The personal debt space is in a bit of a mess at the moment, with a variety of stakeholders and regulators trying to make changes amid turbulent conditions. The ASA is clamping down on inappropriate advertising, albeit not before time. IPs are being held more accountable for their supervision and control of cases in volume IVA providers, also not before time. The Insolvency Service is pushing for firms to be regulated, rather than the IPs that hold the statutory office, yet again not before time. The “new” Insolvency Rules have recently been reviewed for effectiveness. The Single Financial Statement (SFS) has recently been uplifted to allow for rising inflation. All of this seemed to be travelling in the right direction and the cowboys were being pushed out of personal insolvency, or at least corralled into areas where they could cause less trouble. Then we received a draft of the silliest Dear IP that the Insolvency Service has seen fit to consider publishing for many a year. Read on…as it seems to us that someone has lost the plot.
The IVA Protocol Standing Committee, which is made up of IP, regulator, creditor and other representatives, all of whom should have the basic knowledge of insolvency necessary to know what they can and cannot do, is understandably concerned that rising inflation is putting IVA contributions under pressure. Their suggested response ignores the basic premise of an “Individual” voluntary arrangement, actively encourages IPs not to follow the legislation, and proposes a series of measures that are fraught with dangers and potential legal challenges. We are not often completely baffled, but we really do not understand how this proposal got as far as a draft Dear IP. They even drafted guidance to accompany it!
The idea is that if a debtor cannot afford their current payments and they fall into certain parameters, an IP should be allowed to make changes to the agreed arrangement using the deemed consent procedure. No matter how they dress it up, and frankly there are somethings that you cannot polish, this is a variation. A variation has to be approved by the same requisite majority as the original approval, i.e. 75% or more of the voting creditors. Nothing in the legislation allows an IP to use deemed consent for a variation and we also think that it is risky in practice. Deemed consent cannot be modified or adjourned, so if a creditor wants to object or even allow a different payment, whether lower or higher, a decision procedure will have to be held instead. The Dear IP even suggests, ignoring the concept of an “individual” voluntary arrangement, that a supervisor might give notice of a deemed consent decision for multiple clients in one notice, so if a creditor objects, do all of the cases have to have fresh decisions? Or is there some way to cherry pick the affected cases?
The whole document is so fundamentally flawed that it seems unfair to pick individual areas that don’t work, but nobody could ever accuse us of ranting fairly. The Dear IP suggests that if payments drop below 50% of the original payment, they are unlikely to be sustainable and the IP should refer the client to an FCA authorised advisor for an alternative…but the client is still in an IVA, which will now be in breach and should be terminated. The Dear IP suggests that where it appears that the debtor has no assets and a DRO or Bankruptcy is the only likely alternative, the IP should consider proposing a “payments to date” completion. That seems very generous and not entirely in keeping with an IP’s duty to balance the interests of debtors and creditors and enforce the arrangement. Where in the legislation does it say that the IP should just shrug and say “Why not let them off, they tried!”?
Who is going to pay for those variations anyway? The supervisor will have to do the work in reviewing the IVAs and convening the decision procedure, so should be recompensed for that work. The Dear IP blandly refers to SIP 9 in connection with a variation, but when taken with the suggestion, no matter how barking, that deemed consent should be used, the implication is that a regulator will look closely at the fees charged by a supervisor who does not use a deemed consent procedure.
The Dear IP suggests that if payments are reduced, up to 12 months’ additional contributions could be proposed, as long as it does not take an IVA beyond 7 years. Think about that, 7 years! How can that be a fair and appropriate debt solution?
Furthermore, the guidance says “This guidance should be applied” – that means it has to be applied. They are telling you that you have to disregard the legislation. How can they do that? They then go on to say that in non-Protocol cases, if the creditors and consumer agree, the same approach can be adopted. It does not say how that consent would be evidenced. More deemed consent? Smoke signals?
You may have gathered that we are not impressed. Shoddy quasi-regulation like this that undermines the legislation and SIPs can only damage the profession and sow confusion. The consumers and creditors that the profession aims to serve will be harmed in the process and IPs will be left in the middle. If challenged at court, is an IP going to be able to say that despite knowing that the legislation and SIPs required a certain series of steps to deal with individuals, they adopted a blanket policy that did not comply with any of it, just on the say-so of the Insolvency Service and a bunch of industry stakeholders, without any basis in law or consultation on its implications? If the Insolvency Service think that the current statutory based IVA regime is no longer suitable for consumer debt creditors as it is too complex and unwieldy, then they should introduce legislation to do something about it.
GGT! Or something like that.
