Individual Voluntary Arrangement ('IVA')

Individual Voluntary Arrangement ('IVA')

An IVA is a less formal alternative to Bankruptcy, and its flexibility will vary from case to case. An IVA will enable an individual to pay the whole of the debt or a part over a period of time. It is a way of working with your creditors to achieve a way forward rather than suffer the stigma of Bankruptcy.

The IVA must offer a better return to creditors than would be available through a Bankruptcy, and must be put to creditors through a formal proposal, which is best, prepared with the assistance of an Insolvency Practitioner. The proposal is put at a meeting of creditors where at least 75% in value of those creditors voting must support the proposal. All creditors given notice of this meeting are bound by the IVA once it has been approved, whether they voted in favour or not.

The procedure for an IVA offers immediate protection from the actions of creditors. An Insolvency Practitioner can apply to the Court on the individual's behalf for a 28 day moratorium provided he believes that an appropriate set of proposals for an IVA can be put together in that time.

An IVA is a formal insolvency procedure and was a new concept introduced by the Insolvency Act 1986. It was designed to be an alternative to bankruptcy in that the debtor could avoid bankruptcy or alternatively have a Bankruptcy Order annulled through a voluntary arrangement.

Outline of the Procedure

The debtor in conjunction with a licensed insolvency practitioner (who at this stage is called the nominee) prepares a proposal:

The proposals must be realistic and achievable
The debtor must make full disclosure of all assets and liabilities to the nominee. This would include debts due to and/or from relatives and spouses
The creditors must benefit from the arrangement. In simple terms the creditors need to be paid a higher return than would be the case should the debtor become bankrupt.

The proposals are then lodged with the Court. At this stage an Interim Order is granted. The Interim Order prevents any legal action being commenced or continued against the debtor or his property until a meeting of creditors has considered the proposals. (One point of note: the Interim Order does not prevent a landlord exercising his rights; a landlord has certain statutory rights and he would not need to enter a 'legal process' to exercise those rights).

The nominee calls a meeting of creditors, the creditors then vote on the proposals. If over 75% in value of creditors who are either present or represented at the meeting vote for the proposals they become binding on all creditors who have been given notice of the meeting.

Creditors may also propose modifications at or before the creditors' meeting but these modifications are also subject to the voting process and must be agreed by the debtor as well.

Once the IVA is accepted, it is a binding contract on all parties, the creditors, the debtor and the insolvency practitioner. The nominee then becomes the supervisor who will implement the voluntary arrangement in accordance with the terms and conditions stated in the proposal.

Advantages of a Voluntary Arrangement

The debtor may continue to trade and therefore offer a better return to his creditors from his profits.
The personal restrictions imposed on the debtor in a bankruptcy do not apply in an IVA.
Lower costs are involved in an IVA.
Unlike bankruptcy an IVA is not advertised in the national and local press.
Third party funds may be introduced into an IVA to allow the debtor to retain certain assets.
The proposals can be flexible enough to meet the debtors needs and provide a better return to the creditors.
Certain creditors may be excluded from an IVA (this must be disclosed within the proposals).
A better return is usually achieved by creditors under an IVA as opposed to bankruptcy.
An IVA will allow for a controlled realisation of the debtors assets.

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