How an individual voluntary arrangement is set up
This page tells you how an Individual Voluntary Arrangement (IVA) is set up.
An IVA is a formal and legally-binding agreement between you and your creditors to pay back your debts over a period of time.
Before the IVA is set up
The insolvency practitioner should explain all options available to you before you commit to an IVA. They should also make sure you read and understand the leaflet Is a Voluntary Arrangement right for me? You can get the leaflet from the Association of Business Recovery Professionals website at: www.r3.org.uk.
Step one: applying to the court for an interim order
Your insolvency practitioner (IP) may apply to the court for an interim order to stop your creditors taking action against you while the IVA is being set up. For example, this means they can’t get a court order against you, or try to make you bankrupt. Interim orders are, however, quite unusual and your IP may help you to get any court action adjourned instead.
Step two: discussing your finances and repayments
Your IP will look at your financial situation with you, including your spare monthly income, savings and assets. Assets such as property or a car may be included in the IVA to raise more money to repay your creditors – most IVAs have a special clause about how your home is treated. Your IP may also suggest that certain assets are not included, for example, a building or van you need to run a business or a car that you need to get to work.
With the help of your IP, you will work out a repayment plan to your creditors. You will need to offer as much as you can realistically afford, otherwise the creditors may not agree to it.
- More about what information to give your insolvency practitioner
- More about assets being included in the IVA
Step three: drawing up a proposal
Your IP will help you write a proposal for your creditors and the court. In the proposal you will agree to repay your creditors in part or in full over a certain period of time, normally three to five years. Your IP will also prepare a report for the court which includes their opinion as to whether the proposal will work or not. The report and proposal will include:
- a full financial statement, including details of your income, assets, properties and debts
- a proposal setting out the terms of the proposed IVA, such as the length of the arrangement and how much of the debts you intend to repay
- reasons why the creditors should agree to the IVA and that they will get more under the proposal than they would if you go bankrupt.
Your IP will help you decide the most appropriate proposal depending on the circumstances and the likelihood of creditors accepting it. The insolvency practitioner should take into account the rights of the creditors to be repaid the debt as well as your ability to repay them.
If you insist on including certain terms in the proposal against the advice of your IP, your IP can recommend to the court that the IVA is rejected.
Step four: creditors agree or reject your proposal
Your IP will call a creditors' meeting at which the creditors vote on whether or not to accept your proposal. This will usually be held at the IP’s office. You should attend the meeting so you can represent your own interests, although you don’t have to appear in person as a teleconference can be arranged.
If enough creditors vote for the proposal, the proposal is accepted and this is reported to the court.
The IVA will then be binding on all the creditors, even those that voted against the proposal.
Other useful information
There is a voluntary code of practice, called the IVA Protocol, which all insolvency practitioners and most creditors have signed up to. The protocol makes sure the processes involved in setting up and managing an IVA are clear and fair. It also sets out the terms and conditions all parties must follow.
More information about insolvency practitioners is available from the Department of Trade and Industry’s website at www.detini.gov.uk.