The new IVA Protocol is half a world away from its predecessor. In most respects, the changes are welcome. While Dear IP highlighted the main changes, many more adjustments are hidden away in the detail. The new template Annexes have also added lots more items worthy of a blog post.<\/p>\n\n\n\n
In this post, I\u2019ll explain the changes to the Proposals themselves and the Standard Terms and Conditions (\u201cSTC\u201d). In the next blog, I\u2019ll look at the other Protocol changes around dealing with debtors and introducers etc. and how to administer the IVA.<\/p>\n\n\n\n
In this post, I look at:<\/p>\n\n\n\n
I am sorry for the length of this post! I didn’t want to miss anything out that could trip you up.<\/p>\n\n\n\n
The new Protocol and associated docs are available from: https:\/\/www.gov.uk\/government\/publications\/individual-voluntary-arrangement-iva-protocol<\/a><\/p>\n\n\n\n <\/p>\n\n\n\n Where did the April-21 versions go?<\/u><\/strong><\/p>\n\n\n\n The new Protocol and STC were originally released on the .gov.uk website on 29 April 2021. Dear IP 126 announced that the new Protocol etc. could be used immediately and that they would become mandatory for all new Protocol-compliant Proposals issued to creditors after 1 August 2021.<\/p>\n\n\n\n Then, on 2 August 2021, the April Protocol and STC were replaced on the .gov.uk website by amended versions.<\/p>\n\n\n\n In some respects, this was welcome \u2013 the InsS managed to fix some inconsistencies that I was trying to find the time to write to them about. However, what I cannot fathom is why they removed the April 21 STCs.<\/p>\n\n\n\n The many Covid-19 changes to existing IVAs announced by the IVA Standing Committee give me the impression that the Committee considers STCs to be moving feasts in any event, able to be changed unilaterally simply by saying it is so, much like a bank announces changes to the terms of its products. Guys, I don\u2019t think that\u2019s how it works. Surely an IVA must be administered according to the terms agreed by the debtor and the creditors; you cannot sneak in changes to the STCs without approval of the parties.<\/p>\n\n\n\n The new STCs are whizzy, containing hyperlinks that take you to other relevant clauses. Therefore, I wonder what firms did when they issued IVA Proposals in May, June and July. Did they reproduce the April 21 STCs on their own websites and\/or circulate them to the debtors and creditors\u2026 or did they simply provide a link to the .gov.uk version? If they did the latter, then it will not be easy to track what STCs had been incorporated into which IVAs.<\/p>\n\n\n\n Given that it is evident the Insolvency Service has no qualms about slipping in changes to the STC published on https:\/\/www.gov.uk\/government\/publications\/individual-voluntary-arrangement-iva-protocol\/iva-protocol-2021-annex-1-standard-terms-and-conditions<\/a>, it seems essential that IP firms reproduce the STC on their own website so that they \u2013 and the debtors and creditors \u2013 can have some certainty about which terms apply in each case.<\/p>\n\n\n\n <\/p>\n\n\n\n Were the changes to the 2 August version material?<\/u><\/strong><\/p>\n\n\n\n Well firstly, the Protocol itself doesn\u2019t form a part of the IVA, so the changes there have no effect on IVAs proposed.<\/p>\n\n\n\n The STC changes were, as Dear IP 133 had announced:<\/p>\n\n\n\n The April-21 version stated that \u201cif a re-mortgage can be obtained, the agreement will be automatically be (sic.) reduced to 60 months\u201d. The Aug-21 version now reads: \u201cif a re-mortgage cannot be obtained, the agreement will remain at 72 months. If equity is released the term will be reduced to 60 months\u201d. <\/p>\n\n\n\n So yes, the Aug-21 version is certainly tighter \u2013 at least now the IVA duration won\u2019t change just because a re-mortgage can be <\/em>obtained \u2013 but I think it still leaves wriggle room as regards the amount <\/em>of equity that must be released in order to cut 12 months off the IVA. Although the STC explain further what \u201cequity to be released\u201d means, I think a debtor could argue that they had met the terms simply by releasing some <\/em>of the equity.<\/p>\n\n\n\n Actually, this part of the Protocol has not changed, but the STC have. Now, the STC contain a detailed redundancy pay clause, which does not appear to change the debtor\u2019s obligations from the April-21 version.<\/p>\n\n\n\n A change that is not listed in Dear IP 133 is the addition to the STC of:<\/p>\n\n\n\n Unless this was included in the Proposal itself (and it is not included in the Protocol\u2019s Annex 4, Proposal template), any PCIVAs issued with the April-21 STCs do not contain this requirement or anything like it.\u00a0 That could make for some interesting debates with debtors!<\/p>\n\n\n\n <\/p>\n\n\n\n Material changes to home equity treatment<\/u><\/strong><\/p>\n\n\n\n The changes between the 2016 and the Apr-21 STC are vast. The most material relate to the structure of IVAs where there is a property. <\/p>\n\n\n\n There are now three alternatives:<\/p>\n\n\n\n The Protocol actually provides a fourth option:<\/p>\n\n\n\n What is the de minimis amount?<\/strong><\/p>\n\n\n\n This isn\u2019t defined in the STC. Personally, I think it should be: after all, what will happen if a future Protocol revision changes the amount? <\/p>\n\n\n\n The Protocol sets the de minimis at \u00a35,000 (or \u00a310,000 for a property jointly owned by two people proposing interlocking IVAs).<\/p>\n\n\n\n What is \u201cavailable equity\u201d?<\/strong><\/p>\n\n\n\n Again, this is not defined in the STC. The Protocol states: \u201cThe value of the consumer\u2019s equity will be considered de minimis if it is \u00a35,000 or less when valued before the IVA proposal is put to creditors. The calculation should be based on 85% of the value of the property less any secured borrowings (e.g. mortgage). This means that the consumer will retain at least a 15% financial interest in the value of the property in all cases.\u201d<\/p>\n\n\n\n Mmm\u2026 so \u201cequity\u201d doesn\u2019t <\/em>mean equity then. It means 85% of the equity.<\/p>\n\n\n\n Annex 5 of the Protocol also describes \u201canticipated equity\u201d, which involves projecting both the property value (\u201cusing the simple interest formula at the date of the review\u201d) and the mortgage position at month 54. It is not clear to me what should be done with this \u201canticipated equity\u201d figure: I don\u2019t think it is meant to determine whether the equity is above or below the de minimis, but is it intended to be the figure that the debtor must introduce to the IVA from month 54 if their IVA is to drop to 60 months\u2019 long? Annex 7, the EOS template, doesn\u2019t mention anything about projected equity values, so I really don\u2019t know!<\/p>\n\n\n\n To be honest, although the STC include lots of statements about the upper<\/em> limits of re-mortgage (e.g. a re-mortgage would bring the amount secured to no more than <\/em>85% of the total value of the property), I found it very difficult to identify what minimum<\/em> payment would satisfy the \u201cavailable equity\u201d release condition.<\/p>\n\n\n\n What if the second valuation doesn\u2019t <\/em>\u201cconfirm the equity position\u201d?<\/strong><\/p>\n\n\n\n It isn\u2019t clear what \u201cconfirm the equity position\u201d means. How different from the equity position presented in the Proposal can it be before it is no longer \u201cconfirmed\u201d? If it is way different, then can the IVA end at month 60 if nevertheless the available equity is released? <\/p>\n\n\n\n Presumably, this provision is meant to address situations where the equity turns out to be less than the de minimis at month 54. In this case, I would expect the IVA to drop to 60 months, but neither the STC nor the Protocol make this point.<\/p>\n\n\n\n At least the debtor should have a better idea of what is expected of them<\/strong><\/p>\n\n\n\n The Protocol requires that \u201ca copy of the calculations\u201d \u2013 i.e. how the equity is proposed to be dealt with in the IVA \u2013 \u201cshould be provided to the consumer and also to all their creditors within the scope of the IVA proposal\u201d.<\/p>\n\n\n\n Is the equity treatment clear in the Proposal template?<\/strong><\/p>\n\n\n\n I have real problems with the Proposal template, which is provided as Annex 4 to the Protocol. As regards the equity treatment, the Proposal template gives me the following concerns:<\/p>\n\n\n\n Can the property be sold?<\/strong><\/p>\n\n\n\n The Proposal template contains an interesting scenario. Para 6.5 states that, in the event that the debtor sells their home at any time in the IVA and pays in the sale proceeds less costs, \u201cthe additional remaining payments will no longer be payable into my IVA\u201d even if the funds are insufficient to clear the debts and costs. So\u2026 a debtor with minimal equity sells their home early on in the IVA, pays in the small amount of sale proceeds\u2026 and then they are not required to pay in any more income-related contributions?!<\/p>\n\n\n\n I cannot see that this is an expectation of the Protocol.\u00a0 All it states is that, if a property is sold, then the proceeds of sale to the extent of settling the costs and debts in full \u2013 excluding statutory interest \u2013 shall be paid into the IVA.<\/p>\n\n\n\n <\/p>\n\n\n\n Is statutory interest not payable for early completion?<\/u><\/strong><\/p>\n\n\n\n Yep, that\u2019s what the STC say.\u00a0 However, Para 5.1 of the Proposal template states: \u201cThe IVA will finish when the agreed level of payments have been made or I have paid creditors together with the costs of the IVA in full and with statutory interest\u201d.<\/p>\n\n\n\n <\/p>\n\n\n\n Are there other issues with the Proposal template?<\/u><\/strong><\/p>\n\n\n\n Yep. I have lots of minor gripes (like reference to an irrelevant \u201c3.1\u201d), but some other material ones are:<\/p>\n\n\n\n Do these inconsistencies matter?<\/strong><\/p>\n\n\n\n The STC state that, \u201cin the event of any ambiguity or conflict between the terms and conditions and the proposal and any modifications to it, then the proposals (as modified) shall prevail\u201d. So, yes, as always the Proposal takes precedence. <\/p>\n\n\n\n So, if the Proposal reverses or negates the apparent intended effect of the STC, can the Proposal be called Protocol-compliant? Surely not\u2026 except if the Proposal simply follows the Protocol\u2019s Proposal template annex, then presumably it\u2019s ok..?<\/p>\n\n\n\n Are IPs obliged to use the Proposal template?<\/strong><\/p>\n\n\n\n It is not at all clear. The 2021 Protocol repeats the previous Protocol\u2019s introduction that \u201cWhere a protocol IVA is proposed and agreed, insolvency practitioners and creditors agree to follow the processes and agreed documentation\u201d. But, apart from the contents list, there is no specific mention in the Protocol to the Proposal template. Contrast this with specific reference to Annex 6, which gives examples of how an IP might comply with the Protocol\u2019s new requirement to \u201cset out details of how the funds received\u2026 will be allocated towards the costs of the IVA, together with a timetable and schedule of expected payments to creditors\u201d (which interestingly is a document that is not mentioned in the Proposal template!).<\/p>\n\n\n\n So is the Proposal template intended to be just for guidance?\u00a0 Given its departures from the Protocol and STC, it cannot be intended to over-ride it all, can it?<\/p>\n\n\n\n <\/p>\n\n\n\n What about the other templates?<\/u><\/strong><\/p>\n\n\n\n The Proposal template states that attached is a \u201ccombined outcome and Statement of Affairs\u201d. Annex 7 is clearly solely an estimated outcome statement, not a SoA. <\/p>\n\n\n\n Annex 3, which is an \u201cexample\u201d letter to send to the debtor along with the draft Proposal, does not mention that a SoA (i.e. one that complies with the Act\/Rules) is enclosed and there is no reference to a Statement of Truth, which the debtor is required to provide to the IP per R8.5(5). The letter also contains the old pre-29 June DRO thresholds.<\/p>\n\n\n\n Again, it is not clear whether IPs must use these templates. \u00a0I also appreciate that it will be difficult to maintain templates to deal with changes in legislation or SIPs\u2026 but, hey, that\u2019s what we all have to do, isn\u2019t it?<\/p>\n\n\n\n <\/p>\n\n\n\n Some things never change<\/u><\/strong><\/p>\n\n\n\n One of the obvious changes needed to the STC was to bring it into line with the 2016 Rules as regards the various decision procedures. Way back in April 2017, Dear IP 76 had expressed the Insolvency Service\u2019s expectation that supervisors \u201ctake advantage of the new and varied decision making procedures that are available under the Act as amended and the 2016 Rules\u201d.<\/p>\n\n\n\n Did someone forget this expectation?\u00a0 The new STC still<\/em> refer solely to \u201cmeetings of creditors\u201d that may be called during the course of the IVA.\u00a0 As the STC state that they be called \u201cin accordance with the Act and the Rules\u201d, we are talking about only virtual meetings here.\u00a0 What is evident, however, is that it does not include electronic or correspondence votes.<\/p>\n\n\n\n <\/p>\n\n\n\n Other STC changes<\/u><\/strong><\/p>\n\n\n\n There are some relatively minor changes introduced by the new STC \u2013 I would love to give you paragraph references, but crazily the STC no longer have para numbers!<\/p>\n\n\n\n <\/p>\n\n\n\n The consequences<\/u><\/strong><\/p>\n\n\n\n All these intricate changes will complicate systems and procedures, as you will need to be alert to which terms apply to which IVAs you\u2019re administering. As you can see, it would also be valuable to refresh your Proposal template to ensure that it corresponds with the new STC, plugs the gaps and eliminates ambiguities. <\/p>\n\n\n\n If you do choose to use the Protocol\u2019s Proposal template, I recommend that you give it some tweaks to make sure it is SIP3.1-compliant (as well as tailored to your own practices, as some clauses are quite bespoke) and that it does not stray far from the new Protocol and STC.<\/p>\n\n\n\n <\/p>\n\n\n\n More changes<\/u><\/strong><\/p>\n\n\n\n These are only Protocol changes affecting the Proposal and STC. In the next blog, I\u2019ll look at the other changes including new requirements as regards advising debtors and liaising with introducers.<\/p>\n","protected":false},"excerpt":{"rendered":" The new IVA Protocol is half a world away from its predecessor. In most respects, the changes are welcome. While Dear IP highlighted the main changes, many more adjustments are hidden away in the detail. The new template Annexes have … Continue reading