The Insolvency Act 1986 ('the 1986 Act') introduced new provisions for voluntary arrangements for personal debtors with their creditors. The voluntary arrangements proposed by the debtor may be either a composition with creditors in satisfaction of his debts or a scheme of arrangement of his affairs. There is no distinction under the 1986 Act between composition and schemes, either as to the procedure for their approval or the effect of that approval. In general terms these procedures complement similar provisions for companies and partnerships in similar situations, who can apply for Company Voluntary Arrangements.
A composition is an agreement whereby the compounding creditors agree with the debtor to accept payment of less than the respective amounts due to then in full satisfaction of the whole of their claim. Where a composition is approved in accordance with the provisions of the 1986 Act it is legally binding. Outside statutory provisions, the consideration which supports the agreement to accept any part payment as a discharge of the whole debt is the mutual agreement of the other creditors to do likewise.
A scheme of arrangement may take any form acceptable to the parties, but the usual method is an assignment by the debtor of all, or specified part, of his property to a trustee who will sell it and distribute the proceeds amongst the creditors in such proportions as they agree. The trusts under which the trustee holds the property will be agreed by the creditors and specified in a deed of assignment. It has been common for such deeds to appoint a committee of inspection to control the trustee's administration of the estate. Alternatively, such a committee might be appointed in the scheme itself. However, every composition or scheme must be supervised by a 'nominee' and any creditor dissatisfied with the performance of the nominee may apply to the court.
As a result of changes brought in by the 2000 Act with effect from 1st January 2003, the voluntary arrangement now seems to bind all creditors who in accordance with the rules were entitled to vote at the meeting of creditors which approves it (or who would have been entitled if they had had notice of it), and whether they attend the meeting or not (and, if they attend, whichever way they voted). The provisions apply to debtors who are not bankrupt as they do to debtors who are undischarged bankrupts.
The debtor must have the assistance of an insolvency practitioner or other person who is a member of an approved body, known as the 'nominee' who will supervise the implementation of the composition or scheme of arrangement.
Where an individual debtor wishes to make a voluntary arrangement with his creditors he may first apply to the Court for an 'interim order' (and this would be the general course where a debtor needs immediate protection from creditors – although as a result of changes by the 2000 Act this step can now be omitted in suitable cases, with appropriate savings in costs and fees).
First the debtor must give his intended nominee written notice of his proposal (and if the debtor is an undischarged bankrupt he must give the same notice to The Official Receiver and his trustee in bankruptcy) accompanied by a copy of the proposal itself which must contain specified matters. If the nominee agrees to act he endorses the notice of proposal and returns it to the debtor forthwith. Within seven days of delivering his proposal the debtor must deliver a specified statement of his affairs to the nominee.
An application for an interim order may not be made while a debtor's bankruptcy petition is pending and the Court has decided to appoint an insolvency practitioner to prepare a report on the feasibility of the debtor entering into voluntary arrangements. In this case the court may make an interim order without application.
Application for an interim order is made by the debtor or, if an undischarged bankrupt, by himself, his trustee in bankruptcy or The Official receiver. It must be accompanied by an affidavit as to specified matters which must have a copy of the notice of proposal to the nominee exhibited to it. On receipt of the application and affidavit the court fixes a venue and hearing date.
The applicant must give at least two days notice of the hearing date to the nominee who has agreed to act. If the debtor is an undischarged bankrupt the applicant must give the same notice to the two other parties who could have applied and to any creditor who to his knowledge has presented a bankruptcy petition against him.
While an application for an interim order is pending the court has a discretionary power to stay any action, execution or other legal process against the debtor or his property. This is exercisable by any court in which proceedings against the debtor are pending and enables that court to either stay the proceedings or allow them to continue on such terms as the court considers fit.
Any person who has been given notice may appear or be represented at the hearing for the interim order. The court may make an interim order if satisfied that:
Where the debtor is an undischarged bankrupt the interim order may make provision as to the conduct of the bankruptcy and the administration of the bankrupt's estate, including staying proceedings in the bankruptcy and modifying the effect of the 1986 Act (so long as any relaxation in those requirements is unlikely to result in a significant diminution of the debtor's estate).
When an interim order is made the court sends two copies to the applicant. He must serve one on the nominee and also give notice of the order to any person notified of the hearing but not present or represented at it.
While the interim order is in force:
The interim order will remain in force for 14 days unless:
Once an interim order has been made the nominee must report to the court his opinion as to whether a creditors' meeting should be held. When making his report the nominee may call on the debtor to provide him with further information. the report must be delivered to the court at least two days before the interim order lapses and it must be accompanied by:
Where no interim order is applied for the nominee must file his report with the Court, accompanied by a copy of the debtor’s proposal and statement of affairs, the nominee’s consent to act, and a form which includes a statement that it is not intended to apply for an interim order. The report must include an opinion as to whether or not the arrangement has a reasonable prospect of being approved and implemented.
The nominee then sends the same documents to The Official Receiver and (if any) the trustee if the debtor is an undischarged bankrupt and otherwise to any person who has presented a bankruptcy petition against the debtor.
On receiving the nominee's report, if the court considers if appropriate for a creditor's meeting to take place to consider the debtor's proposal, or if the debtor has failed to comply with his obligations to provide the nominee with information, the court may discharge the interim order. However, if satisfied that a creditors' meeting should be summoned, the court will direct that the interim order be extended for a specified period to allow for such.
A creditor's meeting is summoned in accordance with the details proposed in the nominee's report (or where a debtor's petition has been presented and the court has directed a report on the feasibility of a voluntary arrangement then in accordance with that report). The date of the meeting shall be after 14 and before 28 days from the consideration of the nominee's report.
The nominee (or appointed person) must give notice of the meeting to each of the debtor's creditors whose claim and address he is aware of. The notice must state specified information and be accompanied by:
The conduct of the meeting is governed by regulations. It may decide to approve the debtor's proposal with or without modification or it may reject the proposal. Any modification must have the consent of the debtor and any secured or preferential creditor whose rights are affected by the modification.
The chairman of the meeting must report its decision, including specified details, to the court within four days and immediately afterwards (if the proposal is approved) to the Secretary of State. He must also give notice of the result to all persons given notice of the meeting.
An application to challenge the meeting's approval of voluntary arrangements may be made within 28 days of the chairman's report and claim that either the interest of a creditor are unfairly prejudiced or there has been some material irregularity in relation to the meeting or both. Such application must be made by:
The court may revoke or suspend the meeting's approval and may direct a further meeting to consider the debtor's proposal or any revised proposal he may make. Where a further meeting is directed the court can extend or renew the interim order to protect the debtor's estate. The court may also make directions covering any acts done since the approval of the meeting.
If the creditors' meeting rejects the debtor's proposal the court may discharge the interim order. However, where the meeting approves the voluntary arrangement, with or without modifications, it takes effect as if made by the debtor at the meeting and binds every creditor who had notice of the meeting or voted in support.
Following the approval of a voluntary arrangement concerning an undischarged bankrupt the court may give such directions concerning the conduct of the bankrupt and the administration of his estate as it considers appropriate for implementing the scheme or composition, and once the time for challenging that approval has passed and no appeal is pending it may annul his bankruptcy order.
If an interim order is still in force 28 days after the chairman's report to the court it will automatically lapse on that day (except where the court has extended it while the decision of the creditors' meeting is being challenged). Unless the court orders otherwise a bankruptcy petition which has been stayed by an interim order is deemed to have been dismissed when the interim order lapses.
Once the voluntary arrangement is fully approved the nominee is known as the supervisor. If any person is dissatisfied with the performance of the supervisor he may apply to the court who may:
The court may appoint additional supervisors and also replace any of them.
This is an extract form an email I received in May 2002:
After reading your site and many others which I found useful, I would like to see a section dedicated to "Living with and life after an IVA" highlighting the difficulties that this path brings and how to deal with them.
My personal experience is that my wife and I are half way through an IVA and we liked the fact that we are repaying our debt back, but are constantly hitting difficulties, i.e. I recently applied for a job and was turned down purely on the basis that a credit check was done. Also I now have to purchase my own car for company business using the company's recommended supplier, again I have been turned down because of the credit check - now I face loosing my job and therefore will no longer be able to pay my IVA. My current mortgage lender refuses to supply another mortgage until at least 2-3 years after the IVA is finished even though after 14 years we have never missed a payment. This again affecting future employment as work is scarce in my area.
Therefore highlighting problems once the IVA is in motion, perhaps would warn people that even though you try to do the right thing by repaying as much of the debt back (in our case 97%) there are still far reaching consequences and life is not as straight forward as the advisers make out!
And another, March 2007, from M&M:
I too am in an IVA, I feel that you are absolutely right in the fact you cannot trust or accept that you will get the best advice from the IP, let's face it, they earn a fortune out of our bad fortune! Anyway, in response to your comment, there are many mortgage brokers out there that will offer you a re-mortgage on your home if there is enough equity in it, at least 15% is the norm. I have found http://www.BlackandWhite.co.uk to be very good. On this re-mortgage you can settle your IVA in a lump sum and get on with your lives, once IVA is settled, all credit reference agencies are contacted and your credit history will right itself eventually - it isn't all doom and gloom - Word of warning, If you plan on selling your house, clear the IVA first with re-mortgage as regardless of original proposal, the creditors will and can take up to 100% of your equity once you have sold!! I wish I had been given this advice first!!
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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