What is an IVA?
An IVA, or Individual Voluntary Arrangement to give it its full title, is a formal debt solution for people who are insolvent and cannot repay their unsecured debts when they fall due. It is an alternative to declaring bankruptcy.
An IVA provides a formal structure to enable a debtor to make repayments to their creditors based on what they can reasonably afford on a monthly basis.. They agree to pay their creditors as much as they can afford throughout the term of the IVA but no more, whilst, in turn, you agree to accept their payments rather than taking further legal action, such as bankruptcy. At the end of the arrangement, you agree to legally 'write-off' any money still outstanding.
Here is the IVA application process in 5 simple stages.
The application process normally takes between 3 to 4 weeks to complete.
The Consultation
First the Insolvency Practitioner (IP) determines whether proposing an IVA is in the debtors best interests by way of a telephone consultation.
Once we've established that an IVA is worth considering, we'll then discuss the debtors’ alternative options just to make sure that proposing an IVA remains their preferred choice.
- Your Proposal
Once the debtor has decided they want to apply for an IVA, we'll request some supporting documentation that we'll need in order to prepare their IVA proposal.
Once complete, we'll then send the debtor a copy of their IVA proposal and allow them time to read it through it before asking them to sign and return it.
- The Creditors' Meeting
A virtual creditors' meeting will be arranged, to provide creditors an opportunity to vote on the IVA proposal. 75% of creditors by value have to agree for the IVA to be approved. Assuming the required majority agrees to accept their IVA proposal at the meeting, the IVA is considered approved from this point. If more than 25% of creditors by value reject the IVA then we will adjourn the meeting of creditors for 14 days to try and overturn the rejection. If the rejection is overturned the IVA will be approved. If creditors do not vote at the meeting or have less than 25% of value of the debt and the IVA is approved they are still bound by the terms of the IVA.
- Your IVA Agreement
Once the IVA has been approved, all interest is immediately frozen, all charges and late payment fees are stopped and you must refrain from contacting the debtor.
The debtor is now legally protected by the IVA and you forfeit any right to take legal action against the debtor, ensuring their home and any other assets are safe.
- Debt Free
On successful completion of the IVA, the debtor will be provided with a 'Completion Certificate'.
All remaining outstanding balances from your original debt are now legally written-off.
The debtor is now officially debt free and you cannot contact them for the remaining balance.
Will I get all my money back in an IVA?
In an IVA you will receive something called a dividend. This is how many pence out of every pound you are owed, that you will receive through the IVA.
Dividends are usually paid monthly and will continue to be paid to you throughout the term of the IVA, as long as the client is maintaining their payments. As a result you will not receive every penny back that you lent to the debtor. Details of how many pence in the pound you can expect to receive will be detailed in the proposal, along with how often you will receive those payments. The idea of an IVA is that you will receive an amount that is affordable for the debtor over a reasonable period. At the end of the term of the IVA any remaining debt is legally written off.
Who pays the IVA fees?
It takes many hours to prepare and propose an IVA and these costs are normally charged by way of a Nominee Fee.
There is another fee called the Supervisor Fee, which covers the costs associated with the ongoing administration and maintenance of the IVA.
Administrational duties include: dealing with the debtors queries; dealing with creditors’ queries; agreeing creditors’ claims; distributing dividend payments to creditors; undertaking annual income and expenditure reviews; undertaking regular reviews of the debtors case and reporting annually to creditors.
Additional fees, called disbursements, are also charged to cover specific costs, such as legal fees, that are incurred within each individual case.
IVA’s are usually proposed at a total cost of £3,650 and these fees are taken from the debtors monthly payments.
Why would I agree to an IVA?
Creditors usually understand that a small proportion of their clients will fall on difficult times and, perhaps, be unable to maintain their financial commitments.
They make allowances for such occurrences in their business models, which allow them, when necessary, to write-off substantial levels of bad debt.
They consider this element of their business to be part of the whole and, whilst they try to avoid suffering losses as best they can, they understand from time to time it's going to happen.
When confronted with an IVA proposal, creditors are given a clear breakdown of the comparative returns they could expect from both the proposed IVA and the potential return from the same applicant's bankruptcy.
And, whilst not always the case, the IVA will usually show a significant financial advantage to the creditor by demonstrating a greater financial return over a longer period when compared to the bankruptcy alternative.
It's for this reason that creditors will agree to an IVA.
Quite simply, they will see a financial benefit to their shareholder and the company’s bottom line in accepting the IVA because, for them, it makes perfect business sense.
What if I don’t agree with the IVA?
At the meeting of creditors you have 4 options:
- You accept the IVA
- You accept the IVA with modifications
- You do not vote
- You reject the IVA
If you chose to reject the IVA we will attempt to negotiate with you to see if there is a way for it to be approved.
If you are unhappy with the term of the IVA you are able to input modifications (such as the below) to modify the terms of the IVA such as extending it. The debtor would have to agree to the modifications for the IVA to be approved
What happens if the debtor stops paying?
If the debtor misses payments they are able to put a catch up arrangement in place where they spread the arrears over the next few months. Alternatively, throughout the term of the IVA debtors are allowed 9 payment holidays where they add the missed payment onto the end of the IVA.
If a debtor stops making payments into the IVA, then distributions will stop. If 3 monthly payments are missed then the IVA will fall into breach and if not remedied will be terminated. If the IVA is terminated, you will be notified and you will then be able to chase the debtor for the debt.
MODIFICATIONS EXPLAINED
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The total cost of the Arrangement will be £3,650 including all fees and disbursements, subject to any limits in relation to minimum levels of distribution. Where the Arrangement is joint or interlocking with another, then the combined cost of both cases shall not exceed £3,650.
In the event of any extension to the IVA, the Supervisor will be entitled to an additional £400 per annum. Pro-rata should be applied where the extension is less than 12 months.
Where additional assets are to be realised, the Supervisor will be entitled to 15% of those further realisations in addition to the total cost. Additional assets can include overtime, bonus, commission, PPI, windfalls, after acquired assets, but excludes any increases in regular income.
No additional fees may be claimed including, but not limited to: adjournments, extensions in lieu of arrears, early completion or termination of the case.
Explanation: The maximum fee we can charge for the IVA is £3650. If the IVA is extended for any reason we can charge an additional £400. If the debtor pays any additional money into the IVA, we can retain 15% as a fee but we cannot charge additional fees if the IVA completes early or fails.
During months 1 and 2 of the Arrangement the supervisor may draw a fee equivalent to the monthly contribution received from the debtor, which will form part of the total cost allowed. From month 3 of the Arrangement onwards, the supervisor will claim and draw a maximum of 70% of each monthly contribution which will form part of the total cost allowed. A minimum of 30% of the monthly contribution must be distributed to creditors each month from month 3 onwards.
Explanation: The first two monthly contributions will be retained for fees. Distributions will then be made each month from month three (providing the debtor is up to date with contributions).
Distributions will commence by Month 3 of the Arrangement and will continue to be paid monthly thereafter. Where the Supervisor requires evidence of a claim, he/she shall be authorised to pay dividends on the Statement of Affairs balance.
Explanation: We require a completed ‘Proof of Debt’ form in order to admit your claim for dividend purposes. If we do not receive this, we may make distributions based on the amount we think is owed to you.
The Nominee Fee will not exceed £1,500 and may be drawn as soon as funds permit, no additional fee may be charged in respect of any subsequent adjournment of the meeting of creditors or in respect of Room Hire. Where Category 1 disbursements exceed £1,000 over the lifetime of the IVA, then the Nominee fee shall be reduced proportionately to the Category 1 disbursement value claimed in total above £1,000, and that value shall be refunded to the case for the benefit of creditors where applicable. No category 2 disbursements may be charged. No additional fees may be claimed including, but not limited to adjournments, early completion or termination of the case.
Explanation: The fee we are charging for setting up the IVA must be reduced to £1500. Dividends must be paid to creditors at least once per quarter. We can charge for genuine costs that we incur in relation to the IVA i.e. postage & packaging, printing etc however we cannot charge for business related costs i.e. replacing office equipment etc. We cannot charge any additional fees for work carried out in relation to closing the IVA earlier than expected or failing it.
The supervisory fee will be the equivalent to 15% of all further realisations and drawn proportionally as funds are received.
Explanation: The fee for managing the IVA (once it’s accepted) will be 15% of everything that is paid into the IVA, minus the initial Nominee Fee.
No additional fees may be claimed including, but not limited to adjournments, early completion or termination of the case.
Explanation: We can charge the fees listed above but cannot charge any additional fees for work carried out in relation to closing the IVA earlier than expected or failing it.
In the event the arrangement should come to an early conclusion no additional fee may be charged in respect to the early settlement.
Explanation: We cannot charge any additional fees for work carried out in relation to closing the IVA earlier than expected or failing it.
The first dividend shall be paid 3 months after the Nominee Fee has been paid and subsequently paid monthly, or quarterly as a minimum thereafter.
Explanation: Once the Nominee Fee has been paid, dividends must be paid to creditors at least once per quarter.
The rights of any creditor who has a joint and several claim against a third party will not be affected by this proposal.
Explanation: If anybody is jointly named on a debt included in the IVA, the creditor may still pursue the third party for the full liability.
The fee for calling a variation meeting will be agreed at the point of variation.
Explanation: If we need to request any changes to the IVA, we will call a ‘Variation Meeting’. If this happens, we may be allowed to charge a fee for the additional work we have carried out (which would be taken from the debtor’s monthly contributions). If this occurs, the fee will be agreed at the meeting.
The dividend must be recalculated to include any increases from the modifications or changes to the value of unsecured creditors and the new dividend must be included in the Chairman's Report.
Explanation: Paperwork will be issued to all creditors to confirm which votes were received at the meeting, any modifications that were accepted and any changes to fees and dividend; this is known as the ‘Chairman’s Report’
The Insolvency Exchange (CREDITORS THEY VOTED FOR):
The total cost of the arrangement will be fixed at £3650, including all fees and disbursements for a 5 year IVA, or £4,000 where the duration needs to be extended to 72 months due to the protocol provisions for equity. Both scenarios have a combined Nominee fee and disbursements totalling no more than £1,900. Supervisory fees will be £1,750 for 60 month arrangements, or £2,100 if the case is extended to 72 months due to the equity provisions, but for the avoidance of doubt extensions due to previous arrears or payment holidays, do not attract any additional fees. The Supervisory fees are to be charged pro-rata and on a monthly basis. In the event that equity release is successful, the term will be reduced as per the protocol equity provisions, which will also reduce the Supervisory fee in line with the above, however the Supervisor may charge 15% of the equity realisations, as additional Supervisor fees. Where other additional assets are realised and introduced into the case for the benefit of Creditors, the Supervisor is entitled to charge a fee of 15% of these realisations, in addition to the total cost specified above. Additional assets do not include increases in regular income, but do include assets such as lump-sums, bonuses, overtime, and similar additional assets. ‘Joint’ / ‘inter-locking’ IVA’s will attract a total fee of £3,650 for both customers combined. The first 2 monthly contributions are to be taken as a cost of the arrangement, forming part of the total fee allowed. From month 3 of the arrangement Creditor distributions shall be at least 30% of the monthly contributions into the arrangement, increasing to 100% (minus the monthly Supervisory fee) once the Nominee fee, disbursements, and accrued Supervisory fees have been settled.
Explanation: The maximum fee we can charge for the IVA is £3650 (or £4000 if the debtor makes additional contributions in lieu of equity). We are allowed to take a total of £1900 for the work and associated costs we have incurred whilst setting up the IVA and the remaining £1750 (or £2100) can be charged for managing the IVA for the rest of its’ term once it is accepted. We are allowed to retain the first two monthly contributions to use towards our fees, then we must distribute a dividend to creditors every month from month 3 onwards.
The Nominee Fee will be the equivalent of the first 5 monthly payments or £1000.00 whichever is the greatest and drawn as soon as funds permit. The first dividend shall be paid to creditors within 3 months after the Nominee Fee has been settled and subsequently paid quarterly as a minimum thereafter.
Explanation: The fee we are charging for setting up the IVA must be reduced. We can retain the first 5 monthly contributions, or a £1000 depending on which of these is more. Dividends must be paid to creditors at least once per quarter.
The Supervisor Fee will be equivalent to 15% of all further realisations and drawn proportionally as funds are received.
Explanation: The fee for managing the IVA (once it’s accepted) will be 15% of everything that is paid into the IVA, minus the initial Nominee Fee.
Variation fees shall not be considered or agreed as part of the Arrangement until a variation meeting is called by the IP. Consideration of the fee required to vary the IVA will be made at the creditor meeting based upon the debtor circumstances and work undertaken or required by the IP.
Explanation: If we need to request any changes to the IVA, we will call a ‘Variation Meeting’. If this happens, we may be allowed to charge a fee for the additional work we have carried out (which would be taken from the debtor’s monthly contributions). If this occurs, the fee will be agreed at the meeting.
No category 2 disbursements are to be charged by the Nominee or Supervisor.
Explanation: We can charge for genuine costs that we incur in relation to the IVA i.e. postage & packaging, printing etc however we cannot charge for business related costs i.e. replacing office equipment etc.
With the exception of the Fees specifically mentioned in Creditor modifications, namely Nominee Fee, Supervisory Fee, and Category One Disbursements, no other fees are to be taken from this Voluntary Arrangement. This includes, but is not limited to, Adjournment fees, Closure fees and Failure fees. The only exception to this is Variation fees which will be agreed at individual Variation meetings.
Explanation: We can charge the fees listed above, but cannot charge any additional fees for work carried out in relation to closing the IVA earlier than expected or failing it.
Evolve Servicing (CREDITORS THEY VOTED FOR):
The Nominee’s fee must not exceed £1000. The first dividend shall be paid to creditors within 3 months after the Nominee Fee has been settled and subsequently paid quarterly as a minimum thereafter.
Explanation: The fee we are charging for setting up the IVA must be reduced to £1000. Dividends must be paid to creditors at least once per quarter.
The Supervisor’s fee will be equivalent to 15% of all further realisations and drawn proportionally as funds are received.
Explanation: The fee for managing the IVA (once it’s accepted) will be 15% of everything that is paid into the IVA, minus the initial Nominee Fee.
Variation fees shall not be considered or agreed as part of the Arrangement until a variation meeting is called by the IP. Consideration of the fee required to vary the IVA will be made at the creditor meeting based upon the debtor circumstances and work undertaken or required by the IP.
Explanation: If we need to request any changes to the IVA, we will call a ‘Variation Meeting’. If this happens, we may be allowed to charge a fee for the additional work we have carried out (which would be taken from the debtor’s monthly contributions). If this occurs, the fee will be agreed at the meeting.
No category 2 disbursements are to be charged by the Nominee or Supervisor.
Explanation: We can charge for genuine costs that we incur in relation to the IVA i.e. postage & packaging, printing etc however we cannot charge for business related costs i.e. replacing office equipment etc.
The Supervisor shall provide a fully itemised breakdown of disbursements from the first annual report. This shall show all disbursements drawn within the period and cumulative within the case and shall be provided within all subsequent Receipts and Payments.
Explanation: We must issue a breakdown of all costs that we are charging within the first annual report that we issue to creditors.
The Supervisor is to calculate a revised Estimated Outcome Statement 'EOS' after taking into account any changes to realisations, fees, liabilities and dividend return as a result of all modifications and claims received. A copy should accompany the chairman’s report and be circulated to all creditors.
Explanation: Paperwork will be issued to all creditors to confirm which votes were received at the meeting, any modifications that were accepted and any changes to fees and dividend; this is known as the ‘Chairman’s Report’
No meeting adjournment fee, early completion fee and/or early termination fee are to be charged by either the Nominee or Supervisor.
Explanation: We can charge the fees listed above but cannot charge any additional fees for work carried out in relation to closing the IVA earlier than expected or failing it.