The IVA (Individual Voluntary Arrangement) procedure, introduced with the Insolvency Act 1986, is a flexible procedure for insolvent individuals, and can be a useful alternative to bankruptcy.

A debtor may formulate proposals to his or her creditors, normally with the assistance of an Insolvency Practitioner who is appointed Nominee by the debtor. The debtor sets out his or her circumstances, income and expenditure, assets and liabilities, and the manner in which it is proposed to deal with creditors. Typically, partial payment of liabilities over a five year period is proposed.

If required the debtor can be protected from creditor enforcement action whilst proposals are being formulated.

The Nominee files in Court a report on the proposal, stating whether the proposals are considered to be realistic and in the interests of all parties concerned. The Nominee then sends the proposals to creditors and invites them to a Creditors Meeting.The creditors may accept or reject the proposals, or negotiate amendments with the debtor. The debtor must convince his creditors that the proposed outcome will be more favourable to them than the alternatives of seizing assets or making him bankrupt.

At the Creditors Meeting the creditors vote on whether to accept or reject the debtor's proposals, which may be modified by agreement. For the proposed Arrangement to be accepted, 75% of voting creditors by value must be in favour.

The Nominee is normally appointed Supervisor of the IVA, with duties from then on to ensure that the terms of the proposals are complied with, to distribute funds to creditors, and to report periodically on progress.

The Supervisor will declare the Arrangement a success when all of its terms have been complied with. In the event of failure, the Supervisor is often obliged to petition the Court for bankruptcy of the debtor subject to availability of cash with which to fund petitioning costs.

This information is written in general terms and cannot be fully comprehensive. Its application to particular circumstances will depend on specific facts. The views and suggestions set out are not intended to constitute professional advice or to be a substitute for specific advice.