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What Is An Individual Voluntary Arrangement (“iva”)?

This procedure allows a financially troubled individual to reach a legally binding agreement with his/her creditors about payment of all or part of his/her debts over an agreed period of time. An IVA is proposed by the individual but is drafted with the aid of an insolvency practitioner.

An IVA would be appropriate where an individual is in temporary financial difficulty or is unable to pay his/her debts due to high levels of interest or a loss in income as long as that individual has some method of raising funds to be paid into the IVA for the benefit of creditors. It is also used to avoid bankruptcy therefore removing the stigma of bankruptcy and lessening the effect on credit history.

The proposal usually involves delayed or reduced payments of debt, capital restructuring or an orderly disposal of assets. Once a Voluntary Arrangement Proposal is approved, it is registered in the Voluntary Arrangements Registry Service in Birmingham. This is a public register which can be searched by any party.

The Voluntary Arrangement Procedure

Before the proposal is made, an application can be made to court for an interim order which prevents creditors from taking action against the individual or his/her property for up to 14 days. If the Individual is not under any pressure from creditors or has supportive creditors, an application for an interim order may not be necessary.

When the arrangement has been proposed, a nominee (who must be an insolvency practitioner) makes an independent report to court on whether a meeting of creditors and shareholders should be held to consider the proposal. The proposal has to have a real prospect of success for the Nominee to report that these meetings should be held.

What Is An Interim Order?

An Interim Order may be granted by the Court in cases where the Court considers that the individual requires protection from Court procedures. For example, where a Bankruptcy Petition has been presented against the individual and an Interim Order is subsequently granted, then a stay on proceedings is automatically in force. However, any Court action may be continued with the leave of the Court although this is unusual.

Approval Of The Arrangement

The Creditors’ Meetings is held on sixteen days notice. Creditors are asked to decide whether to approve the voluntary arrangement. If in excess of 75% of the creditors present and voting at the meeting agree to the proposal, it is then binding on all creditors who had notice of the meeting and/or were entitled to vote. The 75% is calculated by reference to the value of creditors’ claims, not by the number of creditors. Therefore if the major creditor is owed over 75% of the total liabilities this creditor’s support will be vital. All creditors who had notice of the meeting are bound by the terms of the arrangement.

Once the voluntary arrangement has been approved at the meetings, the Nominee (or other insolvency practitioner) becomes the supervisor of the arrangement.

What Happens If The Arrangement Is Approved?

The supervisor of the arrangement has a duty to ensure that the terms of the proposal are adhered to and that directors are carrying out their duties as proposed. However the Individual generally remains in control of his own assets and retains duties such as accounting to HM Revenue & Customs for tax.

The Supervisor will make periodic distributions of the funds available in the Voluntary Arrangement. Any creditor who did not receive notice of the IVA is entitled to be included in any distributions and receive dividends. However any liabilities incurred by the individual after the date the IVA is approved will create new creditors who will not be bound by the IVA and will be able to instigate formal debt recovery procedures against the individual. It is essential, therefore, that the individual is confident that it will be able to meet his/her on going liabilities throughout the course of the IVA for this procedure to be successful.

Once the IVA has been completed, the Individual’s liability to those creditors of which it was aware and who had received notice of the IVA is cleared. A certificate of completion will be issued and filed with the Registry in Birmingham. The individual is able to continue his financial affairs knowing that any debt, which existed at the date the Arrangement was approved, has now been paid in full.