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.'
Source: accountancyage.com
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