Individual Voluntary Arrangements

Individual Voluntary Arrangements (IVAs), a popular form of insolvency that provides individuals with a workable alternative to going bankrupt and creditors with a better return than they may otherwise expect from a bankruptcy estate, are the most interesting and satisfying type of case we deal with (which makes up for them being the least lucrative!)

I happen to have dealt with quite a few IVAs in 2019.  All of these, as indeed all IVAs in general should, have certain factors in common:

• There are debts greater than the value of the debtor’s assets
• There is creditor pressure
• There is something for the debtor to protect by avoiding bankruptcy – their house, a career, or both
• There is something – surplus income, third party funds or another asset – that can be offered by the debtor to creditors, usually in return for a level of debt forgiveness.

Though legislation lays out certain requirements for an IVA proposal, there remains a great deal of flexibility in what can be offered.  Estimated returns this year have varied between less than 1p in the £ and payment in full, over periods of anything from 6 months to 6 years.  It all depends on the level and nature of creditors, the level and nature of the creditors, and even whether certain creditors are concurrently creditors of another individual, who may or may not be heading into their own IVA.  Every situation is different, and requires a proposal that suits them.

Once a proposal is complete, creditors have to decide whether to accept or reject the proposal.  Unlike so may other insolvency procedures where creditors do not engage, this encourages them to get involved in the process.  Creditors may be content with the proposal and approve it, may be unhappy with it and reject it, or may seek to approve it subject to certain modifications being made, usually to increase or protect their return from the IVA.

In the middle of the negotiations sits the Insolvency Practitioner, as Nominee of the IVA.  This position is not pro-debtor or pro-creditor, but instead tries to balance the interests of both sides.  Creditors will most likely not get all the debtor’s assets as soon as they wish and will most likely have to accept a level of debt forgiveness, while the debtor will not get away with paying the minimum possible or keeping all surplus assets if they truly wish to avoid bankruptcy.  Negotiating, trying to convince a creditor to change their mind from voting against to for a proposal, or trying to convince a debtor that they should and can afford to accept modifications, can be a frustrating process, but also a highly satisfying one.

Once approved, the debtor will be rewarded with the end of creditor pressure, in exchange for them being required to stick to the terms of their IVA.  If they cannot meet its terms, the debts and the threat of bankruptcy remain present.  For this reason, IVAs work better than their corporate equivalent, Company Voluntary Arrangements (CVA); if a CVA fails, a company is liquidated and all claims go into that, with the directors free of them.  A debtor in an IVA does not escape their debts if it fails.

A successful IVA completes the feeling of satisfaction that I have helped the debtor resolve their financial woes, while giving creditors a good return on their debt.