What is an IVA?
This is an arrangement between you and your creditors. It is legally binding and stops creditors taking action against you for their debt. In effect it puts all the people you owe money to (including H M Revenue and Customs) to one side and classes them as IVA creditors. You will not have to pay this debt to these creditors individually but will pay an amount that you can afford to pay every month to the Insolvency Practitioner. Creditors will be paid from this when it has built up. After an agreed period of time (and payments), the creditors will write off the remaining debt.
An IVA is only appropriate if you (either as an employee, sole traders or partnership) are unable to pay your debts as and when they fall due – i.e. you are insolvent.
The advantages of an IVA (as an alternative to bankruptcy):-
- It avoids bankruptcy
- It allows you to retain control of your assets An example of this may be retaining book debt monies or stock to fund trading (for a sole trader) or retaining a residential property
- It prevents creditors taking actions against you or your business to recover its debts
- An IVA can be done jointly with a husband, wife or partner to interlink joint finances and debts
An IVA is a contract between an individual and their creditors and the terms of the contracts can be very flexible. Creditors will expect to recover more money from an IVA than they would a bankruptcy.
How does it work?
An Insolvency Practitioner (IP) is the only person who can be appointed to deal with an IVA. If you are considering an IVA, please talk direct to an Insolvency Practitioner to avoid any unnecessary fees from an unqualified advisor.
For a sole trader business the IVA would bring your debt from your own personal finances (such as credit cards) and your business finances (such as HM Revenue and Customs) into the IVA. The business would be allowed to retain all the necessary assets it needs to trade. An example of this would be a shop which would typically retain the stock, the fixtures and fittings, the company bank account and necessary cars and vans. If the IVA was accepted, the shop would run as normal, but would not pay the creditors these monies that it owes direct to them, but instead would pay the Supervisor of the IVA a set amount monthly.
The supervisor will pay the IVA creditors when sufficient funds have been built up and will pay them an equal amount (as a percentage of their debt).
When the IVA has been completed, a Certificate of Compliance is issued and the IVA creditors will write off the debt that remains to be paid to them. This could be a significant amount of debt that is written off, but the creditors would not have received this amount if you had gone bankrupt – so they are better off with this procedure.
IVA’s are useful tools for publicans, whose public house may be in financial difficulties as the IVA will stop any embarrassing actions being taken by creditors, such as bailiffs turning up.
A brief outline of the procedure:
You would need to provide the Insolvency Practitioner (IP) information on your assets and liabilities and income and expenses and an IVA proposal will be drafted.
If there are significant creditor pressures, such as threats of, or a winding up petition being presented against you, it is possible to obtain an interim order from Court to prevent creditors (which may include a landlord) taking action against you while the proposal is being drafted and finalised.
When it is in an agreed form, the IVA proposal will be sent to all of your creditors and a date for the voting will be set to give time for the creditors to consider the proposal. At this point the IP will be the Nominee and will do a brief report to the creditors to go with the proposal.
Creditors will be asked wither to vote by a specific date or to attend a virtual meeting. At least 75% of voting creditors are needed to accept the IVA for it to come into force.
Creditors may propose some changes to the arrangement which will be put to you for consideration. They may also request a physical meeting (but this is not very common).
If the IVA is accepted, the IP will be appointed Supervisor.
What are the costs?
A fee will be payable for the Nominee stage and the Supervisor stage. The creditors will set the fee when they vote on the acceptance or rejection of the IVA proposal. These will be drawn from the monies held from the monthly contributions.
They vary significantly dependent on the size and complexity of the case. Please call to discuss your situation and we will give you an indication of the fee.
We recommend that anyone considering an IVA should take a look at a very useful booklet called “Is a Voluntary Arrangement right for me?”
All initial advice is free and you are under no obligations. If you would like to know more about this procedure call us on 01302 965485 or fill in one of our forms and we’ll get back to you.