3.5 IVAs Application of standard conditions

Question 1

What is the difference between protocol and R3 for debtor’s home?

Answer 1

Protocol = standard approach
R3 case specific

Question 2

What is the protocol approach to realisation of equity in home?

Answer 2

Option 1: Value of interest <£5,000
▪ Amount considered de minimis
▪ 60-month IVA with no requirement to further review value

Option 2: Value of interest +£5,000, but unlikely to release equity
▪ 72-month IVA [i.e. 12 additional months contributions]
▪ No requirement to re-value property

Option 3: Value of interest +£5,000 with possible equity release
▪ 72-month IVA with re-valuation at month 54
▪ Equity released if affordable, otherwise 12 additional contributions

Question 3

What approach is taken to pensions in standard IVA proposals?

Answer 3

Both: standard conditions apply the bankruptcy approach to the exclusion of the
pension fund as an assets

R3:
▪ Pension lump sum could be used to fund an IVA, if the debtor proposes it
▪ Silent on the inclusion of pension income

Protocol:
▪ Specific provision for pension income to be used to fund a IVA contributions
▪ Debtor under 55 years old: only minimum pension contributions are allowable
expenditure
▪ Debtor aged 55 or older: average of previous 6 months contributions allowable
▪ Up to a limit of £75 pcm above the minimum scheme contribution; or
▪ If no minimum scheme contribution level, max is prevailing auto-enrolment rate

Question 4

What is the position of assets in IVA?

Answer 4

Where a trust is not expressly terminated upon completion of the arrangement and
the former supervisor receives the realisation of a trust asset after the completion of an IVA, the supervisor will distribute these funds in accordance with the terms of the arrangement - They are not returned to the debtor

BOTH: create a trust over all of the assets, other than excluded assets

▪ R3: the trust CONTINUES after termination or completion [Green v Wright]

▪ Protocol: TRUST OVER ASSETS ENDS

Question 4

What is the position in an IVA re after acquired assets?

Answer 4

R3:
▪ Any after-acquired property can be claimed by the supervisor – no minimum value
▪ Up to the amount required to pay in full, WITH INTEREST
▪ Debtor under an obligation to notify supervisor FORTHWITH

Protocol:
▪ “after acquired assets” means any asset, windfall or inheritance with a value of more than
£500
▪ Supervisor can claim up to the amount requires to pay in full, WITHOUT interest
▪ Debtor must disclose as soon ASARP

Question 5

What is the position in an IVA re income contributions?

Answer 5

R3:
▪ No requirement to make a contributions as part of the standard conditions - case-by-case basis (eg depending on trading income）
▪ Debtor must notify supervisor of increases, where proposal provides for contributions

Protocol:
▪ Detailed provisions concerning the inclusion and review of income contributions
▪ Action in the event of non-payment

Question 6

What are the protocol expectations re income?

Answer 6

a person needs to be in receipt of a regular sustainable source of income

▪ Self-employed workers are not precluded, but Protocol is unlikely to be suitable for complex trading situations or where significant fluctuations in income are anticipated

▪ Supervisor is afforded discretion to reduce contributions by 15%, without reference to creditors

▪ There is also provision for payment breaks and emergency
expenditure

Question 7

What method of calculation of surplus income is used?

Answer 7

Protocol:

Use Standard Financial Statement as used by OR so best comparator.

Question 8

Is there anything in statute to allow supervisor to allow income payment holidays ?

Answer 8

NO

Question 9

What conditions are added to standard IVA terms to allow for income variations?

Answer 9

R3
▪ No standard provisions for contributions - so no provision for payment breaks

Protocol:
▪ payment holiday or reduced payments for up to 9 months [39 weeks]
▪ at the discretion of the Supervisor
▪ duration of IVA extended for up to 12 months to recover originally proposed
amount

Question 10

What conditions are added to standard IVA terms to allow for income increases?

Answer 10

R3:
Debtor shall forthwith give the Supervisor notice …of the increase.”

Protocol :
▪ Any overtime, bonus, commission or similar not included within the proposal, exceeding 10% to be disclosed WITHIN 14 DAYS of receipt

50% (over the 10%) to be paid to Supervisor within 14 days

▪ Failure to disclose and/or pay is a breach of the IVA

Question 11

How often must supervisor in a protocol IVA review income & expenditure?

Answer 11

Every 12 months

Debtor required to increase monthly contribution by 50% of any net surplus, one
month following such review.

Question 12

What is the position re redundancy in protocol?

Answer 12

▪ Inform the supervisor within 14 days of notice of redundancy
▪ Inform the supervisor of the amount of any redundancy payment within 14 days
▪ Pay to the supervisor within 14 days of receipt of any redundancy payment any amount in excess of 6 months net take
home pay (as set out at the last annual review date)

At the point new employment is obtained the supervisor will review the consumer’s IVA contributions and at
that point there will be an expectation that any remaining redundancy funds will be paid into the IVA, and
the consumer’s performance in this regard will be reported to creditors

Question 13

Who approves fees in an IVA?

Answer 13

Creditors (or court). Proposal must set out proposed basis for fees.

Question 14

What are R3/ protocol standard conditions for fees?

Answer 14

R3 Standard Conditions:

fees on a time-cost basis
▪ Payable as an when the supervisor thinks fit
▪ Specific power to refer fee issues to court
▪ However, creditors will invariably seek to modify these provisions
to include a cap

Protocol:
Fee basis not mandated in the protocol
▪ To do so would amount to “price fixing”
▪ Fee basis must be set out in proposal document
▪ Together with a timetable and schedule of expected payment to creditors [Annex 6]

Tending towards a fixed fee model

Question 15

What is the position re small debts in an IVA?

Answer 15

R3:
▪ Supervisor has discretion to admit claims below £1,000 without a proof

Protocol:
▪ Discretion to admit claims of £2,000 or less without a claim form

▪ Discretion to admit claims not exceeding 120% of SofA value, without
additional verification

Question 16

What is the position re rejection of claims in an IVA?

Answer 16

R3:
▪ The supervisor may admit or reject a proof for dividend in whole or in part
▪ If rejected, an appeal process similar to bankruptcy then applies

Protocol:
▪ No specific provision for adjustment or rejection, nor process when claims rejected
▪ General power to “such things as are necessary and helpful”

Question 17

What is the consequence of late submission of claims in IVAs?

Answer 17

R3:
▪ Notice of Intended Dividend to unproved creditors
▪ Sent no more than 3 months prior
▪ Giving not less than 21 days notice of “Last Date for Submitting Proofs”

Prior dividends not disturbed, but may be adjust where funds allow

▪ Specific provision for repayment by creditor of overpaid amounts

Protocol:
▪ “If any creditor does not make any claim in writing within 2 months after the effective date or by the date of the first dividend (whichever is the later), then that creditor may only participate in dividend payments to the extent set out.”

▪ The Supervisor will allow late claims, subject to adjudication, but is not entitled to disturb a distribution made prior to the submission of the late claim

Question 18

What are the conditions for breach of IVA?

Answer 18

R3:
No express provisions - must be dealt with
in proposal.

Protocol:
Has arrears equivalent to 3 months or more
contributions; or where liabilities exceed
the amounts stated in the Statement of
Affairs by 25% or more.

Question 19

What is the breach procedure?

Answer 19

R3:
Supervisor sends Notice of Breach –
requiring remedy or full explanation (if
appropriate) within 1 month. No further
action taken if debtor, within 1 further
month:
a) remedies breach;
or b)
satisfactorily explains (if requested);
or c) reaches an agreement with the supervisor to pay a sum of money compensating for any diminution in dividend.

If the above not taken, supervisor shall AS SOON AS PRACTICAL issue DMP TO CREDITORS TO DECIDE whether to:
a) issue a
Termination Notice; or
b) present a bankruptcy petition; or
c) vary the arrangement;
or d) take no action.

Supervisor sends Notice of Breach,
specifying how long debtor has to comply
with obligations under arrangement (1-3
months). No further action taken if debtor:
a) remedies breach; or b) satisfactorily
explains (if requested).

If the above not taken, supervisor shall report to creditors within 28 DAYS has DISCRETION to terminate, or to seek creditors’ views whether to: a)
issue a Certificate of Termination; or b)
present a bankruptcy petition; or c) vary
the arrangement

Question 20

How can an arrangement be varied?

Answer 20

R3
Decision procedure (not including physical
meeting, unless requested by creditors) -
held on 14 days’ notice.

Protocol
Variation by “meeting of creditors”
[physical / virtual?] - held on 28 days’
notice.

Question 21

What happens in the event of termination?

Answer 21

R3:
Termination occurs automatcally upon the
earlier of: a) The Supervisor issuing a
Notice of Termination AT THE REQUEST OF the creditors, the debtor or the Court; b)
Bankruptcy of the debtor; c) Death

Protocol: Supervisor is provided with discretion to issue a Termination Certificate or seek views of creditors.

Question 22

What happens when full implementation?

Answer 22

R3:A “certificate of full implementation” is
sent to the debtor, the creditors and
Secretary of State, with the final report.

Protocol:A “completion certificate” is sent to the debtor within 28 days