Introduction
i 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 the 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.
ii Individual voluntary arrangements (IVAs)
An IVA begins with the debtor drafting a formal proposal to his/her 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 debtor may make an application to the court for an interim order at an early stage but it is not compulsory. (see paragraph vi). 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 recommendation to the court 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. The IVA procedure is not to be confused with the Fast Track Voluntary Arrangement (FTVA) scheme run by the Insolvency Service which was introduced on 1 April 2004 under the provisions of the Enterprise Act 2002. For more information on FTVAs please refer to the Case Help Manual part "Fast Track Voluntary Arrangements".
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 his/her intended nominee. Most proposals are thus professionally prepared. For more information on the role of a nominee see paragraph iv.
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. Where the official receiver does not wish to act as nominee under the FTVA provisions the bankrupt should be supplied with a list of the local insolvency practitioners on the official receiver's rota with whom he/she can discuss the matter.
iii 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.
iv 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:
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.
v What is the role of the nominee?
The nominee’s principle tasks are to prepare his report to court on the proposal, chair the meeting of creditors and file his report on the meeting with court. 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, as only those creditors included in the voluntary arrangement are legally bound to it.
vi Interim order
When a debtor intends to make a proposal to his/her 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:
The official receiver, any trustee and the nominee should be given at least 2 days notice of any interim order application. The hearing will usually be in chambers 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.
vii No interim order
Where a debtor intends to make a proposal for an IVA and no application for an interim order is made the nominee must deliver two copies of his/her report to the court 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.
viii Official receiver’s role
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 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 Gazetting and Advertising”.
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 within 28 days of receiving the report of the meeting. However, he/she is only likely to do this in exceptional circumstances, e.g. on the basis of "public interest".
ix Nominee’s report
At least 2 days before an interim order 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.
x Meeting of creditors
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, official receiver and any trustee.
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 to court 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 his/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.
xi 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.
xii 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. Any interim order in force will cease to have effect 28 days after the date the creditors report was filed at court.
xiii 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.
xiv Annulment of the bankruptcy order
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.
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 14 days have elapsed since the 28 day period for challenging the meeting decision 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 advertisement of the annulment in the newspaper or London Gazette, he/she should request the official receiver to arrange for this to be done. The cost of these advertisements must be paid to the official receiver before the notices are placed. For more information please refer to the Case Help Manual part "Annulments, Rescissions, Recalls and Stays".
xv 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.
xvi 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 Criminal Allegations Liaison Team, HQ London.
A person found guilty of such an offence is liable to imprisonment, a fine or both.
xvii 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.
xviii Register of voluntary arrangements
A register of individual voluntary arrangements is kept by Insolvency Practitioners Unit (IPU) at HQ Birmingham and is open to public inspection free of charge. The register is also available for searching 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 £35 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 together with a copy of the supervisor’s report.
There is no register of company voluntary arrangements, details are filed with the registrar of companies.
Notes:
Where do I find out more?
Section 252-263 Part VII – individual voluntary arrangements
Insolvency Act 2000
Section 3 : Individual voluntary arrangements
Section 4: Qualification or authorisation of nominees and supervisors
Insolvency Rules 1986
5.1-5.30 individual voluntary arrangements
6.208 power of the court to stay proceedings
Case Help Manual
Annulments, Rescissions, Recalls and Stays
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:
BL50.20 Notice to HQ of stay of advertisement application/order
Click HERE to view the Flowchart for Dealing with IVA's
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 Gazette and 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 General Services Team of OR Banking Section 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 “Gazetting and Advertising”.
4 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.
5 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.
6 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 BL50.20 (DO73) and send to OR Banking Section, HQ Birmingham.
7 Where the stay expires consult the examiner dealing with the case to see what further action should be taken.
8 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.
9 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 State” and “Handover to Insolvency Practitioner”.
10 The case should then be administered in the normal way. Any queries regarding this must be referred to the B1/examiner.
11 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 Operations website. The cashier must also enter the case details on the "Spreadsheet IVA cases" which is available on the S Drive.
12 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, Recalls and Stays“.
13 When the annulment order is received, the OR should note all his/her records including the office file, LOIS and LOLA. Notice should be sent to OR Banking Section, HQ Birmingham under form B21.04. 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, Recalls and Stays“.