We have seen several examples this year of regulators taking IPs to task for failure to comply with the terms of voluntary arrangements. It doesn’t matter whether you deal in one or two arrangements a year or cater to the volume domestic debt market, your licence and bank balance are at risk if you allow yourself discretion as supervisor that the arrangement has not specifically allowed for.
The most common cause for complaint is when the arrangement has not been failed as required in the proposals and modifications. If you think that a modification is unduly harsh, you must be pro-active at an early stage and seek to have it softened to give you some leeway. One example is where a modification requires you to fail the arrangement and petition if payments fall into arrears. You need to ask the creditor to allow a reasonable amount of professional judgement, or at least reduce the requirement in order to allow you to convene a meeting of creditors to seek their wishes before formally failing the arrangement. Without this, you could be left in the position of being required to petition when you have no funds to do so, or having to fail an arrangement when the circumstances of the case suggest that the debtor may have been able to propose a variation if the arrangement allowed it.
Some IPs expressed surprise that the regulators are taking such a firm stance. What you have to remember is that the VA is a contract that gives you certain powers. Unlike other insolvency procedures, statute gives little guidance on what you can and cannot do, so if you act outside the strict arrangement terms, you are acting without authority. You are not acting as supervisor any more and this could invalidate your bond and PII cover, prevent you from charging fees and potentially leave you open to personal liability, as you would no longer have the protection afforded to office holding IPs.
We are only too aware that the major creditor handlers are less than flexible in their approach, but you must use the same enthusiasm that some IPs reserve for trying to save a failing arrangement to ensure that the original arrangement is structured to give you room to manoeuvre. Alternatively, you must accept that when an arrangement is failing you have to adhere to the letter of the original arrangement, however inequitable that may seem to the individual debtor and even though it flies in the face of what seems best for the creditors as a whole.
