IVA
What is an IVA? Individual Voluntary Arrangements (IVAs) were introduced by the Insolvency Act 1986 as an alternative to bankruptcy. An IVA is a formal, legally binding arrangement or proposal which is put to creditors to pay all or part of your debts. The proposal is in effect a form of contract between you and your creditors and can be quite flexible in how it is structured. The key is to show your creditors that they will get a better return from an IVA then they would if you were to go bankrupt. However, should you fail to comply with your proposals, the creditors will reasonably expect you to suffer further sanctions. The proposal must be either filed with Court or put before Court and you will need the help of a qualified person, normally an insolvency practitioner to do this. The proposal itself is a written document usually drafted with the assistance of an insolvency practitioner which sets out what you intend to do, together with the restrictions imposed on you and the sanctions suffered if you fail to comply with your proposals. This must be signed by you and will be forwarded in due course to your creditors. The proposal includes details of a time and venue for a meeting of your creditors to be held. At this meeting creditors will vote to say whether they will accept the proposal put forward by you; you should note it is usual for a request to be made for you to attend the meeting. How to obtain advice To obtain basic advice on the suitability for you of an IVA, you can complete our on-line short application form which will provide basic guidance on the possible action to be taken to suit your circumstances. This form is designed so that you can obtain basic advice without having to spend too much time. It is not a comprehensive response to your problems and will only provide an outline response as a guide to further action you may need to take. Should the response indicate that an IVA may be suitable, you will be asked to complete a more detailed form to obtain a comprehensive and tailored response to your problems. If the form does not cater for your specific circumstances you can contact one of our expert advisers directly on 0800 8047 447 to discuss your affairs in confidence. If an IVA is appropriate After completion of the detailed form, you will be provided with an answer as to whether an IVA is appropriate. An adviser will then contact you to discuss more specific details and to confirm whether you are certain that this is the best course of action for you. You will be asked to read and confirm you have understood the R3 booklet entitled "Is a voluntary arrangement right for me"? This is to ensure you understand fully what you are signing and that you do wish to proceed with us. Once you have read that booklet you will be asked to provide a brief history of how the debts have been incurred and how you have found yourself in this position; this information will normally be used within your proposals. In addition you will be asked to sign copy letters confirming there is no conflict with this firm acting and that you wish us to act on your behalf. At this stage you will be informed of the fees you will be charged, the basis upon which these become payable and you will be requested to sign documentation confirming your agreement. It is only at this stage that you will become liable for payment of the fee for drafting the proposals under the terms disclosed to you - all prior advice is provided to you without charge. We will be responsible for drafting the proposals on your behalf based upon the information you have provided to us. If the information provided by you is incorrect or untrue this may affect the success of your IVA proposal. You should be advised that, although the proposal is drafted on your behalf, it remains your proposal and therefore your responsibility. If the proposal is misleading you could be prosecuted. You will be asked to sign the proposal which will be filed in Court. A meeting of creditors will be held at which creditors will be entitled to vote. This will normally take place at Tait Walker premises if they are your appointed advisors, normally around three weeks after signing your documented proposal. Meeting At the creditors meeting the Insolvency Practitioner will chair the meeting. During the meeting the IP will check the validity of the attendees and their rights to vote. Not every creditor has to vote. The voting is based on the percentage of value of the creditors to determine the outcome. So 75% of the value of those who vote (not the total creditors) will decide upon the outcome. Remember you need 75% in value of those attending in person or by proxy to vote for your proposals. What is an interim order? Once you have decided to put forward an IVA to your creditors a decision must be made – do you require an interim order or not? An interim order is an order granted by the Court which prevents your creditors from taking legal action against you while you are putting together proposals for an IVA and in the period up to holding the meeting of creditors. The insolvency practitioner will discuss with you what action has been taken by your creditors and a decision to go for an Interim order or not will be made at that time. How can creditors vote? Creditors can vote either in person by attending the meeting of creditors or by sending a proxy with a completed proxy form and a claim form (included with the documentation).They can also nominate a proxy by post/fax and forwarding a completed proxy form (which is included with the documentation) and claim form. Creditors can do one of the following:-
Vote in favour of the proposal For an IVA to be approved there must be 75% majority (by value) of creditors who vote voting in favour. Outcomes at the meeting Acceptance If there is a 75% majority of creditors voting in favour the IVA will be approved and you will be required to proceed with your plans stated within your proposals. Rejection If there is not a 75% majority the IVA will be rejected at the meeting stage. Creditors can then continue to pursue you for payment of the debts and could apply to make you bankrupt; for that reason you should ensure that any proposal put to creditors is your best offer. Modification Creditors can propose modifications to your proposals at the meeting of creditors and you must decide whether to accept these. If you accept the modifications you must treat these as being part of your original proposals and failure to comply with what has been asked of you will result in the same sanctions as set out in your original proposal. You may be able to reject the modifications but, it will depend on the level of the value of claim put forward by the creditor proposing the modifications and still have an approved IVA. It is usual for creditors to confirm whether the modifications are not accepted the claim and attached voting is to be treated as a rejection and therefore unless you have 75% majority accepting the proposals without the need for counting that creditor as an acceptance – the arrangement will fail. The main advantages and disadvantages of IVAs What happens after approval of your IVA
Advantages | Disadvantages | |
An IVA is not advertised, therefore it is an agreement between only your creditors and you | Creditors vote to accept or decline your offer/IVA and therefore will only accept if there is a benefit to them in accepting, e.g. higher payback or faster payback | |
You can exclude assets, unlike bankruptcy | ||
Costs are usually lower than under bankruptcy | If an IVA is income based creditors will usually ask for payments to be made over 5 years rather than the 3 years under bankruptcy | |
You have more control over how your assets will be dealt with | ||
You can continue to run a company and act as a company director | Your credit rating can still be affected even if you are in an IVA rather than going through a bankruptcy | |
You can still hold public office and there are less job/career restrictions - although you still need to check your particular circumstances | ||
While there is no legal restriction on obtaining credit while in an IVA, proposals usually do restrict the level and type of credit you can obtain |
The insolvency practitioner, known as the Supervisor, must notify creditors of the result of the meeting of creditors, must register your IVA with the Registrar of IVAs and notify the Court.
The Supervisor is responsible for ensuring the conditions agreed within your proposal are met by both you and your creditors. In the event the conditions are not met he is responsible for ensuring the sanctions imposed in the proposal document are carried out.
On the anniversary of the Supervisor’s appointment he is required to update all parties previously notified, including you, on the progress of his administration and confirm whether the conditions of the IVA are being met.
The Supervisor will be required to bank all funds received into a separate client account set up for the arrangement and to ensure funds are distributed to creditors as set out in the proposal
On completion of the IVA the Supervision must submit a find report to all parties previously notified.
IVA suitability
IVA’s are most suitable to those people with debts they cannot meet and who need or wish to avoid bankruptcy. This can be for a variety of reasons. It could be the job you have does not permit you to be a bankrupt, you are a company director, restrictions on obtaining credit would prevent you from trading or simply you do not under any circumstances wish to be made bankrupt.
Re-mortgaging
An IVA may be the most suitable option where the main asset you own is your property and you wish to continue living there. In these circumstances, you may wish to consider re-mortgaging as an option and the making of a bankruptcy order would make this extremely difficult. You could propose a voluntary arrangement on the basis that you re-mortgage your property and the funds are paid into your IVA.
Career prospects
In circumstances where bankruptcy may prevent you from keeping your job or moving up the career ladder you may wish to consider an IVA. Your career progression could see you have income surplus to your daily requirements which could be paid into an IVA over a period of up to 5 years and allow your creditors to be paid from this surplus.
Third Party funds
You may be in a situation where you wish to retain your assets, for example your house or a motor vehicle and a third party could put into an IVA cash equivalent to the value of the asset. This may allow you to retain the assets you wish to keep.
Avoidance of bankruptcy at any cost
You may simply wish to avoid what you perceive to be the stigma of bankruptcy and as such may choose to put forward an IVA despite being advised you would be better off going bankrupt simply to ensure creditors get a higher distribution or are paid in full. In these circumstances we will provide you with advice appropriate to your position and would consider acting for you should you wish to put forward an IVA.
Higher dividend under IVA rather than bankruptcy with the same assets – how can that be?Due to the absence of the DTI advalorum fee under an IVA the same assets could be realised in both bankruptcy and an IVA and yet a higher dividend is available to creditors under the IVA.