What is an IVA?
An Individual Voluntary Arrangement (otherwise commonly known as an IVA) is a legally binding agreement between an individual and their creditors in satisfaction of part of their debts. Most IVAs are based on monthly contributions and/or the realisation of an individual’s interest in a property. IVAs generally allow you to continue either trading as a sole trader or as a director of a limited company to enable you to make the relevant contributions, whereas bankruptcy imposes some restrictions on trading.
In short, an IVA is brought about by the individual submitting a proposal to their creditors with the assistance of an Insolvency Practitioner. Generally speaking, if 75% of your creditors agree to its terms, it can be implemented and becomes binding on all of your creditors (except secured creditors such as a bank or lender in respect of a mortgage), irrespective of whether the remaining creditors voted for the IVA or not. Further details on the procedure are detailed below.
If an IVA appears to be a good option for you, an Insolvency Practitioner can assist in creating a proposal for your creditors to consider that is both affordable and achievable for you, whilst offering a generally much higher return to your creditors than would otherwise be available in bankruptcy.
At Parker Andrews, we will work closely together with you and your advisors (if applicable) to formulate a plan tailored to your specific needs and future plans. If you require our assistance, we can also help with contacting your creditors prior to any formal proposals to obtain an impression on likely voting intention or acceptable levels of return. We can also assist with answering any questions or concerns creditors may have at the early stages.
When is an IVA appropriate?
When you are enduring a short-term cash flow or solvency issue but you have an income from your employment or business that will allow you to make regular contributions for the benefit of your creditors
When you wish to continue acting as a director of a company – this would not be possible in Bankruptcy
When you have debts that you cannot afford to pay immediately but have an asset that could be realised within an agreed timescale for the benefit of your creditors
When informal negotiations with your key creditors have stalled or broken down or creditors are threatening to take the necessary steps to make you bankrupt
Benefits of an IVA
Exclusion of key assets – it is possible to exclude certain assets within the proposal document, even any equity in a property, so long as contributions are sufficient to cover any value that may be available in your Bankruptcy. You may therefore be able to remove these assets from the threat of enforcement action
Sole Traders – If you are a sole trader an IVA will generally make it easier for you to remain in business
Low initial cost – The majority of contributions for an IVA will fall due post-appointment, thus not requiring a large injection of funds initially
Return to creditors – An IVA will usually generate higher returns to creditors
Power – An IVA can bind your creditors to an agreement, preventing any further recovery action**
Control – You will usually retain control of the sale of your property and other assets, meaning a better sale price is likely to be achieved than in bankruptcy, if a forced sale is necessary
Discharge from debts – when fully implemented and all payments made by you under the terms of the IVA, you will be fully discharged from the debts incurred included in the IVA. Once the IVA is approved, your unsecure creditors are bound by the terms of the IVA as mentioned above and the amounts owed are capped at the date of approval or interim order (if applicable) meaning no interest charges accrue after that date
Public knowledge – an IVA is NOT routinely advertised and is solely a private contract between you and your creditors.
Flexibility – if your circumstances change after your IVA is approved, we can help you to ask creditors to vary the IVA terms. IVAs can be very flexible and creditors will often consider all reasonable and fair proposals
However – Caution!
An IVA may be unlikely to be accepted if a large proportion of your creditors are unwilling to vote in favour of the proposal.
Creditors bound by the terms of an IVA, including banks and HMRC, will most likely want to see a contributions-based IVA last for five years. You should consider whether this is feasible in your situation.
**Secured creditors are not bound by an IVA, meaning if you are looking to retain control of your property, your mortgage payments will need to be kept up to date. An IVA will not stop any repossession proceedings by a mortgage company, secured lender or any creditor with a charging order.
Any debt incurred after the date of the IVA approval is excluded from the IVA.
Should you not comply with any term of your IVA, the Supervisor may have to report this to creditors, which may lead to the failure of the IVA and may also lead to a petition for your bankruptcy.
Free no-obligation discussion
Contact Parker Andrews for a free, no obligation discussion about your requirements in the first instance. If we agree that an IVA is the best option, we will outline the procedure and the information required to enable a full review of your financial position.
Face to face meeting with an Insolvency Practitioner
In circumstances where an IVA is to be proposed, it is generally beneficial to arrange a face to face meeting with an Insolvency Practitioner. This will enable you discuss the matter in further depth and ask any questions you may have, including likely contributions required from you, timescales and likely impact on you and your assets and/or business, pre and post-approval of a proposal.
Drafting of proposal & convening a meeting of creditors
Once Parker Andrews has been formally instructed, we will continue to liaise with you and prepare the proposal documentation according to the agreed plan. Further financial and background information will need to be provided by you in this period, including evidence of your income and expenditure and anticipated asset values. A meeting of creditors will be convened once the proposal has been agreed, further information on which is at point 5 below.
Informal alternative – consultation with your creditors
During the period between issue of the proposal to creditors and the meeting of creditors to consider the same, a member of the Parker Andrews team will look to consult your major creditors and seek their opinion on the proposal (with your approval). This will ensure that the proposal has the highest chance of success moving forwards and alleviate any immediate financial pressure you may be experiencing.
A meeting of creditors will be convened to consider their thoughts on the proposal. In order for the proposal to be agreed, a total of 75% of those voting (by proportion of sum claimed) will be required. Creditors can suggest modifications to the terms of the proposal within their vote. It is a choice for you as to whether the suggested changes are accepted or not, although caution should be given where any refusal of any such modifications would render a vote as rejection of the proposal as a whole.
In addition to the above, at least 50% of the creditors voting excluding connected creditors must approve the proposal for it to be passed (in this context, connected means other linked claimants such as a spouse or other family members, amongst others).
IVA approved – implementation
Once the IVA has been agreed at the meeting, the terms of the Arrangement are to be implemented. It is normal practice for you to be required to bring all tax returns up to date if you are self-employed in the process of preparing a proposal and you should ensure all future returns and payments are made on time. A standing order mandate will be provided to ensure all payments are made on time.
Notice of the approval of the proposal will be sent to all creditors bound by its terms. No advert is placed in the London Gazette and the Arrangement forms a private contract between you and your creditors. No enforcement action can be taken by a creditor bound by the IVA.
Conclusion of IVA
Once you have adhered to the IVA and complied with all the obligations in the proposal, the IVA will be complete and the Arrangement closed. Notice of this will be provided by the Supervisor at the relevant time.