An Individual Voluntary Arrangement or IVA for short is a way of avoiding bankruptcy or dealing with claims that will be made against you and that will become unmanageable when your organisation formally closes.
The arrangement is a legal contract between you, your creditors and a Licensed Insolvency Practitioner. It allows you to retain control of your assets and avoid bankruptcy, subject to and in accordance with the terms of the contract.
The contract itself is called a proposal. The proposal in broad terms sets out:
- your assets and liabilities,
- your monthly household income and expenditure
- an explanation of what has led to the position of you proposing an IVA,
- details of why the IVA is better for all concerned than your bankruptcy, and
- confirmation of the financial proposal being offered.
Because it is a contract it can contain any terms, subject to them not being forbidden by the Insolvency Act and subject to them not being unfair.
The IVA covers all debts of the organisation you have become personally liable for (e.g. landlords, HM Revenue & Customs, pension deficits, trade creditors, and employees’ claims), along with any other personal debts you may have (e.g. credit cards or unsecured loans).
Your IVA will not include any secured lans you have (e.g. mortgage on your house) because the rights of a secured lender cannot be affected or varied by an IVA unless they consent.
The IVA process is split into 3 stages:
- Preparation of Proposal
- Insolvency Practitioner’s report to court
- Meeting of creditors
Preparation of Proposal
The proposal can take anything from a few weeks to several months to put together. Your chosen Insolvency Practitioner will work closely with you to complete this step.
Insolvency Practitioner’s Report to Court
The Insolvency Practitioner must submit a report to court on your IVA proposal saying whether it is fit for creditors to consider or not. It will be fit if it fairly balances the interests of all stakeholders concerned.
If it is fair, a meeting of your creditors will be set for usually 2-4 weeks from the date of filing the proposal. At this stage the IVA is not approved or in place, this will only happen at the meetings when creditors vote on your proposal. Should creditors be threatening legal action e.g. bailiffs or should a bankruptcy hearing be taking place it is possible to apply for an order of the court preventing any further action (known as an interim order).
Meeting of Creditors
Creditors must vote upon the proposal and must vote in favour by a majority of 75% or more (by value of debts of voting creditors).
Where creditors reject the proposal an adjournment of 2 weeks is permitted to understand and hopefully overcome their reasons for rejection.
Once the IVA is approved you can run your financial affairs in accordance with the proposal and be safe in the knowledge that none of your unsecured creditors can make you bankrupt or take possession of your assets.
Greater detail on the IVA itself can be obtained by contacting Kevin Lucas of Lucas Johnson on 0330 900 2000.