An IVA is a statutory procedure for individuals or partnerships who are in financial difficulties and insolvent. The procedure is broadly the same for both individuals and partnerships.

The debtor must seek the services of an IP who he will nominate to be the supervisor of the voluntary arrangement. A proposal will be drafted in all but the most exceptional cases by the IP, and this will be put before a meeting of creditors. 

An Application to the Court will be made which will be supported by the draft proposal. At the Hearing of the Application, the Court may refuse the Application or more ordinarily will grant an Interim Order. The Interim Order will prevent creditors from commencing or continuing with any proceedings in relation to the debtor. This excludes common law self-help remedies such as by way of example only, distress.

A meeting of creditors is then called at which the creditors will have an opportunity to discuss and modify where they consider necessary the terms of the Proposal. They will then vote upon the Proposal. The modifications cannot of course be made without the consent of the debtor.

In order to pass a Proposal, 75% in value of the debtor's debts must vote in favour of a Proposal. If a Proposal is accepted, the nominee will usually become the supervisor of the Voluntary Arrangement.

It is extremely important that the debtor lists all of his creditors as only various creditors with notice of the meeting and entitled to vote are bound by the Proposal. The following example is the debtor conceals or accidentally omits a debt and even with a Voluntary Arrangement in place which has been accepted by the meeting of voters, that voter can still petition for the bankruptcy of the debtor.

The Voluntary Arrangement will typically make provision for the debtor's assets to be liquidated by the supervisor and the proceeds to be paid to the creditors. In addition, it is common for the debtor to make a contribution out of his income for the last part of the Voluntary Arrangement which can be anything up to five years. 

The Supervisor will supervise the Voluntary Arrangement and ensure that it is adequately adhered to by the debtor. If a debtor defaults in making payment into the Voluntary Arrangement then usually the Supervisor is contractually bound to petition for the bankruptcy of the debtor.

Filed under: BANKRUPTCY

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