If you’re considering an individual voluntary arrangement (IVA) to help manage your debt, this article aims to answer, as comprehensively as possible, the key facts you’ll need to know.
What is an Individual Voluntary Arrangement in the UK?
An Individual Voluntary Arrangement (IVA) is an agreement between an Individual (also known as a “Debtor”) and their creditors.
The debtor can make a Proposal offering repayment from future surplus income over a 1-5 year period or perhaps offering a lump sum payment. The IVA may require creditors to compromise on their debt to receive a pence in the pound distribution.
The IVA is a binding agreement for all creditors and requires acceptance at the creditors’ meeting of more than 75% of creditors voting in favour of the Proposal.
The Insolvency Practitioner (IP) function will be to act as a Nominee in presenting the Proposal to creditors and then if accepted will act as Supervisor of the Arrangement.
It is important that the IP should ensure that the Proposal is achievable and a fair balance is struck between the debtor and the creditors.
Why might an Individual Propose an IVA?
• The debtor may have received a statutory demand or bankruptcy petition from a creditor and an IVA might offer a better outcome for creditors than entering into Bankruptcy.
• The individual may be unable to settle a HM Revenue & Customs debt or perhaps a tax enquiry has resulted in a large penalty determination.
• An undischarged bankrupt might seek to annul the bankruptcy by entering into an IVA.
• The individual may be a professional (e.g. accountant or solicitor) and if bankrupt this could prohibit them from working and therefore an IVA might be an alternative to ensure that they continue in employment.
• The debtor may have difficulties in keeping up with monthly credit cards debts, loans and other monthly expenditure and an IVA may provide a mechanism to offer a coherent repayment plan and freeze interest.
• The debtor may be in a debt management plan and an IVA may provide finality in dealing with creditors.
There are various stages to the IVA process:-
Stage 1 – Initial Meeting
The IP in an advisory capacity will always offer a face to face meeting with the debtor. However, a meeting is not always necessary and can be conducted over the telephone or alternatively over a video call depending on the debtor’s attitude and the circumstances and complexity of the proposed IVA.
The IP will ensure that the debtor understands what is required of them during the IVA process and the consequence of entering into an IVA, including the rights to challenge the IVA by creditors and what may happen if the IVA is not approved or not successfully completed.
In addition, the IP will clearly set out the advantages and disadvantages of different personal insolvency options, not limited to the IVA so that the individual has an understanding of bankruptcy, debt management plans and other forms of informal debts solutions and the likely costs involved.
The advice will need to focus on the debtor’s personal circumstances, taking into account the debtor’s assets, in particular the family home and on any third parties that might be affected.
Sufficient information will need to be obtained in order for the IP to be satisfied that measures are to be taken by the debtor to avoid the recurrence of these financial difficulties in the future.
Stage 2 – The Individual Voluntary Arrangement Proposal
The Proposal sets out the terms of the Arrangement between the individual and their creditors’ and forms the basis of offering a deal to creditors.
The Proposal is presented by the debtor to the meeting of creditors and includes a background and financial history; the reasons as to why they have become insolvent; any attempts to solve their financial difficulties; a comparison of the estimated outcomes of the IVA compared to bankruptcy; a statement of affairs and any cash flow projections.
Stage 3 – The Nominee
The IP will act as the Nominee in presenting the Proposals to creditors and has a duty to report on the contents of the Proposal. This information is contained within the Nominee’s report which is circulated to creditors together with the Proposal.
The nominee will need to consider and report to creditors whether or not:
1. The debtor’s financial position is materially different from that contained in the Proposal, explaining the extent to which the information has been verified.
2. That the IVA is manifestly unfair.
3. That the IVA has a reasonable prospect of being approved and implemented.
Stage 4 – Interim Order
An interim order will prevent creditors taking action against the debtor and provide an initial moratorium period whilst an IVA is being put in place. This will provide protection and breathing space while the proposals are formulated.
Not all cases require an interim order and it is dependent on the set of circumstances.
As a result of the moratorium, a landlord cannot exercise the right of forfeiture to the business premises without the leave of the Court nor can any legal action continue against the debtor whilst the interim order is in force.
To obtain the Interim Order the debtor will file in court:
1. The Proposal
2. The Notice of Proposal signed by both himself and the Nominee
3. The application for an Interim Order accompanied by a witness statement
Where an application is made, the nominee must report to the court before the Interim ceases to have effect (14 days from the day after the making of the order) on:
• Whether the IVA stands a reasonable chance of being approved (be creditors) and implemented
• Whether a creditors’ meeting should be convened to consider the Proposal
• The date, time and place where the meeting will be held
Stage 5- Meeting of Creditors
A meeting will be convened and creditors’ will be provided with a proxy form to vote in favour or against the Proposal and submit their claims. Should a majority of more than 75% vote in favour of the Proposal, then it will be accepted.
Often creditors’ propose modifications to the terms being proposed and the meeting can be adjourned for a period of up to a maximum of 14 days in order for the modifications to be considered by both the nominee and debtor.
If the creditors reject the Proposal or cannot agree on the modifications, the Proposal will be rejected and it is likely that the debtor will need to consider other forms of insolvency options including Bankruptcy.
Stage 6 – Implementation of IVA
Once the Proposal has been accepted, the Supervisor will notify the creditors, the debtor of the final form of the accepted IVA.
The Supervisor will have a duty to ensure that the IVA is carried out in the accordance with the terms of the Proposal. The Supervisor will hold a client account and will monitor that contributions are received in a timely manner and that creditors receive the agreed level of dividend as per the Proposal.
The Supervisor will have a duty to review the debtor’s income and expenditure and tax return on an annual basis, to analyse whether there needs to be an increase in the level of yearly contributions or any change of circumstances.
On an annual basis the Supervisor will circulate to creditors a progress report to creditors which details the level of payments received into the IVA, ensuring that the debtor is not in any arrears and includes dividend payments made to creditors.
Stage 7 – Variation
Due to unforeseen circumstances, the debtor may require a variation to the terms of the IVA, after all an IVA can last sometimes for a period of 5 years. For example:-
1. The debtor falls into arrears with contributions.
2. The debtor becomes unemployed for a short period of time.
3. The forecast minimum dividend is no longer achievable.
4. The equity release or sale of the matrimonial property coming into the IVA is delayed.
Creditors will be advises of a proposed change to the original terms of the IVA proposal which will need to be agreed by more than 75% of creditors voting.
Failure to agree on the variation may result in the IVA being terminated.
Stage 8 – Failure
If during the course of the IVA, the debtor is in breach of the terms of the Arrangement, then a Notice of breach will be issued to the debtor for example, non-payment of contributions for a period of more than 3 months.
The debtor will have a short period of time to remedy the breach. However, if this cannot be remedied, then the Supervisor will fail the IVA and depending on the clauses contained within the Proposal, will petition the debtor’s bankruptcy.
Stage 9 – Completion of the Individual Voluntary Arrangement
Once the terms of the IVA have been completed, the Supervisor will issue a Certificate of Completion to the debtor, creditors and the court to confirm that the IVA has been concluded.
How does an IVA affect your life?
An IVA is likely to impact your life for a period of time.
It is unlikely to affect your professional life unless you work in a sensitive industry , where an IVA may mean restrictions or, in some cases, an inability to practice. The key industries where restrictions may apply are:
Each employer will differ, you’ll need to refer to your employment contract to establish the implications.
Arranging an IVA won’t affect the every day possessions in your home.
If you have particular assets of value you will need to discuss these with the insolvency practitioner working on your case. You will also need to be fully honest with the IP about the things you own, in order to be compliant with the law.
An IVA may certainly affect your future income, and/or assets which come into your possession during the period of the arrangement.
AN IVA is based around what you can afford at any given time and this is weighed carefully before the arrangement is agreed upon. It stands to reason that if your situation changes for the better then this should benefit those creditor waiting to be paid.
Again, you will need to keep in communication with the IP working on your case if your situation should change.
Can I do an IVA Myself?
It is not possible to arrange an IVA by yourself. Rather, there is a legal requirement to engage the services of an insolvency practitioner.
The Insolvency Practitioner will work with you to put the proposal together, negotiate with creditors and oversee the IVA for as long as it lasts.