Individual Voluntary Arrangement (IVA)

Common questions regarding IVA's (Individual Voluntary Arrangement's)

• What is an IVA (Individual Voluntary Arrangement)?
• Who Can Benefit From An IVA?
• The Procedure In Brief
• Key Components For A Successful IVA
• Advantages of an IVA
• Disadvantages of an IVA

What Is An IVA?

An IVA is a legally binding arrangement supervised by a Licensed Insolvency Practitioner, the purpose of which is to enable an individual, sole trader or Partner ("the Debtor") to reach a compromise with his creditors and avoid the consequences of bankruptcy. The compromise should offer a larger repayment towards the creditor's debt than could otherwise be expected were the Debtor to be made bankrupt. This is often facilitated by the Debtor making contributions to the arrangement from his income over a designated period or from a third party contribution or other source that would not ordinarily be available to a Trustee in Bankruptcy

Unlike the unregulated informal debt management products actively being marketed on radio and television, an IVA is legally binding and precludes all creditors notified and therefore included in the IVA from taking any enforcement action against the Debtor post-agreement assuming the Debtor complies with the his obligations in the IVA.

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Who Can Benefit From An IVA?

An IVA is available to all individuals, Sole Traders and Partners who are experiencing creditor pressure and it is used particularly by those who own their own property and wish to avoid the possibility of losing it in the event they were made bankrupt.

It is also often used by sole traders and Partners who have suffered problems with their business but wish to secure its survival as they believe it will be profitable in the future which will enable them to make a greater repayment to creditors than could otherwise be expected were they made bankrupt and the business consequently cease trading.

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The Procedure In Brief

In theory it is envisaged that the Debtor drafts proposals for presentation to his creditors prior to instructing a Nominee, (who must be a Licensed Insolvency Practitioner), to review them before submission to court and then to the creditors.

In practice the Nominee draws up the proposal upon the information provided by the Debtor and submits these to court with his comments on the merits of the proposals with a view to obtaining an Interim Order.

An Interim Order is an order made by court precluding creditors from taking any action against the Debtor whilst a meeting of creditors is called and held to decide whether the proposals are acceptable to them or not.

Following the granting of the Interim Order the Nominee will circulate to creditors the following information:-

• The Nominee's comments on the debtor's proposals
• The Proposals
• Notice of the date and location of the meeting of creditors to vote on the proposals
• A Statement of Affairs this effectively being a list of the assets and liabilities of the Debtor
• A schedule advising creditors of the requisite majority required to approve the IVA
• A complete list of creditors
• A guide to the fees charged by the Supervisor following approval of the IVA
• A form of proxy for voting purposes

The creditors meeting is held not earlier than following 14 clear days notice after the above has been circulated to creditors. The purpose of the meeting of creditors is to agree or reject the Debtor's proposals with or without modifications which can be requested by creditors at the meeting. Acceptance of the proposals requires 75% in value of those creditors who vote either in person or by proxy at the meeting. Please note that the 75% relates only to those who actually vote and assuming the creditors receive notice of the proposals, all will be bound by the terms of the arrangement whether they voted or not.

Upon approval of the IVA, a Supervisor is appointed (usually the Nominee) to ensure the proposals are adhered to and to distribute the dividends to creditors.

Assuming the debtor complies with the terms of the arrangement, upon completion of the IVA he will be fully discharged from all liabilities included within it.

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Key Components For A Successful IVA

• The IVA must offer a higher return to creditors than could otherwise be expected were the Debtor to be made bankrupt.
  
• An honest declaration of your assets and/or anticipated future earnings should be made. Material or false declarations are likely to result in the subsequent failure of the IVA.

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Advantages of an IVA

Individual, Sole Trader or Partner

• Enables a Sole Trader or Partner to continue to trade and generate income towards repayment to creditors which would otherwise have a call upon the personal assets of the individual.
• No restrictions as regards personal credit although in practice can prove difficult to obtain.
• The proposals are drawn up by the Debtor and are entirely flexible to accommodate personal circumstances. An example of this may be to exclude the Debtor's property from the IVA assuming the Debtor can adequately satisfy creditors that the outcome would be better for them by agreeing to this than could otherwise be expected if a bankruptcy order was made.
• The Debtor does not suffer the restrictions imposed by bankruptcy, such as not being able to act as a director of a limited company etc.

Creditors

• The costs of administering an IVA are considerably lower than in bankruptcy, enabling a higher return to creditors.
• IVA's operate as an insolvency procedure and creditors can as a consequence of this, still reclaim tax and VAT relief as a bad debt.

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Disadvantages of an IVA

• Where contributions from income are being made, IVA's are generally expected to be for a period longer than that in bankruptcy, i.e 5 years as opposed to 3 years. The 5-year period is often required by creditors as a bargain for allowing the Debtor to avoid the consequences of bankruptcy.
• If the Debtor fails to comply with the terms of the arrangement his home and assets can still be at risk if they have not been specifically excluded from the proposals.
• If the IVA fails as a consequence of the Debtor not meeting his obligations under it, it likely that the Debtor will be made bankrupt at this time.
• There will be no opportunity for a Trustee in Bankruptcy to investigate the actions of the Debtor or possibility of hidden assets.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA); that unlike most licensed insolvency practitioners, the licensed insolvency practitioners that consumers are referred or forwarded to by Money Advice Direct for an IVA to process “do not” charge any upfront fees. This fee structure means that the monthly payments consumers make into the IVA will cover the payments to the creditors as well as the Licensed Insolvency Practitioner's fee for preparing, nominating and supervising the IVA. At the outset of the contract or service for an IVA the nominee fee is combined with the supervisory/administration fee. Please beware of commercial debt advice providers being unclear on their charges. Please note that if a fee is payable at any stage (including nominee/upfront and supervisory/administration fees) this information should be stated prominently in the advertisement, on any website and in any promotional material.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA); please note that not all monies paid by the consumer are paid to the creditors. The IVA nominee and / or supervisory fees are deducted from the debtor’s payments.  Please beware of debt advice providers that claim or imply that their fee is paid by the creditors when in fact the nominee and/or supervisory fees are deducted from the debtor’s IVA payments.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD);  that, if the IVA/PTD fails the debtor / consumer “are not” responsible for the balance of the Licensed Insolvency Practitioners fees owed.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD); that, if the IVA/PTD fails the debtor / consumer “are” responsible for the balance of their debts outstanding.
• Please note that for consumers considering a Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD); if the consumer is a property owner and there is sufficient equity in their property the supervisor of the IVA or PTD may require the debtor, to revalue their home and realise the equity to pay off some or all of the debt at some point in the procedure. Please beware of debt advice firms who not state that with an IVA and in a PTD the supervisor may require the debtor, if they are a homeowner, to revalue their home and realise the equity to pay off some or all of the debt.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD); that only unsecured debts are to be included e.g credit cards, unsecured loans and bank overdrafts. Please note that at the end of the period those debts that are not included such as secured debts, Government fines and child support payments will remain to be outstanding.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD, do be misled by claims that imply that an IVA or PTD is the only realistic option available to debtors. Please consider all other debt options available via the private, public or third sector.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD); in most cases of an IVA/PTD creditors will be prepared to write off no more than 70% of a debt and in some cases 60%. Also, not all customers can achieve the stated 'write-off' because every case considered is different.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD); do not be misled into thinking that an IVA will improve the consumer's credit rating because the adverse credit rating will remain on file for 6 years, or until completion if later.
• Please note that for consumers considering a Debt Management Plan (DMP), do not be misled into thinking that a DMP will improve the consumer's credit rating because the debtor is likely to have an adverse marker on their credit profile for longer due to an increase in the repayment period and, as the agreement is not legally binding the plan can be cancelled at any point meaning that the debtor could fall further into arrears.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD) or Debt Management Plan (DMP); the likely impact on a consumer's credit rating on entering into an IVA/PTD/DMP or on the consumer's ability to obtain credit in the short and medium to long term.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD) or Debt Management Plan (DMP); do not be misled into thinking an IVA/PTD/DMP is stress free, when in fact any debt remedy solution should be given serious thought beforehand.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD) do not be misled into thinking that an IVA/PTD is a quick solution to dealing with debt because in most cases it can take five years to complete an IVA and three years to complete a PTD.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD) or Debt Management Plan (DMP); do not be misled by any claim that implies a guaranteed outcome favourable for the consumer in negotiations with creditors until the IVA / PTD / DMP has been successfully completed, subject to creditor’s approval.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD) or Debt Management Plan (DMP); do not be misled by any claim that implies that when the consumer is on the plan, creditors will no longer contact them. Whilst the debt management company or Licenced Insolvency Practitioner can be appointed to act on behalf of the debtor, creditors are still entitled to contact them if they wish to do so.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD), beware of any claim that implies that when the consumer is on an IVA/PTD creditors will no longer contact them. Whilst an IVA/PTD is legally binding and creditors are refrained from contacting the debtor regarding payment of the debt they may still contact the debtor in cases of promotional material and/or certain other circumstances.
• Please note that for consumers considering an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD), beware of any claim that implies creditors creditors will only stop contacting the debtor for payments of the debt and that they may still contact them to fulfill its contractual obligations of the IVA / PTD.