Credit Management June 2019

NEWS SPECIAL
Onward and upward
Are rising numbers of IVAs a
cause for celebration?
AUTHOR – David Kerr FCICM
David Kerr FCICM
THE latest insolvency statistics
produced by The Insolvency
Service could be read one
of two ways, depending
on whether you applaud a
voluntary, market-driven
solution to the UK’s personal debt problem,
or see it as a regulatory nightmare with the
potential to threaten the very existence
of the present model of self-regulation
governing the insolvency profession.
If that sounds too grand a statement,
then consider this – against a background
of GDP growth, the number of Individual
Voluntary Arrangements (IVAs) is at its
highest since the procedure was first
introduced into English law in 1986/7. True,
the first quarter of the year saw a slight
drop on the peak at the end of 2018, but the
overall trend is upward and has been for
the last four years.
The Government statistics do not quite
tell the full picture, because they don’t
register debt management plans and other
informal solutions, but of the 31,000 people
who sought a formal debt solution in the
quarter to 31 March 2019, two thirds (20,000)
entered into an IVA. Of the remainder, just
4,000 went into bankruptcy (mainly on their
own petitions/applications), with 7,000
instead seeking a Debt Relief Order (DRO)
(available to those with no or low assets and
under £20,000 of debts).
CREDITOR HAT
From a creditor perspective this could
be considered relatively good news. The
prospects of recovery from those in DROs
is nil, and from those in bankruptcy
negligible. So at least the majority are
subjecting themselves to a process which is
designed to return some value to creditors,
albeit over five years typically. And the Q1
stats show an increase of 23 percent on the
IVA take-up, compared to the same quarter
last year.
So where is the problem? Well, the IVA
market is led by a handful of entrepreneurial
operators whose business models depend
on high volumes of low-maintenance cases
derived from leads generated by sometimes
unregulated finders. Some complain that
they push IVAs at the expense of more
suitable (for the debtor) alternatives, and
that the regulated insolvency practitioners
at the helm of these cases are unable to
effectively control their cases because of
the sheer volumes and in some instances
their lack of influence in the enterprises
running the caseload.
Whether those criticisms are fully
justified or not is almost secondary to
the fact that the rationalisation of the
IVA market is such that there is now a
concentration of this work in a handful of
‘firms’, and their influence over the sector is
being questioned. A failure of one of these
corporate entities, through commercial or
regulatory pressures or a combination of
the two, would cause a real headache for
regulators at a time when The Insolvency
Service is reviewing the effectiveness of the
regulation regime run by the professional
bodies.
GOOD NEWS
So, for the moment, creditors might quietly
rejoice at news that:
i) for one reason or another most
insolvent individuals seem content to
make monthly contributions towards their
liabilities;
ii) the banks are actively exercising their
rights to vote and supress fees and other
costs (with more success on the former
than the latter); and
iii) regulators are looking for new ways
to keep pace with innovations in the sector,
so as to make sure those operating in it can
be held to account when things go wrong.
But the returns that IVAs can produce
for creditors might be under threat; the
number of cases is increasing, but the
present balance between low cost for
creditors and financial sustainability for
operators is a fragile one. Fixed fees may
be part of the solution, though as one
operator commented, it’s ‘‘still developing
and therefore not yet possible to say how
successful it will be at stabilising the volume
market providers.’’ The balance may have
to be reassessed if we want to see viable
providers working to the highest standards
and continuing to produce insolvency
outcomes that serve both debtors and
creditors.
David Kerr is an insolvency practitioner
with extensive regulatory experience
and a member of the CICM Technical
Committee.
The Recognised Standard / www.cicm.com / June 2019 / PAGE 14