The Insolvency Service has just released its personal insolvency statistics for 2017 revealing an upturn in overall personal insolvencies (just under 10% more than in 2016) and an increase of around 1/5th (19.8% on 2016) of people entering into Individual Insolvency Arrangements (IVAs). More people entered into IVAs last year than in 2008 (when many consider the credit crunch took its grip).
IVAs can prove a valuable life-line for the working poor, for those who are “just about managing” but to whom an unexpected bout of sickness or the birth of another child can produce financial woes that push them over the edge into insolvency. An IVA is a binding contract between debtor and creditors, managed by a Supervisor (a licenced Insolvency Practitioner) under which an agreed proportion of the debts owed are repaid over an agreed time period at an agreed monthly rate. The Supervisor has the ability to seek a bankruptcy order against the debtor if the debtor doesn’t abide by the terms of the IVA.
Whilst most debtors are honest and up-front about how much they owe and how much they can afford to pay and are committed to using the IVA process so they may turn their financial problems around, there are some debtors who try to abuse the IVA process for their own benefit. A debtor must be transparent and open with his creditors. For example, if the debtor is a professional person who does not disclose that he is facing professional disciplinary proceedings which may result in him losing the ability to continue his professional role, an IVA can be overturned.
Here are some useful tips to consider if you are owed money and your debtor puts forward an IVA proposal.
1. Read it through carefully, and consider whether there is something important you know about the debtor’s financial circumstances that is not mentioned in the proposal. For example, do they have a second property but there is no reference to selling it for money for the creditors, or are there family creditors who are owed money that the debtor has not previously disclosed? If the debt owed to you is substantial, consider getting independent advice from insolvency professionals such as a solicitor of insolvency practitioner. In appropriate cases, you may need a solicitor to act on your behalf in dealing with the proposal and putting forward amendments to the proposals.
2. You, as a creditor, are normally bound by the terms of an IVA whether or not you voted in favour of it. Therefore, use your vote and contact the Supervisor of the IVA (who until the IVA is approved is called the Nominee) if you have any information you think the Nominee should be aware of.
3. Does the IVA proposal treat all creditors fairly or is one creditor or group favoured over others? If you think you are being treated unfavourably in an IVA proposal, make your views know to the Nominee and consider contacting other creditors who are also being treated unfairly to ask them to fully consider the IVA proposal and vote accordingly.
4. Make sure that the IVA proposal process is properly followed. Insolvency Practitioners are experts, and regulated by their professional bodies, but sometimes errors can creep in or an Insolvency Practitioner can be deliberately misled by an errant debtor with a view to the rules which govern IVAs being circumvented to the debtor’s advantage. An IVA can be challenged if there is a material irregularity in the way in which the IVA process has been conducted, but there are strict time limits for doing so.
5. Generally a creditor is allowed one vote per pound of debt, so if a creditor of a disputed debt has more than 75% of the value of overall debts, and votes in favour of the CVA, the CVA will be approved whether or not all the other creditors agree. Where the amount owed to a creditor is disputed, the Nominee can decide what value to place on that creditor’s debt. If you think the debt owed to another creditor is inflated or incorrect, contact the Nominee before the vote, and of course check the amount said to be owed to you is correctly stated.