What is an IVA?
- An IVA is an alternative to bankruptcy. Basically it 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.
- Your IP is likely to help you with your proposal to creditors, and initially he is known as your ‘nominee’. If the creditors accept your proposal, an IP then becomes the ‘supervisor’ of the arrangement.
- Your proposal will be voted on by the creditors at a creditors’ meeting (except in the case of the ‘fast-track’ procedure mentioned in paragraph 16). Generally, if over 75% by value of your creditors who are represented at the meeting (in person or by proxy) vote in favour, the IVA will be implemented. Creditors may put forward changes to the proposal, but they cannot impose them on you – you can decide whether or not to accept them.
- You are not legally required to attend the creditors’ 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 your IP’s private advice outside the meeting about what is being proposed.
- An IVA gives you an opportunity to avoid bankruptcy. If it is not approved, a creditor may bankrupt you. It follows that you should put forward the best offer you can to your creditors. You must be completely open and honest with your IP and the creditors, and must make a full disclosure of your complete financial circumstances.
Who can act as a nominee/supervisor?
- Unless you are bankrupt when you make the proposal, only an authorised IP can act as nominee or supervisor of an IVA. You can expect to see a licensed professional with training and qualifications demonstrating he is fit to hold an insolvency licence. Nearly always the person who acts as nominee will also act as supervisor. The IP or his firm should not have had a material professional relationship with you (e.g. acting as your accountant) before the IVA, as he would not then appear impartial. Alternatively, if you are bankrupt at the time you put forward the proposal, the Official Receiver can act as 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 creditors’ meeting or allow creditors to make any changes to the proposal. It still requires a 75% majority by value of creditors to approve the proposal.
In an IVA, what are the IP’s responsibilities to me?
- The IP’s role changes as the case goes on. Right now, before you have committed yourself to anything, he is your professional adviser, with responsibilities only to you. It is up to him to help you make the right decision about what to do and, if you proceed with an IVA, to help you put your proposal to your creditors.
- When you decide to go ahead, the IP becomes the ‘nominee’. At this point the IP’s role changes and he has legal duties to the court and to creditors which may conflict with your interests. For example, if he thinks your proposals are not fit to put before a creditors’ meeting, he is obliged to say this to the court, and the court may end the IVA procedure at that stage.
- If the IVA is approved, the IP’s role changes again. He is then the ‘supervisor’ of the IVA, and his responsibilities are mainly governed by the terms of the arrangement, but he still has responsibilities to the court. His position now is to be ‘honest broker’ – to act even-handedly between you and your creditors and to ensure that the terms of the proposal are fulfilled. If the proposal requires him to bankrupt you if you fail to deliver your part of the bargain – and creditors will probably insist on such a term – then that is what the supervisor must do.
- So it is important that you understand how the IP’s role changes as the case goes on. Don’t be afraid to ask questions if you want clarification.
- If you are dissatisfied, your IP or his firm should have a formal procedure for resolving complaints. You should ask for details of this procedure and, first, raise the matter with the IP or his firm. Many complaints arise simply because of misunderstandings, and can be resolved by both parties taking the time to go through the problem. But if the matter cannot be resolved in this way, you can raise it with your IP’s regulator (he must tell you who this is – there is a list at the end of this leaflet). His regulator will then investigate the complaint on your behalf. The Insolvency Service, a government agency, has a leaflet called ‘How to make a complaint against an insolvency practitioner’.
- You also have a right to raise any complaint about your supervisor with the court, and the court may change any decision he has made. You should seek independent advice before going to court, as the court may order you to pay costs if it does not agree with your complaint.
What are the Fees and costs?
- The proposal must contain details of what will be paid to the IP for acting as nominee and as supervisor. A separate fee is payable for the IP’s work in each of these roles.
- The nominee’s work will include helping you with your proposal, the necessary application(s) to court to start the IVA process, liaison with your creditors and holding the creditors’ 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 creditors’ meeting to you, the court and to all creditors. He must also issue annual reports to these people. Sometimes he may have to do work which was not foreseen in the proposal, for example if a creditor takes a dispute to court, if a lot of work has to be done to agree tax liabilities or if you break your proposal’s promises to creditors. You can contact your supervisor at any time, and you should do so if you have any problem delivering your part of the bargain.
- 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. However, you will want to have details of the charge-out rates of the IP and his staff.
- Make sure you understand what basis is being used in your case, and that you are content with it. It is up to you to fix the basis of the supervisor’s fees in the first instance as this will form part of your proposal to creditors. The level of the supervisor’s fees will also affect the return to your creditors under the arrangement. If you are unsure of anything, don’t hesitate to ask for clarification about the costs of the process.
- Both the nominee and supervisor can charge you for various disbursements (additional expenses) that may be incurred while the IVA lasts, and they should give you details of any likely disbursements in your case. For instance, there is a fixed fee for registering an IVA with the Department for Business Enterprise and Regulatory Reform, and the supervisor is also required by law to take out a bond (insurance) for which he pays a premium. Depending on the case, other charges may arise such as legal or valuation fees. In particular, if the supervisor needs to instruct solicitors in relation to any problem with your arrangement, the legal fees will generally be paid out of the funds in your arrangement. This includes any legal work that arises if you don’t keep to the terms of your arrangement.
- If the Official Receiver acts as your nominee, you will have to pay a deposit to cover his fixed fee for acting as nominee and registering the arrangement. He will also charge a fee for acting as supervisor calculated as a percentage of the amount of money received during the arrangement.
What can go wrong?
- An IVA can go wrong at any time. Your creditors may reject your proposal at the first meeting, and you will be back to square one. You should only consider an IVA if you think major creditors are likely to support your proposal. Your IP can advise further and, if necessary, discuss the matter first with the major creditors.
- If the arrangement is approved, it could still fail later for unexpected reasons. You might then still face bankruptcy in two or three years. You should therefore take care not to agree to anything that is not realistic and achievable.
What about my credit rating?
- Reasonably enough, credit-rating agencies do not make much distinction between a bankruptcy and an IVA. 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.
Consumers in England and Wales may also wish to consult the Insolvency Service’s debtor guide – In debt? Dealing with your creditors…
Free debt counselling and advice is also available from the Money Advice Service
available at: https://www.moneyadviceservice.org.uk