How Can a Creditor Challenge Be Included in an IVA?
An Individual Voluntary Arrangement (IVA) is a formal insolvency procedure under the Insolvency Act 1986, whereby an insolvent individual, rather than a limited company, creates a legally binding contract with his unsecured creditors to settle those debts otherwise than in accordance with the original terms, as an alternative to bankruptcy. It usually involves a substantial write down of the debt and needs to be considered carefully by the creditor.
Creditors will receive only 14 days prior notice of the meeting to consider the proposed IVA. Once the creditors’ meeting has been held and the Proposals of the debtor agreed by the requisite majority of voting creditors, all creditors are legally bound by the terms of the IVA. It doesn’t matter whether or not they voted to reject the IVA or otherwise abstained from voting or simply failed to read the notice provided to them!
Should a creditor not have received notice and becomes aware of the existence of an IVA in which he is automatically legally bound, he has twenty eight days to challenge the decision of the meeting on the following grounds;
- The IVA unfairly prejudices the interests of the creditor
- There has been some material irregularity at or in relation to such a meeting.
The debtor commits an offence if a creditor who was not given notice can establish that his exclusion was a deliberate act for the purpose of obtaining approval of the IVA.
All creditors who received notice also have twenty eight days in which to challenge the decision of the meeting on these same grounds, commencing upon the approval of the IVA.
In practice, before instructing lawyers and making application to court it is usual to liaise with the Supervisor (the Insolvency Practitioner) – usually matters can be resolved.
If the issue cannot be resolved to the satisfaction of the creditor and there is a court hearing the most likely decision will be that a further creditors’ meeting is called. This will give the aggrieved creditor the opportunity to vote whether to accept or reject the Proposals together with all of the other creditors.
Creditors should be aware that an IVA often provides a better return to creditors than would otherwise be available in bankruptcy so if you or any of your clients receive notice of a proposed IVA and want a chat with an independent practitioner, please don’t hesitate to call us.
We are hosting a seminar on 1st October and the presentation by Tim Corfield will focus on a case study of an IVA with an aggrieved creditor. Please contact Janet Peacock on 01922 722205 or firstname.lastname@example.org if you would like to book your place.