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Is an IVA Right for me ?
Since June 2002, the regulators have required insolvency practitioners (IPs) to give this guidance leaflet to people thinking about making an individual voluntary arrangement (IVA). It aims to help you understand what is involved before you commit yourself.
The rules say that your IP should not have charged you any money in connection with an IVA before you have read this leaflet and discussed it with him or her. But in complex cases, perhaps when you own a business, you might already have paid the IP or his firm for professional advice leading to a decision to consider an IVA. So, after reading this leaflet, you should sign the attached form and give it to the IP to confirm that he has complied with the rules. Even if you do not meet the IP in person, you should expect to meet a suitably experienced colleague who can give good advice.
This leaflet has been prepared by the Association of Business Recovery Professionals, also known as R3. It is not a full statement of the law, nor can it cover all circumstances. Accordingly R3 accepts no responsibility if you rely on this leaflet. You should always seek appropriate professional advice. What is an IVA?
An IVA is an alternative to bankruptcy. Basically it is a contract between you and your creditors. The terms of your proposal to creditors may be very flexible, but creditors will reasonably expect their prospects of recovering money to be at least as good as in a bankruptcy. Further, they will expect the proposal to contain sanctions (such as a right to bankrupt you) if you do not fulfil your part of the bargain.
Your IP is likely to help you with your proposal to creditors and, initially, he is known as your ‘nominee’. If the creditors accept your proposal, an IP then becomes the ‘supervisor’ of the arrangement.
Your proposal will be voted on by your creditors at a creditors’ meeting (except in the case of the ‘fast-track’ procedure mentioned later). Generally, if over 75% by value of your creditors who are represented at the meeting (in person or by proxy) vote in favour, the IVA will be implemented. Creditors may put forward changes to the proposal, but they cannot impose them on you – you can decide whether or not to accept them.
You are not legally required to attend the creditors’ meeting, but in practice you should be there. Otherwise it will be impossible to agree any changes to the proposal. If last-minute changes are proposed, you should feel free to ask for reasonable time to think about them. If necessary, seek your IP’s private advice outside the meeting about what is being proposed.
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An IVA gives you an opportunity to avoid bankruptcy. If it is not approved, a creditor may bankrupt you. It follows that you should put forward the best offer you can to your creditors. Be completely open and honest with your IP and the creditors about your financial circumstances. What is bankruptcy?
A bankruptcy order may be obtained by any creditor owed more than £750, or you yourself may ask the court to make an order. In either case, the Official Receiver, a government official, will then contact you for details of your financial position. Subject to certain exemptions, bankruptcy means that your assets are sold and the money is used to pay your creditors as much as possible. The assets will be sold by the Official Receiver or an IP, as your ‘trustee in bankruptcy’. Assets you will be allowed to keep include:
• ordinary household contents;
• a modest motor vehicle;
• the benefit of a residential tenancy;
• ‘tools of trade’ – things you need to pursue your trade or vocation;
• any money you have in a pension fund. However, you should seek advice if the fund is large or if you are likely to be able to take the benefits of the fund in the next few years.
There are special rules regarding your home. Generally speaking, if you have equity in a house (i.e. it has a value in excess of any mortgages on the property), even if it is jointly owned, it may have to be sold. However, the trustee will be happy to discuss how to avoid a forced sale of the property, for example by selling your share to any joint owner or a friend or relative. The law encourages a trustee not to take any steps to force a sale through the court during the first 12 months of the bankruptcy, so you have a reasonable time to make any necessary arrangements. In addition, the trustee has three years from the date of the bankruptcy order to sell your house or otherwise deal with your interest in it. If he does not do so within that time, the property will revert to you. And if the value of your equity is less than £1,000 the trustee will not be able to sell it at all.
If you own a house with little equity, you or any joint owner should consider seeking to buy out your share of the house from the bankruptcy as soon as possible. Otherwise, movements in property prices (or mortgage repayments) could produce an increased equity later – even after your discharge from bankruptcy – and the trustee could then seek full value for your interest. In most cases the cost of buying your share should be no more than the trustee’s valuation and conveyancing fees.
If you have surplus income above the needs of yourself and your dependants, you will be expected to make contributions to your creditors for up to three years, and may be ordered to do so by the court. If you come into any money during the bankruptcy, such as an inheritance or a lottery win, that too will be available to your creditors.
