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Individual Voluntary Arrangements - IVA
The Individual Voluntary Arrangement is a procedure set out in the Insolvency Act of 1986 to deal with the administration of an insolvent individual or estate. It was originally introduced because the major alternative procedure, namely Bankruptcy, was considered an expensive, inflexible solution to the financial problems of the individual.
A Voluntary Arrangement is an agreement between you and your creditors. The terms of your proposed repayment to your creditors can be very flexible but they will reasonably expect their return to be at least slightly better than the return in bankruptcy. You can also expect an IVA to contain certain sanctions or conditions, such as the right to petition for your bankruptcy should you not fulfil your part of the bargain.
What are the benefits of an IVA?
Unlike bankruptcy the Individual Voluntary Arrangement does not necessarily rely on the realisation of the individual’s assets and does not impose restrictions that may compromise the employment or profession of the individual.
Creditors should receive increased dividends in a shorter time as a more diplomatic approach is employed to find ways of increasing the funds that will be available for distribution. This is achieved by projecting the surplus income available from the individual through his or her employment, or by raising money against equity in property. As the administration is both quicker and simpler the procedure is far less costly than in bankruptcy, particularly as it avoids the Department of Trade fees which are charged when a person is made bankrupt.
Who can propose a Voluntary Arrangement?
An insolvent individual may make a proposal himself. A person is insolvent if he cannot pay his/her liabilities as and when they fall due. ie if you cannot meet and maintain your commitments on time.
How does an IVA work?
The individual Voluntary Arrangement procedure breaks down into four stages:
1. A proposal document is drafted, normally with the assistance of an insolvency practitioner who becomes the nominee. It is his job to check that the proposal is viable and that all your circumstances have been taken into consideration as very often the repayment to the creditors is only a partial payment meaning the creditors will write some of the money they are owed off.
2. An application is made to court for an Interim Order where necessary. The interim order is a protection order that stops your creditors taking any recovery action against you whilst you are in the process of proposing an Individual Voluntary Arrangement. When the proposal is filed in court the nominee submits a report and sets a date for a creditors meeting.
3. At the creditors meeting the creditors vote either in favour or against accepting the proposal of repayment. The IVA must get the support of at least 75% of the value of the creditors in order to be approved. Sometimes the creditors will ask for changes to the conditions of repayment, these are called modifications. You are not compelled to accept these modifications but very often, if you don’t your arrangement will not get enough votes for approval. Once the IVA has been approved at the meeting of creditors the arrangement becomes legally binding and ALL creditors must adhere to it even if they voted against or abstained from voting.
4. After approval of the arrangement, in most cases the nominee becomes the supervisor and he is responsible for supervising your arrangement on an ongoing basis. The supervisor is responsible for collecting your contributions and distributing it to your creditors
Who can act as a Nominee/Supervisor?
Unless you are a bankrupt when the proposal is put forward only a Licensed Insolvency Practitioner can act as your nominee and supervisor. If you are a bankrupt the Official Receiver can act as your nominee and supervisor and enter you into a simplified version of the full procedure which is called a fast track IVA.
Are there cases where the IVA cannot be justified?
Arrangements are difficult to justify where there are very few assets of any worth or when the individual attempting to enter into the IVA has little or no surplus income.
What will the effect be on the individual?
The individual is bound by the terms of the Individual Voluntary Arrangement. Provided that he/she carried out their obligations set out in the IVA they will be free of the burden of their previous debts upon completion of the arrangement. Upon successful completion of the arrangement the individual is given a Certificate of Completion which means that they are free from any restrictions.
Duration.
Most IVA’s last a maximum of 5 years or until the debt is fully repaid, whichever is the shortest.
Fees and Costs
The proposal must contain the costs charged by the Insolvency Practice and any legal costs that may have been incurred in preparing the arrangement. There is a fee to the Nominee for checking the proposal and submitting it to court. There is also a separate fee to the Supervisor for looking after the arrangement, distributing the money to creditors and closing the arrangement.
The Supervisors costs are dependant in part, to the amount of work necessary to properly administrate the IVA. The supervisor has to publish his costs in his annual review statement and the completion statement when the IVA is completed. The Supervisor’s fees may be stated as a fixed sum or be calculated on a time/cost basis.
Credit Rating
Unpaid debts will affect your creditworthiness regardless of the process used to cure the problem. However, if an IVA is successfully concluded this will be recorded on your credit report and will appear more favourable than the alternatives to any future potential creditor.
For more information on IVA’s or the procedure call Lifestyle Solution on;
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