What if repayment terms under a company voluntary arrangement or individual voluntary arrangement are breached as a result of the coronavirus (COVID-19) crisis?

What if repayment terms under a company voluntary arrangement or individual voluntary arrangement are breached as a result of the coronavirus (COVID-19) crisis?

Produced in partnership with Alison Curry of Insolvency Support Services

The obligations of a supervisor in connection with a breach of the terms of a voluntary arrangement will be set out within the proposal document and any standards conditions of application to it. A supervisor has only such the discretion as to what action to take in event of breach as is afforded by the terms to the voluntary arrangement they are supervising.

In connection with an individual voluntary arrangements (IVAs), there are two-widely used sets of standard conditions, those published by R3 and those that relate to IVAs conducted under the straightforward consumer IVA protocol. For company voluntary arrangements (CVAs) there are no standards conditions officially published, by commonly, practitioners will use a variant of the R3 conditions, appropriately amended to cater for a corporate matter.

These standard conditions confer slightly differing obligations and discretions on the supervisor (considered below), but in both cases, they state that the terms of the proposal itself take priority, so reference must always be made to the proposal document itself for any case-specific terms.

Straightforward consumer IVA protocol

The straightforward consumer IVA protocol is utilised in the majority of IVA cases (understood to be around 80%). In cases using these terms (to the extent that they have not been modified or varied), practitioners are afforded considerable discretion in relation to payment breaks:

‘…10.8 If a consumer is faced with an emergency item of expenditure or an unforeseen reduction in income and they are unable to pay either the full amount due or anything at all, then, subject to the discretion of the Supervisor, they may be allowed to take payment holidays or make reduced payments without a variation being required. This is subject to three conditions, all of which have to be met:

• (i) Full details of the inability to pay must be provided to the Supervisor's satisfaction;

• (ii) In total, no more than the equivalent of 9 months payments can be agreed to be missed in this way; and

• (iii) The duration of the IVA will be extended by no more than 12 additional months to recover the sums due, unless the consumer has otherwise made good the shortfall…’

Any missed payments agreed in this way should not be counted in the arrears of contributions which would be regarded as a breach of the IVA and details of this will be included in the next report to creditors.’

Additionally, the protocol terms provide supervisors with discretion as to what action to take in the event of breach; namely whether to issue a certificate of termination or alternatively seek the views of creditors.

R3 standard conditions

The R3 conditions do not contain these payment break provisions and are altogether more prescriptive in the actions required of a Supervisor. Under paragraph 71 breach provisions, the supervisor ‘…shall as soon as practicable issue to the Debtor a notice (Notice of Breach) identifying the breach and requiring the Debtor within one month of sending the notice’. Thereafter, if the breach is not remedied, then the Supervisor ‘shall as soon as practicable seek a decision of the creditors’ as to how to proceed, which may include varying the terms of the arrangement.


If the terms of the arrangement to not afford the supervisor with discretion (or sufficient discretion), they may need to convene a decision procedure to obtain a variation of the terms of the arrangements. It is reasonable to assume that creditors will act responsibly in relation to requests for variation.

Regulatory expectations

It is clear that the Insolvency Service and the insolvency regulators anticipate that practitioners will act reasonably and that there may be an element of regulatory forbearance afforded to them in these challenging times.

The principle insolvency regulators of England and Wales, (Institute of Chartered Accountants of England and Wales and Insolvency Practitioners Association) issued a joint statement on Friday 27 March 2020, which contains this statement:

• ‘For voluntary arrangements. we acknowledge that IPs will exercise their discretion when handling a specific VA and in the circumstances accept that the discretion afforded to IPs in order to manage cases affected by the current crisis is necessarily wide. IPs are reminded to document all decision-making and exercise of discretion.’

For more information on the effects of an IVA failing, see Practice Notes:

• How long does the individual voluntary arrangement last and what happens if it fails?

• The effect of a bankruptcy order on an individual voluntary arrangement (IVA), its assets, and the creditors

HMRC’s approach

On 27 March 2020, HMRC issued guidance to the effect that HMRC will support a minimum three month break from contributions from customers impacted by coronavirus and where the terms of a [voluntary] arrangement allow the supervisor discretion, we would expect that discretion to be exercised to its maximum, with reference to creditors only if essential. After the deferral period, from 1 July 2020, the supervisor or trustee representing a business or individual should be able to resume payments per the terms of any IVA, CVA and trust deed or contact enforcement and insolvency service to discuss a recovery time to pay arrangement depending on the circumstances (see: LNB News 30/03/2020 118).

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