Individual Voluntary Arrangements

 

If a debtor is in financial difficulties, they may attempt to make an Individual Voluntary Arrangement in order to avoid a bankruptcy order. To do this, the debtor must seek advice from an insolvency lawyer, to assist them in drawing up proposals for the approval of creditors.

Applying for an Individual Voluntary Arrangement (IVA)

Once the debtor has found an insolvency practitioner to assist them, he should prepare a statement of affairs for the insolvency practitioner and apply to the court for an interim order to stop anyone petitioning for their bankruptcy whilst the creditors consider the proposals.

The insolvency practitioner will prepare a report for the court advising whether there are any realistic proposals, and therefore whether it is worth calling a meeting of creditors. If a meeting is called and 75% (of the value of the debt) of the creditors present at the meeting approve the proposal, then all unsecured creditors who had notice of the meeting are bound by the Individual Voluntary Arrangement. 

However, the insolvency practitioner or the creditors can petition for the debtor’s bankruptcy, if:

  • The debtor fails to comply with the terms of the Individual Voluntary Arrangement
  • It transpires that creditors were persuaded to accept the proposal by means of false or misleading information

Advantages of an IVA

For individuals, the greatest advantage of entering into a voluntary arrangement is that it can prevent the loss of their home. In bankruptcy law, the trustee in bankruptcy can force the sale of the debtor’s assets, including their house, in order to pay down the debt.

A voluntary arrangement can be proposed that specifically excludes property from the terms of the agreement and fully binds the creditor to respect those terms.

For commercial enterprises the advantage is that, unlike insolvency, voluntary arrangements will not usually result in the dissolution of the business and they will not bar the directors of the company from holding their positions.

For example, if your main source of income is based on a directorship you hold, if you are disqualified it means you would lose most of your means to support yourself. Arranging an IVA can avoid this situation.

Disadvantages of an IVA

There are some disadvantages, however, and voluntary arrangements may not be suitable for everyone. They can often last much longer than bankruptcy, and due to the fees that must be paid to the insolvency practitioner, and the other officials, it can be quite expensive.

As with bankruptcy, the cost of obtaining proper advice is a reason to consider instructing a solicitor to advise on the situation before the situation becomes too dire. If you have run out of money, then a voluntary arrangement is unlikely to be accepted and your options will be severely limited.

Insolvency is a complicated area of law, and often there are ways around bankruptcy which are better for all parties involved. An insolvency solicitor can offer advice and solutions that the individuals involved may not have been aware of.

Have more unanswered questions? See our FAQ page on individual voluntary arrangements.

Are you facing bankruptcy and need a personal insolvency practitioner to help you draw up an IVA? Contact Law works with bankruptcy and insolvency law specialists who can give you the financial advice you need. Please call us on 0800 1777 162 or complete the web-form above.

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