Insolvency Made Clear: A Guide for Debtors

Insolvency Law Made Clear – A Guide For Debtors
contingent creditor is where the debt depends on an external event, for example
if someone is being sued – the potential damages which the court might award
is a contingent debt. An IVA does not bind contingent creditors if the debt is
wholly prospective, i.e. too unlikely to arise.
Since an IVA binds future creditors, those creditors are likely to take steps to
minimise their exposure to the debtor. For example, an individual might be tied
into a gym membership for 24 months, and so, in theory, the gym is a future
creditor for 24 months’ worth of monthly fees. However, the gym is more likely
to end the contract and will participate in the IVA only to the extent of the historic
unpaid amount.
Typically IVAs are agreements where the creditors agree to receive a smaller
sum, and the debtor agrees to pay the creditors the money they are owed. An
IVA could include a commitment to sell specific property, or for a connected
party like a family member to pay money into the IVA, on the condition
that the creditors accept a smaller sum. An authorised professional (a qualified
Insolvency Practitioner) supervises the debtor’s implementation and compliance
with the terms of the IVA.
There are many private providers of IVAs. Some debt charities such as
StepChange will also organise an IVA. Insolvency Service statistics show that
the most popular provider of IVAs in 2019 was Creditfix, followed by Hanover
Insolvency. Providers advertise the ability to write off large proportions of debt.
IVA providers will be able to deliver on this promise – but only if the creditors
agree.
1.1.1 The IVA process
The IVA process typically goes as follows.
If a debtor is interested in an IVA, they will contact an Insolvency Practitioner,
who will likely become the ‘supervisor’ (monitor) of the IVA. The Insolvency
Practitioner will have a standard template for an IVA. They will establish what
funds the debtor has, what they are prepared to do as part of the IVA, and who
their creditors are. They will contact all the creditors informally and discuss a
potential proposal. If there appears to be an informal agreement, the supervisor
will hold a creditors’ meeting. A creditors’ meeting typically is not a physical
meeting of creditors, but a ‘virtual meeting’ where creditors will express their
opinions formally and the IP will count votes. If 75% of the creditors, measured
by the value of debts, agree, the proposal is passed.
From a debtor’s perspective, this means that the majority of creditors have to
agree with the proposal. It may appear unusual that creditors routinely agree
to accept a reduction (in slang, a ‘haircut’) on their debts. They are less likely to
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