judgement finding in policyholders' favour.

The complex ruling covered issues such as disease clauses, whether business were denied access to the properties, and the timing of lost earnings.

James Ollerenshaw's hair salon was one of those businesses unable to operate during the first national lockdown.

The business - The Drawing Room in London's Spitalfields - paid an annual premium of £1,200 for business interruption insurance, and disease cover came as part of it.

Mr Ollerenshaw said the Supreme Court's decision would not directly affect his policy, but would decide the principles on claims such as his - and were vital for the business.

"A payout would cover the major costs, which is the rent. We have debt sitting there," he said.

He said he was delighted with the Supreme Court's ruling.

"The insurance industry needs to face up to the fact that it failed customers at their greatest moment of need, destroying companies, livelihoods and jobs," he said.

He formed a Covid Claims Group, joining other small business owners in calling for a quick resolution and payouts.

"Time matters," he said, pointing out that some small businesses have been forced to close down while waiting for the decision.

Sheldon Mills, from the FCA, which brought the case on behalf of policyholders, said: "Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. Today's judgment decisively removes many of the roadblocks to claims by policyholders.

"We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible."

The test case was fast-tracked to the highest court in England and Wales - the Supreme Court, which heard four days of legal representations in November. The final ruling provides authoritative guidance for these policies, and potentially of similar ones not part of the case.

The FCA, the insurance sector, and the Financial Ombudsman will all use the judgement to guide their decisions in other cases.

The Financial Ombudsman Service and courts in Scotland and Northern Ireland are expected to use the judgment to rule on other, similar cases.

Insurance policies would have been amended for new and renewing customers since this issue emerged, so losses from the latest lockdown measures in different parts of the UK would be clearly stated as part of the cover - or not - in new business interruption insurance policies.

Source: BBC


£4.6 billion in new lockdown grants to support businesses and protect jobs

Businesses in the retail, hospitality and leisure sectors are to receive a one-off grant worth up to £9,000, the Chancellor has announced.

  • Chancellor announces one-off top up grants for retail, hospitality and leisure businesses worth up to £9,000 per property to help businesses through to the Spring
  • £594 million discretionary fund also made available to support other impacted businesses
  • comes in addition to £1.1 billion further discretionary grant funding for Local Authorities, Local Restriction Support Grants worth up to £3,000 a month and extension of furlough scheme

This follows the Prime Minister’s announcement last night that these business will be closed until at least February half-term in order to help control the virus, and, together with the wide range of existing support, provides them with certainty through the Spring period.

The cash is provided on a per-property basis to support businesses through the latest restrictions, and is expected to benefit over 600,000 business properties, worth £4 billion in total across all nations of the UK.

Chancellor Rishi Sunak said:

The new strain of the virus presents us all with a huge challenge - and whilst the vaccine is being rolled out, we have needed to tighten restrictions further.

Throughout the pandemic we’ve taken swift action to protect lives and livelihoods and today we’re announcing a further cash injection to support businesses and jobs until the Spring.

This will help businesses to get through the months ahead – and crucially it will help sustain jobs, so workers can be ready to return when they are able to reopen.

A further £594 million is also being made available for Local Authorities and the Devolved Administrations to support other businesses not eligible for the grants, that might be affected by the restrictions. Businesses should apply to their Local Authorities.

The new one-off grants come in addition to billions of existing business support, including grants worth up to £3,000 for closed businesses, and up to £2,100 per month for impacted businesses once they reopen.

The government has also provided 100% business rates relief for retail, hospitality and leisure businesses, £1.1 billion existing discretionary funding for Local Authorities, the furlough scheme now extended to April and 100% government backed loans, extended until March.

Further information

The one-off top-ups will be granted to closed businesses as follows:

  • £4,000 for businesses with a rateable value of £15,000 or under
  • £6,000 for businesses with a rateable value between £15,000 and £51,000
  • £9,000 for businesses with a rateable value of over £51,000

Business support is a devolved policy and therefore the responsibility of the devolved administrations, which will receive additional funding as a result of these announcements in the usual manner:

  • The Scottish Government will receive £375 million
  • The Welsh Government will receive £227 million
  • The Northern Ireland Executive will receive £127 million

This will contribute to the funding which has already been guaranteed by the UK Government, to continue to provide the devolved administrations the certainty they need to plan for their COVID-19 response in the months ahead.

Small businesses in the devolved administrations should also be able to benefit from other UK-wide measures in the government’s unprecedented package of support for business, including the various business lending schemes (where the repayment terms were made easier as part of the Winter Economy Plan), and the extension of the Self Employment Income Support Scheme.

Source: GOV.UK


Record number of retail insolvencies in first quarter of 2019

Fears over the continuing crisis of high street stores in Scotland is evident after the retail sector experienced a record number of failures in the first quarter of the year.

New research from the Insolvency Service found 28 Scottish retailers filed for insolvency in the first three months of 2019. Having collated data since 2007, this is the highest figure recorded, with the third quarter of 2012 previously being the worst number of retailers going bust at 27.

While shop owners are facing the soaring costs in business rates, wages and utilities, customers are being drawn away from adding to retailers’ footfall and towards the endless shopping services now available online.

A survey by Local Data Company (LD) revealed 265 stores were closed in 2018 across eight Scottish towns and cities: Aberdeen, Ayr, Dundee, Edinburgh, Glasgow, Falkirk, Paisley and Perth. With only 146 stores opening in the same period, this was a net change of minus 119 on the high street.

With high street retailers struggling to compete with online shopping, several retailers are turning to company voluntary arrangements (CVAs) to scale back their physical presence and minimise rent bills.

At the end of April, the UK’s biggest department store chain Debenhams announced its plans to close 22 stores – one of which is located in Scotland – putting 1,200 jobs at risk. Debenhams was put through a pre-pack administration that wiped out the investment of shareholders, including Mike Ashely, the founder of Sports Direct.

For the 26 weeks to March, sales in the Debenhams stores fell 7.4 per cent. Its new owners, who are a consortium of banks and hedge funds, launched the major store-closure programme via a CVA. The CVA will allow them to renegotiate rents at the remaining stores across the UK. It has been said that 39 stores will stick to their current rental rates for the duration of their leases while the company aims to secure rental reductions of between 25 and 50 per cent for the remaining stores.

The announcement from Debenhams is just the tip of the iceberg. Last year saw House of Fraser closing stores after being bought out of administration, while Marks and Spencer is currently in the process of shutting 100 stores by next year.

The number of vacant retail units in Scotland is higher than the UK average, with recent economic figures suggesting consumer spending has slowed over the past two years. Named brands such as Carpetright, Homebase and New Look opted for CVAs, while companies like Fabb Sofas, Maplin and Toys R Us ended up in administration.

However, according to recent research from Savills, the number of empty retail units that were let out in Scotland last year was 82; eight per cent up on the long-term average. These vacant units were snatched up by chains such as Aldi and Lidl, with Homestore & More securing stores at Craigleith Retail Park in Edinburgh and Mavor Avenue in East Kilbride.

Mike Spens, Director of the out-of-town retail team at Savills in Scotland, concluded:

“Corporate failures in the retail sector in the last 12-18 months have released space onto the out of town retail market and allowed for a greater churn. This has created an opportunity for brands such as Home Bargains and the discount food retailers to expand across Scotland and for new entrants to secure representation.”

Despite this, accountancy firm, French Duncan, believe the pressures on the retail sector could result in 2019 being a record year for retail insolvencies in Scotland.

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330,000 Scottish children live in households that are financially struggling

Official figures indicate that more than 300,000 children in Scotland are living in families who do not have access to emergency costs of up to £500.

The lack of financial flexibility among families has been flagged as a real concern as many Scots could be left in serious financial trouble if they are stuck with an unexpected household expense such as a broken boiler or having to replace a refrigerator.

Elaine Smith, MSP, referred to the current problem as putting Scottish families just “one big unexpected bill away from being in real financial trouble”.

Ms Smith explained:

“Replacing something like a fridge or boiler is expensive, but thousands of families with children would need to turn to debt to do it, because the cost of living, precarious work and stagnant wages aren’t letting people save for a rainy day.”

A recent YouGov survey of more than 2,000 Scots found that almost half (47 per cent) of Scottish workers run out of money before pay-day while 26 per cent have missed at least one council tax payment in the last year. Other issues were discovered during the survey, such as:

  • 30% would like to put away at least £20 per month for a ‘rainy day,’ but can’t afford to.
  • 28% can’t afford to keep their homes decorated in a decent condition.
  • 25% find it difficult or very difficult to cope with their current income.
  • 25% would like to save for a pension on a regular basis but can’t afford to.
  • 23% would like to have the recommended levels of dental treatment but can’t afford to.

The issue of poverty and financial insecurity in Scotland was also evident from debt help charity StepChange’s ‘Scotland in the Red’ report, claiming that nearly 700,000 Scots are either in, or at serious risk of falling into, problem debt.

The head of StepChange debt charity in Scotland, Sharon Bell, said she was "increasingly alarmed by the increases in the proportion of our clients who are struggling with household bills, particularly council tax".

With the average amount of council tax arrears amounting to £2,017, Ms Bell believes that “clients in Scotland are significantly more likely to have council tax arrears compared to elsewhere in the UK.”

The report found that nearly one in five were behind on their electricity bill; up four per cent on the previous year, while the amount they owed had increased by 10 per cent in just 12 months to an average of £826.

Stepchange found the most common reasons for debt were:

  • Reduced income (17 per cent)
  • Unemployment or redundancy (17 per cent)
  • Injury of illness (16 per cent)
  • Lack of budgeting (11 per cent)
  • Separation or divorce (10 per cent)

The most common age who reached out for debt advice was the 25-39-year-old age group (51 per cent). This was followed by those aged between 40 and 59 at 30 per cent, under 25s at 14 per cent, and over 60s at five per cent.

Couples with children accounted for 26 per cent of the people who contacted the charity in 2018. Despite single parents only representing six per cent of the entire UK population, the study found an increasing number of single parents are looking for debt help; rising from 18 per cent in 2014 to 23 per cent in 2018.

Douglas Hamilton, of the Poverty and Inequality Commission, believes the Scottish government needs to take meaningful action and must address the problem by “making full use of their powers to reduce housing costs, improve earnings and enhance social security.”

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Brits refuse to cut holidays in order to save money

Economic uncertainty caused by Brexit has encouraged Brits to seek better deals on insurance while reducing their spending on luxuries such as takeaways and shopping. However, recent research has found that the public refuse to sacrifice their trips abroad to improve their financial circumstances.

Since the 2016 Brexit referendum, consumer confidence has steadily fallen. Currently, 61 per cent of the public expects the UK economy to worsen over the next 12 months, and 41 per cent expect their personal financial situation to take a hit.

According to a recent YouGov poll, a third of Brits are concerned about the increasing costs of food and groceries and around one fifth (21 per cent) are worried that they do not have sufficient savings in case of an emergency.

To alleviate some of these Brexit-related worries, more than two-thirds (67 per cent) have said they plan to, or already have started, saving money. Of these respondents, three in five (61 per cent) say there is no particular reason for saving other than they want to be prepared for whatever comes.

Cutting expenses seems to be a high priority for several Brits. Around a third of those with a mortgage are reviewing their current rate (34 per cent) and more than a quarter (26 per cent) of insurance policyholders are looking to get cheaper deals on their critical illness cover, income protection and life insurance.

Additionally, the public has placed luxuries high up on their list of ways to cut costs. Takeaways are likely to take the biggest hit, with the most significant difference of minus 25 between those who say they will spend more and those who say they will spend less in the coming year. Coffee and snacks out are the next luxury most likely to go, with a gap of -18.

This was closely followed by having a gym membership (-14), and going to the cinema (-13). Consumers plan to spend less in the food and drinks industry as well, with ‘going out for drinks’ showing a gap of -12, and ‘eating out’ at -9.

However, the most expensive luxury on the poll - travelling abroad - looks to be the least affected. Despite many believing that holidays (66 per cent) and airfares (65 per cent) will be more costly following Brexit, only 24 per cent are actively planning to cut down on their travel spend in the next 12 months. In fact, two in five (40 per cent) have said they will definitely take a trip abroad in 2019.

Similar findings came from the leading association of travel, ABTA, when they discovered Brits would rather reduce their spending on eating out than cut back on their holidays (25 per cent vs 13 per cent). The most common items that people would consider cutting back on in order to save money was alcohol, cigarettes and takeaway meals.

Of the age groups surveyed, 18-24-year olds were the most committed to their holidays, with only six per cent saying they would reduce the number of trips they had to save money. This is despite the age group often being regarded as having the least disposable income.

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30 signs you are financially comfortable

A new study commissioned by Skipton Building Society (SBS) has revealed 30 signs of being financially comfortable, including having savings and being able to go on a last minute holiday without feeling guilty.

The study, which polled 2000 adults, reveals signs of financial comfort include both material factors, such as having disposable income, as well as abstract factors, such as having others consider you wise and a good source of financial advice.

Kris Brewster, the head of products for SBS, said “it is more about making sensible decisions when it comes to spending and saving”, rather than “having a lot” financially.

Worryingly, less than half of those polled said that they were in a good place financially, and of that minority, 56% were over 55. One in four said that they do not know what the future holds for them financially.

Despite these bleak findings, one in seven of those polled said that they believed that they were sensible with money. The average respondent had approximately £228 a month of disposable income. According to the study, however, that is not enough to put you in the category of financial comfort. Instead, the research suggests that disposable income of over £500 a month is needed.

The following are the 30 signs factors which identify the financially comfortable:

  • Having savings
  • Not being in debt
  • Not having to count down the days until payday
  • Not regularly using savings to get through the month
  • Having paid off your mortgage
  • Having a "rainy day" fund
  • Being able to buy what you like without having to worry
  • Being able to afford emergency house maintenance
  • Having more than £500 disposable income a month
  • Being able to afford occasional treats for yourself
  • Budgeting effectively
  • Having a good credit score
  • Being able to eat out in restaurants without it being for a special occasion
  • Making sensible spending choices
  • Being able to go on more than one holiday a year
  • Being confident about the future
  • Being able to go on a last minute holiday without feeling guilty
  • Having the ability to make wise decisions about money and spending
  • Owning more than one property
  • Being able to make financial decisions without seeking advice
  • Not arguing over money with friends and family
  • Not having to check the price of clothes when shopping
  • Having multiple investments
  • Having good knowledge about financial services on the market
  • Not gambling or relying on a successful bet for income
  • Being generous when it comes to lending money to loved ones and donating to charity
  • Paying for others’ meals when out rather than splitting the bill
  • Being well-read when it comes to money management
  • Buying from the leading clothing and food brands
  • Having others approach you for advice about finances as they see you as a source of good advice

While some of the factors - such as having savings or a good credit score - may be unsurprising indicators of being financially comfortable, it is perhaps also unsurprising that so few young people identify as financially comfortable when factors include owning multiple properties or having various investments. For young people, in particular, these are rare luxuries.

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Extensive links between debt and suicide revealed

New research from the Money and Mental Health Policy Institute (MMHPI) has shown extensive connections between problem and suicidal thoughts and attempts, leading the organisation to call upon the government to change the law to provide better protection for debtors’ health, among other recommendations.

Report reveals link between financial problems and mental health issues

The recent survey was based on data gathered from both the Adult Psychiatric Morbidity Survey and a survey of those with personal and professional experience of suicide issues.

The report by the MMHPI revealed that nearly a quarter of people (23%) who attempted suicide in the past year were in problem debt.

What is problem debt?

People are defined as being in 'problem debt' when they are "seriously behind on payments for bills or credit agreements or have been disconnected by a utilities provider in the past year".

The pressures of financial problems were exemplified by the case of Jerome Rogers, the 20-year-old who took his own life last year after feeling too pressurised by debts arising from parking fines.

13% of people in problem debt - around 420,000 people - consider ending their lives every year. Of the 420,000 people, 100,000 attempt suicide every year. This means that people in problem debt are three times more likely to have considered suicide than those who are in a more financially stable state.

The MMHPI says that those in persistent poverty and financial insecurity are at higher risk of becoming suicidal, and that sudden triggers - such as threatening letters from creditors or rapid accumulation of fees - might push someone to become suicidal.

Recommendations made by the MMHPI

The MMHPI has made several recommendations in order to help break the connection between problem debt and suicide. In particular, it recommends that the government should review rules relating to how creditors word their letters in order to make them more supportive and comprehensive, and less aggressive.

The MMHPI also recommends that Public Health England improves its guidance to local authorities about the importance of financial difficulty as a potential trigger for mental health problems.

Essential service providers should offer suicide prevention training to their staff, the MMHPI further recommends.

Reactions to the report

Speaking to the Guardian, Vicki Nash, the head of policy and campaigns for the mental health charity Mind, explained:

“Mind [has] found that half of people with mental health problems have thought about or attempted suicide as a result of social issues such as housing issues, debt, benefit support, and employment.”

Nash also highlighted the importance of realising that there were real people behind the statistics - including parents, colleagues, and friends.

While the government has not announced any new Bills to implement the report’s recommendations, a spokesperson did tell the Guardian that “suicide is the most devastating outcome for people struggling with the challenges of life and we are committed to helping people in problem debt receive the proper support.”

The full survey can be read here.

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Barclays launches new techniques to help manage consumer debt

In a bid to help customers curb unhealthy spending habits, Barclays has become the first high street bank in the UK to allow users to turn off spending on gambling websites, as well as in other categories including groceries and supermarkets; restaurants, takeaways, pubs and bars; petrol and diesel; and purchases from premium rate websites and phone lines.

It is available to all those who have a Barclays debit card, and soon will be available to those with credit cards. Although the bank has said that the tool was designed with the protection of vulnerable consumers in mind, it is available to all users.

The Barclays spending blocker will cancel payments made to specific companies and retailers by identifying the merchant category codes. This could help problem gamblers by stopping them accumulating so much debt that they lose their home or further endanger their mental health.

Earlier this year, former gambling addict Danny Cheetham spoke to the BBC about how a spending blocker available on his mobile-only bank helped him recover from a gambling addiction. The Monzo app takes 48 hours to remove a spending block, and can also put a cash-withdrawal limit on users’ accounts. The Monzo CEO, Tom Blomfield, told the BBC that the bank had seen a 70% fall in gambling transactions in the four months after it was launched.

Barclays launched its new tool after facing pressure from the Royal College of Psychiatrists, mental health charities and the money expert Martin Lewis.

The tool can be used in conjunction with the Gambling Commission’s recommended methods for controlling the time and money which consumers spend on gambling, which includes setting limits on gambling machines, setting time-outs on online gambling sites, and asking for self-exclusion from gambling premises and online sites.

It remains to be seen whether a similar tool will be adopted by the other four major big street banks in the UK; HSBC, RBS, Lloyds, and Santander.

Gambling and Debt

The Gambling Commission’s 2017 survey of 4000 adults in Scotland found that:

  • 0.8% of respondents identified as problem gamblers
  • 63% of respondents had spent money on at least one gambling activity in the past year (a fall from 66% in 2016)
  • 46% of respondents had spent money on at least one gambling activity in the past year, excluding those who had only played the national lottery

These results were slightly different from those of the Commission’s survey in England:

  • 1.2% of respondents identified as problem gamblers
  • 56% of respondents had spent money on at least one gambling activity in the past year
  • 42% of respondents had spent money on at least one gambling activity in the past year, excluding those who had only played the national lottery

The Gambling Commission also made clear that the harm arising from gambling can include debt problems, higher levels of physical and mental illness, relationship breakdown and, in some cases, criminality.

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Manage your investments

In the challenging climate of Brexit negotiations, targeted long-term investment choices might offer the security for businesses mitigating financial uncertainty. Foreign direct investments (FDI) have fared well according to the Ernst and Young (EY) report for 2018.

Financial Conduct Authority regulatory changes may impact on Scotland’s attractiveness to foreign direct investment

Leading in attractiveness ahead of the UK average, Scotland expanded on foreign direct investment particularly in the Research and Development sector over 2017. However, firms must keep alert to the regulatory requirements of foreign investors in light of changes over Brexit.

The Financial Conduct Authority (FCA) highlights measures for operators applying to become a recognised overseas investment exchange (ROIE), in case existing regulation under the Markets in Financial Instruments Directive (MiFID) II serving the EEA financial market ceases to be recognised post-Brexit. This may directly impact the likelihood of securing a favourable deal with foreign investors in securing the liquidity of the business.

Ernst and Young Scotland Attractiveness Survey 2018

Nevertheless, the EY survey highlights positive potential for Scotland in the year ahead, summarising their findings with:

  • A new record for FDI projects in 2017 for the third consecutive year with an increase of 7% compared to 2016;
  • Scotland secures its position as the most attractive location in the UK for R&D projects for a second consecutive year with an increase of 70% compared with 2016;
  • The digital sector experienced a 56% increase in FDI projects and was the second largest sector to attract investment into Scotland behind business services;
  • Manufacturing activity experienced a 25% increase of FDI in 2017 compared to 2016;
  • 2nd place ranking, behind London, as the most attractive place to invest in the UK; and,
  • FDI job creation increased by 104%, from 3,131 to 6,374.

Effective risk management and business review can support the best-suited investment portfolio to steer your business through hard times.

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Debt Recovery options in Scotland

Corporate insolvencies in Scotland are up 4.5% in comparison to the same period last year and, therefore, agreeing to the best debt recovery plan for your business is crucial. The Accountant in Bankruptcy (AiB) for Scotland announced figures for Q1 in the 2018-19 tax year, offering a mixed view on the debt recovery options taken by businesses and their creditors.

Local Authority Debt recovery subject to change

Following the proposal of the Barclay Review (Recommendation 18) Local Authority debt recovery is under review. Recommendation 18 supports the view of aligning recovery timescales for non-domestic rates with Council Tax, effectively taking enforcement action earlier in the tax year. In the Partial Business and Regulatory Impact Assessment (Section 13), proposals are weighed up for replacing the existing criminal penalty for non-provision of information with a new civil penalty. The consultation closes on 17 September.

Assessing your business for debt recovery

Companies struggling may wish to apply for a scheme to support their trading through a cashflow difficulty, seeking informal agreements with their creditors or opt to go into administration, winding down their business or declaring bankruptcy. Each option offers different benefits to the creditor and debtor in terms of ongoing business and trade and the level of realisable assets:

  • CVAs – Creditor Voluntary Arrangement
  • DMP – Debt Management Plan
  • DPP – Debt Payment Plan; details published under the Debt Arrangement Scheme (DAS)
  • IVAs – Individual Voluntary Arrangement
  • Compulsory or Voluntary Liquidation
  • Voluntary or Protected Trust Deeds
  • Bankruptcy

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