Page 265 - Microsoft Word - 00 P1 IW Prelims.docx

UK syllabus: Auditing aspects of insolvency

Alternatives to winding up

3.1 Individual voluntary arrangements (IVA)

 An IVA is an arrangement available to individuals, sole traders and partnerships
to help them reach a compromise with creditors with the aim of avoiding the
closure of their business and, perhaps, bankruptcy.

 Such an arrangement usually facilitates lower payments of debt over an
extended period, usually five years.

 Once an individual (or their insolvency practitioner) submits a proposal to the
courts for an interim order, creditors may no longer take action against the
individual (referred to as a moratorium on actions). A creditors meeting must be
held within fourteen days of the order to include the proposals made by the
individual with regard to their debt.

 The creditors may accept the proposals with a 75% majority (by value of
creditors present) vote.

 The main benefit is that the individual may continue in business and work
towards the payment of their debt in a more flexible manner.

 They are also not penalised by bankruptcy laws, such as restrictions on
becoming a director.

 Creditors also benefit as it is likely that they will receive more under the terms of
an IVA than they would if liquidation was enforced upon a company that is
potentially insolvent anyway.

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