What is a Deed of Arrangement?
A Deed of Arrangement is a formal, written agreement between a debtor and their creditors. This arrangement is registered with the Insolvency Service and sets the terms for either the repayment of debts or the reorganization of the debtor’s financial affairs. It is an alternative to bankruptcy, allowing the debtor to avoid the stigma and restrictions associated with being declared bankrupt.
Unlike an Individual Voluntary Arrangement (IVA), a Deed of Arrangement can only be executed if no bankruptcy order has been made against the debtor. The deed may manifest as a composition of debts, where creditors agree to accept a reduced sum, or a scheme of arrangement, which outlines how the debtor’s affairs will be managed to repay the debt over time.
Examples
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John’s Debt Restructuring: John, a small business owner, was facing financial distress and was unable to pay his debts. To manage his situation, John entered into a Deed of Arrangement with his creditors. Through this agreement, a portion of his debts was reduced, and the remaining was structured to be paid over the next five years, allowing him to continue operating his business without facing bankruptcy.
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Sarah’s Composition of Debts: Sarah owed multiple creditors a total of $100,000. She negotiated a Deed of Arrangement where her creditors agreed to accept $60,000 as full and final settlement, payable over two years. This agreement helped Sarah avoid insolvency and manage her finances more effectively.
Frequently Asked Questions (FAQs)
What is the difference between a Deed of Arrangement and an Individual Voluntary Arrangement (IVA)?
A Deed of Arrangement is similar to an IVA but is only applicable when no bankruptcy order has been issued. An IVA is a more formal arrangement and generally involves a larger proportion of creditors agreeing to the terms.
Can a Deed of Arrangement be used by a business entity?
Yes, businesses can enter into a Deed of Arrangement to manage their debts and restructure their financial obligations with creditors.
What happens if I breach the terms of the Deed of Arrangement?
If the debtor breaches the terms of the Deed of Arrangement, creditors may seek to annul the deed and potentially apply for bankruptcy proceedings.
How do I register a Deed of Arrangement with the Insolvency Service?
To register a Deed of Arrangement, it must be properly executed by all parties involved and then filed with the Insolvency Service. Legal advice is recommended to ensure all regulatory requirements are met.
Are all creditors required to agree to a Deed of Arrangement?
Typically, a majority of creditors must agree to the terms of the Deed of Arrangement for it to be valid. However, the exact requirement can vary.
Can I enter into a Deed of Arrangement without notifying my creditors?
No, a Deed of Arrangement requires the involvement and agreement of creditors, as it is a formal restructuring of debts.
Does entering into a Deed of Arrangement affect my credit rating?
Yes, entering into a Deed of Arrangement can affect your credit rating as it indicates that you have had difficulty managing your debts.
Is a Deed of Arrangement legally binding?
Yes, once agreed upon and registered, the Deed of Arrangement is legally binding on all parties involved.
Can a Deed of Arrangement be modified after it has been signed?
Modifications to a Deed of Arrangement require the agreement of all parties and may need to be re-registered with the Insolvency Service.
Do I need legal representation to enter into a Deed of Arrangement?
While not mandatory, it is highly recommended to seek legal advice to navigate the complexities involved in drafting and formalizing a Deed of Arrangement.
Related Terms
- Insolvency: A state where an individual or organization can no longer meet financial obligations with creditors when debts become due.
- Bankruptcy: A legal proceeding involving a person or business that is unable to repay outstanding debts.
- Individual Voluntary Arrangement (IVA): A formal agreement between a debtor and creditors to pay off debts in part or full over an agreed period of time.
- Composition of Debts: An agreement where creditors accept a reduced amount of the debt owed from the debtor.
- Scheme of Arrangement: A court-approved agreement between a company and its shareholders or creditors that changes the structure of the company or its debt.
Online Resources
For further information, you may visit the following online resources:
Suggested Books
For a deeper understanding of Deeds of Arrangement and related financial management, consider the following books:
- “Debt-Free: Your Guide to Personal Finance and Dealing with Debt” by Howard Davidoff
- “The Law of Insolvency” by Ian F. Fletcher
- “Personal Insolvency Law in Practice” by Steven A. Frieze
Accounting Basics: “Deed of Arrangement” Fundamentals Quiz
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