Important new voluntary agreement in place for over stretched debtors.
On 30th January 2008, the UK's top Debt Management/Individual Voluntary Arrangement providers, High Street lenders, The British Bankers' Association (BBA) and The Insolvency Service met to agree a voluntary code of conduct to implement the new 'Protocol SCIVA' (Standard Consumer Individual Voluntary Arrangement), available to over stretched debtors from the 1st February 2008.
Individual Voluntary Arrangements (IVAs) were established in 1986 as an alternative to bankruptcy. They are available to individuals who have assets and/or income (or both) to repay at least some of their debt, resulting in significantly higher returns to creditors than they would normally receive in a bankruptcy scenario.
The debtor puts a proposal to creditors through a licensed Insolvency Practitioner, (IP), and if at least 75% by value of those creditors vote in favour for acceptance, then the proposal is approved. The debtor is then supervised by an IP, usually for a period of 5 years and, subject to approval, the creditors may put forward modifications to the proposal.
The Protocol SCIVA stems from a working party set up in 2004, which identified the need for a number of reforms to IVAs, some of which needed legislative change, and others which could be dealt with by means of industry wide best practice protocols.
Protocol SCIVAs should now be more transparent then previous IVA procedures and have standard terms and conditions including a standard clause when dealing with any equity in the debtor's home. There will also be unified income and expenditure verification working on the Consumer Counselling Credit Services (CCCS) budget guidelines.
It is expected that the need for modifications, where a creditor or agent varies the debtor's proposal, for example by demanding more monthly payment into the IVA, will be obviated, (The highest number of modifications made by an agent representing a creditor was 104, submitted by The Insolvency Exchange, (TIX).
With no or very few modifications and a much simpler, streamlined and efficient process, the theory is that the overall cost to the insolvency firm will reduce and thereby the savings will pass onto creditors. If the new protocol SCIVA does not work then more regulation in the industry will be needed and this will take time.
Another form of IVA due to be made available to debtors, and not be confused with the 'Protocol SCIVA, is the Simplified IVAs (SIVAS). Although complementary to Protocol SCIVAS, SIVAS will need to go through a Parliamentary Committee, the earliest opportunity for which is in October 2008 although not likely to be dealt with until the following meeting in April 2009.
SIVAS will remove the need for a face to face meeting with the debtor and require a simple majority instead of the 75% rule of those creditors voting in value for IVA and Protocol SCIVAS. Creditors or their agents will not have the right to make modifications and their will be a ceiling limit of £75,000 for the unsecured liabilities. This amount will be reviewed periodically in line with market trends.
Under the new 'Protocol SCIVA' creditors will have to explain why they have refused a 'Protocol SCIVA'. This will enable a database to be developed showing how creditors and agents are voting and will highlight those who do not cooperate with the scheme. A demand for modifications to the 'Protocol SCIVA' may well be seen by the 'standing committee' as a disguised rejection.
Creditors can also report any IVA providers abusing the 'Protocol SCIVA' where a proposal is promoted as such but in fact proves not to be.
Debt Wizard's comments
Read the Debt Wizard's report from the IVA Forum on 29th Jan 2008 which details why he thinks the Protocol SCIVA may not work immediatly: 'DebtWizard's comments on SCIVA'.
