Individual and Company Voluntary Arrangements
Voluntary arrangements in essence are an agreement between the debtor / company to pay all or part of the debt over a period of time. The arrangement should give at least a good a return than in bankruptcy or a winding up.
A proposal is drafted and sent to the creditors for their consideration, and then a meeting is held to allow the creditors to vote for the acceptance or the rejection of the proposal.
In order for the arrangement to be accepted, 75% of the creditors who vote in value terms need to agree.
Proposals are usually take the form of a lump sum payment, or contributions over a period of time, typically 5 years.
When a voluntary arrangement is being considered, the protection of the court from duress creditors can be obtained. It is an interim order of individuals and a moratorium for companies. The court will provide protection for sufficient time for the proposals to be considered by creditors.
If an arrangement is accepted, any creditor bound by it can no longer take legal action to recover the debt.
Voluntary arrangements do not have the same disabilities as bankruptcy. Consumers view the arrangements as a way of writing off up to 75% of their debt. This percentage is reducing, as the banks are seeking greater dividends.
Arrangements are popular for both trading individuals and companies. They can often provide sufficient breathing space for the company to move forward and return to profitability.
The costs of voluntary arrangements are usually significantly less than those in bankruptcy and liquidations.
Consumer IVA’s was very heavily marketed and a number of volume providers emerged. In recent years, there is a high level of failure as many individuals signed up to unrealistic arrangements. Banks and credit card companies are requiring individuals to pay all of their surplus income into the arrangements. They even exclude payments being made to family members for birthday and Christmas gifts.
The obvious advantage to the arrangement is to avoid consequences of personal bankruptcy. The arrangements have benefited professionals such as accountants, solicitors and bankers in retaining their jobs and professional qualifications.