The IVA approval process

The IVA approval process
Introduction
i) What is an individual voluntary arrangement?

The Insolvency Act of 1986 (amended by the Insolvency Act 2000 and the Enterprise Act 2002) introduced a new procedure whereby a debtor could come to an arrangement with his/her creditors to pay the debts in full or in part over time as an alternative to bankruptcy. This arrangement is known as an individual voluntary arrangement (IVA) and may be entered into either before or after a bankruptcy order has been made.
ii) Individual voluntary arrangements (IVAs)

An IVA begins with the debtor drafting a formal proposal to his/her creditors to pay part or all of the debts. The debtor may even propose that the creditors agree to a deferment or postponement of their debts to some future time. The debtor may make an application to the court for an interim order at an early stage but it is not compulsory. (see paragraph vi). The Insolvency Act 2000 amendments which came into force on 1 January 2003 removed the requirement to apply for an interim order in every case to cut down on costs and delays in the IVA procedure.

The proposal will then be considered by the nominee (usually an insolvency practitioner) who will make a recommendation to the court as to whether the proposal is acceptable and viable. If appropriate, the proposal will then be put to a meeting of creditors. If the proposal is accepted at the meeting, the nominee will then become supervisor of the IVA and oversee its operation. Any agreement reached with the creditors will be legally binding. The IVA procedure is not to be confused with the Fast Track Voluntary Arrangement (FTVA) scheme run by the Insolvency Service which was introduced on 1 April 2004 under the provisions of the Enterprise Act 2002. For more information on FTVAs please refer to the Case Help Manual part "Fast Track Voluntary Arrangements".

In theory, it is for the debtor to prepare the proposal for the intended IVA on which the nominee reports. However, due to the technical matters involved in drawing up such a proposal, the debtor will almost invariably consult an insolvency practitioner or other authorised person in the first event, who will become his/her intended nominee. Most proposals are thus professionally prepared. For more information on the role of a nominee see paragraph iv.
Where a bankrupt has not entered into an IVA prior to the bankruptcy and has assets or there is obvious potential for an IVA to be proposed then the examiner should draw the bankrupt's attention to the voluntary arrangement provisions. Where the official receiver does not wish to act as nominee under the FTVA provisions the bankrupt should be supplied with a list of the local insolvency practitioners on the official receiver's rota with whom he/she can discuss the matter.

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iii) What are the advantages of a voluntary arrangement?

A voluntary arrangement with creditors offers flexibility to the debtor. It may include assets not normally available in bankruptcy, for example, the use of third party funds or income from the debtor's continued trading or employment. It gives the debtor more say in how his/her assets are dealt with, for instance, creditors may allow the debtor to exclude and retain certain assets such as his/her home. Finally, the restrictions which apply to a bankrupt are avoided.
iv) The proposal

The proposal is the key document in any voluntary arrangement. The proposal must name a person as the intended nominee, such a person may be a qualified insolvency practitioner or other authorised person and must be willing to supervise the implementation of the arrangement.

The proposal should:

1. explain why the debtor considers that the voluntary arrangement is desirable;
2. give reasons why creditors may be expected to concur with the arrangement; and
3. provide details of the debtor’s assets and liabilities.

In order to make it likely that the creditors will accept the proposal, it should be credible and provide an acceptable alternative to bankruptcy. The proposal should set out clearly the debtor’s obligations particularly as to the time and amount of contributions, so that there is no dispute over whether he/she has complied with the terms of the arrangement. It is important that the proposal sets out a time scale for its achievement.