Individual Voluntary Arrangements
An Individual Voluntary Arrangement (IVA) is a formal agreement between yourself and your creditors, which when accepted becomes legally binding upon both parties. It falls under the realm of the Insolvency Act of 1986, and is a serious alternative to bankruptcy. It is not published in any newspapers, and neither your employers nor your mortgage lender need know about it.
To qualify for the scheme (which will need to be supervised by a Licensed Insolvency Practitioner (IP)) you need to owe a minimum of £15,000 to at least 3 unsecured creditors and be able to repay a minimum of £200 per month. It runs for a set period of time which is usually a maximum of 5 years, after which time your creditors legally write off any amount of debt unpaid. They can take a little time to set up BUT once they are approved interest charges will be frozen on all accounts.
To get approval on an IVA, a formal creditors meeting must be held. At the meeting the total in £value of the creditors who actually vote must exceed 75% for it to be approved. It will be the job of the Insolvency Practitioner prior to the meeting to ensure he has the votes needed for this to happen. Whilst in an IVA your only commitment will be the monthly payment, which will be agreed with your creditors - they will be unable to continue or commence any action against you as long as you keep up your payments. If you do experience any difficulties the Insolvency Practitioner will be there to help you. If you are a homeowner and have equity in your property, you will probably be asked to make this available to your creditors, usually within the last year of the IVA.
Further information on IVAs
The Insolvency Act 1986 introduced a procedure by which an individual that is suffering from financial difficulties is given the opportunity to avoid the expense, inconvenience and stigma of Bankruptcy. A formal proposal is drawn up between yourself and your creditors, with a licensed Insolvency Practitioner acting as an intermediary. The proposal has to be sanctioned by the court and implemented by a Supervisor (a licensed Insolvency Practitioner). Once approved by the requisite majority of creditors, the proposal is binding on all parties.
The main advantage to the individual is that the procedure is sufficiently flexible to be adapted to their particular needs. The benefits to the creditors include the fact that they receive more of their money back than they would if the individual was made bankrupt. Generally an individual must fit the following criteria to help make an IVA work:
- The liabilities usually amount to at least £15,000, but may be lower in particular circumstances.
- The client is confident that he/she has a regular amount of surplus income each month of at least £200. The size of the monthly contributions in comparison to the size of the debt will help determine how successful the Voluntary Arrangement is.
- The IVA must offer creditors increased dividends compared to those which they could expect to receive if the individual were to be declared bankrupt.
Typically, an IVA will propose that a set amount is paid into a central fund for distribution to creditors. The individual’s proposals will be issued to their creditors with notice of a meeting to consider the acceptance of the proposals. They will be issued with a proxy form so that this may be completed to show whether they wish to accept the arrangement without the need to attend the meeting. For the arrangement to be accepted 75% in value of the individual’s creditors who actually vote on the arrangement should accept the proposals. That is not 75% of all the creditors, just 75% of those that actually register a vote. If the proposals do not receive the required percentage of acceptances at the meeting of creditors the meeting may be adjourned so that negotiations can take place to ascertain the creditor’s reasons for rejection. The reasons can be anything including the following:
- A lack of understanding of an IVA and its objectives
- Insufficient level of dividends
- Disbelief in the individual’s ability to make the contributions
- Mistrust of the individual’s intentions
Negotiations by the Insolvency practitioner can, more often than not, persuade the creditor to accept the IVA for commercial reasons. The individual may be asked, or will offer, additional funds to increase the dividend by increasing the amount of the monthly contributions in subsequent years. You can obviously not be asked to produce money that you can not afford. Proof your ability to pay the contributions may be required - this usually takes the form of wage slips or a monthly budget/cash flow forecast if you are self employed.
In the initial periods before an arrangement is set, the court will issue an Interim Order which prevents creditors from taking legal action, issuing bankruptcy petitions or enforcing judgements. The order will also “freeze” any current court action. Interim Order protection may be essential for some individuals or their businesses in order to protect assets from seizure or protect the client from bankruptcy (or suspend any further action in a bankruptcy if the client is already bankrupt).