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Individual Voluntary Arrangements (IVA’s)
What is an Individual Voluntary Arrangement?
An Individual Voluntary Arrangement is a formal procedure that allows you to come to a legally-binding arrangement with your creditors (usually non-priority creditors only) to repay your debts, either in part or in full.
Individual Voluntary Arrangements (or IVA’s) are often viewed as a good alternative to bankruptcy (as you can avoid many of the serious implications involved in bankruptcy, such as losing your home). However, due to the high set-up costs and the need for a lot of income available each month to make repayments and/or a lump sum which can be included, IVA’s are not normally suitable for most people. An IVA is generally only appropriate if:
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- You have a high income which will allow regular repayments (usually around £100 - £200 a month); and/or
- You have a lump sum which can be added to the arrangement; and/or
- You have a business or home that you do not want to lose; and
- You wish to co-operate with your creditors to resolve the debt problem.
How do I get an Individual Voluntary Arrangement set up?
Step 1: Approach an Insolvency Practitioner…
In order to get an Individual Voluntary Arrangement set up, you will need to approach an Insolvency Practitioner. An Insolvency Practitioner is a person, usually a solicitor or an accountant, who has been authorised to deal with insolvency (where a business or individual hasn’t enough money to pay their debts).
Insolvency Practitioners will all charge fees for the setting up and supervising of an IVA. These charges can be very high and will vary, so it’s advisable to approach a number of Insolvency Practitioners to compare estimates. Typical fees can cost around £4,000 and sometimes even higher (and legal aid is not available to consult an Insolvency Practitioner). Some Insolvency Practitioners will only accept payment of their fees up front, while others may allow you to pay the fees as part of the monthly instalments during the term of the IVA.
However, many Insolvency Practitioners will offer an initial free consultation (usually a half-hour meeting) to advise on the suitability of an IVA. It is important that you ask whether an Insolvency Practitioner offers this service up-front, and if they don’t, what the charges will be.
You should be able to obtain a list of Insolvency Practitioners in your area, from your local County Court offices, or at your local Official Receiver’s office. You can also get a list of Insolvency Practitioners from:
The Insolvency Practitioners Policy Section
The Insolvency Service
PO Box 203
21 Bloomsbury Street
London
WC1B 3QW
Tel: 020 7291 6895
Website: www.insolvency.gov.uk
Step 2: Prepare a ‘proposal’…
Insolvency Practitioners work within a strict legal framework, which requires them to make a full investigation of your financial affairs. You should provide the Insolvency Practitioner with sufficient information to create a ‘proposal’. Information that must be contained in the proposal should include:
- A full financial statement, including details of all assets and properties (including an estimate of their values), liabilities (e.g. debts), and any assets being made available by third parties (such as a lump sum from a friend or relative)
- Details of the proposed arrangements including reasons why an IVA is considered appropriate (in theory, you are supposed to prepare your own proposal, but usually the Insolvency Practitioner give you some assistance). You should also ensure you include reasons why the creditors are likely to agree to the proposal
- Your anticipated level of income during the proposed period
Depending on your personal circumstances, you may be required to provide additional information, such as details of how you intend to conduct any business during the IVA, or whether any creditors should be considered priorities.
Proposals will usually be based on an ‘equitable distribution’ of any available income and/or assets on a ‘pro-rata’ basis between all of the creditors (meaning each creditor will receive a payment proportionate to the amount they are owed). Proposals should also include how long you intend the IVA to last, which may mean a partial write off so that only a percentage in each pound owed is repaid (the Insolvency Practitioner will help you to decide the most appropriate proposals).
Step 3: Apply for an Interim Order…
Once an Insolvency Practitioner has agreed to make an IVA proposal for you, they will act as your nominee and can make an application to the court for an ‘Interim Order’. If the court is satisfied that you seriously intend to make a proposal, that the Insolvency Practitioner is prepared to act, and that no other applications for an IVA have been made within the last 12 months, they may make an Interim Order.
An Interim Order lasts for 14 days, and prevents creditors from starting or continuing any enforcement action against you, such as bankruptcy proceedings, without the courts permission while the Interim Order is in force. The Interim Order allows the Insolvency Practitioner time to write a report stating whether they believe the proposal is viable.
At least two days before the Interim Order expires, the Insolvency Practitioner must submit the following papers to the court:
- A report giving the Insolvency Practitioner’s opinion as to whether they consider the proposed IVA has a reasonable prospect of being approved and implemented; and
- A copy of your financial statement; and
- A copy of the proposal; and
- Details of when and where any creditor’s meeting (see below) should be held. The Insolvency Practitioner may decide that the proposal is not viable, in which case, a creditors meeting will not be held.
Note: It is possible to agree an Individual Voluntary Arrangement with your creditors without applying for an Interim Order. This may reduce your costs, but it won’t prevent your creditors from taking enforcement action against you until the IVA is agreed.
The court will usually agree with the Insolvency Practitioner’s recommendations (but it is important to remember that they can reject them). The Insolvency Practitioner will then send the IVA proposal to your creditors and arranges a formal meeting, called a ‘creditor’s meeting’.
Step 4: The creditor’s meeting…
The creditor’s meeting must be held between 14 and 28 days after the Insolvency Practitioner has submitted their report to the court. The Insolvency Practitioner must inform all of your creditors about the meeting, and must give the creditors at least 14 days notice. The Insolvency Practitioner must also send the following documents to each creditor:
- A copy of the proposal; and
- A copy of the financial statement; and
- The Insolvency Practitioner’s report on the proposal
The creditor’s meeting will usually take place at the Insolvency Practitioner’s offices and we would recommend that you attend the meeting, if possible. You should check with your Insolvency Practitioner to ensure that all of your creditors have been contacted. If creditors have no notice of the meeting, they are not required to stick to the terms of the IVA and can pursue you for their debt separately.
At the meeting, the creditors (or their representatives) can vote in person or by proxy (e.g. by post) on whether to accept the proposals of the IVA. Providing that at least three-quarters (75%) of the creditors vote to accept the proposals, the IVA will be made and all creditors, including those who did not attend the meeting, did not vote or voted against the proposals, will be bound by the terms of the IVA.
This three-quarters rule is known as the ‘requisite majority’, and is based on the value of the debts outstanding to the creditors at the meeting and those who voted by proxy – it is not based on the actual number of creditors you owe money to.
For example, if you owed £10,000 to 2 different creditors (£8,000 to creditor A, and £2,000 to creditor B), and creditor A voted and agreed to the proposals of the IVA, and creditor B voted against them, the IVA would be accepted based on the fact that the amount owed to creditor A holds a value of 80% of the overall vote, and creditor B will be bound to the terms of the IVA, even though they objected to the proposals.
If an IVA is agreed, it will not affect the rights of a secured creditor to repossess your property, unless the secured creditor has specifically agreed otherwise. It is for this reason that IVA’s are generally only appropriate for non-priority creditors.
Once the IVA has been accepted at the creditor’s meeting, it will take immediate effect and the Insolvency Practitioner will supervise the arrangement and make sure that you make the necessary payments.
Within four days of the meeting, the Insolvency Practitioner must send a report of the meeting and details of the IVA to:
- You; and
- All creditors who are bound by the IVA; and
- The court; and
- The Official Receiver (if necessary); and
- The Secretary of State (In England and Wales) or the Department of Economic Development (in Northern Ireland)
It is important to remember that if, for whatever reason, the IVA does not go through, you will be back to the same position as when you started. This means that you will have to negotiate with your creditors separately, and you will have to wait for another 12 months before you can apply for another Interim Order.
What are the advantages of an Individual Voluntary Arrangement?
The advantages of an IVA include:
- If you are self-employed, your business can continue to trade and generate income (as opposed to bankruptcy). This will also benefit the creditor, as any income from the business can be used to fund the arrangement
- You may be in a profession where your job could be at risk if you were to go through bankruptcy (e.g. a company director, accountant, solicitor, etc)
- The arrangement can be tailored to your individual situation (e.g. property such as the family home can be excluded, with the creditors agreement) providing that the creditors are no worse off than if you had been made bankrupt
- The administrative costs may be less than bankruptcy, which means creditors should get higher payments and therefore regard the arrangement as a more preferable option than bankrupcty
- The stigma and publicity associated with bankruptcy is avoided (e.g. your details will not be advertised in the local press)
- Creditors who do not agree with the arrangement at the creditors meeting, will still be bound by it’s terms if the majority of creditors vote to agree. These creditors cannot then take further action against you providing you comply with the requirements of the arrangement
- An agreement may be reached limiting the liability for interest on the debts
What are the disadvantages of an Individual Voluntary Arrangement?
The disadvantages of an IVA include:
An IVA is not generally suitable unless you have a lot of money to spare each month, and/or a lump sum or assets that can be realised to repay your creditors
- You may have to pay more money to creditors than you would if you were made bankrupt and for a longer period
- If you do not keep to the terms of the IVA you can still be made bankrupt and the costs of the IVA will be added to your debts. Also, if you paid an upfront fee for your IVA, and it is not accepted by the creditors, you will have lost the fee and be in a worse position than when you started
- If creditors do not accept the terms of the IVA proposal, you are back to where you started and cannot make another IVA proposal for 12 months
- The costs of paying for an Insolvency Practitioner are high and may have to be paid for in advance (although some Insolvency Practitioners do not require upfront fees)
- Your home and any other assets could still be at risk if your creditors do not agree to exclude them
- You will be closely supervised by the Insolvency Practitioner, and will probably spend more time with an Insolvency Practitioner working out how to realise your assets than you would with a trustee if you were made bankrupt – remember, the costs of paying for an Insolvency Practitioner are high
- An IVA does not end in ‘automatic discharge’ (unlike most bankruptcies)
- If you are working in certain professions, such as a solicitor, entering an IVA may mean that you can no longer practice, or may only be able to practice under certain conditions
- You may be disqualified from holding certain posts and offices
- All IVA’s are recorded on a public register, which may affect your ability to obtain credit in the future. A record of the IVA will remain on the Insolvency Service’s register for a further 2 years after the arrangement has ended
- An IVA will usually last for up to 5 years (where bankruptcy will normally last for up to 12 months)
What happens if I can’t keep up with the payments?
If you are unable to keep to your monthly repayments under the terms of the IVA, it is important that you speak to your Insolvency Practitioner immediately. The Insolvency Practitioner can discuss the situation with your creditors, and in some circumstances, your creditors may agree to ‘modify’ your original proposal, so that you pay a lower amount (although you may be charged another fee for doing this).
If it is not possible to agree a new or ‘modified’ IVA, the Insolvency Practitioner can terminate the IVA, and petition for your bankruptcy. If the Insolvency Practitioner petitions for your bankruptcy, they do not need to issue a ‘statutory demand’ and can immediately petition your bankruptcy on the grounds that you have not kept to the terms of the IVA. If the Insolvency Practitioner decides that it is not worth making you bankrupt, your creditors can take enforcement action against you instead. If this happens, you will need to negotiate payment arrangements with each of your creditors to avoid any serious action being taken against you. If you do not keep to the terms of the IVA, an Insolvency Practitioner cannot take other action against you, for example, repossession, unless they have specifically been given this power under the terms of the IVA.
When does an Individual Voluntary Arrangement end?
At the end of the term, the Insolvency Practitioner should write to you and issue you with a ‘Statement of Completion’ (normally within three months of the final payment). The Insolvency Practitioner will also send a copy of this statement to the Insolvency Service so that they can amend their records.
You should also send a copy of the letter from your Insolvency Practitioner (along with a copy of the Statement of Completion) to each of the Credit Reference Agencies. The IVA should then be marked as “complete” on your credit file by the Credit Reference Agencies (although records of IVA’s are held for 6 years, which may affect your ability to obtain credit again in the future).
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