Module 16 - IVAs

Question 1

What is Section 260?

Answer 1

IVA;
Binding agreement between debtor and creditors, supervised by IP;
Binds all creditors entitled to to vote;
Has effect once approved by creditors;
Any interim order ceases once IVA approve

Question 2

Which SIP governs IVAs?

Answer 2

SIP 3.1

Question 3

What does SIP 3.1 say?

Answer 3

A face to face meeting should always be offered;
Primary ethical duty of an IP is to conduct an independent and objective review;
Documentation should be made for the discussion;
A copy of the documentation should then be sent to the debtor, alongside an EL

Question 4

6 Facts about the Interim Order?

Answer 4

Required if there is ongoing actions against debtor;
Only 1 application can be made in any 12 month period;
Rule 8.8 details what should be included in application;
Must be supported by witness statement;
Must be a ‘serious and viable’ proposal;
Order initially made for 14 days - but can be extended

Question 5

What is included in Proposals?

Answer 5

Duration;
Assets - any charged or excluded;
Distributions - dates and estimates;
Conduct of Debtor & their business (if sole trader);
How will creditors who are bound but not given notice to be dealt with;
Any further credit required (generally sole trader, but how will they be paid);
Nominee - what remuneration and expenses do they get;
Guarantees - any been given or received;
EC Regs - ‘Cross-Border’ regs;
Supervisor - what remuneration and expenses do they get;
Functions - of Supervisor - how will they do it;
Liabilities - details of all creditors known to debtor at time;
Address, Name, Qualifications of Supervisor;
Third Party Property - to be included in the IVA;
Banking of funds - how are they going to be bank - in a segregated client account.

Question 6

Contents of Nominee’s Report

Answer 6

Investigation into Debtor’s affairs;
Valuation Basis;
Attitude of Debtor;
Secured Creditors’ cooperation;

Approval - estimated result for creditors;
Re a Debtor - 3 tests: true position not different to what previously outlined, real prospect of implementation, not manifestly unfair;
Extent debtor’s estimates relied upon;

Source of referral;
History of previous failures;
Other Options;
Rejection - what will happen in alternative option;
Transactions that are best pursued in Bankruptcy

Question 7

Timelines for Decision Procedure Notice

Answer 7

Not less than 14 days from the date the decision procedure notice was given to creditors;
Not more than 28 days from the date the nominee consented to act

Question 8

Approval / Rejection of IVA Procedure?

Answer 8

Approved - 75% or more in value of creditors at the decision procedure approve the resolution;
Decision not made (rejected) - if more than half of the total value of unconnected creditors vote against

Question 9

Chair’s Report

Answer 9

Within 4 days of decision date;
Accepted with / without modifications / rejected;
Delivered to all creditors
Delivered to Secretary of State within 14 days or ASARP

Question 10

Facts of a Creditor / Debtor challenge to Report?

Answer 10

On 2 grounds: unfair prejudice / material irregularity;
Application must be made within 28 days of Chair’s report being filed in Court;

Question 11

Who is the IVA Protocol suitable for?

Answer 11

Homeowners and Non-Homeowners;
Debtor with regular income from employment / pension;
Age and amount of debt = irrelevant;
Debtor with several lines of credit or types of debt;
Must have ‘uncomplicated’ assets

Question 12

Who are IVA Protocols not suitable for?

Answer 12

Debtors who might be able to settle via a lump sum through a gift;
Sole traders with trade debts;
Debtors with disputed debts;
Debtors with investment properties;
Debtors with very low levels of debt (below £5,000)

Question 13

Differences between R3 Ts and Cs and IVA Protocol?
Breaches, Time to remedy, If no remedy, Bankruptcy funds, Trust Clauses, Claims

Answer 13

Breaches: R3 - any express term of IVA, provide false or misleadmisleading information info, fail to cooperate with supervisor
Breaches: IVA P - as above but also: miss three month contributions, liabilities 25% higher than estimated

Time to Remedy Breach: BOTH - 1 month to rectify

If No Remedy: R3 - Decision of Creditors delivered to: do nothing, vary, notice of termination, petition for bankruptcy;
If No Remedy: IVA P - 28 days to report to creditor to seek views to: vary terms of IVA, issue certification of termination, petition of Bankruptcy

R3 - required to retain funds for Bankruptcy
IVA P - not required to do above

Trust clauses exist under both

Claims: R3 - admit all claims as normal, also admit if less than £1,000
Claims: IVA P - admit if less than £2,000, admit if less than no more than 120% of estimated claims

Question 14

Part 2 - Differences between R3 Ts and Cs and IVA Protocol?
Notice of Dividend, Unclaimed Dividend, Variation Clause, Redundancy

Answer 14

Notice of Divididend R3 - 3 months before dividend, final date set for proving (21 days) no need to Gazette
Notice of Divididend IVA P - Claims to be made from effective date, no Gazette,

Unclaimed Dividend - R3 - Pay back to debtor
Unclaimed Dividend - IVA P - pay back to Creditors (after 4 months)

Variation Clause - Both 75% decision of creditors

Redundancy - R3 - Not specifically dealt with
Redundancy - IVA Protocal - pay all redundancy pay over 6 months pay into IVA account within 14 days of receiving it

Question 15

Part 3 - Differences between R3 Ts and Cs and IVA Protocol?
Income contributions, After acquired property, Matrimonial home, Death

Answer 15

Income contributions - R3 - no reductions outlined without varying
Income Contributions - IVA - supervisor can allow 15% reduction in contribution

After acquired property - Both - Included in IVA and will need to be paid in

Matrimonial Home - R3 - included / excluded - debtor choice
Matrimonial Home - IVA. -

Death - R3 - IVA terminations
Death - IVA P - property held on trust - no automatic termination clause

Question 16

IVA Protocol - Debtor’s Property

Answer 16

2021 Protocol has 3 Options:

Option 1 - if available equity is below £5,000 - the arrangement will be drafted for a 60 month term with no further action to be taken

Option 2 - if available equity above £5,000 but does not meet lending criteria for re-mortgage, arrangement will be drafted for 72 month term with no further action

Option 3 - if available equity above £5,000 and meets criteria for re-mortgage, arrangement drafted for 72 months. Debtor obtains second valuation at month 54.
If second valuation confirms equity position and re-mortgage cannot be obtained, the agreement will remain at 72 months, if equity is released, term will be reduced to 60 months

Question 17

IVA Debtor Equity Release Amounts

Answer 17

Should ALWAYS leave 15% of equity with the debtor.
Re-mortgage will bring amount secured against property to no more than 85%
Incremental cost of re-mortgage will not exceed 50% of monthly contribution at final review date;
Available equity released will not exceed 100 p in the pound due to creditors

Question 18

What are the roles of the Nominee?

Answer 18

Review proposal once drafted;
Provide report on proposal;
Review income and expenditure;
Chair meeting on vote on proposal.

Question 19

Greystoke v Hamilton - SMith tests?

Answer 19

1 - true position not different to that represented in proposal
2 - there is real prospect of implementation
3 - no already manifest or prospective unfairness

Question 20

Role of Supervisor and Duties?

Answer 20

Bond for assets;
Keep accounts and records;
Prepare progress reports;

Modified - creditors made aware of final form;
Supervised in accordance with terms;
Progress monitored;
Departures from terms identified and action taken;
Discretion - has been exercised;
Variation - whether any variation;
Enquiries have been dealt with properly;
Costs fully disclosed;
Increase in costs reported;
Close case promptly on termination

Question 21

IVA Death of the Debtor - 4 different scenarios

Answer 21

Interim Order in Place: Nominee must give notice to Court, court will then discharge interim order;
If IVA Already Report: Supervisor will continue to implement as per terms of proposal (check proposal)
IVA Not Reported: no one is bound to the IVA pursuant to deadline person order;
If dead person dies before creditor meeting held, creditor meeting should not be held;
If IVA Approved: windfall to estate through maturing life insurance policy?