Recent Court decisions about
legality
An Individual Voluntary Arrangement (“IVA”) is a legally binding
agreement between someone in debt and the people they owe
money to and is supervised by an insolvency practitioner. The
IVA typically lasts for five years during which time the person in
debt will pay a monthly contribution into the IVA and agree to
sell certain assets at a specified time and pay the proceeds into
the IVA, typically the matrimonial home, for the benefit of the
creditors.
In order to enter into an IVA the debtor
needs 75% of creditors (in value) to
approve it.
meeting the proposal has not been
agreed to, it is deemed rejected (Rule
5.24(5)). In this case the original meeting
was adjourned and reconvened at
11.30am 14 days thereafter. At 2.45pm
the meeting was suspended to allow
for discussions to take place regarding
modifications. At 8pm the meeting was
reconvened and the IVA purportedly
approved.
A recent decision in a case ‘Re Mark
Irwin Forstater [2015] BPIR 21’ confirmed
the position that a meeting of creditors
to consider the person in debt’s proposal
may only be adjourned for a maximum
period of 14 days (Insolvency Rule
5.24(3)) and that the chairman of the
meeting may, without an adjournment,
declare the meeting suspended for any
period up to one hour (Rule 5.24(4A)).
Further if after an adjournment of the
An objection was raised by a person who
had lent money who had petitioned for
the debtor’s bankruptcy which led to the
IVA being proposed. At the hearing of the
adjourned petition the court found that a
Bankruptcy Order could be made as the
rules were clear. The maximum period the
adjourned meeting could be suspended
was one hour, if the IVA was not
approved within that hour the proposal
was deemed to be rejected.
If the person owing money fails to comply
with the terms of the IVA they will be in
breach and if that breach is not or cannot
be remedied the IVA will fail, usually there
will be a provision that if the IVA fails the
person in debt will be made bankrupt.
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The moral to the story is to ensure that
creditors are engaged during any period
where there has been an adjournment
as the insolvency rules will be applied to
their letter.
In another case yet to be reported, the
High Court in Manchester had to look
at whether the trust created by an IVA
continued after the supervisor issued
a Certificate of Completion where the
individual in debt has complied with
their obligations. In this case the
supervisor received payments relating to
mis-sold PPI and applied to the court for
directions as to how these funds should
be paid out.
The supervisor argued that the trusts
created by the IVA carried on and that
the money was held on trust for the
lenders. The debtor argued that the trusts
had ceased, that the terms of the IVA
had been complied with and that he no
longer had a liability to the IVA creditors.
The Certificate of Completion confirmed
within it that there was no further liability
to the creditors in the IVA and the final
report confirmed that he had ceased to
act as supervisor.
The court found that the PPI payments
were due to the debtor, the court
took into account a number of factors
including that the closing documents
(the Certificate of Completion and the
final report) confirmed the release of the
supervisor and brought to an end the
debtor’s liability to the IVA creditors.
This case shows the importance for
insolvency practitioners, creditors and
those entering into an IVA to be clear as
to how the terms of the IVA will operate
in practice.
By Darren Stone