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The Insolvency Service have published the following letter on the IVA protocol:
Update of the Standard Terms and Conditions for the IVA Protocol
The IVA Standing Committee has revised the Standard Terms and Conditions (T&Cs) for the IVA Protocol. The Committee agreed that they should be used for all proposals being put to creditors for Protocol IVAs commencing on or after I July 2012. Alongside this letter please find a final version of the T&Cs (which can also be accessed via The Insolvency Service website) and a version with the tracked changes to allow you to easily identify the amendments. In addition, I have set out below a summary of the changes and the Committee’s reasoning behind them.
The following amendments have been made to the terms and conditions for the IVA Protocol:
Para 1(k) Definition of “secured creditor” added.
Para 4(2) Addition of words “, and if the creditor agrees. Otherwise, the provisions of paragraph 30 will apply.”
This addition will provide clarity on which debts will be settled by the IVA proposal.
Para 8(6) Addition of words “for the purpose of the arrangement”.
New para 8(7) “Where you are employed, you must report any overtime, bonus, commission or similar to the supervisor if not included in the original surplus calculation, where the sum exceeds 10% of your normal take home pay. Disclosure to the supervisor must be made within 14 days of receipt, and 50% of the amount (over and above the 10%) shall be paid to the Supervisor within 14 days of the disclosure. Failure to disclose any such overtime, bonus, commission or similar by you will be considered a breach of the IVA and the Supervisor shall notify the creditors in the next annual report, with proposals for how the breach is to be rectified.”
This new para will provide clarity for debtors on their responsibilities with regard to additional monies received.
New para 8(8) “You will be allowed a payment break of up to 6 months once during the term of the IVA without any variation being required at the discretion of the Supervisor. The term of the IVA will be extended by the length of the payment break so that you will make the same number of contributions as agreed in the original proposal. An agreed payment break will not constitute a breach. Where the Supervisor agrees a payment break, the creditors should be notified within 3 months from the date of the agreement. At the conclusion of an agreed payment break the Supervisor shall if necessary review the position and consult with creditors where appropriate.”
New para 8(8) allows discretion for the Supervisor to agree a payment break for up to 6 months without the need to seek the agreement of creditors.
New para 8(9) “In addition, if you are faced with an emergency item of expenditure or an unforeseen reduction in income and you are unable to pay either the full amount due or anything at all, then, subject to the discretion of your Supervisor, you may be allowed to take a payment holiday without a variation being required. This is subject to three conditions, all of which have to be met:
(i) Full details of your inability to pay must be demonstrated to the Supervisor’s satisfaction; and
(ii) No more than the equivalent of 3 months payments can be agreed to be missed in this way; and
(iii) The duration of the IVA will be extended by the same number of months for which payments have been suspended to recover the sums due, unless you have otherwise made good the shortfall.
Any missed payments agreed by your Supervisor in this way should not be counted in the arrears of contributions which would be regarded as a breach of the IVA and details of this will be included in the annual report.”
Again this new para allows the Supervisor to exercise discretion over the impact of emergency expenditure.
Para 9(1) Addition of words “subject to the exceptions in paragraphs 8(8) and 8(9).”
Para 9(2)(ii) Addition of words “subject to the exceptions in paragraphs 8(8) and 8(9).”
Adding this exemption ensures that these payment breaks do not constitute a breach of the arrangement.
Para 9(4) Delete “and” and replace with “-“.
Para 9(5) Additional words “and either issue a Certificate of Termination or if the Supervisor feels it appropriate seek creditor views”.
This will introduce discretion for the Supervisor so that he/she does not always have to run up the costs of seeking approval from creditors.
New para 9(6) “The Supervisor may issue a Certificate of Termination if you request this in writing, but may delay doing so until the Supervisor’s administration of the estate has been completed.”
Introducing this condition will avoid the need for a Supervisor to incur the cost of creditors voting when it isn’t necessary.
Para 10(8) Additional words “or last agreed variation.”
This will give the Supervisor discretion to allow the debtor to reduce his/her contribution by no more than 15% of the sum defined by the approved proposal or by any subsequently agreed variation.
New para 10(12) “The arrangement shall terminate when the Supervisor issues a Certificate of Termination.”
This confirms when the IVA will terminate.
Para 17(1) “The supervisor may accept for dividend purposes claims submitted by creditors as at the effective date. If any creditor does not make any claim in writing within 4 months after the effective date or by the date of the first dividend (whichever is the later), then that creditor may only participate in dividend payments to the extent set out in paragraph 17.3 below.”
Para 17(3) “If a creditor makes a late claim, the Supervisor will allow this for dividend purposes, subject to the requirement to adjudicate the authenticity and value of the claim, and the creditor will be entitled to participate and to receive their full share of dividends (insofar as funds are available), but is not entitled to disturb a distribution made prior to the submission of the claim.”
The reference to a later paragraph 17.3 corrected (earlier version referred to 17.2). These changes reflect the position that a supervisor should not be prevented from making a dividend payment because he/she has not received claims from all creditors; however, if a creditor submits a late claim, the supervisor will allow it for dividend purposes subject to his/her requirement to check the authenticity and value of the claim.
The Committee recognises that paragraph 13.5 of the Protocol itself will not reflect this change. The new paragraph in the T&Cs should be read as the most up to date position for Protocol purposes, the necessary updates will be made in due course.
Para 19(5) Delete “4A” and replace with A.21.
Correction of Rule reference.
New para 27 “If the debtor was a non-trading debtor and has not traded during the tax year in which the IVA was agreed and if there are no outstanding returns due to HM Revenue and Customs (HMRC) and no contact has been made by HMRC with the Supervisor within 4 months after the effective date, the Supervisor has the discretion to disregard the requirement in paragraph 25 of the standard conditions to not make a non preferential dividend before the Supervisor has admitted the HMRC final claim. If the Supervisor commences payment of dividends, notification should be sent to HMRC and funds may be retained to pay an equivalent dividend to HMRC based on the amount shown in the statement of affairs”.
The addition of this new paragraph will remove the restriction on a Supervisor to making a non-preferential dividend in non-trading cases, regardless of whether HMRC has submitted its claim.
This information can also be found on the Insolvency Service website at http://www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/policychange/policychange.htm.
Director of Policy"
The Insolvency Service"
A supplementary message noted:
"The revised standard terms and conditions can be used from now, but should be used for all proposals where the meeting of creditors will be on or after 1 July 2012.
The link to our website which contains the terms and conditions is http://www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/policychange/foum2007/plenarymeeting.htm This web page contains all the details of the Protocol IVA and the terms and conditions are available if you scroll down towards the bottom of the page."
"This is the ultimate statement of where the law on IVAs is to be found in our great common law...