Case Study - The Sole Trader Baker - How to avoid bankruptcy and keep part of the business

Sole trader - Bankruptcy threatened - High value equipment - Can he keep that equipment?

Bankruptcy or an Individual Voluntary Arrangement for the sole trader who employs a number of people and who uses high value equipment in his bakery business.


In this illustrative case study a baker by the fictional name of  John Exeter operates as a sole trader. John has a large business making bread, including speciality bread and supplying it to both trade and general public. He employs 20 staff and has 10 vans. The equipment he uses is high value, as it is specialised for making bread in large quantities.

John has found that the major supermarkets are expanding and have bakeries instore. Due to this he cannot compete as although they do not offer the wide range that he does, the supermarkets can sell their ordinary bread cheaper than he can. He knows that his sales are dropping daily and due to the large overheads that he has is worried that he cannot repay the level of debt that has built up.

He has a large amount of equity in the home he owns jointly with his wife. They have recently had a baby and he has a child of 4 years old. He is worried what would happen to his family if he is forced to close his business and made to leave his home. He has other assets that could be sold, but is worried as the value of these would not repay his creditors in full.

Having now read the section of this web site on personal insolvency, John knows that his home is protected as long as his half share of the equity is raised. He realises that he then has the option of proposing an Individual Voluntary Arrangement, or declaring himself bankrupt.

Now he knows that he can take positive steps to alleviate the situation. John looks at his options of downsizing the business, whereby some of the business assets are sold and the money realised money paid into an Individual Voluntary Arrangement (IVA). The IVA would receive money from the sale of some of the unneeded baking equipment and John's half interest in the equity in his home. He could then continue to trade on a smaller scale, concentrating on making speciality bread.

Alternatively he could look instead for PAYE employment - He could apply for either bankruptcy or an IVA in this second circumstance.

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