Individual Voluntary Arrangements

Individual Voluntary Arrangements

Introduction

1. What is an individual voluntary arrangement?

The Insolvency Act of 1986 (amended by the Insolvency Act 2000 and the Enterprise Act 2002) introduced a new procedure whereby a debtor could come to an arrangement with his/her creditors to pay his/her debts in full or in part over time as an alternative to bankruptcy. This arrangement is known as an individual voluntary arrangement (IVA) and may be entered into either before or after a bankruptcy order has been made.

2. What happens if a debtor has already been subject to insolvency related proceedings?

(November 2009)

In cases where a debtor has already been the subject of insolvency related proceedings, whether a previous bankruptcy, an IVA or a deed of arrangement, contact should be made with any existing or previous, trustee or supervisor. Document production form NPBB – ‘Notice, proceedings before bankruptcy’ should be sent.

There are 6 options available when printing form NPBB, they are;

  • notice to existing trustee on presentation of petition
  • follow up - bankruptcy order made
  • notice to existing trustee - bankruptcy order made, no prior notice given
  • to supervisor of IVA - not petitioner
  • to supervisor of IVA - petitioner
  • to trustee of deed of arrangement

Each letter option contains appropriate information and questions but can be adapted to suit the circumstances of each individual case.

3. Individual voluntary arrangements (IVAs) 

(Amended May 2015)  

An IVA begins with the debtor drafting a formal proposal to their  creditors to pay part or all of the debts. The debtor may even propose that the creditors agree to a deferment or postponement of their debts to some future time. The prescribed content of the proposal can be found in the Insolvency Rules 1986 as amended by the Insolvency (Amendment) Rules 2010. The debtor may make an application to the court for an interim order at an early stage but it is not compulsory (see paragraph 7). The Insolvency Act 2000 amendments which came into force on 1 January 2003 removed the requirement to apply for an interim order in every case to cut down on costs and delays in the IVA procedure. 

The proposal will then be considered by the nominee (usually an insolvency practitioner) who will make a report to the court or the debtor’s creditors as to whether the proposal is acceptable and viable. If appropriate, the proposal will then be put to a meeting of creditors. If the proposal is accepted at the meeting, the nominee will then become supervisor of the IVA and oversee its operation. Any agreement reached with the creditors will be legally binding.  

In theory, it is for the debtor to prepare the proposal for the intended IVA on which the nominee reports. However, due to the technical matters involved in drawing up such a proposal, the debtor will almost invariably consult an insolvency practitioner or other authorised person in the first event, who will become their intended nominee. Most proposals are thus professionally prepared. For more information on the role of a nominee see paragraph 6. 

Where a bankrupt has not entered into an IVA prior to the bankruptcy and has assets, or there is obvious potential for an IVA to be proposed then the examiner should draw the bankrupt's attention to the voluntary arrangement provisions and, where appropriate, the bankrupt should be supplied with a list of the local insolvency practitioners on the official receiver's rota with whom they  can discuss the matter.

 

4. What are the advantages of a voluntary arrangement?

A voluntary arrangement with creditors offers flexibility to the debtor. It may include assets not normally available in bankruptcy, for example, the use of third party funds or income from the debtor's continued trading or employment. It gives the debtor more say in how his/her assets are dealt with, for instance, creditors may allow the debtor to exclude and retain certain assets such as his/her home. Finally, the restrictions which apply to a bankrupt are avoided.

5. The proposal

The proposal is the key document in any voluntary arrangement. The proposal must name a person as the intended nominee; such a person may be a qualified insolvency practitioner or other authorised person and must be willing to supervise the implementation of the arrangement.

The proposal should:

  1. explain why the debtor considers that the voluntary arrangement is desirable;
  2. give reasons why creditors may be expected to concur with the arrangement; and
  3. provide details of the debtor’s assets and liabilities.

In order to make it likely that the creditors will accept the proposal, it should be credible and provide an acceptable alternative to bankruptcy. The proposal should set out clearly the debtor’s obligations particularly as to the time and amount of contributions, so that there is no dispute over whether he/she has complied with the terms of the arrangement. It is important that the proposal sets out a time scale for its achievement.

6. What is the role of the nominee?

The nominee’s principle tasks are to prepare his report on the proposal, chair the meeting of creditors and give notification of the result of the meeting. The nominee may be an insolvency practitioner or other authorised person (i.e. a member of a body recognised for the purpose by the Secretary of State).

The nominee must exercise professional independent judgment in making his/her report to court or he/she can be made personally liable for the costs of any proceedings where the IVA is challenged successfully.

The debtor is required to give the nominee access to his/her accounts and records so that the nominee may consider the proposal. It is important for the debtor to provide the nominee with accurate records of all his/her creditors’ names and addresses.

7. Interim order 

Amended May 2015 

When a debtor intends to make a proposal to their creditors, an application may be made to the court for an interim order. The main effect of an interim order is to prevent a bankruptcy petition being presented or proceeded with. It will also prevent other proceedings such as, execution being commenced or continued without leave of the court. However, the making of an interim order will not affect the official receiver's duty to protect and secure any assets unless the court also orders that the bankruptcy proceedings be stayed. An interim order does not remove or relax any of the restrictions placed upon a bankrupt. 

In exceptional circumstances the official receiver may make application for an interim order e.g. where the bankrupt is, through mental or physical incapacity, unable to take the necessary steps and no person can be found who can adequately deal with these matters on his/her behalf. 

The court will only make an interim order if: 

  1. the debtor intends to make an IVA proposal;
  2. the debtor is either an undischarged bankrupt or able to petition for bankruptcy;
  3. no previous application has been made in the last 12 months, and
  4. the nominee is a qualified Insolvency Practitioner or other authorised person, who is willing to act.

The official receiver, any trustee and the nominee should be given at least two business days notice of any interim order application. The hearing will usually be before the district judge or registrar. 

In an effort to prevent unnecessary delays and reduce costs, the practice has now arisen for the court to consider the nominee’s report at the same time as the application for an interim order. This procedure has been adopted by the courts to avoid the necessity for separate hearings, i.e. firstly to make an interim order and then another to consider the nominee’s report. In suitable cases, some courts are prepared to make such orders without the attendance of the debtor or the nominee. However, not all courts are willing to adopt such a flexible approach. 

The aim of an interim order is to buy some time to allow a viable proposal to be formulated by the debtor and agreed by creditors at a meeting. In theory, an interim order is effective for 14 days, although it may be renewed. In practice, the duration of the order is usually extended to the day of the creditors' meeting. 

If the creditors decline to approve the debtor’s proposal, on receipt of the report of the meeting, the court may discharge any interim order which is in force.

Where an application for an interim order is received by the court from an undischarged bankrupt it should be filed on the court’s bankruptcy file. However, a file for the voluntary arrangement should be maintained separately by the court.

8. No interim order

(Amended August 2010)

Where a debtor intends to make a proposal for an IVA and no application for an interim order is made the nominee must deliver a copy of his/her report to all the debtor’s creditors within 14 days (or such longer period as the court may allow) after receiving the proposal and statement of affairs from the debtor. The report must be accompanied by a copy of the debtor's proposal, the statement of affairs and the nominee's consent to act. It must also state that no application for an interim order is to be made.

Where the debtor is an undischarged bankrupt the nominee must send a copy of the proposal, his/her report and comments and the statement of affairs to the official receiver and any trustee. Where the debtor is not bankrupt these documents should be sent to any person who has presented a bankruptcy petition against the debtor.

9. Official receiver’s role

(Amended May 2015)

The official receiver should limit his/her involvement in the formulation and implementation of voluntary arrangements but he/she should take no steps designed to frustrate any proposal made.

Generally, when the official receiver receives an application for an interim order it is likely that the Gazette and any advertisement of the bankruptcy order would have been published. However, if the application for an interim order is received before the Gazette and advertisement have been issued, the official receiver should withhold them as to continue with their publication could be considered to be obstructive. If you are not sure of what action to take upon receipt of an application for an interim order, refer the matter immediately to the B1/examiner for guidance.

The official receiver should normally attend the court hearing for an interim order and/or submit a report to court. The report should usually be fairly brief, referring to the bankrupt’s conduct, any failure to comply with statutory duties, known offences (bankruptcy or related), details of any previous bankruptcy. The report should also state whether or not a statement of affairs has been lodged, give brief details of known assets and liabilities and provide an estimate of the official receiver's fees, costs and expenses. The official receiver should also include any facts which could materially affect the views of creditors considering a proposed voluntary arrangement, e.g. non-disclosure of information, transactions at an undervalue, preferences, unauthorised sale of goods on HP, etc.

Where an interim order is made, the court may order that the bankruptcy proceedings as a whole are stayed or that any further advertisement of the bankruptcy is stayed. A copy of the order will be sent to the official receiver. It should be clear from the order whether any stay ordered involves advertisement of the bankruptcy or the proceedings generally. You need to be aware of the manner in which the bankruptcy is to be conducted whilst the interim order is in force. If this is not obvious refer the matter immediately to the B1/ examiner. For further information, please refer to the Case Help Manual Parts Stay of Advertisement, Stay of Proceedings and “Publication of Insolvency Information”.

The nominee must serve the official receiver with a copy of his/her report on the bankrupt’s proposal. On receipt, the official receiver should examine the report and proposal and draw to the nominee’s attention any discrepancies between it and information held by him/her. The official receiver should ensure that provision has been made for the payment of his/her fees, costs and expenses.

The official receiver may challenge the meeting of creditors’ decision. Where an interim order has been made a challenge must be made within 28 days of the report to creditors being filed with the court under section 259 of the Insolvency Act 1986. However, there has previously been no time limit defined in cases where no interim order has been made. The new legislation states that where no interim order is made, the challenge must take place within 28 days of the creditors’ decision on whether to approve the voluntary arrangement However, he/she is only likely to do this in exceptional circumstances, e.g. on the basis of "public interest".

10. Nominee’s report

At least 2 days before an interim order (if one is in place) ceases to have effect, the nominee should submit a report to court stating whether or not in his/her opinion a meeting of creditors should be summoned to consider the proposal. The purpose of this report is not to approve the proposal. In the case of an undischarged bankrupt, a copy of the nominee’s report, the debtor's proposal and any statement of affairs must be sent to the official receiver and to any trustee.

If a meeting is not recommended, the nominee must give his/her reasons taking into consideration matters such as whether the debtor can perform his/her obligations, whether the agreement is fair and feasible and if it is an acceptable alternative to bankruptcy, etc. If the court is satisfied that a meeting should be summoned, the court can extend the interim order for a further period so that the creditors may consider the proposal. Although several extensions can be granted, the court will not do so indefinitely.

11. Meeting of creditors

(Amended August 2010)

If a meeting is to be held, the date of the meeting and details of the proposal are sent to creditors. A meeting of creditors is summoned to decide whether to approve the proposed voluntary arrangement with or without modifications. Any modifications can only be made with the debtor’s consent. The chairman of the meeting should be the nominee, insolvency practitioner, authorised person or one of his/her employees who is experienced in insolvency matters.

If the majority of creditors (over 75% in value) vote in favour, the proposal is accepted. The chairman of a meeting approving an individual voluntary arrangement must provide details of the arrangement to the Secretary of State (at IPU, Birmingham) for registration. The result of the meeting should also be given to the court (interim order cases only), the official receiver and any trustee. In cases where there was no interim order the creditors are advised of the outcome, not the court.

The approved arrangement is deemed to be in force and effective from the date of the meeting. An application to annul the bankruptcy order may not be made until 28 days after the chairman’s report of the creditors' meeting has been made or whilst a challenge against the meeting's decision is pending. If the bankruptcy order is not annulled after 28 days, the bankrupt will still be subject to the restrictions placed upon him/her by the legislation, (e.g. obtaining credit, etc.) and the official receiver should write to the bankrupt notifying him/her of this. In exceptional circumstances (e.g. unfair prejudice to creditor or material irregularity) the official receiver may challenge the decision of the creditor's meeting.

12. What if the proposal is not accepted?

If a meeting of creditors does not approve a bankrupt’s proposal for a voluntary arrangement, any interim order will continue to have effect until it is discharged by the court. This will normally happen when the court receives the nominee’s report of the meeting. If the official receiver urgently needs to proceed with the bankruptcy before the interim order ceases to have effect, he/she may make an application to the court for directions with a view to obtaining an order discharging the interim order and any stay of proceedings.

13. Approval of proposal

Where a creditors’ meeting approves the proposal it takes effect from the date of the meeting and binds every person who had notice of it and was entitled to vote, whether they were present or not, or would have been entitled to vote if they had had notice of the meeting. Any interim order in force will cease to have effect 28 days after the date the creditors report was filed at court.

Once the Secretary of State has received notification of the supervisor’s appointment he/she is required to enter details of the IVA onto the Individual Insolvency Register.

14. Persons at risk of violence

(August 2010)

The Insolvency (Amendment) Rules 2010 formalised the procedure in relation to persons who might be at risk of violence if their address were to be disclosed. The provisions apply to cases where the bankruptcy petition was presented, or a nominee agreed to act on an IVA proposal, on or after 6 April 2010. The debtor, the supervisor, official receiver (whether acting as supervisor or otherwise), or the Secretary of State may apply to the court for the debtor’s current address, and any address at which the debtor currently carries on business to be excluded from the Individual Insolvency Register, and not to be entered on any notice, if they believe that disclosure may lead to violence against the debtor, or persons that reside with them as family members. The court may also be asked to order that specified information be omitted from any statement of affairs required to be sent to creditors. Care must be taken to ensure that the terms of any such court order are complied with.

15. Handover to supervisor

When a bankrupt’s proposal for an IVA is approved, the official receiver should ensure that a handover is effected as soon as is practicable after the creditors' meeting. The official receiver should only hand over those assets which are included in the voluntary arrangement, any assets which are not included should be held by the official receiver until the annulment order is granted.

The official receiver will deduct his fees, costs and expenses before handing over any credit balance to the supervisor. If there is a debit balance on the estate, the official receiver should obtain from the supervisor a written undertaking to discharge amounts due to the official receiver out of the first realisations of assets. A list should be prepared of all documents, correspondence, etc handed over and this should be signed by the supervisor or his/her representative at handover. The cashier must also include the case details on the "Spreadsheet IVA cases" available on the S Drive.

16. Annulment of the bankruptcy order

(Amended August 2010)

Generally, the proposal for an IVA should provide that the bankruptcy order be annulled. If the bankruptcy order is not annulled, the bankrupt will remain subject to the restrictions imposed upon him/her by the legislation, e.g. inability to obtain credit, etc. and this should be made clear to the bankrupt. It would then be for the bankrupt to make the application.

An application to annul the bankruptcy order may not be made until 28 days after the chairman’s report of the creditors' meeting has been made or whilst a challenge against the meeting's decision is pending.

Where the annulment application is made by the bankrupt and the bankruptcy petition was presented on or after 6 April 2010 he or she must give 5 business days notice of the venue of the hearing. In cases where the petition was presented before 6 April 2010 he or she must give 7 days notice of the venue of the hearing. The notice must be accompanied by copies of the application and witness statement and be given to the official receiver, the supervisor of the voluntary arrangement and any trustee.

Where the bankruptcy order is not annulled and there is no stay of proceedings in force, the official receiver still has a live bankruptcy to administer. In these circumstances, it is appropriate for the official receiver to seek a stay of proceedings. If the bankrupt fails to make an application for the annulment of the bankruptcy order and 42 days have elapsed since the result of the meeting was notified to the court or the creditors then the official receiver should consider making an annulment application.

Where a bankruptcy order is annulled, the official receiver must notify all creditors of whom he is aware of the annulment. The former bankrupt may require the official receiver to publish notice of the annulment in the Gazette and in any other manner in which the bankruptcy order was advertised. The cost of these advertisements is met from the Administration Fee on the estate account. For more information please refer to the Case Help Manual part "Annulments, Rescissions, and Recalls".

17. Default by the debtor

The Insolvency Act 1986 identifies default by a debtor in connection with a voluntary arrangement as a ground for a bankruptcy order. A bankruptcy petition on this ground may be presented by the supervisor or any other person bound by the arrangement (other than the debtor).

If the supervisor is without funds, he may circulate to creditors a “certificate of non-compliance” which states that the debtor has defaulted and the arrangement is at an end. This will leave the creditors or the debtor with the option of presenting a bankruptcy petition.

Where a bankruptcy order is made after an IVA has failed, the official receiver should obtain details of any previous voluntary arrangement made from the supervisor involved. This information may well provide details of certain assets which have not been disclosed in the bankruptcy proceedings and will generally assist the official receiver in his investigations.

18. False representations

The debtor commits an offence if he/she deliberately misleads creditors, the nominee or the court for the purpose of obtaining approval of a voluntary arrangement. Where it becomes evident that the debtor has made any false representations, the matter should be referred to Investigations and Enforcement Services

A person found guilty of such an offence is liable to imprisonment, a fine or both.

19. Partnerships

The partners of an insolvent partnership may now propose a voluntary arrangement for a joint estate but in practice this is only likely to succeed if it is interlocked with proposals in respect of their own affairs.

A member of a partnership may propose an individual voluntary arrangement of his/her own, which must take into account the claims of the partnership creditors. The IVA will not affect the rights of the partnership creditors to take action against the partnership or against any other partner.

20. Registration of voluntary arrangements

(Amended August 2010 )

A register of individual voluntary arrangements is kept by Insolvency Practitioners Unit (IPU) in Birmingham and this information is available to the public through the Individual Insolvency Register (IIR) on the Insolvency Service website www.insolvency.gov.uk. A person who is appointed to act as supervisor of a voluntary arrangement should give written notice of his appointment to the Secretary of State (at IPU, Birmingham) for registration. Under the Fees Order 2004, there is a fee (IVA1) of £15 payable to the Secretary of State for the registration of an IVA. The register also contains details of any vacation of office by the supervisor, revocation or suspension of the arrangement and notice of the completion of the arrangement. There is no register of company voluntary arrangements, details are filed with the Registrar of Companies.

Notes:

  1. The supervisor is required to keep records and accounts which may be inspected by the Secretary of State and at least once every 12 months he must issue a report on the progress of the arrangement, including an abstract of receipts and payments, to the debtor and all creditors bound by the agreement.
  2. In a voluntary arrangement, any sums due to the official receiver are payable out of the first realisations of assets and take priority over any sums due to a trustee.

Where do I find out more?

Section 252-263 Part VII – individual voluntary arrangements

The Insolvency Proceedings (Fees) (Amendment) Order 2009

Insolvency Act 2000:

Section 3: Individual voluntary arrangements

Section 4: Qualification or authorisation of nominees and supervisors

Insolvency Rules 1986 as amended by the Insolvency (Amendment) Rules 2010:

Rule 5.1-5.30 individual voluntary arrangements

Rule 6.208 power of the court to stay proceedings

Case Help Manual:

Annulments, Rescissions and Recalls

Stay of Advertisements

Stay of Proceedings

Publication of Insolvency Information

Appointment of Trustees and Liquidators by the Secretary of State

The Technical Manual:

Chapter 20 - Official receiver’s role in voluntary arrangements

Chapter 57 - Alternative individual procedures Part 1 – Individual voluntary arrangements

LOLA Desk Instructions:

IVAs

LOIS workbook:

"Annulments, Rescissions and Stays" available from OR Operations website 

Booklet:

"A Guide to Bankruptcy”

Forms to be used:

NSADV – Notice of stay of advertisement

NPBB – Notice, proceedings before bankruptcy

 

IVA Flowchart 

 

Procedure

(Amended August 2010)

LOIS screen references are given in brackets e.g. (D073).

– Individual Voluntary Arrangements

1 Receive notice that the bankrupt is to apply for an individual voluntary arrangement.

2 Continue with case administration until confirmation has been received that the bankrupt has completed a proposal for an IVA or that an interim order has been made or an application has been set down and will be heard within a couple of days.

3 If the debtor has already been the subject of insolvency related proceedings, whether a previous bankruptcy, an IVA or a deed of arrangement, send form NPBB (DO73) to any existing or previous, trustee or supervisor.

4 If the Gazette, and any advertisement, have not yet been produced, withhold until further notice. If the details have been input onto LOIS but have not yet been published, notify Estate Account Services (EAS) and the advertising agent immediately. For further information regarding the procedure for dealing with Gazettes and advertisements, please refer to the Case Help Manual Part Publication of Insolvency Information”.

5 If the interim order includes a stay of advertisement, this would only prevent publicity of the bankruptcy order, such as Gazette and advertising, the OR’s initial notices, reports to creditors, etc. The OR is still obliged to recover and secure any assets. If you are unsure of what action to proceed with please refer this to the B1/examiner.

6 An order for a stay of proceedings stops every aspect of the bankruptcy continuing. If you have any queries following a stay of proceedings, please refer them in the first instance to your B1/examiner.

7 Record the details of any interim order obtained on LOIS (CA06) and diarise the date it is due to expire. Prepare notice of stay application/order, form NSADV (DO73) and send to EAS,  Birmingham.

8 Where the stay expires consult the examiner dealing with the case to see what further action should be taken.

9 Where the proposal is not approved by the creditors and the nominee is not to be appointed trustee, any interim order will continue to have effect until it is discharged or expires and the stay lifted.

10 Where the proposal is not approved and the examiner informs you that the nominee is to be appointed trustee, prepare an application to the Secretary of State and arrange handover of the estate when appointed. For details on this procedure please refer to the Case Help Manual Parts Appointment of Trustees and Liquidators by the Secretary of Stateand Handover to Insolvency Practitioner”.

11 The case should then be administered in the normal way. Any queries regarding this must be referred to the B1/examiner.

12 Where the voluntary arrangement is approved, a supervisor will be appointed and the examiner should arrange handover with him/her as soon as possible. This will involve a list of all documents, correspondence, etc handed over and this should be signed by the supervisor or his/her representative at handover. Record details of the IVA on LOIS (CA06) in the 'Voluntary Arrangement Approved field'. Whenever a date is entered in this field, details of the ‘Supervisor’ in office should also be included. For further information on how to input the information required please refer to the LOIS workbooks "Annulments, Stays & Rescissions" available from OR Services intranet page. The cashier must also enter the case details on the "Spreadsheet IVA cases" which is available on the S Drive.

13 As soon as possible after the IVA has been approved, the bankrupt should apply to court to have the bankruptcy order annulled. The OR will be given notice of the hearing and should ensure all his/her fees, costs and expenses are adequately provided for. For more detailed information on this, please refer to the procedure outlined in the Case Help Manual Part Annulments, Rescissions, and Recalls”.

14 When the annulment order is received, the OR should note all his/her records including the office file, LOIS and LOLA. Notification should be sent to EAS, Birmingham.The official receiver must also notify all creditors of whom he/she is aware of the annulment. For more details on this procedure including the relevant forms to use please refer to the Case Help Manual Part Annulments, Rescissions and Recalls.