What is an Individual voluntary arrangement?

An Individual voluntary arrangement (IVA) is an agreement made between your creditors and you, whereby you pay part of or all your debts, over a specified period, as an alternative to bankruptcy. The implementation of the IVA is controlled by an insolvency practitioner acting as supervisor.

Compared to a bankruptcy an IVA is more advantageous for both you and your creditors, because in an IVA:

• assets that are not usually included as bankruptcy assets could be included, for example, your income from trading or employment which might not continue if you were to be made bankrupt and funds from third parties;
• you have more say as to how your assets are dealt with, for example, specific terms can be agreed with the creditors for you to retain your home; and
• the restrictions applicable to a bankruptcy are avoided.

By putting an IVA in place you can get respite from constant enforcement actions for payment of unpaid debt. If not already an undischarged bankrupt, you will stop running the risk of being declared bankrupt. If an undischarged bankrupt, you may apply for your bankruptcy to be annulled. However, that protection will only be effective once the creditors have agreed to the IVA.

An IVA with an interim order

You can get interim protection while setting up the proposal for an IVA by applying to court for an interim order. An IVA without an interim order is discussed later in this article.

What is the effect of an interim order?

While an interim order is in force:

• no creditor can present a bankruptcy petition for your bankruptcy;
• no landlord or other person rent is payable to may exercise any right of forfeiture by peaceable re-entry regarding premises let to you, except if permission was obtained from the court; and
• no other legal proceedings against you or execution or distress against your assets may be started or continued with, unless permission was obtained from the court.

Who can apply for an interim order?

If you are an undischarged bankrupt you, the OR or, if there is one, the TIB can apply for the interim order. In all other cases you will make the application.

When can application be made?

Application for the interim order can only be made if you intend making a proposal for an IVA. If you are an undischarged bankrupt, you need to give notice of your proposal to the OR and, if there is one, the TIB before the application for an interim order can be made. This notice must give the name and address of the nominee proposed for the IVA.

The application for an interim order must be accompanied by a witness statement that:

• gives the reasons for making the application;
• gives information of any legal process that has already commenced against you or your assets;
• confirms that you've not made an application for an interim order in the 12 months preceding the date of the witness statement; and
• confirms that the person named in the witness statement is willing to act as nominee and is qualified to act as an insolvency practitioner.

The application must be accompanied by the proposal and the nominee's consent to act.

The contents of the IVA proposal are prescribed and must for example:

• identify yourself as the debtor;
• explain why you think an IVA is desirable;
• explain why the creditors are expected to agree to an IVA; and
• include detailed information on your assets, liabilities, nominee's fees, proposed duration of the IVA, conduct of your existing businesses, etc.

You must authenticate and date the proposal.

What is the effect of a pending application for an interim order?

While the application for an interim order is pending before the court, you already get some protection against the legal debt recovery actions of your creditors, for example:

• No landlord or other person whom rent is payable to may exercise any right of forfeiture by peaceable re-entry regarding premises let to you, except if permission was obtained from the court; and
• The court may forbid any distress on your assets or its subsequent sale and may stay any other legal proceedings against you or your assets.

When can the court grant the interim order?

The court can make an interim order if it is satisfied that:

• you intend making a proposal for an IVA
• on the day the application is made, you are either an undischarged bankrupt or could have applied for your own bankruptcy;
• you've not made a similar application in the preceding 12 months; and,
• the nominee named in the proposal is willing to act in relation to the proposal.

If the above is shown and the court believes that an interim order would assist in enabling the consideration and implementation of your proposal, an interim order may be made. An interim order is effective for a period of 14 days unless it is extended by the court.

What are the duties of the debtor?

To enable the nominee to prepare the report for the court, you (the debtor) have to give the following to the nominee:

• a document setting out the terms of the voluntary arrangement you want to propose to the creditors; and
• a statement of your affairs, made up to a date not earlier than 2 weeks before the date of the proposal, giving details of your assets, liabilities, creditors and such other particulars as the nominee asks for in writing.

What are the duties of the nominee?

The nominee must submit their report on the proposal for an IVA to the court at least 2 business days before the interim order ceases to have effect.

The nominee's report must set out whether in his opinion:

• your proposal has a reasonable chance of being approved by the creditors and implemented; and
• your creditors should consider your proposal

If the court decides, after receiving the nominee's report, that your creditors should consider your proposal, it will extend the period that the interim order has effect so that you will remain protected until the creditors have had the chance to consider the proposal.

If the court decides that it would not be appropriate for the creditors to consider your proposal, it will discharge the interim order.

If the nominee reported to court that the creditors should consider the proposal, the nominee will take the steps required to get the creditors to decide whether they approve the proposed voluntary arrangement. The decision will be reached by way of a creditor's decision procedure. The nominee must give notice of the creditors' decision procedure to each creditor whose claim and address the nominee is aware of.

If an undischarged bankrupt, your creditors include all those who are 'bankruptcy debt' creditors as well as those that would have been bankruptcy debts creditors had your bankruptcy started on the date that notice of the creditors' decision procedure is given.

The creditors can approve your proposal as presented, with amendments or not at all. Amendments can only be made to the proposal if you agree to it.

An IVA without an interim order

If you don't need the protection you could get from an interim order, while getting an IVA proposal considered by your creditors, you can proceed as discussed below.

What does the debtor need to do?

You can make a proposal for an IVA if you're a bankrupt or able to make an application for your own bankruptcy at the time of the proposal.

If an undischarged bankrupt, you must give notice to the OR, and if there is one, the TIB that you intend making a proposal for an IVA.

The contents of the IVA proposal are prescribed and must, for example:

• identify yourself as the debtor;
• explain why you think an IVA is desirable;
• explain why the creditors are expected to agree to an IVA; and
• include detailed information about your assets, liabilities, nominee's fees, proposed duration of the IVA, conduct of your existing businesses, etc.

You must authenticate and date the proposal.

Your next step is to give the following to the nominee named in your proposal:

• a document setting out the terms of the voluntary arrangement you want to propose to the creditors; and
• a statement of your affairs, made up to a date not earlier than 2 weeks before the date of the proposal, giving details of your assets, liabilities, creditors and such other particulars as the nominee asks for in writing.

The named nominee must be an insolvency practitioner (or another authorised person).

What are the duties of the nominee?

If the nominee believes that you are an undischarged bankrupt or that you can apply for your own bankruptcy, the nominee must within 14 days from the date of receiving the proposal and statement of affairs from you, prepare and submit to your creditors, a report setting out whether in his opinion:

• your proposal has a reasonable chance of being approved by the creditors and of being implemented; and,
• your creditors should consider the proposal.

If the nominee reported to the creditors that they should consider your proposal, the nominee will take the steps required to get the creditors to decide whether they approve the proposed voluntary arrangement. The decision will be reached by way of a creditors' decision procedure. The nominee must give notice of the creditors' decision procedure to each creditor of whose claim and address the nominee is aware.

If an undischarged bankrupt, your creditors include all those who are bankruptcy debt creditors as well as those that would have been bankruptcy debt creditors had your bankruptcy started on the date that notice of the creditors' decision procedure is given.

The creditors can approve your proposal as presented, with amendments or not at all. Amendments can only be made to the proposal if you agree to it.

Contents of the notice of the creditors' decision procedure

The nominee's notice of the creditors' decision procedure must include prescribed contents, such as:

• details to identify the proceedings;
• details of the court that the application for an IVA must be made to (where there is no interim order in place) or where the nominee's report of your proposal has been filed (where there is an interim order);
• state how a creditor can propose amendments to your proposal and how the nominee intends to deal with those;
• a description of the decision procedure being used and all the required information to make it possible for the creditor to access the voting system and cast their vote;
• a statement of the effects of the relevant provisions relating to creditors' voting rights, the calculation of creditors' voting rights and the required majority of creditors for making decisions;
• state that a physical meeting to decide the matter will only be held if, within 5 business days from delivering the notice, 10% in value of the creditors or 10% in number of the creditors or 10 creditors request it.

The nominee may also include a notice that the results of the consideration of your proposal will be made available for viewing and download on a website and that no other notice will be sent to the creditors that received notice of the creditors' decision procedure.

The notice must also include, unless it has previously been supplied to the creditors:

• a copy of the proposal;
• a copy of the statement of affairs or a summary listing the creditors and the amounts owed to them; and
• a copy of the nominee's report on the proposal.

The notice must set the date for the decision to be made, no sooner than 14 days after delivery of the notice, and not more than 28 days after:

• the date that the nominee received your statement of affairs and proposal (in the case where no interim order was made); or
• the date that the court considered the nominee's report on your proposal (where an interim order is in place).

The notice must be authenticated and dated by the nominee.

The creditors' decision procedure will be competent to act if the nominee gets one valid vote on or before the decision date.

Creditor's decision procedures

The nominee may use any of the following for the creditors' decision procedure:

• correspondence;
• electronic voting;
• virtual meeting; or
• any other decision-making procedure that gives all the creditors who are eligible to vote an equal chance to do so.

Creditors' decisions on the IVA proposal

The creditors may not approve your proposal with modifications unless you agree to each change. The modifications may include the appointment of a different insolvency practitioner or another authorised person to act as supervisor to oversee the IVA's operation instead of the nominee.

The creditors can't approve any changes to your proposal that:

• would cause it to stop being a proposal for purposes of establishing an IVA;
• affects the rights of any secured creditor to enforce their security, unless that creditor agrees to it;
• would affect the priority of any preferential debts above those debts that aren't preferential, unless that preferential creditor agrees to it; or
• would negatively affect the proportion of debt recovery in respect of any particular preferential debt compared to any other preferential debt, unless that preferential creditor agrees to it.

For the proposed IVA or a modification of the proposal to come into force 3-quarters by value of all the creditors that have responded must vote in favour of it. However, a decision is not made if more than half of the total value of the creditors who are not associates of the debtor vote against the proposed IVA.

The nominee must decide whether a creditor is entitled to vote by admitting or rejecting their claims in whole or in part. If the nominee is unsure whether a claim should be admitted or rejected, they will allow the creditor to vote, but they will mark it as objected to. These votes will be subject to later being declared invalid if the objection is sustained. However, every creditor that received notice from the nominee of the creditors' decision procedure for purposes of deciding on the proposed IVA will be entitled to vote.

You or any creditor can appeal the nominee's decision to the court within 28 days of the nominee giving notice of the result of the creditors' decision procedure to the creditors (where no interim order is in place) and to the court (where an interim order is in place). If on appeal the nominee's decision is reversed or varied the court may order another decision procedure to be initiated or it may make such order as it thinks just. In an IVA, however, the court may only make an order if it believes that the circumstances giving rise to the appeal result in unfair prejudice or material irregularity.

The value of a creditor's vote

If the creditor's claim against the debtor is for a liquidated amount, the value of a creditor's vote is calculated as follows:

• If the debtor is not an undischarged bankrupt and there is an interim order in place, the creditor's vote is valued at the amount of the debt owed to them at the date of the interim order.
• If the debtor is not an undischarged bankrupt but there is no interim order in place, the creditor's vote is valued at the amount of the debt owed to them at the decision date.
• If the debtor is an undischarged bankrupt the creditor's vote is valued at the amount of the debt owed to them on the date of the bankruptcy order.

If the creditor's claim against the debtor is for an unliquidated amount or an amount that has not been ascertained, the value of a creditor's vote will be set at £1 unless the nominee agrees to put a higher value on it.

The effect of approval of an IVA

From the date of the IVA approval the following unsecured creditors will be bound by the IVA:

• every creditor that was entitled to vote at the time the creditors decided to approve the proposal; or
• every creditor that would've been entitled to vote if they had notice of it.

Although a creditor that was entitled to vote but didn't have notice of it will be bound by the IVA, they can challenge the IVA.

A secured creditor's rights are however not affected by an IVA, although they can agree, to varying extent, to be bound by the IVA.

If you are an undischarged bankrupt at the date the IVA is approved, you can, once the time allowed for challenging the IVA has lapsed and no such challenge is pending, apply to court to have the bankruptcy order annulled. If you don't apply the OR can. If an interim order is still in place 28 days from the date of the notification of the outcome of the creditors' decision, it will automatically lapse at the expiry of the 28 days. If that lapsing interim order stayed a bankruptcy petition at the time it was granted, the petition will be deemed to be dismissed when the interim order lapses automatically.

Providers of certain essential services such as water, gas, electricity, communication services and IT supplies, are by law prohibited from requiring you (the debtor) to pay outstanding charges, for services supplied to your business prior to the date of the approval of the IVA, as a condition for continued supply thereafter. Also, any insolvency related contractual term of an essential services supply agreement that enables the supplier to charge higher prices or terminate the contract will have no effect in respect of your business should your IVA be approved. This means that the essential services supplier will only be able to terminate the contract of supply to your business if:

• the supervisor of the IVA agrees to the termination;
• the supervisor doesn't personally guarantee payment of the charges incurred after the date of the IVA;
• the court grants permission; or
• the post- IVA supply charges remain unpaid for more than 28 days after payment was due.

Notification of outcome of creditors' decision

After the conclusion of the creditors' decision procedure the nominee has to give notice of the outcome to the creditors and other prescribed persons and where an interim order is in place also to the court.

Challenges to decision procedure outcome

Any of the following people may challenge the validity of the IVA:

• You (the debtor)
• Every creditor that was entitled to vote at the time the creditors decided to approve the proposal
• Every creditor that would've been entitled to vote if they had notice of it
• The nominee or supervisor
• The TIB or the OR if you are an undischarged bankrupt

A challenge must be made within 28 days of the nominee giving notice of the result of the creditors' decision procedure to the creditors (where no interim order is in place) and to the court (where an interim order is in place).

The validity of the creditors' decision can only be challenged on the grounds that the IVA unfairly prejudices the interests of a creditor or that some material irregularity occurred at or in relation to the creditors' meeting that approved the IVA.

A creditor would be unfairly prejudiced if the effect of the IVA is to deprive them of a right of recovery of the outstanding debt due to him, without a fair compensation for that loss. Even if all creditors are affected in the same way, it doesn't necessarily mean that there is no unfair prejudice of a particular creditor. The issue will turn on the facts.

A material irregularity would occur if the particular action or omission complained of as irregular, materially impacted the way in which the creditors at the meeting decided to vote. This includes not disclosing information that might have led creditors to vote in a different way. So, the material irregularity involves all actions pre-voting that might have influenced a particular creditor to vote in a particular way.

Breach of the IVA

If you breach the IVA the supervisor may petition for your bankruptcy. The supervisor must prove to the court that you have:

• not complied with their reasonable requests;
• submitted misleading information to support your IVA proposal; or
• failed to comply with the terms of the IVA.

Does the IVA affect your credit rating?

An IVA will affect your credit rating and make it harder for you to open bank accounts and apply for loans in the future. All IVA's are registered and are searchable in the:

• Individual Insolvency Register
• (NI) Individual Insolvency Register