Individual Voluntary Arrangement (IVA) Explained: UK Debt Solution Guide

Directors often find themselves under immense pressure when personal and corporate finances become intertwined. An Individual Voluntary Arrangement (IVA) can offer a structured, legally binding way to deal with personal debt, allowing you to continue in your role while addressing financial obligations in an organised manner. 

Typically running for around five years, an IVA can provide an alternative to bankruptcy, but it is not suitable for everyone. Understanding its scope, limitations, risks, and process is essential before deciding whether it is the right solution.

At a Glance

• An Individual Voluntary Arrangement (IVA) is a formal, legally binding personal debt solution under the Insolvency Act 1986 for individuals who cannot pay their debts as they fall due.
• IVAs apply to personal debts only and do not deal directly with company liabilities, although personal guarantees can be included.
• An IVA typically lasts around five years, during which you make agreed payments or contribute assets for the benefit of creditors.
• Approval requires 75% by value of voting creditors to agree, after which the IVA becomes binding on all unsecured creditors included.
• IVAs are available in England, Wales, and Northern Ireland, but not in Scotland, where different personal insolvency procedures apply.
• Secured debts, such as mortgages, are not automatically included and remain payable unless the secured creditor agrees otherwise.
• Insolvency practitioner fees and expenses are paid from IVA contributions before funds are distributed to creditors.
• An IVA does not automatically prevent you from acting as a company director, unlike bankruptcy, which imposes legal restrictions without court permission.
• Failure to comply with IVA terms can lead to the arrangement failing, allowing creditors to resume enforcement action and potentially leading to bankruptcy.
• Alternative solutions, such as bankruptcy, Debt Relief Orders, Breathing Space, or Debt Management Plans, may be more appropriate depending on income, debt level, and assets.

What an IVA Is and Why Directors Should Consider It

An Individual Voluntary Arrangement (IVA) is a formal personal debt solution under Part VIII of the Insolvency Act 1986. It is designed for individuals who are insolvent and unable to pay their debts as they fall due. Under an IVA, you agree to make regular payments, or realise assets, for the benefit of your creditors. The arrangement is proposed and managed by an authorised insolvency practitioner (IP).

Unlike a Company Voluntary Arrangement (CVA), which applies to companies, an IVA deals only with personal debts. It cannot directly resolve company liabilities. However, directors may consider an IVA to manage personal exposure, such as personal credit cards or liabilities arising from personal guarantees, while continuing to run their business.

Directors facing personal financial difficulties may opt for an IVA as an alternative to bankruptcy. Bankruptcy places legal restrictions on acting as a company director unless court permission is granted. An IVA does not automatically impose those restrictions. Once an IVA is approved, it becomes legally binding on the unsecured creditors it covers, providing a structured framework for repayment and reducing the risk of uncoordinated creditor action in relation to those debts.

For example, a director with significant personal unsecured debt may be facing pressure from multiple creditors. By entering into an IVA, they may be able to make affordable monthly payments under a single agreement, allowing them to stabilise their personal finances and focus on their business responsibilities.

Who Qualifies and Key Requirements

An IVA is intended for individuals who are insolvent and have personal debts they cannot repay in full. There is no fixed statutory minimum debt level set in legislation, but IVAs are generally considered suitable where debts are more than minimal and where a meaningful contribution can be made to creditors over time.

Only unsecured debts are dealt with in an IVA. Secured debts, such as mortgages or hire purchase agreements, are not automatically included and remain payable unless the secured creditor agrees otherwise.

IVAs are available in England, Wales, and Northern Ireland. They are not available in Scotland, where personal insolvency is dealt with through different procedures, such as protected trust deeds.

Personal guarantees given for business borrowing are personal liabilities and can be included in an IVA. This is often relevant for directors who have guaranteed company loans or overdrafts.

Common suitability considerations include:

• Insolvency: You are unable to pay your debts as they fall due.
• Debt type: The arrangement covers unsecured personal debts.
• Ability to contribute: You can make regular payments or offer assets for creditors.
• Jurisdiction: You live in England, Wales, or Northern Ireland.

An authorised insolvency practitioner will assess whether an IVA is appropriate based on your full financial circumstances.

Risks, Consequences, and Common Pitfalls

An IVA is legally binding, and failure to comply with its terms can have serious consequences. If you miss payments or otherwise breach the agreement and the issue cannot be resolved, the IVA may fail. In that situation, creditors may regain the ability to pursue enforcement action, and bankruptcy may become a possibility.

IVA payments include the insolvency practitioner’s fees and expenses, which are taken from the money paid into the arrangement before distributions are made to creditors. This affects how much creditors ultimately receive and must be clearly understood from the outset.

An IVA is recorded on public insolvency registers for a period of time and can affect access to credit during and after the arrangement. This impact should be considered carefully before proceeding.

Common issues that can undermine an IVA include:

• Failing to disclose all debts, assets, or sources of income
• Underestimating reasonable living expenses, leading to unaffordable payments
• Taking further credit without permission where the IVA terms restrict this

Debts are only written off if the IVA is completed successfully. Entering into an IVA without a realistic assessment of affordability increases the risk of failure.

The Step-by-Step Process

Entering into an Individual Voluntary Arrangement involves several formal stages.

Initial Assessment with an Insolvency Practitioner (Nominee)

You begin by consulting an authorised insolvency practitioner, who acts as the nominee. They review your income, expenditure, assets, and liabilities to assess insolvency and affordability. If appropriate, they help prepare an IVA proposal.

Submitting the Proposal to Creditors

The proposal sets out your financial position, the contributions or assets being offered, and how the IVA will operate. It is sent to creditors so they can decide whether to accept it. If the proposal is approved, the court is notified of the decision.

Creditors’ Voting

Creditors vote on the proposal. Approval requires at least 75% by value of the creditors who vote to agree. If approved, the IVA becomes binding on all unsecured creditors included in the arrangement, including those who voted against it or did not vote.

Implementing the Arrangement

Once approved, the insolvency practitioner becomes the supervisor. The supervisor collects payments, distributes funds to creditors in line with the IVA terms, and monitors compliance.

Annual Reviews and Completion

Your financial position is reviewed periodically, often annually, to ensure payments remain appropriate. If all obligations under the IVA are met, the supervisor issues a certificate of completion and remaining unsecured debts covered by the IVA are discharged.

Checklist for Tracking Your IVA Journey:

• Engage an authorised insolvency practitioner
• Provide full and accurate financial information
• Ensure the proposal reflects realistic affordability
• Understand the voting outcome and binding effect
• Maintain agreed payments
• Cooperate with reviews and information requests

Fees, Costs, and Payment Structure

IVAs involve professional fees, which must be approved by creditors as part of the arrangement. These typically include:

• a nominee’s fee for preparing the proposal
• a supervisor’s fee for managing the IVA
• necessary expenses incurred in administering the arrangement

These costs are paid from the money contributed to the IVA before funds are distributed to creditors. If contributions change, this can affect the overall return to creditors and may require formal agreement.

Clear budgeting and prompt communication with the supervisor if circumstances change are essential to maintaining compliance with the IVA.

Comparing IVAs with Other Debt Solutions

An IVA is one of several personal debt solutions available in the UK. Depending on your situation, alternatives may be more suitable.

• IVA: A formal, legally binding agreement, commonly lasting around five years. It allows continued control of assets and does not automatically restrict acting as a director, but requires sustained affordability.
• Bankruptcy: Usually results in discharge after 12 months but can involve loss of assets and legal restrictions on acting as a director unless court permission is granted.
• Debt Relief Order (DRO): A low-cost option for people with limited income, minimal assets, and debts within the qualifying limit. It is not suitable for higher-income individuals or those with significant assets.
• Breathing Space: A temporary moratorium that pauses interest and enforcement while debt advice is sought. You cannot start a standard Breathing Space if you already have an IVA in place.
• Debt Management Plan (DMP): An informal arrangement without legal protection, where creditors may still take enforcement action.

Choosing the right option requires professional advice tailored to your circumstances.

Correcting Common Misunderstandings

Directors are not prevented from entering into an IVA. An IVA deals with personal debts only and does not resolve company liabilities unless those liabilities are personal, such as guarantees.

Secured debts are not automatically included in an IVA. Secured creditors retain their rights unless they agree otherwise.

IVAs are not available across the entire UK. Different personal insolvency procedures apply in Scotland.

Failing to comply with IVA terms does not remove personal liability. If the arrangement fails, creditors may resume enforcement action for outstanding debts.

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