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Packaged bad debt – Haven’t we been here before?

12 September, 2017Keith Pond

OK, so this is NOT a blog about the credit-crunch and the “packaging” of sub-prime mortgages but have I got your attention?

In many walks of life, goods and services that have previously been bespoke and individual have become packaged – holidays, 2 for 1 offers, almost anything with the word “kit” following the product description, prepared meals…the list goes on.  This phenomenon makes sense when dealing with the mass market – luxury goods will always be bespoke.

In insolvency markets, whilst the Insolvency Act 1986 heralded the option of Individual Voluntary Arrangement (IVA), it did not consider that it was addressing the mass market.  Indeed, Kenneth Cork thought that the flexible, tailored “deal” with creditors, at the heart of an IVA, would be suitable for professionals and unincorporated businesses -not the consumer debtors who would emerge with the expansion of personal credit in the 1990s.

The very title includes the words “Individual” and Voluntary” – just how valid are these as descriptors today?

The IVA and, latterly its smaller sibling, the Debt Relief Order (DRO) have grown in popularity.  According to Insolvency Service analysis of statistics in 2017 you are most likely to be insolvent if you are a female aged between 24 and 35 living in the North East.  IVAs and DROs are most often by females – so, based on my certain knowledge that women are always right, there must be something in it…

Insolvency graph 2

Source: Insolvency Statistics.

The growth in “market share” of these debt relief schemes in favour of bankruptcy has a number of drivers:

  • Greater awareness and knowledge of alternatives to bankruptcy.  After 30 years of IVAs and 8 years of DROs, the advice bureaux, insolvency practitioners, courts, friends and neighbours have more experience of what will work and what will not.
  • Greater acceptance of IVAs, in particular, by major creditors, including banks.  This has been facilitated by the IVA protocol. [1]
  • Greater provision of “packaged” debt relief deals by a small number of providers (sometimes called “IVA factories”)
  • Greater willingness of the Insolvency Service to hand over the management of IVAs to the private sector – subject, of course, to a level of policing and inspection of IVA practices.

So, the “Individual” part of the IVA can still be valid as a way of differentiating between this and Company VAs.

It’s clearly an “Arrangement” or contract between the debtor and the all creditors (well, if 75% of them assent anyway).

But can we really use the word “Voluntary” when the only other choices are Bankruptcy or the Bailiff?

[1] The IVA protocol was agreed between the British Bankers Association (now UK Finance) and representatives of the Insolvency bodies.  It provides an agreed methodology for establishing that the debtor’s offer to creditors is not only the best deal that is available in the circumstances but also that key elements have been verified.  This promotes a degree of clarity and certainty for IVA offers.


Insolvency Statistics, (2017) available at: https://www.gov.uk/government/news/2016-corporate-and-personal-insolvency-statistics

Insolvency Service, 2017, Individual Insolvencies by Location, Age and Gender, England and Wales, 2016available at:  https://www.gov.uk/government/statistics/individual-insolvencies-by-location-age-and-gender-england-and-wales-2016

Cork Report: Insolvency Law and Practice – Report of the Review Committee, 1982, Cmnd 8558. HMSO, London.

Dr Keith Pond is part of the team leading the Masters in Banking and Finance