24. Voluntary arrangements
Voluntary arrangements
This section contains content published after 1 January 2020. Articles published before this date can be found on the National Archives here
The individual voluntary arrangement (IVA) protocol 2021 has been published on behalf of the IVA standing committee on 29th April 2021 and can be found here.
This protocol can be used for all new consumer IVAs immediately, however there is a three-month transition period (until 1st August 2021) during which the 2016 protocol can also be used for new arrangements. After 1st August 2021 no new 2016 protocol IVAs should be presented to creditors for approval. We hope this will allow time for practitioners to make relevant changes to their IT systems and any internal procedures.
The 2021 protocol aims to be more user friendly for insolvency practitioners, consumers and creditors and includes 8 annex documents. Its aim is to ensure that consumers have as much information as possible on their chosen debt solution. It also makes clear what consumers and creditors can expect from the nominee and supervisor, and the consumer’s obligations under the arrangement.
Key updates include:
- Changes to the way in which equity in a consumer’s home is dealt with, including the introduction of a 72-month IVA for those who have equity over £5000 and are unlikely to be able to re mortgage at the end of their IVA term
- Highlighting the need to consider vulnerability of consumers and providing further guidance on what practitioners should do if vulnerabilities are identified
- Requiring the insolvency practitioner to record more information in respect of any lead who has referred the case to them
- An obligation that the practitioner ensures that the consumer has received appropriate debt advice from either an FCA regulated firm or an individual working under the exclusion (FSMA 2000) and, as part of that, considers the sustainability of that IVA
- Several practical annex documents which including an easy guide to the regulatory framework for consumers (annex 2), a sample letter for use in full or part by practitioner when the proposal is put together (Annex 3) and a more detailed and accurate estimated outcomes template to compare an IVA with Bankruptcy.
Any enquiries regarding this article should be directed to: [email protected]
The revised 2021 IVA protocol was published on 28th April 2021 and will come into effect on 1st August 2021.
Some minor amendments have been made to clarify the provisions on equity to reflect the position of the IVA standing committee.
Most notably, if you have a consumer who has equity above the de minimis value and may be able to release this at the end of the IVA term (‘option 3’), a 72-month IVA will be proposed and reduced if that release of equity is successful to 60 months.
This provides for more certainty for both the consumer and creditors.
The new 2021 provisions seek to provide clarity to both the consumer and creditors on day one of the IVA, as the standing committee had found that some IVAs were being proposed with equity included that would never have been released in practice.
If a consumer has equity above the de minimis amount they will either fall into option 2 or 3. Option 2 IVAs are those where a consumer has no real prospect of releasing equity at the end of the arrangement. This does not mean that, if a sale of the property is actioned at the customer’s instigation during the term of the IVA, that equity would not be expected to be introduced into the arrangement.
When deciding which option is most appropriate for a consumer, the IP must have regard for the ability for the consumer to obtain a re-mortgage at around month 54 of the arrangement, not at the date the IVA is proposed.
Annex 5 seeks to assist with potential criteria which could influence the ability for equity release, although it is not an exhaustive list.
No single factor will determine if the consumer can have an option 3 IVA and the IP must consider the age of the consumer, disposable income (DI) and the clause that only allows for 50% of that DI to be used for payment of a re-mortgage (i.e. £100 a month IVA contribution would see a £50 contribution which is unlikely to be substantial enough to secure the borrowing needed).
It is essential (in those circumstances) that the IP makes it clear to the consumer if they will be expected to release equity and that successfully doing so will reduce their IVA term to 60 months.
The committee would also like to draw your attention to the redundancy clause in the protocol which has been updated to make it easier to interpret and understand.
Additionally, it should be noted that the front cover sheet which is sent to creditors has been included at Annex 5. The only change to that sheet is the inclusion of three boxes which set out the possible approaches to equity. The committee ask that IPs please ensure this is completed so that creditors can mark the decision on their file and the committee can track use of the new provisions for future revisions of the protocol.
The 2016 protocol should not be used for any new IVAs proposed after 31st July 2021.
Any enquiries regarding this article should be directed towards email: [email protected]
The Insolvency Service has received a number of questions and feedback following the article on reviewing current IVAs (Dear IP 133, chapter 24, article 58). As a result, the guidance has been updated.
Insolvency practitioners will be aware that the criteria for consumers to enter a Debt Relief Order (DRO) changed on 28th June 2021.
Insolvency practitioners are reminded of their obligation to ensure that people in financial difficulty enter the right solution for their individual circumstances and that, once implemented, it remains appropriate.
Those who supervise IVAs should therefore consider the impact of the changes to the DRO criteria on their portfolio and if necessary, put in place a policy to review cases in order that they approach cases consistently.
When determining when to review cases, insolvency practitioners should look at consumers’ individual circumstances in order to decide whether this should happen immediately or at their annual review.
The expectation is that the IP will explain carefully and objectively the pros and cons of effecting a change from IVA to DRO, and that making any such change is the consumer’s choice. In each individual circumstance, the IP should make it clear to the consumer that:
- The consumer would have to fail their IVA (by stopping payment)
- Those circumstances have risks and will not be suitable for everyone
- The consumer would not be protected in the period leading up to a DRO being put in place.
In each case the IP should maintain a contemporaneous note of any considerations made, and if a consumer wishes to take up a DRO, they should be directed to FCA regulated debt advice.
If insolvency practitioners are unsure how they should approach particular cases, they should approach their RPB for advice.
General enquiries may be directed to [email protected]
Introduction
This guidance has been drafted with the agreement of the signatories of IVA Standing Committee. From 26 June 2022, the Straightforward Consumer IVA Protocol should be read in conjunction with this guidance. The guidance does not an seek to amend the existing IVA proposal and is a statement of an agreed position.
The IVA Standing Committee recognises that the current pressure on individual finances may have an impact on a consumer’s ability to be able to make monthly contributions into their IVA arrangement at the same level as previously agreed.
The Committee is mindful that current IVAs may have been drafted before the nominee had knowledge of the current financial climate, rising inflation, and increases to energy and other household outgoings.
The purpose of the approach set out in this guidance is to support the IVA Protocol in keeping as many consumers as possible in their arrangements and paying a contribution to their creditors, in order that they can maintain and complete their IVA. This guidance will aid an efficient process for supervisors to propose multiple variations to arrangements in order to achieve that aim.
Supervisors of IVAs not covered by the IVA Protocol may also adopt the provisions of this amendment with the consent of consumers and creditors.
Current position and how the Committee will track this guidance
The IVA Standing Committee, working with RPBs, intends to track use of this guidance through monthly returns by those IVA providers who are defined as volume providers (according to the guidance initially issued to RPBs by the Insolvency Service on 9 April 2014 and updated on 2 October 2019) and tracking further changes in the wider economy.
The IVA Standing Committee, working with the RPBs, will request a specified data set from those IPs who are subject to monitoring under the volume IVA guidance. This may change periodically and will be expected monthly.
The IVA Standing Committee will review the position every three months at a minimum.
Process to make changes to an IVA
If a review of income and expenditure is undertaken by the supervisor at the request of the consumer and a reduction in payment is required, this guidance should be applied.
If the consumer’s annual income and expenditure review is due within three months, a further review is not necessary.
The supervisor should, where possible, make use of the deemed consent procedure to agree any reductions to the IVA contributions if they fall within the agreed parameters below.
The Recognised Professional Bodies (RPBs) will continue to review the decision procedures applied and changes proposed by supervisors as part of ongoing monitoring.
Consumer’s obligations
The consumer will have an obligation to provide evidence to support a change to their contributions. This could include but is not limited to providing the supervisor with: • Payslips • Statement of benefits • Utility bills (energy, water, broadband etc.) • Lease agreements • Bank statements
A proposed change to the terms of the IVA including the monthly contribution will only be considered by a supervisor with supporting evidence.
Agreed parameters
All amendments to a consumer’s contributions into their IVA should be put to creditors through the deemed consent procedure, where appropriate. If supervisors wish to seek approval for fees in relation to a variation, this guidance does not preclude them from doing so. However, they will need to seek this approval from creditor/s through a decision-making procedure as set out in the legislation.
Any fees in relation to the variation process should follow the principles of SIP9.
It has been agreed that reductions will generally be accepted by creditors of up to 50% of current contributions, or £75, whichever is higher.
Any change to contributions should be considered in conjunction with whether an extension of up to, but not exceeding, 12 months. Proposals to this effect should be set out clearly when a change is proposed to creditors and any such extension, having regard for previous forbearance measures, should not extend the IVA to more than 7 years.
If a 50% reduction represents a significant loss of contributions which are unable to be remedied through an extension, the supervisor should gather the relevant evidence to support their decision to put this to creditors.
If the supervisor is of the view that such an IVA is sustainable, an explanation should be provided to creditors and a full variation should be proposed.
The Committee would have reservations about the sustainability of any arrangement where the contribution were to fall below £50, and the supervisor should consider whether a settlement of the IVA based on funds paid to date should be proposed (see below), and if not, the supervisor should consider referring the consumer for advice from an FCA regulated debt adviser on potential alternative debt solutions.
As there are likely to be a large volume of consumers requiring an adjustment due to the current economic pressures, supervisors should work with creditors and their representatives to process deemed consent paperwork efficiently, which may involve multiple consumers’ procedures being notified under one notice. It should, however, be clear what the proposed changes are to each IVA including:
• unique IVA information for the creditors to easily identify the case; • the proposed reduction to the consumer’s contribution; • the new contribution amount; • an increase in term, if applicable; and • the next review date if not at the next annual review of income and expenditure.
The Customer Journey
It is recognised that not all consumers will be suitable for another debt solution such as a Debt Relief Order (DRO) due to the existence of other assets, in particular motor vehicles, the fact that their financial circumstances may be temporary, or indications/evidence that the consumer’s situation is likely to improve within 12 months.
However, the supervisor should be mindful that if the consumer would likely be eligible for a DRO or a bankruptcy where they have no significant assets, a settlement based on funds paid to date may make for a better customer journey (see further detail below).
Funds paid to date
As is currently the position, the supervisor may decide in some cases that proposing an early settlement of the IVA based on funds paid to date is a more pragmatic approach to put to creditors.
In these circumstances the supervisor should consider:
• The consumer’s ability to maintain regular payments into the arrangement and if they fall below/or are likely to fall below £75.
• The consumer’s ability to resume increased payments after a period at a lower amount.
• Whether the consumer’s circumstances would successfully meet the criteria for a DRO.
• Whether any assets previously disclosed to creditors would impact the decision to put forward a settlement based on funds paid to date, even if that consumer is ineligible for a DRO because of that asset.
• The reasons for the consumer being unable to continue with the payments as proposed.
• Whether the consumer owns a property and the expected equity release determined in the proposal.
• The number of contributions made and the amount remaining to complete the IVA as per the proposal agreed by creditors.
• Whether another debt solution may see a greater return to creditors i.e. bankruptcy.
Those cases where, having regard for the above, the supervisor is of the view that a funds paid to date settlement is the most appropriate approach for the consumer, this should be proposed by formal variation, and the use of this guidance should be highlighted. A detailed explanation of the supervisor’s consideration of these points should be submitted to the creditors as it will assist in determining whether a final settlement of the IVA is the most appropriate course (e.g. if the consumer owns a property or other high value asset).
Other protocol provisions which may be affected
Supervisors should consider carefully the use of payment breaks for individuals using the allowed allocation within the protocol. When reviewing the reason for the request for a payment break, if this is related to increased cost of living it may be more appropriate to reduce payments rather than take a break, especially if the consumer’s situation is not likely to improve before that break is completed.
Enquiries regarding this article may be sent to: [email protected]
This guidance has been drafted and agreed by the IVA Standing Committee. From 26 June 2022, the Straightforward Consumer IVA Protocol should be read in conjunction with this additional guidance.
Insolvency Practitioners should be aware of the current financial climate, and that further increases in consumers’ outgoings are anticipated in the coming months, particularly in relation to energy cost as the energy price cap rose from 1 April 2022 and is expected to rise again on 1 October 2022. The potential impact this increased expenditure may have on the consumer’s ability to maintain the monthly contribution as set out in the IVA proposal should therefore be borne in mind.
The IVA Protocol and SIP 3.1 set an expectation that a consumer’s income and expenditure statement should be forward looking, ensuring that the proposal is sustainable for the duration of the IVA. The IVA Protocol and SIP 3.1 also provide that the nominee should carry out proportionate enquiries into, and verification of, the consumer’s income and expenditure.
The IVA Standing Committee recognises the importance, particularly in the current climate, for Insolvency Practitioners to ensure that they obtain sufficient evidence, as far as is possible, of the consumer’s current and known/likely future utility costs and other expected increases in household bills. Checking current payments made from a bank account would be unlikely to be sufficient in these circumstances. Additional checks that may be appropriate include, but are not limited to:
• Requesting up-to-date meter readings to ensure that the projected usage is not based upon estimated bills. • Check whether any smart meter installed is correctly sending automatic meter readings to suppliers. • Obtaining a recent utility bill and any correspondence from suppliers regarding changes to tariff and monthly payments. • Requesting details of any specific tariff (fixed price or standard variable) the consumer is currently on and when the tariff is due to end. • As prepayment customers are not able to spread payments evenly across the year, ensure that the increase in payments over the winter months are taken into account. • Considering the potential impact of the anticipated further energy price cap increase in October 2022, and any further anticipated increases thereafter.
The Insolvency Practitioner should ensure that a record of such requests, and details of any difficulties in the provision of this information by the consumer, is made.
It is acknowledged that the spending guidelines in the Standard Financial Statement (SFS) have recently been reviewed and updated to reflect the current rise in inflation. It is recognised, however, that any further rises may result in consumers’ essential expenditure exceeding the SFS spending guidelines. Insolvency Practitioners should therefore continue to ensure that any expenditure which may appear excessive is thoroughly explained in the proposal and supported by evidence.
In relation to each and every arrangement Insolvency Practitioners are reminded to consider the following in respect of the nominee function:
• Is the IVA achievable? • Does it strike a fair balance between the interests of the debtor and their creditors? And, • Is it an acceptable alternative to other insolvency solutions?
Insolvency Practitioners are also reminded of the need to document clearly within the proposal the reasons for the consumer choosing an IVA in circumstances where other solutions may be suitable, particularly where a consumer may be eligible for a DRO. In the event that a consumer’s disposable income is lower than £75 the Insolvency Practitioner should satisfy themselves that the IVA will remain a sustainable solution in the event of any further anticipated inflationary price increases, and this should be recorded in the proposal.
This guidance does not prevent the supervisor from utilising the existing provisions in the protocol in relation to payment breaks and reductions where required once the IVA has commenced. RPBs will review the utilisation of such provisions to satisfy themselves that the IVA as originally proposed was sustainable.
Enquiries regarding this article may be sent to: [email protected]
A revised SIP 3.1 (Individual Voluntary Arrangements) has been published by each of the Recognised Professional Bodies (RPBs), with an implementation date of 1st March 2023.
The SIP, agreed by the Joint Insolvency Committee, has made amendments to key areas of the SIP including but not restricted to requirements to:
The debtor
- Allow the debtor time to consider the proposal once it has been drafted,
- Ensure communications with the debtor are clear and understandable, especially in relation to the debtors’ obligations, and signpost debtors to sources of help if the Nominee believes they may not understand those,
- Set out clearly the length of the IVA, including any changes, because of equity provisions in the proposal which could extend the original term,
- Provide bespoke advice tailored to the individual debtors’ circumstances, avoiding the use of generic terms, explanations, advantages or disadvantages.
Work referrers
- Ensure that the Nominee has performed adequate due diligence on any work referrers and that advice provided is kept as part of the IVA records. Any shortcomings in that advice should be rectified by the Nominee,
- Document details of any direct or indirect payments made for referrals and how that represents value for work/services provided.
The Nominee
- Provide further detail on the Nominee’s assessment of the debtors’ financial circumstances and on what should form part of that assessment,
- Obtain third party consent to use an individual’s income if they are not subject of the IVA,
- Explain the role and powers of the Supervisor,
- Record details of discussions with key creditors, how debts will be valued for voting purposes and, where a creditor is to be treated differently, an explanation as to why.
In addition, the Insolvency Service are reissuing the guidance to RPBs on monitoring volume IVA providers. This guidance sets out clearly the expectations on RPB monitoring of volume providers.
The guidance has been developed in conjunction with the RPBs to reflect the developments in the volume IVA/PTD market over the past few years.
Main areas of focus
The guidance has been revised to focus on the RPBs’ monitoring activities in relation to the Insolvency Practitioners’ responsibilities for both their own marketing and advertising activities and those of any work referrers they engage, including their quality, accuracy and legality.
A similar focus has been given to the monitoring of Insolvency Practitioners’ responsibilities in relation to debt advice provided not only by themselves but also anyone referring work to them.
Furthermore, the guidance strengthens the RPBs’ monitoring toolkit by including a requirement for Insolvency Practitioners to retain debt advice call recordings and relevant written records for 6 years. This requirement extends to any work referrers the Insolvency Practitioner may engage.
Other areas of the guidance have also been revised to ensure that it remains in line with the updated SIP 3.1, advertising guidance and recent changes in the IVA/PTD landscape.
Any enquiries regarding this article should be directed to email: [email protected]