Individual Voluntary Arrangements
An individual voluntary arrangement (“IVA”) is essentially an agreement between an individual and his or her creditors, where all creditors can be bound by a decision of the majority. It is generally used as a method of dealing with accrued personal debt, whether arising through personal trading activities or through overextended borrowing on credit cards, loans etc. It is seen as an alternative to formal bankruptcy, along with other options such as debt management plans, debt relief orders, amalgamation loans, negotiated settlements etc.
The individual would seek the assistance of an insolvency practice. If it was agreed that an IVA was the best way forward then a proposal document would be drafted for the consideration of the creditors. That proposal document would explain the financial position of the individual and what would be the outcome for creditors if the individual was to go bankrupt. It would explain how that financial position arose; how it is proposed that the the individual would go forward, generating an income for the benefit of creditors.
It is a request to creditors to put a hold on outstanding accounts, allow the individual a breathing space to make changes to give a result where funds can be generated to ensure that creditors will get a better return that they would receive if the individual was to be made bankrupt.
Frequently an IVA will be based upon a freeze on historic debt, facilitating a monthly surplus income from which monthly contribution payments can be made to a central fund. That fund then provides for payments to be made to creditors on a periodic basis.
An IVA proposal will include
- A brief history of how the financial position arose.
- An income and expenditure summary.
- Forecast statements if the individual is a sole trader or in partnership.
- An estimated statement of affairs disclosing the individual’s assets and liabilities (essentially a balance sheet on a break-up basis)
- An estimated outcome statement showing what creditors could expect to receive if a proposal were to be accepted, or rejected.
There are a number of terms that are incorporated into almost all IVAs but the essential basis of any proposal and offer to creditors can be flexible. It must however always be borne in mind that an agreement requires benefit for both parties. A proposal that does not benefit creditors will not be accepted. The anticipated outcome of an IVA will always be measured against bankruptcy. This means that assets that would be available on bankruptcy need to be addressed in an IVA proposal. This would include interest in any freehold or leasehold property that may be the principle residence of the individual.
The individual would have to propose, or nominate, an insolvency practitioner to act in relation to the proposal (“the Nominee”) and would propose that if an agreement for a IVA can be reached with creditors then the insolvency practitioner should supervise its conduct, thus becoming “the Supervisor”.
A meeting will be convened to consider any proposal and creditors will be asked to vote on its acceptability. It requires 75% of voting creditors to approve a proposal for it to be implemented. Where any of those creditors are associated with the company it will also be required that 50% of non-associate creditors approve the proposal.
It should be noted that approval of a IVA is no guarantee that bankruptcy can be avoided. The individual must adhere to its terms. Failure to do so will result in the failure of the arrangement and probable liquidation.
