For those of you who have not heard, there is currently some doubt about the validity of ‘joint’ or “interlocking” IVAs.  This could have a massive impact on the cost of a large number of arrangements and result in many debtors being prevented from proposing one at all.  We urge IPs and creditor representatives to take their own advice and make whatever representations they feel appropriate both to their regulators and the Insolvency Service.

The position until recently

Traditionally, joint or interlocking IVAs have been proposed where one or both debtors would not be able to propose an IVA without support from their spouse or partner.  This was usually either where they did not have enough disposable income on their own, or where so many of the debts were joint that if only one partner entered into an IVA, the other would be pursued by the creditors for any outstanding balance.

Our approach, which appeared to mirror that of the regulators, has been that joint IVAs were appropriate where there was a benefit to debtors and creditors from 'pooling' the debtors’ resources as long as the following safeguards were in place:

  1. Separate proposals are produced, each containing a clear statement that if one proposal is rejected then the other one is deemed rejected
  2. Separate meetings are held, but the first one is held open until the result of both meetings is known
  3. Separate minutes/reports are prepared for each meeting, including a statement explaining the impact of the result in the interlocking meeting.
  4. The arrangement terms must make it clear that the payment is based on 'pooled' resources such that it is one payment from the joint debtors and can be held in one estate bank account.
  5. The arrangement terms make it clear that in order for the arrangements to be approved, there must be sufficient votes in favour of each of the arrangements (not just one debtor's sole creditors)
  6. The arrangement terms must make it clear that once the arrangements are approved, the claims are also 'pooled' and dividends will be paid pro-rata across all creditors.  It should be clearly spelt out if any creditor is put at a disadvantage and the right to appeal on grounds that they are subject to unfair discrimination must be disclosed to them.
  7. The arrangement terms make it clear whether future variations will be approved on the original separate estate approach or by greater than 75% of the voting 'pooled' creditors (usually the latter).
  8. The Statements of Affairs are correctly set out for each debtor.
  9. The Estimated outcome statement compares each individual’s bankruptcy outcome with the result of the joint IVA.

We were aware that there were two possible difficulties with this approach.  First, the pooling of claims and dividends will usually affect the rights of parties in each estate differently.  As a result there has to be full disclosure of the impact of pooling resources, which is usually that if they were not pooled, then one of the arrangements would not be viable and the other debtor would not be prepared to propose an IVA.  Secondly, there is a technical difficulty in pooling the funds, in that it is a potential breach of SIP 11.  We think that this is overcome partly by the creditor approval, as they are effectively saying that they are happy for the funds to be treated as one estate; and partly by the fact that the IPA have disregarded much more significant breaches of SIP 11 in 'hub' accounts.  In addition, it appears likely that the new SIP 11 will be drafted to allow a degree of intermingling of estate funds, as long as they are still kept separate from office and third party funds.

Finally, we make it clear that you have to ensure that you obtain a bond for each estate.  The bond providers are happy with this and issue two separate bonds for the total of the pooled expected assets, but then only charge half premiums for each estate, recognising that they are actually bonding the one asset pool.

The new interpretation

We have recently heard that the Insolvency Service are of the opinion that joint IVAs are not permitted by legislation, and that they have legal advice in support of their view.  We understand that the Insolvency Service will be issuing guidance on this issue in due course, but that in the meantime the regulators have been instructed to advise the IPs they visit that joint IVAs are not appropriate.

We think that this would be a significant step backwards in the administration of personal insolvencies.  If IPs are forced to produce and administer separate IVAs then this will not only increase the costs but also ignore the reality of the debtors’ financial situation.  More worryingly, however, is that an enormous number of debtors would simply be denied the ability to use IVAs as a solution to their financial difficulties, either because they could not afford the payments alone, or because by doing so they would be forcing their partner or spouse into either financial purgatory or bankruptcy.

Suggested action

As usual, we have to start with our usual caveat; we assist IPs with compliance and have no control over the regulators or IPs.  Any suggestions we make are merely our opinions as informed and interested parties and should not be taken as legal advice.  Before you take any action you should seek such formal advice as you consider appropriate. 

Having said that, we think that IPs and creditors need to take prompt action. 

We think that IPs, creditors, their representatives and all those with an interest in debtors’ welfare and rehabilitation should write to the Insolvency Service and the regulators in a pre-emptive strike to influence the guidance that is being prepared.  This could result in a win-win situation, in that the Insolvency Service could issue guidance allowing joint IVAs and claim that that was what they had intended anyway.  At the same time, they could blame the controversy on us to save losing face and we would not mind because we would know that we had helped avert another unnecessary and inappropriate piece of regulatory intervention causing further problems in an already over-regulated sector.