Individual voluntary arrangements (IVA) have been around for over 30 years as a means of helping individuals avoid bankruptcy and the possible loss of their home. Initially the government passed legislation in 1986, aimed at sole traders or partnerships that had run into financial difficulty despite having a good core business model, but simply needed time to navigate a cashflow issue, perhaps caused by a large bad debt for example. In relation to sole traders and partnerships, English law does not differentiate between private and business debt, and as time rolled on and with the advent of credit cards for all, more IVA’s were used to help consumers, who had simply run up too much credit card debt. As a result, whilst the initial purpose of the IVA still exists it has been pretty much hidden by a flood of credit card arrangements.
So what is an IVA?In simple terms it is a legally-binding agreement between the person owing monies with his / her creditors to pay some or all of the debt over an agreed period of time, typically 5 years. Although many IVAs see regular monthly contributions, they are by nature as flexible as the individual debtor’s circumstances. So the agreement could be based on income from employment or a business, lump sum reductions, payments from third parties – or a combination of these.
How is the IVA agreed?An IVA has to be arranged and supervised by a licensed insolvency practitioner (IP) – a qualified professional who specialises in dealing with debt-related problems faced by individuals and businesses. The IP will put together a proposal based on information provided by the debtor. It will outline how the financial difficulties have arisen and details of assets and liabilities. Additionally, it will outline details of anticipated income and outgoings and based on this information the offer of payment of part or all of the debt. If 75% of creditors by value, who choose to vote on the proposal agree to the offer, then all creditors are contractually “tied in” to the arrangement irrespective of whether they voted for or against the proposal. If the individual is a business owner, he or she is left to run the business on a day-to-day basis. The Supervisor of the IVA – agrees creditor claims, collects the agreed contributions from the debtor and distributes funds to the creditors (after deducting agreed costs).
The UK labour marketIn recent years, there has been a significant shift in the workforce away from being employed to now being self-employed. So, in Nov 2017 unemployment fell to its lowest level since 1975. This coincided with a growth in self-employment between 2001 and 2016 which jumped from 12% to 15.1% of the labour force[i]. In a nutshell, more people are becoming self-employed and working alone, without employees. In many cases it may result from being made redundant and experiencing difficulty in finding alternative employment. Statistics show that often they earn less than employed people. Couple this with the inexperience of running a business and you have the recipe for financial problems. As a result, those new business owners who chose not to incorporate, if faced with financial issues may need to consider using the IVA process as it was originally intended to be used in the early years post 1986. If you are facing issues and you are not incorporated, the IVA procedure could be the salvation of your business, allowing you to protect your personal assets. At Wilson Field we have a dedicated and highly skilled team with many years’ experience, who will give an initial free of charge meeting to consider the options available to you. Please do not hesitate to get in touch.