{"id":10356,"date":"2011-09-08T12:02:26","date_gmt":"2011-09-08T11:02:26","guid":{"rendered":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/?p=10356"},"modified":"2019-07-29T16:39:08","modified_gmt":"2019-07-29T15:39:08","slug":"cost-of-an-iva","status":"publish","type":"post","link":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/cost-of-an-iva\/","title":{"rendered":"Cost of an IVA"},"content":{"rendered":"\n

A concern for people who find themselves insolvent and who are \nconsidering entering into an Individual Voluntary Arrangement (IVA) is \nwhether they can afford the costs and fees of the process. While this is\n an understandable concern, it should not really be a worry. Firms which\n provide insolvency services can reassure debtors on this matter and put\n debtors\u2019 fears to bed quickly.<\/p>\n\n\n\n\n\n\n\n

In the first instance it is really the creditors who pay the costs and fees of the IVA since the monies which the insolvent debtor contributes to the IVA goes towards repaying the debts incurred by the debtor with his or her creditors, in part or in a minority of cases in whole. The total amount contributed by the debtor over the life of the IVA is sometimes called the IVA \u2018pot\u2019 or the IVA fund\u2019<\/strong>. The costs and fees of administering the IVA are paid from this fund. <\/p>\n\n\n\n

\"Insolvency<\/figure><\/div>\n\n\n\n

In relation to the payment of fees, let us look at the role of the Insolvency Practitioner or the IP. The IP is called the Nominee up to the time when the IVA is approved (or rejected) at the Meeting of Creditors and, assuming the IVA is approved at the Meeting of Creditors, the IP is called the Supervisor. These are simply the terms used in the insolvency legislation and reflect the fact that the role of the IP changes somewhat between the time when the IVA proposals are offered to creditors and the time when the proposals are accepted. Under the law, the Nominee IP need not be the same person as the Supervisor IP although generally the same IP carries out both roles, provided creditors are happy with that arrangement.<\/p>\n\n\n\n

The Supervisor IP receives the contributions to the IVA from the debtor over the agreed term of the IVA, usually five years, and he or she is responsible for controlling the fund and making payments from it. These payments can be broadly broken down into three types: dividends to creditors; fees payable to the IP (Nominee & Supervisor) and disbursements such as the cost of registration of the IVA, insurance. Following a court case in the last year, there is no VAT payable on the IP fees for insolvency services.<\/p>\n\n\n\n

The amounts of the IP fees are not arbitrary. These are set when the \nMeeting of Creditors approves the IVA in the first place. At least 75% \nof the voting creditors would have had to agree to these fees. The usual\n practice is that the IVA proposal incorporates the details of the \nproposed IP fees and IVA costs and the creditors may amend these, by way\n of modifications to the IVA, if they think they are too high. Once the \nIVA is up and running, the IP may not charge more than the previously \nagreed amounts without the express permission of the creditors. Again at\n least 75% of creditors, as measured by the value of the debts, have to \nagree, even when the work of supervising the IVA turns out to be more \nextensive and costly than originally anticipated. Creditors are not slow\n to reduce proposed fees if they think they are excessive since the \nlower the fees the higher the amount of debt that will be repaid to them\n or to use the usual terminology, the higher the dividend to creditors.<\/p>\n\n\n\n

Thus, the insolvent debtor, who is proposing the IVA, should not be \nconcerned about his or her capacity to pay the IVA fees and costs since \nthey come from \u2018the IVA fund\u2019<\/strong> and do not constitute  an additional burden to be borne by the debtor.<\/p>\n\n\n\n

Firms which offer insolvency services such as Individual Voluntary \nArrangements (IVAs) or other financial solutions do so because it is a \nbusiness and because they have an expectation of making a profit from \nthe business. If they do not make a profit, then ultimately they go out \nof business. In the last few years, a number of IVA providers have \nceased to trade for this very reason. For some of the insolvency firms \nwhich had to cease trading, the main underlying cause was the decision \nof creditors to sharply reduce the fees that they were willing to pay to\n the providers of insolvency services. That decision was taken about \nthree years ago. One of the mechanisms used by creditors to achieve fee \nreductions was to appoint and authorize agents who would act and vote on\n their behalf and deal with the IVA proposals put forward by debtors and\n the insolvency firms who represented them. There are costs in utilizing\n the services of such agents but creditors felt that they would be self \nfinancing in that any money saved from reductions in IP fees would be \nmore than enough to cover the costs of agent services. In addition \ncreditors felt that there were efficiencies to be gained from the \neconomy of scale which using such agents would afford.<\/p>\n\n\n\n

The agents would build up expertise in due course and would represent\n a wide range of creditors. They could standardize the approach to IVA \nproposals in the interests of the creditors whom they represented. \nRather than a diverse bunch of creditors each seeking to apply their own\n often conflicting modifications to a debtor\u2019s proposal, they could \nengage the services of one or two agents. These agents would be able to \nstandardize modifications to debtors\u2019 IVA proposals and have the voting \nstrength to get them approved. Most modifications have the goal of \nincreasing the dividends to creditors by means of either increasing the \ndebtor\u2019s contributions to the IVA or by reducing the administration \ncosts of the IP or by a combination of both means. Using agents in this \nway had and still has a cartel like effect in so far as the interests of\n the creditors are merged and maximized and the interests of the debtor \nas represented by the IP are suppressed.<\/p>\n","protected":false},"excerpt":{"rendered":"

A concern for people who find themselves insolvent and who are considering entering into an IVA is whether they can afford the costs and fees of the process. <\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_seopress_robots_primary_cat":"none","_seopress_titles_title":"","_seopress_titles_desc":"","_seopress_robots_index":"","footnotes":""},"categories":[7],"tags":[],"class_list":["post-10356","post","type-post","status-publish","format-standard","hentry","category-iva-articles"],"_links":{"self":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/10356","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/comments?post=10356"}],"version-history":[{"count":5,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/10356\/revisions"}],"predecessor-version":[{"id":10387,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/10356\/revisions\/10387"}],"wp:attachment":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/media?parent=10356"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/categories?post=10356"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/tags?post=10356"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}