The short is no, but why not?

In the majority of cases where an IVA is proposed to creditors by a debtor, it is more likely than not that the IVA will produce a better result for them when compared to bankruptcy.

IVAs are intended to be an option for a debtor to propose to his or her creditors, but creditors should not be obliged to accede to the proposal. They should not have their existing freedoms further restricted and consequently legislation currently does not obligate creditors to approve an IVA.

In seeking to strike a balance between what the majority of creditors wish for and what the legislation imposes on creditors, an IVA needs 75% of those creditors who vote to approve it. If any creditor objects to the proposal but cannot carry more than 25% of the vote then currently they are arguably disenfranchised.

Given it is creditors who are suffering loss under their contracts and not the debtor, should they not be able to decide whether or not they want to be bound by an IVA?

Why should a creditor who has entered into an independent agreement with a debtor be compelled to entertain a permanent write off of any portion of their debt to which they are entitled by virtue of the decisions of other creditors who have entered into different independent agreements. Well the answer to the question is because the Insolvency Act 1986 provides for this, but it is fair? Well what is fair is a matter of opinion, it is not a matter of fact.

My concern is that it is likely that there are a not insignificant number of debtors out there who submit proposals to creditors in circumstances where full and frank disclosure may not have been made but where nobody other than the debtor is aware of this position. In addition there maybe instances of asset transfers to defeat creditors, whereby property of the debtor prior to submission of an IVA proposal is transferred to be held on trust for the debtor unknown and not disclosed to creditors. This is capable of creating a misleading picture for creditors and can result in reduction of their entitlements.

I believe that the investigations conducted under an IVA regime given the same is heavily dependent upon the debtor’s disclosure of their affairs can result in some creditors getting a raw deal. Remember it is at the end of the day the “debtor’s” proposal.

I believe that there will be instances in which creditors would actually have enjoyed a better result if the debtor had been made bankrupt and this is because the investigatory powers available to a Trustee in Bankruptcy, usually will be far greater than those available to the Supervisor of an IVA.

It seems to me that given an IVA procedure could be said to be beneficial in terms of the freedoms afforded to a debtor over and above their creditors, that consequently we should be wary of circumstances where the statutory freedoms that creditors currently enjoy are further restricted and compel them to approve IVAs.

This entry was posted on Friday, February 12th, 2010 at 3:40 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.