INS10151 - Introduction to Voluntary Arrangements

Overview of a Voluntary Arrangement

A Voluntary Arrangement (VA) is a formal agreement between debtors and their creditors for payment of their debts.

Creditors exchange the legal right to pursue their debts for new rights under the arrangement. Mainly, they will receive a distribution of the arrangement’s funds.

Payments into this fund come from the sale or mortgage of certain of the debtor’s assets, the debtor’s future income and third party contributions.

Provided obligations under the arrangement are fully honoured, dividends paid to creditors are in full and final settlement of their debts.

An authorised IP must supervise the arrangement.

Further information is provided at INS3300 onwards.

VAs are part of the provisions of the insolvency legislation

• Insolvency Act 1986
• Insolvency Rules 1986
• Insolvent partnerships Order 1994
• Insolvency Act 2000
• Insolvency (Amendment) (No. 2) Rules 2002
• Insolvency Act 2000 (Commencement No. 3 and Transitional Provisions) Order 2002
• Enterprise Act 2002
• Insolvency Amendment Rules 2005.

VAs are a key part of the rescue culture (see INS10115) to which both Revenue departments, Inland Revenue and Customs and Excise, (see INS10105) are firmly committed.

Individual Voluntary Arrangement (IVA)

An IVA is approved by debtors and by more than 75% by value of their creditors at a general meeting. Under the Insolvency Act 1986 once the arrangement is approved 100% of creditors are bound by its terms.

Fast-track IVAs (FTVA)

To encourage greater use of individual voluntary arrangements (IVAs), the Enterprise Act 2002 made two changes to

• Enable ORs to act as nominees and supervisors for post-bankruptcy IVAs (and gives powers to extend the OR’s ability to act as nominee and supervisor to all cases).
• Introduce a new fast-track scheme for post-bankruptcy IVAs when the OR is the proposed nominee. The proposal will be agreed with the OR and filed with the Court.

No meeting of creditors will be called and is not possible to modify the proposal. The OR sends it to creditors on a ‘take it or leave it’ basis and creditors will either agree or disagree by correspondence.

If the IVA is approved, the OR notifies the Court and the Court can then annul the bankruptcy order.

Simple IVAs (SIVAs)

On completion of a consultation process The Insolvency Service is likely to introduce new SIVAs. They are likely to be available to debtors with debts ranging between £15k and £75k but unavailable to debtors with tax debts or who are actively trading.