The insolvent person in debt who provides a proposal for an Individual Voluntary Arrangement (IVA) to their (unguaranteed) lenders is generally in the lap of the gods. This is because the lenders have got all the power in the matter and can opt to say yes to the proposal as it stands, to refuse it out of hand or to demand adjustments to the offer which often might have the outcome of costing the borrower more than he or she meant to offer. Actually this third result can contain within it the seeds of the failure of the IVA in its supervision stage, if the creditors are too grasping or greedy at the voting stage. The unfortunate debtor may feel pressurised to accept alterations that require greater contributions to the IVA compared to what he or she can manage.
And so there are three choices open to creditors: to simply accept the proposal as it stands, to accept it subject to the debtor agreeing to (sometimes draconian) adjustments or to decline the offer. Only unsecured creditors are permitted to vote at the meeting of creditors. Still, there can occasionally be a chink of light for the borrower if he or she has the ‘right’ mix of lenders and if the ‘right’ creditors vote. To start with not all of a debtor’s lenders must vote for a choice to be made approving, rejecting or modifying the debtor’s IVA proposal. In fact so long as one creditor votes, a decision can be made. That is of course providing all the unsecured lenders had the opportunity to vote.
Assuming then that more than one lender chooses to exercise their right to vote, what is the degree of endorsement needed for the IVA to be approved? A simple way to view it is that each lender has one vote for every that the person in debt owes to that lender. Therefore if there were eight creditors known as A,B,C,D,E, F, G and H, to whom the debtor owed an overall total of 100,000 in the respective sums of say 40,000, 26,000, 14,000, 8,000, 5,000, 4,000, 2,000 and 1,000 there would be as many as 100,000 votes, if all creditors decided to vote. In the real world not surprisingly, only some creditors exercise their right to vote. Of those that do vote, no less than 75% of the cast votes must be in favour of the IVA for it to be approved and to be binding on all the creditors, which includes those who did not vote. Let’s look at some examples of how the vote might go.
Creditor A: 40,000 Creditor B: 26,000 Creditor C: 14,000 Lender D: 8,000 Lender E: 5,000 Lender F: 4,000 Creditor G: 2,000 Lender H: 1,000
Assume that just creditor H chooses to vote and accepts the proposal, then that decision is binding on the rest of the creditors and constitutes 100% approval.
Suppose lender B votes to reject the offer with all other lenders voting to consent to it, then the offer is rejected as just 74% voted to accept it and that decision is binding on all lenders.
Suppose creditor E votes to accept the proposal and creditor H votes to reject it and none of the other creditors cast a vote, then the proposal is accepted as that constitutes over 83% acceptance and that decision is binding on all creditors.
Finally assume creditors A & B vote to accept the offer and all other creditors vote to reject it, then the offer is accepted with 76% voting for it and that decision is binding on all lenders.
Plainly there are numerous alternative possible voting scenarios in this sample case. Everything is determined by whether creditors decide to vote, on what their relative voting strengths are and of course on exactly how they choose to vote. The nominee is responsible for summoning creditors to the meeting of creditors but even a creditor who has not received notice of the meeting remains bound by its final decision. However a lender who didn’t receive notice of the meeting may dispute the final decision of the meeting on one of two grounds: that the accepted IVA unfairly prejudices their interests or that there has been some material irregularity at or in regards to the meeting of creditors. There are deadlines for a creditor to make this sort of challenge.
Lenders constantly propose adjustments to a debtor’s IVA offer. Many such changes are intended to raise the projected dividend to lenders. They may for instance require the borrower to make increased monthly payments than what was initially offered or to pay in a lump sum coming from for example the release of equity from re-mortgaging a property. The borrower may choose to agree to these kinds of changes, to propose alternatives to the adjustments or to refuse to agree to some or all of them, generally giving reasons why they are not appropriate. The chairman of the meeting will discuss the debtor’s response to alterations with the lenders and creditors may choose to alter or even remove the modifications, when the debtor has made a convincing case. Nevertheless, if the debtor refuses point blank to accept the alterations and creditors aren’t agreeable to changing or eliminating them, then the offer is normally rejected.
The last option open to lenders is a straightforward rejection of the debtor’s proposal as is their prerogative, because they did furnish credit to the debtor and can demand that it be entirely repaid provided that their decision is made in compliance with the principles of dealing with their client fairly. In rejecting an IVA proposal outright, lenders may feel for example that the IVA proposal is a totally inadequate effort at repayment or they may think that the prospects of the borrower adhering to the conditions and terms of the IVA are poor.
National Debt Relief is helping Thousands of clients deal with the money they owe every 4 weeks. Specialising in the IVA/Individual Voluntary Arrangement and Debt Management/Debt Management Plan, we’re able to successfully put you in a legally binding or perhaps a flexible plan tailored to suit your circumstances. We don’t charge upfront fees for our IVAs/Individual Voluntary Arrangements.