Individual Voluntary Arrangement (IVA)

An IVA is a compromise agreement between a debtor and their creditors setting out how debts are to be discharged and is overseen by an Insolvency Practitioner (IP). The debtor’s proposal sets out the proportion of debt that will be repaid and the time period over which it will take place. 

IVAs are applicable where the total owed to creditors is more than £15,000.

Individuals, sole traders and partnerships can consider IVAs.

IVAs are an alternative method of dealing with debt to bankruptcy and are generally a less formal process and more flexible option.

There are many advantages to an IVA, including:

• safeguarding the family home
• contributions are based on your ability to pay
• halting all legal action, including bankruptcy proceedings
• subjecting the debtor to fewer restrictions than in bankruptcy
• avoiding the stigma and publicity of bankruptcy
• allowing the debtor to retain directorships and continue to trade as a sole trade or in a partnership

In order for an IVA to be approved, the outcome for creditors must be more beneficial than in a bankruptcy. IVAs represent a realistic outcome for creditors and a long term commitment from a debtor.

An IVA is tailored on an individual basis. It can involve the payment of monthly income contributions, the realisation of assets or the payment of funds from a third party, amongst others. Income contributions are based on affordability and the duration of the IVA can last from two to five years.

The process begins with a debtor instructing an IP to act as Nominee. The IP prepares the debtor’s proposal to creditors with their assistance.

We liase closely with the debtor and creditors to reach a mutually beneficial outcome.

The proposal is issued to creditors and a meeting is called to enable creditors to consider and vote on the debtor’s proposal. In order for an IVA proposal to be approved, it must receive the support of more than 75% of creditors voting at the meeting.

The IVA, once approved, is binding on all parties, including all creditors who received notice and were entitled to attend and vote at the meeting – even if they choose not to vote or are amongst a minority of creditors who voted against the proposal.

In addition, once an IVA is approved, no further interest or charges can be applied by creditors.

Following the approval of an IVA proposal, the IP’s function changes from Nominee to Supervisor and their ongoing role is to ensure that the terms of the agreement are met by the debtor. The Supervisor reports to creditors during the term of the IVA and distributes dividends.

Following the successful completion of an IVA, the debts are written off, the Supervisor is released from their role and the debtor has a fresh start.

Find out more on a no obligation basis how Bailams can help.