IVA Court Action
In simple terms an Individual Voluntary Arrangement (IVA) is a formal legal document which, once agreed by both the debtor and creditors, forms a legal contract – breach of which can give rise to court action under the laws relating to bankruptcy.
The concept of an IVA was introduced under The Insolvency Act 1986. The Arrangement itself is a contract which replaces all of the debtors original finance agreements, credit cards and any other unsecured debts. Once the IVA is agreed by formal approval at an IVA Creditors Meeting a copy of the IVA is lodged with both the local County Court – nearest to the debtors place of residence – as well as the Inland Revenue.
The principal liabilities under an IVA for the debtor, with failure to adhere to potentially giving rise to court action, include :-
- All IVA payments are to be made on the due date.
- IVA monthly payments are not to be missed more than twice, not necessarily consecutively, or the IVA to be terminated by the IVA Supervisor.
- The debtor is to submit to an annual supervisory review of income and assets to determine if any further monies can be made available for creditors.
- The IVA Supervisor must be automatically informed of any material change in circumstances, especially if the debtor receives a financial windfall.
Failure to comply with the terms of the IVA generally means that the supervising Insolvency Practitioner must make a formal Non Compliance Report to creditors highlighting the debtors non compliance. The creditors can then recommend that the Supervisor take court action and that the debtor be bankrupted to aid the recovery of any further debtor assets. It is worth noting that in many IVA failure situations no bankruptcy court action is ever taken. If the debtors IVA fails for genuine reasons – loss of job; bereavement etc and he/she has no additional assets then creditors are unlikely to pursue a bankruptcy – particularly as the cost of a Creditors Petition for Bankruptcy is more than £1500 per case, very few will “throw good money after bad”.
In exceptional cases where the debtor has been found to have been “hiding” (not disclosing) assets to creditors or wilfully refusing to maintain the IVA, then both civil and criminal court action may be taken to aid recovery.
If you require a more in depth discussion on the contractual nature of an IVA agreement you have, or are contemplating taking out, please fill in our enquiry form and allow us to contact you at a time that is convenient.