IVA - Frequently Asked Questions
If you have in excess of £15000 of debt you may qualify for an
IVA and be clear of debt in just 60 months
Common questions regarding IVA's (Individual Voluntary
Arrangement's)
An IVA is a legally binding arrangement supervised by a
Licensed Insolvency Practitioner, the purpose of which is to
enable an individual, sole trader or Partner ("the Debtor") to
reach a compromise with his creditors and avoid the consequences
of bankruptcy. The compromise should offer a larger repayment
towards the creditor's debt than could otherwise be expected
were the Debtor to be made bankrupt. This is often facilitated
by the Debtor making contributions to the arrangement from his
income over a designated period or from a third party
contribution or other source that would not ordinarily be
available to a Trustee in Bankruptcy
Who Can Benefit From an IVA
An IVA is available to all individuals, Sole Traders and
Partners who are experiencing creditor pressure and it is used
particularly by those who own their own property and wish to
avoid the possibility of losing it in the event they were made
bankrupt. It is also often used by sole traders and Partners who
have suffered problems with their business but wish to secure
its survival as they believe it will be profitable in the future
which will enable them to make a greater repayment to creditors
than could otherwise be expected were they made bankrupt and the
business consequently cease trading.
The Procedure in Brief
In theory it is envisaged that the Debtor drafts proposals for
presentation to his creditors prior to instructing a Nominee,
(who must be a Licensed Insolvency Practitioner), to review them
before submission to court and then to the creditors. In
practice the Nominee draws up the proposal upon the information
provided by the Debtor and submits these to court with his
comments on the merits of the proposals with a view to obtaining
an Interim Order. An Interim Order is an order made by court
precluding creditors from taking any action against the Debtor
whilst a meeting of creditors is called and held to decide
whether the proposals are acceptable to them or not. Following
the granting of the Interim Order the Nominee will circulate to
creditors the following information:- The Nominee's
comments on the debtor's proposals The Proposals
Notice of the date and location of the meeting of
creditors to vote on the proposals A Statement of
Affairs this effectively being a list of the assets and
liabilities of the Debtor A schedule advising creditors
of the requisite majority required to approve the IVA A
complete list of creditors A guide to the fees charged
by the Supervisor following approval of the IVA A form of proxy
for voting purposes The creditors meeting is held not earlier
than following 14 clear days notice after the above has been
circulated to creditors. The purpose of the meeting of creditors
is to agree or reject the Debtor's proposals with or without
modifications which can be requested by creditors at the
meeting. Acceptance of the proposals requires 75% in value of
those creditors who vote either in person or by proxy at the
meeting.
Please note that the 75% relates only to those who actually
vote and assuming the creditors receive notice of the proposals,
all will be bound by the terms of the arrangement whether they
voted or not. Upon approval of the IVA, a Supervisor is
appointed (usually the Nominee) to ensure the proposals are
adhered to and to distribute the dividends to creditors.
Assuming the debtor complies with the terms of the arrangement,
upon completion of the IVA he will be fully discharged from all
liabilities included within it.
Key Components for a Successful IVA The IVA must offer
a higher return to creditors than could otherwise be expected
were the Debtor to be made bankrupt. An honest
declaration of your assets and/or anticipated future earnings
should be made. Material or false declarations are likely to
result in the subsequent failure of the IVA. Advantages of an IVA
Individual, Sole Trader or Partner Enables a Sole
Trader or Partner to continue to trade and generate income
towards repayment to creditors which would otherwise have a call
upon the personal assets of the individual. No
restrictions as regards personal credit although in practice can
prove difficult to obtain. The proposals are drawn up
by the Debtor and are entirely flexible to accommodate personal
circumstances. An example of this may be to exclude the Debtor's
property from the IVA assuming the Debtor can adequately satisfy
creditors that the outcome would be better for them by agreeing
to this than could otherwise be expected if a bankruptcy order
was made. The Debtor does not suffer the restrictions
imposed by bankruptcy, such as not being able to act as a
director of a limited company etc.
Creditors The costs of administering an IVA are
considerably lower than in bankruptcy, enabling a higher return
to creditors. IVA's operate as an insolvency procedure
and creditors can as a consequence of this, still reclaim tax
and VAT relief as a bad debt. Disadvantages of an IVA
Where contributions from income are being made, IVA's
are generally expected to be for a period longer than that in
bankruptcy, i.e. 5 years as opposed to 3 years. The 5-year
period is often required by creditors as a bargain for allowing
the Debtor to avoid the consequences of bankruptcy. If
the Debtor fails to comply with the terms of the arrangement his
home and assets can still be at risk if they have not been
specifically excluded from the proposals. If the IVA
fails as a consequence of the Debtor not meeting his obligations
under it, it likely that the Debtor will be made bankrupt at
this time. There will be no opportunity for a Trustee
in Bankruptcy to investigate the actions of the Debtor or
possibility of hidden assets. For more information then visit:
http://www.chasesaunders.co.uk
About the author:
Paul Mccann B.A.(hons) is a professional debt consultant with
several years of experience within the industry.
