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Individual Voluntary Arrangement - IVA

What is a Voluntary Arrangement?

A Voluntary Arrangement is one of the procedures set out in the Insolvency Act 1986 to deal with the administration of an estate of an insolvent individual. It was originally introduced because the major alternative personal insolvency procedure, namely Bankruptcy, was considered to be an expensive and inflexible approach to the financial problems of many individuals.

Basically a Voluntary Arrangement is a contract between you and your creditors. The terms of your proposal to creditors may be very flexible, but creditors will reasonably expect their prospects of recovering money to be at least as good as in a bankruptcy. Further, they will expect the proposal to contain sanctions (such as a right to bankrupt you) if you do not fulfil your part of the bargain.

What are the benefits of a Voluntary Arrangement?

However, unlike bankruptcy the Voluntary Arrangement does not necessarily require the total realisation of the individual's assets and does not impose restrictions upon the types of, or may protect, the employment in which the individual can engage. Thus the individual may avoid the worst consequences of Bankruptcy and therefore much of the disruption that can arise to domestic and business life.

Creditors should receive increased dividends in a shorter time; because a sensible Arrangement will find ways of increasing funds available for distribution, either from the individual's personal assets, future earnings or from others who are prepared to give financial assistance provided bankruptcy proceedings do not ensue. Often, the administration will be simpler and quicker and, therefore, less costly than for a Bankruptcy, particularly as it avoids the Department of Trade fees which are payable in Bankruptcy.

Who Can Propose a Voluntary Arrangement?

The insolvent individual may himself make such a proposal, whether or not he is already an undischarged bankrupt. If the individual is an undischarged bankrupt, his Trustee or the Official Receiver can also propose a Voluntary Arrangement.

How does a Voluntary Arrangement work?

The procedure divides into four stages:

1. A proposal document is drafted, normally with the assistance of an individual or organisation with relevant experience of the Insolvency Act and is then submitted to a Nominee. This sets out the basis of the Arrangement regarding assets and liabilities and names a proposed supervisor, who is usually the same person as the Nominee. Both the Nominee and Supervisor must be authorised insolvency practitioners.
2. An application can be made to the Court for an Interim Order where necessary. This has the effect of preventing legal action against the individual and his property for a period of not less than 14 days from the date of the Interim Order. In this time, the Nominee considers the merits of the proposal document and then has to report to the court as to whether he considers that a meeting of creditors should be convened to consider, and vote upon, the proposal. However, if the Nominee helps to prepare the proposal document on behalf of the individual, his report as to whether or not a meeting of creditors should be convened is more often than not submitted at the same time as the proposal itself. This is known as a concertina order.
3. The nominee will then convene a meeting of creditors. At the meeting if in excess of 75% in value approve the proposal, the Arrangement becomes binding on all creditors who received notice of the meeting. It is, however, not possible to vary the rights of secured creditors without their consent. You are not legally required to attend the creditor's meeting, but in practice you should be there. Otherwise it will be impossible to agree any changes to the proposal. If last minute changes are proposed, you should feel free to ask for reasonable time to think about them, If necessary, seek private or separate legal advice outside of the meeting about what is being proposed.
4. After approval of the proposal, the Supervisor will implement the terms of the arrangement.

Who can act as a Nominee/Supervisor?

Unless you are a bankrupt when you make the proposal, only an authorised Insolvency Practitioner can act as a nominee or a supervisor of an IVA. Nearly always the person who acts as nominee will also act as supervisor. Alternatively, if you are a bankrupt at the time you put forward the proposal, the Official Receiver can act as a nominee and supervisor. In that case you may be able to take advantage of a simplified procedure called a fast track IVA, which does not involve a creditor's meeting or allow the creditors to make any changes to the proposal. It still requires a 75% majority by value of creditors to approve the proposal.

Are there cases where a Voluntary Arrangement cannot be justified?

Arrangements will be difficult to justify where there are few assets of value or where no third party contribution is to be introduced or where there are too little surplus funds meaning there is little or no prospect of a return to creditors. Furthermore if creditors have reason to suspect dishonesty or other irregularities, then they may vote against the proposal in order that the individual is subjected to bankruptcy proceedings.

What will the Effect be on the individual?

The individual will be bound by the terms of the arrangement and provided he complies with these obligations, he will be free from the burden of his previous debts and will be able to restructure both his domestic and business life.

Duration

The duration of an Arrangement can and will vary dependant on the circumstances of the individual. However, usually an arrangement lasts no longer than five years.

Fees and Costs

The proposal must contain details of what will be paid to the IP for acting as Nominee and Supervisor. A separate fee is payable for the IP's work in each of these roles.

The nominee's work will include helping with the proposal, the necessary applications to court to start the IVA process, liaison with your creditors and holding the creditor's meeting. The nominee's fee will usually be a fixed sum, agreed with you before he begins work on your proposal. Sometimes the fee will be split between work done as nominee and work done before that stage, as intended nominee.

The supervisor's costs depend in part on the nature of the proposal and what he needs to do to implement the arrangement. In all cases he must report the results of the creditor's meeting to you, the court and the creditors. He must also issue annual reports to these people. Sometimes he may have to do work that was not foreseen in the proposal, for example if a creditor takes a dispute to court, if a lot of work needs to be done to agree tax liabilities or if you break your proposal's promise to the creditors.

The supervisor's fees may be stated as a fixed sum, as a percentage of funds coming into the arrangement, or by reference to the time costs of the supervisor and his staff. If the supervisor's fees are fixed on a time-cost basis, they will probably be stated in the proposal as an estimate, rather than a binding quotation, because no one can predict future events with certainty.

What about my credit rating?

Unpaid debts will affect your creditworthiness regardless of what legal process is used to deal with the problem. However, if an IVA is successfully concluded, that fact will be recorded on any status report and may be more favourable from the point of view of any future credit provider. It is your responsibility to ensure your record is updated.

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