An IVA is a legally binding contractual arrangement between a Debtor and their Creditors. In its basic format, an IVA provides a debtor with a formal platform through which to make an offer to their Creditors to accept payment of their debt at a reduced rate and/or over a larger period of time. Once this offer has been accepted, all unsecured creditors are bound by its terms.
This process is primarily used to protect certain assets, such as the residential home, although is often utilised by people with careers whereby the effects of bankruptcy would prove prohibitive in terms of current and future employment.
In order to propose an IVA, it is necessary to draft a proposal and convene a Meeting of Creditors to consider these proposals. For the Proposal to be accepted and implemented it is requirement that in excess of 75% of those creditors voting at the Meeting consent to the Proposal (with or without modifications).
Key Facts:
- An IVA is only likely to be adopted if the terms provide for a better distribution to creditors than would be the case in the event of the Debtors bankruptcy.
- Once an Arrangement has been accepted, even those that voted against it are bound by its terms.
- It may be possible to apply for a moratorium to protect the Debtor from creditor action whilst the Proposal for an IVA is being prepared and considered.
- The Proposal is designed to provide the best offer by the Debtor to their Creditors.
- An IVA is considered to have less stigma attached to it than bankruptcy.
- A Bankrupt cannot be a Director of a Company. Entering into an IVA instead of going bankrupt would allow a Debtor to continue to act as a Director.
- Certain professions do not allow members who have been, or are Bankrupt. Entering into an IVA rather than going bankrupt may allow a Debtor to continue in those specific professions.
- Failure to comply with the agreed terms could result in failure of the IVA, which in most cases (and dependent on the terms of the Arrangement) will lead to the bankruptcy of the Debtor.
- IVA’s are processed through the Courts, although most appointments will be made without its direct involvement.
How we can help:
- We will arrange a free initial consultation with the Debtor or Creditor to discuss the options available to them.
- Explain the process in details and answer any questions or concerns.
- From a Creditor perspective, can assist in debt collection and manage the process to their advantage.