Insolvency Practitioners Association responds to Insolvency Service research into Individual Voluntary Arrangement market concerns
17 October 2024
As the UK’s only regulator dedicated solely to Insolvency Practitioners, the Insolvency Practitioners Association (IPA) welcomes the opportunity to review today’s published research findings from the Insolvency Service on Individual Voluntary Arrangement (IVA) market concerns.
The research focus was narrow, looking at a sample of 310 IVAs which had been terminated in the two years to September 2023, the reasons for their termination, and how the providers had first taken on the consumers. This sample represents under 0.2% of total number of IVAs registered and around 3% of those terminated in the same period.
The research reported that in 25% of the sample excellent practice was demonstrated, with providers explaining IVAs clearly to consumers and presenting other ways in which they could manage their financial difficulties. In the other cases, however, the research found gaps in how the consumers had been ‘taken on’ to their IVA. The research notes that, in 24% of cases, the consumers themselves decided that termination of their IVA was the appropriate course of action in their particular circumstances.
The report acknowledges that IVAs provide an important structured solution to many individuals who find themselves in financial difficulty. In the process of our regulatory activity, the IPA has not identified concerning levels of IVA failure rates. Indeed, in order to reduce the risk of failure, the IPA in 2023 updated our requirements to reinforce the requirement that Insolvency Practitioners ensure their consumers receive adequate advice in accordance with the revised Statement of Insolvency Practice (SIP) 3.1. Other changes include the ban by the Financial Conduct Authority on ‘debt packagers’ (firms that refer potential clients to personal insolvency firms for a fee) and the effects of these changes will not have been captured in the published research.
The IPA continuously monitors the debt advice provided by those it regulates. In 2023, a total of 14,574 IVAs failed by ending prematurely, representing only 5.8% of the number of IVAs that we regulate overall. This means that, for the majority of consumers, an IVA has the potential to be an appropriate financial solution to their debt.
However, the IPA has long called for the regulation of firms providing IVAs to consumers, rather than, as at present, just the regulation of the Insolvency Practitioners these firms employ. The IPA introduced the UK’s first profession-wide scheme to regulate large providers of personal debt solutions, including IVAs. We have detailed oversight of these firms and how they operate, so that we can identify and address any risks of harm to consumers. This voluntary scheme is currently the best means of maintaining standards in the sector, and we welcome the government’s commitment to introduce statutory regulation of firms providing debt solutions. We look forward to working with the Insolvency Service and others to continue our regulatory role to ensure high-quality services are provided in this important market to those in need.
ENDS
Notes for editors
IPA Benchmark Report
Click here to access the IPA’s latest Benchmark Report on its voluntary scheme to regulate debt solution firms (the Volume Provider Regulation (VPR) Scheme).
Overview of Individual Voluntary Arrangements
An Individual Voluntary Arrangement (IVA) is a formal agreement available in England and Wales for the repayment of personal debt. It must be set up by an Insolvency Practitioner and fees are charged for the service. The Insolvency Practitioner agrees a payment plan between the individual and their creditors and manages the process from start to finish. The payment plan may involve a lump sum, monthly payments or a combination of the two. An IVA involving monthly payments usually lasts for 5-6 years. If the individual’s income increases for any reason, creditors will usually be entitled to an increased sum in repayment. There are no minimum or maximum debt limits to enter into an IVA, but due to the fees involved, an IVA must only be entered if it is the most appropriate debt solution for the consumer. There is normally a set-up fee charged for an IVA and a handling fee for each payment made.
Insolvency Practitioners
Only a licensed Insolvency Practitioner may be appointed in relation to formal insolvency procedures in the UK. Insolvency Practitioners often have a background as an accountant or lawyer. In the UK there are four organisations, known as Recognised Professional Bodies (RPBs), which are responsible for licensing and regulating Insolvency Practitioners.
For further information, please contact:
ipa@trafalgar-strategy.co.uk
Tel: 020 7043 1308