A revised IVA Protocol and Standard Terms – including for the first time standard report templates – were published on 20 June with no fanfare, no comment from regulators or trade bodies. In the absence of an official tracked-changes or commentary, I have created my own. Perhaps all will be made clear by a Dear IP before the start date of 1 September… or should that be 1 October..?
[UPDATE 06/07/2016: Just today, a Dear IP has been issued! See https://goo.gl/gSigmg. The Dear IP sets out the expectation that IPs “should be using the new version by 1 October 2016”.]
The documents can be found at: https://goo.gl/7CZuly.
My tracked-changes version is here: IVA Protocol 2016 comparison with 2014
The key points to note are:
- Start date: the Protocol purports to be effective from 1 October 2016, although the attached Standard Terms are “for use in proposals issued on or after 1 September 2016”.
- There are some material changes to allowable extensions to collect in missed or additional payments.
- The standard report templates are a new feature, although “usage is not mandatory”.
I have elaborated on these and some other changes below.
Making the switch
As I mentioned above, there seems to be some confusion as to the start date. I trust that the IVA Standing Committee will resolve this inconsistency before 1 September: it is difficult to see how the revised Standard Terms can be used for IVAs proposed after 1 September 2016 when the revised Protocol does not apply until 1 October 2016.
Notwithstanding this confusion, because the date for using the revised Terms relates to proposed IVAs, a clear cut-off date is not possible. For example, an IP could issue a proposal incorporating old terms on 30 August (IVA(i)) and a proposal incorporating the new Terms on 1 September (IVA(ii)). IVA(i) could be approved on 26 September, but IVA(ii) could be approved on 16 September, i.e. an IVA using the new Terms could be older than an IVA using the old terms.
Still, we have been in this position before and I am sure that IPs are able to annotate cases simply so that, at a glance, staff can discern which terms apply. I believe that it will be particularly important to get this right this time, as the revised Protocol reflects some quite different timescales, e.g. as regards payment holidays.
Is a Straightforward Consumer IVA suitable for self-employed people?
The current Protocol states that people “in receipt of a regular income either from employment or from a regular pension” are likely to be suitable for a Straightforward Consumer IVA. The revised Protocol’s definition of “consumer” – as “a person in debt or the debtor” (para 2.6) – suggests a wider application. This is confirmed by para 3.1, which now states that a suitable person will be “in receipt of a regular sustainable income for example, but not limited to, from employment or from a regular pension”.
Therefore, the revised Protocol seems to acknowledge that self-employed people in receipt of a “regular sustainable income” may be appropriate for a Straightforward Consumer IVA.
Who regulates IPs for debt advice?
In the current Protocol, Annex 2 includes an explanation of the involvement of the OFT and the Financial Ombudsman Service in certain elements of IPs’ work. Clearly, updating this section has been long overdue. However, the new Protocol removes entirely this explanation from the Annex.
The revised Protocol includes a new statement-of-the-obvious para (2.2) that, if an IP is subject to FCA authorisation, they must comply with the FCA’s Consumer Credit Sourcebook, but the Committee has now side-stepped the dangerous territory of where IPs sit as regards some RPBs’ Designated Professional Body status for governing certain regulated activities; the IP exclusion for advising in reasonable contemplation of an insolvency appointment; and the FCA’s regulatory zone.
In my view, IPs have been piggy-in-the-middle of this territory war for too long: I would dearly love to see some unequivocal guidance.
Paras 2.8 to 2.10 are new. They highlight the need to be alert to, and deal appropriately with, vulnerable debtors, which is fair enough. However, they also state that, subject to obtaining the debtor’s explicit consent to disclosure, “full transparency is recommended as creditors should take these vulnerabilities into account when considering an IVA proposal”.
“Consumer vulnerability” disclosure is explicitly prompted on the revised proposed IVA summary sheet and on all report templates.
Personally, I do wonder why many paras have been added. Are there particular mischiefs that need to be dealt with? If so, then I do not see that slipping more words into the Protocol helps. Rather, I think the approach should be to highlight the issues to IPs, help us all to understand better what measurable standards are expected, provide examples of behaviour seen to be falling short, and/or take actions under the existing Code of Ethics to deal with anyone working in the extremes.
Anyhow, here are some of the additions. They are generally not controversial, especially when read in context or alongside other standards such as the Code, but what really do they add..?
- “IVA providers should consider the suitability of an IVA with caution for an individual whose income is mainly made up of benefits.” (para 3.2)
- “The IP has a responsibility to ensure that any lead generators that they use follow the rules and codes.” (para 5.3)
- “Every individual who proposes an IVA should be given this advice or information” (i.e. appropriate advice or information in light of the debtor’s particular circumstances, leading to a proposed course of action) (para 6.1) [Update 06/07/2016: Dear IP explains that this is to ensure that both parties in interlocking IVAs are given full advice. Ahh…]
- “There are a range of options that may be appropriate in individual circumstances and all advice and information given and action taken should have regards to the best interests of the consumer. Sufficient information must be provided about the available options identified as suitable for the consumer’s needs.” (para 6.2)
- “In addition to other regulatory requirements the IVA provider should take the following into consideration:
- a. Fair treatment of consumers is central to the firm’s culture.
- b. IVAs are offered accordingly.
- c. IVA and its service functions as the consumer is led to expect (likely to successfully complete). [Is this even English?!]
- d. Advice is suitable and appropriate for the individual.
- e. There is clear information before, during and after appointment.
- f. There are no barriers created to make a complaint.” (para 6.3)
- “The expenditure should be at a level that is likely to be sustainable and not cause undue hardship to consumers.” (para 7.5)
- “Where the net worth [in the home] is released by way of a secured loan, consideration should be given to the term and interest rate applied to the loan and the principles of treating the consumer fairly.” (para 9.3) (I don’t think this gets close to dealing with Debt Camel’s concerns about the 2014 Protocol’s migration from remortgages to secured loans – see http://goo.gl/5DCccu and http://goo.gl/x6BK54.)
There is even one of these statements-of-the-obvious-perhaps-for-emphasis for creditors:
- “Creditors should not put forward modifications which are already included in the proposal” (para 13.5).
I wonder if creditors will observe this instruction…
Snuck in, however, is also a new prescriptive requirement:
- “Consumers should be provided with a copy of the IVA protocol. This can be either through provision of a physical copy or providing an electronic link.” (para 3.7)
Perhaps most significant are the changes to the Standard Terms, which affect the processes and timescales of allowable extensions.
As far as I can see, the following have changed significantly:
- Para 9.2 of the revised Protocol states that the term of the IVA is automatically extended for 12 months, if the consumer’s obligation to pay 85% of their interest in the home is to be discharged via 12 more monthly contributions. Standard Term 5(7) reflects this 12-month extension without variation.
- Para 10.5 states that the IVA may be extended by up to a maximum of 6 months without a variation to deal with any overtime etc. due but not paid over (this is new).
- Para 10.8 allows payment “holidays” or reduced payments of 9 months maximum (the current Protocol allows one payment “break” of up to 6 months) with an IVA extension of 12 months max. to pay the missed contributions (the current Protocol allows a 6 month extension).
- Consumers must provide “full details of the inability to pay… to the Supervisor’s discretion” in order to “qualify” for a payment holiday (para 10.8). Payment holidays will no longer need to be reported to creditors within 3 months of agreement, but only within the next progress report.
Because of Standard Term 5(7), I assume that all these additional months can only run concurrently and, if more than 12 months is required, this must be approved by variation.
Currently, after-acquired assets need to be realised to the extent of discharging costs and debts in full plus interest (Term 14(3)). Under the new Terms, after-acquired assets will not need to settle interest on claims.
Unclaimed and returned dividends
The Standard Terms include a whole new section (at 17(7) to 17(10)).
If an interim dividend is unclaimed or returned, “the Supervisor shall take reasonable steps to allocate that payment” – the Terms set out what those steps are (although I am not persuaded that “allocate” is the correct word).
“Where it is not possible to allocate the unclaimed or returned dividend then the Supervisor may discount the proof of debt received and distribute the funds to those creditors whose dividends have been claimed.” Whilst it is useful for the revised Protocol to set out what happens with these, personally I don’t like reference to “discounting proofs”: not only does “discount” conjure up different thoughts to that intended by the term (i.e. the ignoring of a claim for dividend purposes), but also nowhere else in the Standard Terms is a “proof of debt” mentioned.
New Term 17(7) accepts that a Supervisor need not redistribute unclaimed final dividends if it is “cost prohibitive (for example the cost of making payment is in excess of the funds in hand)”… although given that Supervisors are usually paid as a %, I am not certain when this “for example” will arise.
After any attempts to “allocate” (although it does not seem that these attempts need to be made in respect of final dividends) and redistribute, uncashed/ unclaimed/ returned dividends are paid over to the consumer and “the creditors have no further claim to these funds” – which is very different to R3’s IVA Standard Terms.
Dealing with a surplus
If there are residual funds (I assume not including unclaimed or returned dividends) up to £200, the Supervisor “may” choose to return these to the consumer as a surplus (Term 17(10)). If this is unclaimed or returned, the Supervisor can use it to locate the consumer and make payment to them or donate it to a registered charity of the Supervisor’s choice.
Application of the Act and Rules
Revised Term 4(3) borrows from the R3 IVA Standard Terms. It requires the Supervisor to use the bankruptcy provisions of the Act and Rules with necessary modifications “in the event that the Arrangement does not provide guidance to the Supervisor as to what action he/she should take in any given situation”.
Whilst this could be useful, I am not sure how cut-and-dried its application will be in practice. I have rarely seen it used in IVAs incorporating R3’s Standard Terms, but then R3’s Terms are far more all-encompassing anyway.
I think its inclusion does mean, however, that the deletion of the current Standard Term 19(2) – regarding creditors’ power to requisition a meeting – has no practical effect, as the Act and Rules entitle creditor(s)>25% to force a meeting in a bankruptcy.
Standard Report Sheets
The .gov.uk website now provides separately Annex 5 to the Protocol, which comprises excel templates for the following:
- Proposal summary sheet
- Chairman’s report on the meeting to consider the Proposal
- Annual progress report
- Notice of variation meeting
- Chairman’s report on the meeting to consider a variation
- Report on completion
- Report on failure The disclaimers on each sheet are noteworthy:
Only the Proposal summary sheet gets a mention in the IVA Protocol itself, but all other templates state “usage is not mandatory”, which is handy, given that personally I don’t think they cut the mustard.
The disclaimers on each sheet are noteworthy:
“Completion of this template does not necessarily ensure full compliance with Statute and SIP where circumstances dictate that additional information is warranted.”
“The Regulators accept no liability for deficiencies in the information supplied to creditors – this remains the Responsibility of the Insolvency Practitioner.”
I have not scrutinised the templates to identify what gaps in compliance with statute and SIPs might exist (but I couldn’t help noticing some typos: Protocol “complaint” and “persuant”). However, I do note that there are insufficient prompts as regards dividends paid to comply with SIP7 and so you will need to make sure that your attached R&P provides the breakdown.
Also, the new SIP9 does not feature at all. I appreciate that “proportionate” information on the fees/costs of a Protocol-compliant IVA is likely to be minimal, but the annual progress report template provides a few lines of free text for “information / comments / use of discretion / consumer vulnerability”. Personally, I would have thought that some reference to SIP9 information (i.e. the “key issues of concern”) would have been sensible.
Alternatively, does this indicate that the regulators believe that SIP9 can be complied with in a few lines of text in a case with, say, fees<£10K..?
I also note that the template refers creditors to “R3.org.uk” (or the IP’s website) for a suitable explanatory note (i.e. Creditors’ Guide to Fees), which will not satisfy the monitors, as most expect a link to the relevant Guide.
Finally, the “failure” report does not seem to envisage any transactions, e.g. final dividend payments and fees/costs, being made after termination from monies in trust.
The revised IVA Protocol and Standard Terms introduce plenty of changes, so it would be nice to have some commentary from the IVA Standing Committee at the very least.
Maybe the lack of publicity has something to do with the fact that IVAs are being managed by fewer providers these days (TDX reported that the top five are responsible for 70% of all new IVAs, compared with 55% two years’ ago – https://goo.gl/J3EmFy). If you are hanging on in there, I wish you all the best.