Banks' attitude to IVAs under fire

Insolvency practitioners have stepped up their attack on banks’ attitude to
the individual voluntary arrangement process, after the latest statistics
revealed a decrease in the number of IVAs in the second quarter of 2007. IVAs
fell by more than 15% on the previous quarter to 10,698, while bankruptcies fell
2.9% to 16,258. ‘The hurdle rates that some creditors are now imposing are in
nobody’s interests,’ says R3 vice-president Nick O’Reilly.

‘The people who will suffer as a result are the debtors, who in many cases
will be denied the most suitable technique for managing their debt, and which
could help them work their way out of debt. R3 believes that in the correct
circumstances, an IVA can prove to be beneficial for both creditor and debtor.’

‘If banks are too hard [on IVA proposals] they might drive some through to
bankruptcy,’ argues Pat Boyden, an expert in personal insolvencies at
PricewaterhouseCoopers business recovery services.

David Mond, CEO of AIM-listed IVA provider ClearDebt, says there is no reason
for IVA figures to drop in the current economic climate, blaming creditors for
blocking peoples’ right to resolve their debt and other IVA providers for
charging too much for their services.However, Mark Allen, Grant Thornton’s head
of IVAs, thinks the industry is close to adopting a fee structure and code of
practice that will align fees of IVA firms to the return to the creditors and
increase the payments to creditors to provide market stability.

‘The establishment of an industry norm will create a consistency in the
market, which has not existed before, and ensure that the debt repayment process
involved in an IVA is transparent and addresses the concerns of creditors, the
debtor and the insolvency practitioner,’ says Allen.

An alternative viewpoint is offered by Philip Long, head of corporate
recovery at PKF. He believes that many seriously indebted people entering IVAs
will struggle to meet the onerous credit demands, even though less onerous than
informal debt management plans. Bankruptcy is the only real option, he argues.

‘People are in totally unmanageable situations,’ argues Long.

‘The best advice for a debtor is to go bankrupt. These people need a total
lifestyle change and bankruptcy affords them that. Then the true position would
be for bankruptcy figures to go up even more.’