My IVA - What choice do my creditors have?
Creditors have three choices when they meet to decide on a debtor’s IVA. Their first choice is to accept the proposal as it stands. Their second choice is to accept the proposal subject to the debtor agreeing to modifications which any of the unsecured creditors may propose. The final choice they have is to reject the proposal. Only unsecured creditors are allowed to vote at the meeting of creditors.
All of a debtor’s creditors do not need to vote for a decision to be made. However, of those who do vote, more than 75% of the voting power of creditors - as measured by the size of their debts - must accept the proposal, with or without modifications, in order for the IVA to be approved. For example, suppose a debtor has £100,000 of unsecured debt and proposes an IVA. The debtor has a total of eight unsecured debts made up as follows:
Creditor A: £40,000
Creditor B: £26,000
Creditor C: £14,000
Creditor D: £8,000
Creditor E: £5,000
Creditor F: £4,000
Creditor G: £2,000
Creditor H: £1,000
Suppose that only creditor H chooses to vote and accepts the proposal, then that decision is binding on all other creditors – that is 100% acceptance.
Suppose creditor B votes to reject the proposal with all other creditors voting to accept it, then the proposal is rejected as only 74% voted to accept it and the decision is binding on all creditors.
Suppose creditor E votes to accept the proposal and creditor H votes to reject it and none of the other creditors cast a vote, then the proposal is accepted - that is over 83% acceptance - and the decision is binding on all creditors.
Finally suppose creditors A & B vote to accept the proposal and all other creditors vote to reject it, then the proposal is accepted - that is 76% acceptance – and the decision is binding on all creditors.
Obviously there are many other possible voting scenarios in this example case. Everything depends on whether creditors choose to vote, on what their relative voting strengths are and of course on how they choose to vote. The nominee is responsible for summoning creditors to the meeting of creditors but even a creditor who has not received notice of the meeting is still bound by its decision. However a creditor who did not receive notice of the meeting may challenge the decision of the meeting on one of two grounds: that the approved IVA unfairly prejudices their interests or that there has been some material irregularity at or in relation to the meeting of creditors. There are time limits for a creditor to make such a challenge.
Creditors frequently propose modifications to a debtor’s IVA proposal. Many such modifications are intended to increase the estimated dividend to creditors. They may for example require the debtor to make higher monthly payments than originally proposed or to contribute a lump sum from for example the release of equity from re-mortgaging a property. The debtor may choose to accept such modifications, to suggest alternatives to the modifications or to refuse to agree to some or all of them, usually giving reasons why they are not acceptable. The chairman of the meeting will discuss the debtor’s response to modifications with the creditors and creditors may choose to alter or even remove the modifications, where the debtor has made a compelling case. However, if the debtor refuses point blank to accept the modifications, then the proposal is usually rejected.
The final choice open to creditors is straightforward rejection of the debtor’s proposal. Why creditors should so choose is not within the scope of this article but given that they did provide credit to the debtor, it is their prerogative under the insolvency legislation to reject what they may believe to be an inadequate attempt at repayment, provided that their decision is made in compliance with the principles of treating their customer fairly.
To explore this option further please contact us at National Debt Relief.
About National Debt Relief
National Debt Relief belong to a firm of leading chartered accountants who are one of the largest insolvency practices in the UK. We offer a complete portfolio of personal insolvency services in relation to IVA, Debt Management Plan and Bankruptcy. All our advice is free. If you decide that you wish to pursue the IVA option, we will still provide advice on all of the other options and if we consider an alternative option to be more appropriate to your case and circumstances, we will tell you this. All of our approved IVA’s are administered by Licensed Insolvency Practitioners. We charge no fees and receive no income until your IVA is accepted by your creditors and then our fees come out of your agreed payments to your creditors. If your creditors do not accept your IVA, we receive no fees whatsoever.
Call us on 0800 043 5135 or 028 71 376854 or email enquiries@nationaldebtrelief.co.uk
