IVA factories come under fire
Insolvency practitioners have voiced concerns that so-called IVA factories often give the wrong advice
Practitioners argue that the increasing numbers of IVAs entered into prove
that the wrong advice is provided. IVAs can prove onerous upon individuals, so
the bankruptcy route should be encouraged more often, bankrupts being discharged
from most of their debts after just one year. IVA terms can last for several
years.
With IVAs rising to over 12,000 in England and Wales for Q3 2006, then, the
new regulatory regime announced last week was not, in some ways, a surprise.
The new regime could see IVA figures fall, practitioners are suggesting.
The Insolvency Practitioners Association and debt management firms have got
together to create a regulator to ensure good practice for the provision of
financial advice, while the Debt Resolution Forum has also been set up to help
create standards while also representing these businesses as a lobby group.
It is argued that better advice will be given to debtors, meaning more
bankruptcies and less IVAs.
Philip Long, PKF head of corporate recovery, says there will be more
bankruptcies as it offers a real solution to debtors.
‘Bankruptcy offers a fresh start,’ Long says.
Long adds that even with the prospect of the ‘simple’ IVA’s introduction in
the future, which should offer a cheaper and faster entry into an IVA, a
regulator should create the effect of lowering IVA numbers.
‘Even if simple IVAs have an initial effect of pushing up IVA numbers, you
have to think about what is the best advice for debtors. If you do that then
bankruptcy’s the answer,’ says Long.
R3 president Tony Supperstone is unsure whether regulation will see IVA
numbers drop, but believes a regulator will make debt managers give debtors a
wider range of options.
‘Sometimes bankruptcy is the best option, not just IVAs. R3 supports any move
towards regulation.’
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The IPA is setting up the independent regulator, which will have the power to
fine and publicise debt management companies if they fail to act appropriately
for creditors or debtors within the rapidly growing individual insolvency
market.
IPA chief executive Nick Sabin said the regulator’s biggest power would be to
publicise its findings.
