Is an Individual Voluntary Arrangements (IVA) right for me?

Please review the Individual Voluntary Arrangement page for more information. The following text will provide you with more information on other factors to consider when determining if an Individual Voluntary Arrangement is right for you.

In an Individual Voluntary Arrangement, what are the Insolvency Practitioner’s responsibilities to me?

The Insolvency Practitioner’s role changes as the case goes on. Right now, before you have committed yourself to anything, he is your professional adviser, with responsibilities only to you. It is up to him to help you make the right decision about what to do, and, if you proceed with an IVA, to help you put your proposal to your creditors.

When you decide to go ahead, the Insolvency Practitioner becomes the ‘nominee’. At this point the Insolvency Practitioner’s role changes and he has legal duties to the court which may conflict with your interests. For example, if he thinks your proposals are not fit to put before a creditors’ meeting, he is obliged to say this to the court, and the court may end the IVA procedure at that stage.

If the IVA is approved, the Insolvency Practitioner’s role changes again. He is then the ‘supervisor’ of the IVA, and his responsibilities are mainly governed by the terms of the arrangement, but he still has responsibilities to the court. His position now is to be ‘honest broker’ – to act even-handedly between you and your creditors and to ensure that the terms of the proposal are fulfilled. If the proposal requires him to bankrupt you if you fail to deliver your part of the bargain – and creditors will probably insist on such a term – then that is what the supervisor must do.

So it is important that you understand how the Insolvency Practitioner’s role changes as the case goes on. Don’t be afraid to ask questions if you want clarification.

If you are dissatisfied, your Insolvency Practitioner or his firm should have a formal procedure for resolving complaints. You should ask for details of this procedure and, first, raise the matter with the Insolvency Practitioner or his firm. Many complaints arise simply because of misunderstandings, and can be resolved by both parties taking the time to go through the problem. But if the matter cannot be resolved in this way, you can raise it with your Insolvency Practitioner’s regulator (he must tell you who this is – there is a list at the end of this leaflet). His regulator will then investigate the complaint on your behalf. The Insolvency Service, a government agency, has a leaflet called ‘How to make a complaint against an insolvency practitioner’.

You also have a right to raise any complaint about your supervisor with the court, and the court may change any decision he has made. You should seek independent advice before going to court, as the court may order you to pay costs if it does not agree with your complaint.

Reading the proposal carefully

The proposal is a formal legal document which, when approved, becomes legally binding, and many points must be covered as a matter of law or best practice. Other points will be included because creditors tend to demand them. If such points were not covered, creditors would be less likely to vote in favour.

Unfortunately this means the proposal itself may be a long, technically complex document. Again, don’t be afraid to ask questions. And you should certainly go through the proposal in as much detail as you need to before signing it. It is the most important document in the IVA, and will govern everything that happens afterwards. It is difficult, and sometimes impossible, to make changes later on. Even though your Insolvency Practitioner will probably help you draft the proposal, it remains your proposal, and you could be prosecuted if it is misleading.

Fees and costs

The proposal must contain details of what will be paid to the Insolvency Practitioner for acting as nominee and as supervisor. A separate fee is payable for the Insolvency Practitioner’s work in each of these roles.

The nominee’s work will include helping you with your proposal, the necessary application(s) to court to start the Individual Voluntary Arrangement process, liaison with your creditors and holding the creditors’ meeting. The nominee’s fee will usually be a fixed sum, agreed with you before he begins work on your proposal. Sometimes the fee will be split between work done as nominee and work done before that stage, as intended nominee.

The supervisor’s costs depend in part on the nature of the proposal and what he needs to do to implement the arrangement. In all cases he must report the results of the creditors’ meeting to you, the court and to all creditors. He must also issue annual reports to these people. Sometimes he may have to do work which was not foreseen in the proposal, for example if a creditor takes a dispute to court, if a lot of work has to be done to agree tax liabilities or if you break your proposal’s promises to creditors. You can contact your supervisor at any time, and you should do so if you have any problem delivering your part of the bargain.

The supervisor’s fees may be stated as a fixed sum, as a percentage of funds coming into the arrangement, or by reference to the time costs of the supervisor and his staff. If the supervisor’s fees are fixed on a time-cost basis, they will probably be stated in the proposal as an estimate, rather than a binding quotation, because no one can predict future events with certainty. However, you will want to have details of the charge-out rates of the Insolvency Practitioner and his staff.

Make sure you understand what basis is being used for the fees in your case, and that you are content with it. It is up to you to fix the basis of the supervisor’s fees in the first instance as this will form part of your proposal to creditors. The level of the supervisor’s fees will also affect the return to your creditors under the arrangement. If you are unsure of anything, don’t hesitate to ask for clarification about the costs of the process.

Both the nominee and supervisor can charge you for various disbursements (additional expenses) that may be incurred while the Individual Voluntary Arrangement lasts, and they should give you details of any likely disbursements in your case. For instance, there is a fixed fee for registering an Individual Voluntary Arrangement with the Department of Trade and Industry and the supervisor is also required by law to take out a bond (insurance) for which he pays a premium. Depending on the case, other charges may arise such as legal or valuation fees. In particular, if the supervisor needs to instruct solicitors in relation to any problem with your arrangement, the legal fees will generally be paid out of the funds in your arrangement. This includes any legal work that arises if you don’t keep to the terms of your arrangement.

If the Official Receiver acts as your nominee, you will have to pay a deposit to cover his fixed fee for acting as nominee and registering the arrangement. He will also charge a fee for acting as supervisor calculated as a percentage of the amount of money received during the arrangement.

What can go wrong?

An Individual Voluntary Arrangement can go wrong at any time. Your creditors may reject your proposal at the first meeting, and you will be back to square one. You should only consider an Individual Voluntary Arrangement if you think major creditors are likely to support your proposal. Your Insolvency Practitioner can advise further and, if necessary, discuss the matter first with the major creditors.

If the arrangement is approved, it could still fail later for unexpected reasons. You might then still face bankruptcy in two or three years. You should therefore take care not to agree to anything that is not realistic and achievable.

Before meeting my Insolvency Practitioner, I paid fees to someone else

Often people seek advice from others before being introduced to an Insolvency Practitioner. They may talk to a professional adviser such as a solicitor or accountant, a banker, a citizens’ advice bureau, or a debt counsellor or consultant. Some of these people reasonably expect to be paid for their advice. Only you can decide whether you have received value for money. If you are not certain, you should discuss it with your Insolvency Practitioner. If your previous adviser recommended an Individual Voluntary Arrangement, and has been paid a fee, ask your Insolvency Practitioner to state in your proposal which organisation gave that advice and how much you paid them.

What about my credit rating?

Credit-rating agencies do not make much distinction between a bankruptcy and an Individual Voluntary Arrangement. Unpaid debts will affect your creditworthiness, regardless of what legal process is used to deal with the problem. However, if an Individual Voluntary Arrangement is successfully concluded, that fact will be recorded on any status report and may be more favourable from the point of view of any future credit provider. It is your responsibility to ensure your record is updated.

Conclusion

Your Insolvency Practitioner understands that this may be a distressing time for you and has assisted many people in your situation before. His judgment and experience can help to make sure you do the right thing from now on. Here is a suggested agenda to discuss with the Insolvency Practitioner:

• Your financial position
• What creditors can realistically expect to be paid
• Bankruptcy – pros and cons
• Individual Voluntary Arrangement – pros and cons
• Likely creditor support
• Are there other options?
• Fees and costs
• Agreed way forward

Call us on 0800 180 4212 for immediate free advice or email us and we will contact you within 24 hours.