Insolvency Oracle

Developments in UK insolvency by Michelle Butler

Tag Archives: IVA Standing Committee


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New IVA Protocol: what has changed for the Proposal and Conditions?

The new IVA Protocol is half a world away from its predecessor.  In most respects, the changes are welcome.  While Dear IP highlighted the main changes, many more adjustments are hidden away in the detail.  The new template Annexes have also added lots more items worthy of a blog post.

In this post, I’ll explain the changes to the Proposals themselves and the Standard Terms and Conditions (“STC”).  In the next blog, I’ll look at the other Protocol changes around dealing with debtors and introducers etc. and how to administer the IVA.

In this post, I look at:

  • What changes from the April 2021 version were slipped in on 2 August 2021
  • The ambiguities around the new home equity provisions
  • Inconsistencies between the Proposal template annex and the Protocol/STC
  • A host of small, but not inconsequential, changes in the STC

I am sorry for the length of this post! I didn’t want to miss anything out that could trip you up.

The new Protocol and associated docs are available from: https://www.gov.uk/government/publications/individual-voluntary-arrangement-iva-protocol

Where did the April-21 versions go?

The new Protocol and STC were originally released on the .gov.uk website on 29 April 2021.  Dear IP 126 announced that the new Protocol etc. could be used immediately and that they would become mandatory for all new Protocol-compliant Proposals issued to creditors after 1 August 2021.

Then, on 2 August 2021, the April Protocol and STC were replaced on the .gov.uk website by amended versions.

In some respects, this was welcome – the InsS managed to fix some inconsistencies that I was trying to find the time to write to them about.  However, what I cannot fathom is why they removed the April 21 STCs.

The many Covid-19 changes to existing IVAs announced by the IVA Standing Committee give me the impression that the Committee considers STCs to be moving feasts in any event, able to be changed unilaterally simply by saying it is so, much like a bank announces changes to the terms of its products.  Guys, I don’t think that’s how it works.  Surely an IVA must be administered according to the terms agreed by the debtor and the creditors; you cannot sneak in changes to the STCs without approval of the parties.

The new STCs are whizzy, containing hyperlinks that take you to other relevant clauses.  Therefore, I wonder what firms did when they issued IVA Proposals in May, June and July.  Did they reproduce the April 21 STCs on their own websites and/or circulate them to the debtors and creditors… or did they simply provide a link to the .gov.uk version?  If they did the latter, then it will not be easy to track what STCs had been incorporated into which IVAs.

Given that it is evident the Insolvency Service has no qualms about slipping in changes to the STC published on https://www.gov.uk/government/publications/individual-voluntary-arrangement-iva-protocol/iva-protocol-2021-annex-1-standard-terms-and-conditions, it seems essential that IP firms reproduce the STC on their own website so that they – and the debtors and creditors – can have some certainty about which terms apply in each case.

Were the changes to the 2 August version material?

Well firstly, the Protocol itself doesn’t form a part of the IVA, so the changes there have no effect on IVAs proposed.

The STC changes were, as Dear IP 133 had announced:

  • “Some minor amendments have been made to clarify the provisions on equity to reflect the position of the IVA standing committee”

The April-21 version stated that “if a re-mortgage can be obtained, the agreement will be automatically be (sic.) reduced to 60 months”.  The Aug-21 version now reads: “if a re-mortgage cannot be obtained, the agreement will remain at 72 months.  If equity is released the term will be reduced to 60 months”. 

So yes, the Aug-21 version is certainly tighter – at least now the IVA duration won’t change just because a re-mortgage can be obtained – but I think it still leaves wriggle room as regards the amount of equity that must be released in order to cut 12 months off the IVA.  Although the STC explain further what “equity to be released” means, I think a debtor could argue that they had met the terms simply by releasing some of the equity.

  • “the redundancy clause in the protocol… has been updated to make it easier to interpret and understand”

Actually, this part of the Protocol has not changed, but the STC have.  Now, the STC contain a detailed redundancy pay clause, which does not appear to change the debtor’s obligations from the April-21 version.

A change that is not listed in Dear IP 133 is the addition to the STC of:

  • “You will be required to increase your monthly contribution by 50% of any increase in disposable income one month following such review”.

Unless this was included in the Proposal itself (and it is not included in the Protocol’s Annex 4, Proposal template), any PCIVAs issued with the April-21 STCs do not contain this requirement or anything like it.  That could make for some interesting debates with debtors!

Material changes to home equity treatment

The changes between the 2016 and the Apr-21 STC are vast.  The most material relate to the structure of IVAs where there is a property. 

There are now three alternatives:

  1. Where the “available equity is below the de minimis amount”, the IVA will be drafted for a 60-month term and the equity effectively will be excluded from the IVA.
  2. Where the “available equity is above the de minimis amount but does not meet the current lending criteria for a potential re-mortgage as set out in annex 5 of this protocol”, the IVA will be drafted for a 72-month term and the equity effectively will be excluded from the IVA.
  3. Otherwise, the IVA will be drafted for a 72-month term; there will be a revaluation at month 54; and “if the second valuation confirms the equity position in the proposal” and if “equity is released”, then the term will reduce to 60 months.

The Protocol actually provides a fourth option:

  • If option 3 is followed but equity release is not possible, then a third party may contribute a lump sum equivalent to 12 monthly payments and then the IVA can be concluded early.  Unfortunately, however, this option is not covered in the STC, so unless IPs provide for this in the Proposal (and the Protocol’s Proposal template does not mention it), this approach will require a formal variation to be proposed to creditors.

What is the de minimis amount?

This isn’t defined in the STC.  Personally, I think it should be: after all, what will happen if a future Protocol revision changes the amount? 

The Protocol sets the de minimis at £5,000 (or £10,000 for a property jointly owned by two people proposing interlocking IVAs).

What is “available equity”?

Again, this is not defined in the STC.  The Protocol states: “The value of the consumer’s equity will be considered de minimis if it is £5,000 or less when valued before the IVA proposal is put to creditors.  The calculation should be based on 85% of the value of the property less any secured borrowings (e.g. mortgage).  This means that the consumer will retain at least a 15% financial interest in the value of the property in all cases.”

Mmm… so “equity” doesn’t mean equity then.  It means 85% of the equity.

Annex 5 of the Protocol also describes “anticipated equity”, which involves projecting both the property value (“using the simple interest formula at the date of the review”) and the mortgage position at month 54.  It is not clear to me what should be done with this “anticipated equity” figure: I don’t think it is meant to determine whether the equity is above or below the de minimis, but is it intended to be the figure that the debtor must introduce to the IVA from month 54 if their IVA is to drop to 60 months’ long?  Annex 7, the EOS template, doesn’t mention anything about projected equity values, so I really don’t know!

To be honest, although the STC include lots of statements about the upper limits of re-mortgage (e.g. a re-mortgage would bring the amount secured to no more than 85% of the total value of the property), I found it very difficult to identify what minimum payment would satisfy the “available equity” release condition.

What if the second valuation doesn’t “confirm the equity position”?

It isn’t clear what “confirm the equity position” means.  How different from the equity position presented in the Proposal can it be before it is no longer “confirmed”?  If it is way different, then can the IVA end at month 60 if nevertheless the available equity is released? 

Presumably, this provision is meant to address situations where the equity turns out to be less than the de minimis at month 54.  In this case, I would expect the IVA to drop to 60 months, but neither the STC nor the Protocol make this point.

At least the debtor should have a better idea of what is expected of them

The Protocol requires that “a copy of the calculations” – i.e. how the equity is proposed to be dealt with in the IVA – “should be provided to the consumer and also to all their creditors within the scope of the IVA proposal”.

Is the equity treatment clear in the Proposal template?

I have real problems with the Proposal template, which is provided as Annex 4 to the Protocol.  As regards the equity treatment, the Proposal template gives me the following concerns:

  • Para 6.2 states that the property will be valued in month 48, whereas the Protocol envisages month 54
  • Para 6.3 states that the debtor “will make reasonable endeavours to introduce this sum into the arrangement” – it is by no means clear what “this sum” is
  • Para 6.4 states: “Should I be unable to re-mortgage, I will continue to pay my IVA for the full 72 months, if I am successfully (sic.) and introduce equity my IVA will complete at month 60” – again, what amount of “equity” needs to be introduced (and of course the IVA won’t complete at month 60 unless the supervisor can wrap everything up immediately)?

Can the property be sold?

The Proposal template contains an interesting scenario.  Para 6.5 states that, in the event that the debtor sells their home at any time in the IVA and pays in the sale proceeds less costs, “the additional remaining payments will no longer be payable into my IVA” even if the funds are insufficient to clear the debts and costs.  So… a debtor with minimal equity sells their home early on in the IVA, pays in the small amount of sale proceeds… and then they are not required to pay in any more income-related contributions?!

I cannot see that this is an expectation of the Protocol.  All it states is that, if a property is sold, then the proceeds of sale to the extent of settling the costs and debts in full – excluding statutory interest – shall be paid into the IVA.

Is statutory interest not payable for early completion?

Yep, that’s what the STC say.  However, Para 5.1 of the Proposal template states: “The IVA will finish when the agreed level of payments have been made or I have paid creditors together with the costs of the IVA in full and with statutory interest”.

Are there other issues with the Proposal template?

Yep.  I have lots of minor gripes (like reference to an irrelevant “3.1”), but some other material ones are:

  • While it is reasonably complete as regards ticking off SIP3.1 and Rules’ matters, it does not flag up the SIP3.1 requirements to disclose the referrer, their relationship/connection to the debtor, or any payments to the referrer made or proposed, amounts and reasons.
  • No monthly contribution amount is specified.  It simply states (Para 5.1): “I will make monthly payments of my surplus income estimated at £X”.  Odd!
  • Para 7.3 strangely provides for a trust “in favour of the Supervisor” and states that the trust will end when the notice of termination is filed with the SoS.  The STC state the trust will end earlier, i.e. when the certificate of termination is issued or, as regards assets not realised, when a bankruptcy order is granted.
  • Para 7.11 states that late-proving creditors “will not be entitled to disturb dividends already paid but will be entitled to participate in future dividends”.  The STC state that they will also be entitled to catch-up dividends.

Do these inconsistencies matter?

The STC state that, “in the event of any ambiguity or conflict between the terms and conditions and the proposal and any modifications to it, then the proposals (as modified) shall prevail”.  So, yes, as always the Proposal takes precedence. 

So, if the Proposal reverses or negates the apparent intended effect of the STC, can the Proposal be called Protocol-compliant?  Surely not… except if the Proposal simply follows the Protocol’s Proposal template annex, then presumably it’s ok..?

Are IPs obliged to use the Proposal template?

It is not at all clear.  The 2021 Protocol repeats the previous Protocol’s introduction that “Where a protocol IVA is proposed and agreed, insolvency practitioners and creditors agree to follow the processes and agreed documentation”.  But, apart from the contents list, there is no specific mention in the Protocol to the Proposal template.  Contrast this with specific reference to Annex 6, which gives examples of how an IP might comply with the Protocol’s new requirement to “set out details of how the funds received… will be allocated towards the costs of the IVA, together with a timetable and schedule of expected payments to creditors” (which interestingly is a document that is not mentioned in the Proposal template!).

So is the Proposal template intended to be just for guidance?  Given its departures from the Protocol and STC, it cannot be intended to over-ride it all, can it?

What about the other templates?

The Proposal template states that attached is a “combined outcome and Statement of Affairs”.  Annex 7 is clearly solely an estimated outcome statement, not a SoA. 

Annex 3, which is an “example” letter to send to the debtor along with the draft Proposal, does not mention that a SoA (i.e. one that complies with the Act/Rules) is enclosed and there is no reference to a Statement of Truth, which the debtor is required to provide to the IP per R8.5(5).  The letter also contains the old pre-29 June DRO thresholds.

Again, it is not clear whether IPs must use these templates.  I also appreciate that it will be difficult to maintain templates to deal with changes in legislation or SIPs… but, hey, that’s what we all have to do, isn’t it?

Some things never change

One of the obvious changes needed to the STC was to bring it into line with the 2016 Rules as regards the various decision procedures.  Way back in April 2017, Dear IP 76 had expressed the Insolvency Service’s expectation that supervisors “take advantage of the new and varied decision making procedures that are available under the Act as amended and the 2016 Rules”.

Did someone forget this expectation?  The new STC still refer solely to “meetings of creditors” that may be called during the course of the IVA.  As the STC state that they be called “in accordance with the Act and the Rules”, we are talking about only virtual meetings here.  What is evident, however, is that it does not include electronic or correspondence votes.

Other STC changes

There are some relatively minor changes introduced by the new STC – I would love to give you paragraph references, but crazily the STC no longer have para numbers!

  • Unsurprisingly, the old STC that supervisors can make a reasonable charge for variations has gone.
  • The STC state that a completion certificate “will be issued within 28 days of all payments and obligations being satisfied”, although the Protocol states that the completion certificate should be issued within 3 months.  Both the STC and Protocol provide a long-stop date of 6 months.
  • The concept of a completion certificate where there has been substantial compliance has been ditched.
  • The liabilities can now be up to 25% more than those estimated in the Proposal before it is considered a breach (the old STC provided for a 15% limit).
  • A Notice of Breach will now always provide a timescale of one month to remedy and/or explain a breach (the old STC allowed the supervisor’s discretion to set a timescale of between one and three months).  Now, a remedy can include proposing “a reasonable plan to remedy” the breach, which may be useful, although of course some proposals will still need to be varied formally.
  • All trusts will end on issuing a certificate of termination or completion (the old STC were silent).
  • A variation to reduce contributions can only be proposed in the first 2 years of the IVA “if evidence can be provided to creditors that the supervisor could not have reasonably foreseen such a change in circumstances at the start”.
  • Interestingly, “if you cannot reach agreement with the supervisor in respect of your obligation to contribute additional income, then the supervisor has the discretion to issue a notice of breach”… or not.
  • Oddly, the STC no longer describe any means for changing supervisors except by a block transfer order (or removal by a creditors’ decision).  Presumably, though, a switch may still be proposed by variation.  Para 2.8 of the Proposal template, however, does provide a simple: any “vacancy may be filled by an employee of the same firm who is qualified” as an IP, although I’m not sure if this over-rides the requirement for a court order or creditor decision appointing them. 
  • The requirement to register a restriction on a property has been removed from the STC.  It is, however, still required under the Protocol, so you will need to make sure that it is included in your Proposal template (it is in the Annex 4 template).
  • Creditors now only have 2 months to submit a claim, rather than the old 4 months.
  • The supervisor now has discretion to admit claims of £2,000 (up from £1,000) without a PoD or claims that do not exceed 125% (up from 110%) of the amount listed in the Proposal without additional verification… with the new condition that this cannot “result in a substantial additional debt being admitted” – I’m not sure how this would be measured.
  • Although both old and new STC state that all payments into the IVA “are intended to be used to pay dividends” and costs, now there is no limit on the surplus funds at the end of the IVA that will be returned to the debtor (it used to be £200 max.).
  • I’m confused about the HMRC-specific requirements: they state that HMRC’s claim will include self-assessment tax arising in the tax year in which the IVA is approved (less payments on account), but then they state that the debtor “will be responsible for payment of self-assessment/NIC on any source of income that begins after the date of approval”, but then also that any “monthly charge for income tax/NIC as it appears in the income and expenditure statement” must be paid into the IVA for the rest of the tax year after approval of the IVA.

The consequences

All these intricate changes will complicate systems and procedures, as you will need to be alert to which terms apply to which IVAs you’re administering.  As you can see, it would also be valuable to refresh your Proposal template to ensure that it corresponds with the new STC, plugs the gaps and eliminates ambiguities. 

If you do choose to use the Protocol’s Proposal template, I recommend that you give it some tweaks to make sure it is SIP3.1-compliant (as well as tailored to your own practices, as some clauses are quite bespoke) and that it does not stray far from the new Protocol and STC.

More changes

These are only Protocol changes affecting the Proposal and STC.  In the next blog, I’ll look at the other changes including new requirements as regards advising debtors and liaising with introducers.


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What’s new in the revised IVA Protocol?

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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.

Vulnerable debtors

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.

General beefing-up

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)

Altered extensions

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.

After-acquired assets

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.

 

Conclusion

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.

 

 

 

 


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The Insolvency Service’s labours for transparency produce fruits

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The Insolvency Service has been busy over the past months producing plenty of documents other than the consultations. Here, I review the following:

  • First newsletter;
  • Report on its visit to the SoS-IP monitoring unit;
  • Summary of its oversight function of the RPBs;
  • IVA Standing Committee minutes; and
  • Complaints Gateway report.

The Insolvency Service’s first newsletter

http://content.govdelivery.com/accounts/UKIS/bulletins/d469cc

Although this is a bit of a PR statement, a couple of crafty comments have been slipped in.

The newsletter explains that the Service’s “IP regulation function has been strengthened and we have raised the bar on our expectations of authorising bodies”. I started off sceptical but to be fair the Service’s summary of how it carries out its oversight function of the authorising bodies – https://www.gov.uk/government/publications/insolvency-practitioner-regulation-oversight-and-monitoring-of-authorising-bodies – does convey a more intensive Big Brother sense than the Principles for Monitoring alone had done previously.  This document puts more emphasis on their risk-based assessments, desk-top monitoring and themed reviews, as well as targeting topical areas of concern, which can only help to provide a better framework in which their physical monitoring visits to the RPBs can sit.

I commend the Service for establishing more intelligent regulatory processes, but two sentences of the newsletter stick in the throat: “We saw the impact that our changing expectations had in a few areas. Things deemed acceptable a few years ago were now being picked up as areas for improvement.” This is a reference to its report on the visit to its own people who monitor SoS-authorised IPs, the Insolvency Practitioner Services (“IPS”): https://www.gov.uk/government/publications/monitoring-activity-reports-of-insolvency-practitioner-authorising-bodies.  Having worked in the IPA’s regulatory department from 2005 to 2012, I would like to assure readers that many of the items identified in the Service’s report on IPS have been unacceptable for many years – at least to the IPA during my time and most probably to the other RPBs (I am as certain as I can be of that without having worked at the RPBs myself).

I am aghast at the Service’s apparent suggestion that the following recent discoveries at the IPS were acceptable a few years ago:

  • A 5-year visit cycle with insufficient risk assessment to justify a gap longer than 3 years;
  • Visits to new appointment-takers not carried out within 12 months and no evidence of risk assessment to justify this;
  • No evidence that one IP’s receipt of more than 1,000 complaints in the previous year (as disclosed in the pre-visit questionnaire) was raised during the visit, nor was it considered in any detail in the report;
  • No evidence of website checks (which the Service demanded of the RPBs many years ago);
  • “Little evidence that compliance with SIP16 is being considered”;
  • “No evidence that relevant ethical checklists and initial meeting notes from cases had been considered”; and
  • “Once a final report has been sent to the IP, there does not appear to be any process whereby the findings of the report are considered further by IPS”.

Still, that’s enough of the past. The Service has now thrown down the gauntlet.  I shall be pleased if they now prove they can parry and thrust with intelligence and effectiveness.

Worthy of note is that the newsletter explains that, in future, sanctions handed down to IPs by the RPBs will be published on the Service’s website (presumably more contemporaneously than within its annual reviews).

IVA Standing Committee Minutes 17 July 2014

https://www.gov.uk/government/publications/minutes-from-the-iva-standing-committee-july-2014

“Standardised Format”

The minutes report that the IPA will have a final version – of what? Presumably a statutory annual report template? – within “a couple of weeks” and that two Committee members will draft a Dear IP article (there’s a novelty!) to explain that use of the standard is not mandatory.

Income and Expenditure Assessments

The minutes recorded that Money Advice Service had been preparing for consultation a draft I&E statement – which seems to be an amalgam of the CFS and the StepChange budget with the plan that it will be used for all/a number of debt solutions. The consultation was opened on 16 October: https://www.moneyadviceservice.org.uk/en/static/standard-financial-statement-consultation

IVA Protocol Equity Clause

As a consequence of concerns raised by an adviser about the equity clause, DRF has agreed to “draft a response” – it seems this is only intended to go to the adviser who had written in, although it would seem to me to have wider interest – “to clarify the position, which is that a person will not be expected to go to a subprime lender and the importance of independent financial advice”. It is good to have that assurance, but what exactly does the IVA Protocol require debtors to do in relation to equity?  Does the Protocol clause need revising, I wonder.

Resistance to refunding dividends when set-off applied

I see the issue: a creditor receives dividends and then sets off mis-sold PPI compensation against their remaining debt. Consequently, it could be argued that the creditor has been overpaid a dividend and should return (some of) it.  The minutes state that “it is a complicated issue and different opinions prevail” (well, there’s a revelation!), although it has been raised with the FCA.

Variations

It seems that the Committee has only just cottoned on to the fact that the Protocol does not allow the supervisor to decide whether a variation meeting should be called, so they are to look at re-wording the standard terms to “give supervisor discretion as to whether variation is appropriate so when one is called it is genuine and in these instances the supervisor will be entitled to get paid”.

I’m sorry if I sound a little despairing at this, not least because of course the cynic may see this as yet another avenue for IPs to make some easy money! It was something that I’d heard about when I was at the IPA – that some IPs were struggling with IVA debtors who wanted, say, to offer a full and final settlement to the creditors that the IP was confident would be rejected by creditors, but under the Protocol terms it seemed that they had no choice but to pass the offer to creditors.  I’m just surprised that this issue has not yet been resolved.

Recent pension changes

The minutes simply state: “InsS to enquire with colleagues as to how it is planned to treat these in bankruptcy and feed back”. About time too!  Shortly after the April proposals had been first announced, I’d read articles questioning whether the government had thought about how any lump sum – which from next April could be the whole pension pot – would be treated in a bankruptcy.  Presumably, legislation will be drafted to protect this pot from a Trustee’s hands, but that depends on the drafter getting it right.  The lesson of Raithatha v Williamson comes to mind…

Well, I’m assuming that this is what the Committee minutes refer to, anyway.

Report on the First Year of the Complaints Gateway

https://www.gov.uk/government/publications/insolvency-practitioner-complaints-gateway-report-august-2014

Aha, so Dr Judge has been able to spin an increased number of complaints as evidence that the gateway “is meeting the aim of making the complaints process easier to understand and use”! I wonder if, had the number of complaints decreased, his message might have been that insolvency regulation had played a part in raising standards so that there were fewer causes for complaint.

The report mentions that the Service is “continuing dialogue” with the SRA and Law Society of Scotland to try to get them to adopt the gateway.

The Service still seems to be hung up about the effectiveness of the Insolvency Code of Ethics (as I’d mentioned in an earlier post, http://wp.me/p2FU2Z-6I) and have reported their “findings” to the JIC “to assist with its review into this area”.

The Service also seems to have got heavy with the RPBs about complaints on delayed IVA closures due to ongoing PPI refunds. The ICAEW and the IPA “have agreed to take forward all cases for investigation” – because, of course, some complaints are closed at assessment stage on the basis that the complaints reviewer has concluded that there is no case to answer (i.e. it is not that these complaints do not get considered at all) – “where the delay in closing the IVA exceeds six months from the debtor’s final payment”.  Does this mean that the general regulator view is that any delay under 6 months is acceptable?  Hopefully, this typical Service measure of setting unprincipled boundaries will not result in a formulaic approach to dealing with all complaints about delayed closure of IVAs.  And, although the other RPBs may license a smaller proportion of IVA-providing IPs, I wonder what their practices are…

The report also explains that the Service has persuaded the ICAEW to modify its approach a little in relation to complaints resolved by conciliation. Now, such a complaint will still be considered in the context of any regulatory breaches committed by the IP.  Years ago, the Service urged the RPBs to consider whether they could make greater use of financial compensation (or even simply requiring an IP to write an apology) in their complaints processes, but there was some resistance because it seemed that the key objective of the regulatory complaints process – to pick up IPs failing to meet standards – was at risk of getting lost: might some IPs be persuaded to agree a swift end to a complaint, if it meant that less attention would be paid to it?  To be fair, this has always been an IP’s option: he can always satisfy the complainant before they ever approach the regulator.  However, now settling a complaint after it has started on the Gateway path may not be the end of it for the IP, whichever RPB licenses him.

The Statistics

I think that the stats have been more than adequately covered by other commentaries. In any event, I found it difficult to draw any real conclusions from them in isolation, but they also don’t add much to the picture presented in the Insolvency Service’s 2013 annual review.  That’s not to say, however, that this report has no use; at the very least, it will serve as a reference point for the future.

Ok, the complaints number has increased, but it does seem that the delayed IVA closure due to PPI refunds is an exceptional issue at the moment. Given that the IPA licenses the majority of IPs who carry out IVAs, it is not surprising therefore that the IPA has the largest referred-complaint per IP figure: 0.63, compared to 0.54 over all the authorising bodies (although the SoS is barely a whisker behind at 0.62).  My personal expectation, however, is that the Insolvency Service’s being seen as being more involved in the complaints process via the Gateway alone may sustain slightly higher levels of complaints in the longer term, as perceived victims may not be so quick to assume that the RPB/IP relationship stacks the odds so heavily against them receiving a fair hearing.