On 26 June 2022 the IVA Standing Committee issued new guidance to insolvency practitioners to support the Straightforward Consumer IVA protocol for existing and new protocol compliant individual voluntary arrangements. The guidance was produced in light of the cost of living crisis.
The new guidance was published to insolvency practitioners in the Insolvency Service’s snappily titled “Dear IP No. 147”.
I was asked for comment for a newspaper piece talking about how the cost of living crisis risked tipping a number of struggling debtors past the point of effective economic rehabilitation. In truth, I only rarely advise on IVAs and of course never directly in the context of a straightforward consumer IVA, unless perhaps in the past these have imported an odd trust element or a jointly owned property. I am more at home day to day discussing the finer points of claims against directors and/or the latest restructuring plan to receive judicial support, but I have always enjoyed personal insolvency work as well and I do consider this an important issue since it is in none of our interests, nor that of the insolvency profession as a whole, that a perfect storm of economic factors (which of course affects business just as starkly) should fracture what is a useful and much used tool in the IP kit.
Legal perspective of the IVA protocol guidance
From a legal perspective, I assess the guidance to be broadly helpful to debtors and creditors and also to the IPs who act as nominees and supervisors of the IVAs, if nothing else because it promotes consistency of response to the cost of living crisis and an objective framework by which the fairness of any required adjustments to IVA proposals can be judged. I have no doubt that the policy aim behind the guidance (whether or not this is expressly stated) is at least in part to seek to ensure that the cost of living crisis does not result automatically in a swathe of new debt relief orders and/or bankruptcies as a result of the failure of IVA debtors to keep up with their minimum monthly contributions, but it is also quite a practical document.
For me the core aspect of the guidance is that it underlines that no adjustment is going to happen automatically: Debtors who seek to reduce their monthly contributions by a factor of up to 50% (or £75, whichever is the higher) by reference to a reduction in their household disposable income not anticipated at the time of first proposing the IVA will have to provide prescribed evidence to their Supervisor in order to trigger the Supervisor taking steps to secure agreement from creditors to reduced contributions.
Helpfully the guidance suggests that supervisors could if practicable give one composite notice to recurring creditors dealing with many IVAs together, and that they use the so called ‘deemed consent procedure’ to secure agreement. How helpful this will be in practice, though, is less certain because the level of investigation and/or interrogation which the Committee is effectively requiring the Supervisors to undertake – in some instances including for example examining the debtors’ individual meter readings and home meter setups – is quite extensive. It seems to me inevitable that whilst IVAs are designed to be reasonably flexible in the face of a debtor’s individual financial circumstances, such variations to existing and contemplated IVAs will lead to substantial increased cost for the IVA providers (who will naturally say they work off slim margins on individual cases) and since adjustments to Supervisors’ fee arrangements cannot typically be approved by the deemed consent procedure, I currently foresee quite a backlog in processing the paperwork on all these cases.
As I say, we do not advise IVA debtors on their individual debt options, but it seems to me that rather than being swept up with the prospect of additional costs, time being added to the end of their IVA, and/or uncertainty of outcome, many debtors who are already feeling the squeeze may more naturally be inclined to prioritise their current IVA contributions (which of course raises concerns for the well-being of the debtor and their families) and/or just get behind informally and hope to catch up in due course. There are no easy solutions to these issues, just as there is no easy solution to the cost of living crisis, but I do not foresee IVA supervisors or the majority of creditors being in a rush to see existing IVAs fail.
My hope is that with appropriate help from Government (particularly in terms of addressing energy prices and the speed and frequency of price hikes) and sensible attitudes from other stakeholders, most IVAs will weather the storm without the need for wholesale adjustment. In the meantime, I congratulate the Committee for its laudable attempt to get ahead of the curve and to deter any premature and/or inconsistent treatment of IVAs. IVAs have been much maligned by a number of commentators, and the personal insolvency regime is definitely ripe for review, but for the moment they remain an important buffer between debtors and a minority of more aggressive creditors. A fair balance must be struck and this sort of guidance is an important part also of setting the scales in a way which is not only fair, but which can be seen to be fair.
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