M3.8 Breach, termination and completion of IVA Flashcards
When is a debtor in breach of an IVA?
R3:
▪ Fails to comply with any obligations under the arrangement
▪ Information provided or omitted was materially false or misleading
▪ Fails to do all such things as the supervisor may reasonably require
Protocol: All of the above, plus
▪ Has arrears equivalent to 3 months or more contributions
▪ Where liabilities exceed the amounts stated in the Statement of Affairs by
25% or more (formerly 15% until 2021)
▪ Failure to disclose overtime, bonus, commission or similar payments within
14 days / failure to pay over required amounts within 14 days of disclosure
▪ Failure to disclose or pay over redundancy entitlements within 14 days
What is the Protocol breach procedure?
Supervisor sends Notice of Breach as soon as possible, identifying the breach
The notice will require the debtor, within 1 month of receiving the notice, to:
▪ Remedy the breach, if it can be remedied; or propose how the breach can be remedied over a longer period
▪ If the supervisor thinks fit, to fully explain the breach
If remedied: No further action against debtor / Supervisor reports in next annual
review, or next convenient occasion (if earlier)
If not remedied: Supervisor must report to creditors within 28 days and has discretion
to terminate, or to seek creditors’ views whether to:
▪ Issue a Certificate of Termination
▪ Present a bankruptcy petition
▪ Vary the arrangement
NB Different for R3 version
What is the R3 breach procedure?
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:
▪ Remedies breach; or
▪ Satisfactorily explains (if requested); or
▪ Reaches an agreement with the Supervisor to pay a sum of money compensating for any diminution
(reduction) in dividend expected by creditors
If the above not taken, supervisor shall as soon as practicable issue decision procedure for creditors to decide whether to:
▪ Issue a Termination Notice
▪ Present a bankruptcy petition
▪ Vary the arrangement
▪ Take no action
NB different for protocol
How can an IVA be varied?
No statutory provision for variation of an IVA
▪ Courts have historically resisted applications to vary using general
powers to apply for directions, unless supported by 100% of creditors (i.e. all of the beneficiaries of the trust created by the IVA)
Both sets of Standard Conditions make provision for variation, applying the same mechanisms as for initial approval.
▪ Unless standard conditions have been modified, variation is by a simple
50% majority of voting creditors
What is the process for variation of an IVA?
NB - must have debtor’s consent to any variation.
R3:
▪ Decision procedure (not including physical meeting, unless requested by creditors)
▪ 14 days notice
Protocol:
▪ Variation may be considered at a meeting of creditors [virtual?]
▪ 28 days notice
▪ Supervisor afforded some discretion to vary contribution levels / allow payment breaks
▪ Protocol terms silent on whether other forms of decision procedure can be used
When does termination occur R3?
R3: Termination occurs upon the earlier of:
▪ The Supervisor issuing a Notice of Termination at the request of the creditors,
the debtor or the court
▪ Bankruptcy of the debtor
▪ Death
Unrealised assets may remain on a constructive trust - [NT Gallagher]
Creditors rights and remedies restored
When does termination occur Protocol?
Protocol: No automatic termination provisions
▪ Supervisor is provided with discretion to issue a Termination Certificate or seek
views of creditors
▪ Any trust over assets comes to an end [unless proposal provides otherwise]
Creditors rights and remedies restored
When will the court make a bankruptcy order on the petition of the supervisor of an IVA?
The court will not make a bankruptcy order on the petition of the supervisor unless:
▪ The debtor has failed to comply with his obligations under the arrangement;
or
▪ Information which was false or misleading in any material particular or
which contained material omission was contained in the proposal or Statement of Affairs or otherwise made available in connection with a creditors decision procedure;
or
▪ The debtor has failed to do all such things as have been reasonably required
of him by the supervisor
What is the effect of full implementation/ completion?
Has the effect of releasing the debtor from
their debts
▪ BUT: There may still be a continuing trust over any unrealised assets
▪ 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
2021 protocol: Specific provision releasing any trust over arrangement assets
What is the position where there has been substantial compliance with an IVA?
Both: Supervisor has discretion to issue a Certificate of Full Implementation / Completion Certificate if the debtor has:
▪ Made all the payments due under the arrangement
▪ Provided any explanation of breach required by the supervisor
▪ Paid to the supervisor such sum (if any) as the supervisor shall reasonably
require to compensate the creditors for any reduction in dividend caused by
breach
How long after termination or full implementation does the supervisor have to deliver notice to the debtor and creditors?
with 28 days
How long after termination or full implementation does the supervisor have to deliver notice to the SoS?
28 days
What must accompany the notice of termination/ implementation of an IVA?
Notice must be accompanied by a report which:
▪ Summarises all receipt and payments
▪ Explains any departure from the IVA, as approved [note that will involve
explaining any variations]
▪ If the IVA has terminated, state the reasons why
