Pre-bankruptcy individual voluntary arrangements

April 2004

20.18 Previous arrangement

Where a bankruptcy order is made, the official receiver should obtain details of any proposal previously made by a debtor under a formal or informal voluntary arrangement, a deed of arrangement under the Deeds of Arrangement Act 1914 or on an appointment under section 273(2) (see Chapter 57). This information may well provide particulars of assets which have not been disclosed in the bankruptcy proceedings and will generally assist the official receiver in his/her investigations. It will also assist the official receiver in identifying those creditors who are entitled to claim in the bankruptcy


20.19 Effect of bankruptcy order on failed IVA (amended August 2010)

Where an IVA has failed and the supervisor or an IVA creditor presents a bankruptcy petition, the official receiver will need to look carefully at the IVA proposal, as amended, to determine what effect the bankruptcy order has on the IVA and, particularly, the funds in hand (if any).

The decision in the case of Re N T Gallagher & Son Limited [2002] 3 All ER 474 concerned a company voluntary arrangement (CVA) but the judgment is clear that it can also be applied to an IVA. In this case it was held that a supervisor of a CVA who has received contributions from the subject of a CVA is in effect the trustee of those monies, which are held in trust on behalf of the creditors bound by the CVA. It was also held that CVA creditors could prove in a subsequent liquidation for so much of their debt as remains after payment of what has been or will be recovered from the monies or assets held in trust.

Where the IVA provides for what is to happen on the making of a bankruptcy order or the failure of the IVA, those provisions should be followed. However, where there are no such provisions contained in the IVA, any trust created by the IVA over the assets will continue despite the making of the bankruptcy order.

Note: [s264(1)(c), s276, r5.3(2), r6.46A]

When a bankruptcy order is made following a failed IVA, the official receiver should request the following information from the supervisor of the IVA using form NPBB;  

  • a copy of the IVA proposal (as amended) agreed by the creditors,
  • a copy of the statement of affairs and details of the assets (both realised and unrealised), 
  • details of any trusts the supervisor considers have been established by the IVA.
  • details of any distributions made, and
  • details of any records held by the supervisor on behalf of the bankrupt

The official receiver should consider the wording of the agreed proposal to determine whether any monies or asset(s) held by the supervisor or bankrupt are held on trust for the benefit of the IVA creditors. The official receiver should notify the supervisor and insolvent of his/her conclusions as soon as it is practical to do so in the expectation that the position will be agreed between them. Thereafter, the official receiver should ensure that he/she deals with all assets not held in trust for the IVA creditors in the usual way.

In bankruptcy cases where an asset has been placed in trust under the IVA, it will not form part of the bankruptcy estate and will remain vested in the bankrupt (following section 283(3) of the Insolvency Act 1986). It will be for the bankrupt to realise the asset and account to the supervisor for any realisation.

Under section 276(2), where the bankruptcy petition is presented by the (former) supervisor under section 264(1)(c), any unpaid expenses of the IVA properly incurred as expenses of the IVA shall be a first charge on the bankruptcy estate (even though the underlying asset from which they will be paid was not included in the IVA). The same situation arises when the bankruptcy order is made on the debtor's own petition and on the date the petition was presented, an IVA was in force (rule 6.46A). (Re N T Gallagher & Son Limited [2002] 3 All ER 474 and Davis v Martin-Sklan (also referred to as Re Hussein (Essengin) [1995] BCC 1122).


20.20 Effect of bankruptcy order on previous IVA

Where the bankruptcy petition is presented by a creditor not bound by the IVA, e.g. a creditor whose debt has arisen since the IVA was implemented, the IVA is not automatically terminated and the assets comprising the IVA may be held in trust for the IVA creditors (Re Bradley-Hole (A bankrupt) [1995] BCC 418). In Re: NT Gallagher & Son Limited [2002] 3 ALL ER 474 it was held that where a CVA provides for monies or other assets to be paid or transferred to or held for the benefit of creditors, this will create a trust for those creditors. It was further held that where the CVA does not make express provision as to what will happen in liquidation, the trust will continue notwithstanding the liquidation or failure of the CVA and must take effect according to its terms (see Chapter 56, paragraph 56.251 and paragraph 20.7). Although the case relates to a CVA, the judgment is clear that it can also be applied to an IVA. See chapter 57, paragraph 57.34.


20.21 Considerations for the official receiver

The official receiver will need to look carefully at a previous IVA to determine whether the bankruptcy order has the effect of terminating the arrangement and consequently whether assets held by the supervisor are available to the trustee (and, if they are, the extent to which they are subject to prior charges).

Full details of the IVA procedures are provided in Chapter 57.


[Back to Part 3 - Partnerships] [On to Part 5 - Post bankruptcy arrangements where the official receiver is not supervisor]