Effect of an individual voluntary arrangement (IVA)
Produced in partnership with Philip Hinks of 3 Verulam Buildings
Effect of an individual voluntary arrangement (IVA)

The following Restructuring & Insolvency guidance note Produced in partnership with Philip Hinks of 3 Verulam Buildings provides comprehensive and up to date legal information covering:

  • Effect of an individual voluntary arrangement (IVA)
  • Effect of IVA on unsecured creditors
  • Effect of IVA on secured creditors
  • Effect of IVA on proceedings against the debtor
  • Effect of IVA on third parties
  • Completion and default of an IVA

Effect of IVA on unsecured creditors

The effect of the approval of an individual voluntary arrangement (IVA) is set out in section 260(2) of the Insolvency Act 1986 (IA 1986). This provides that an approved IVA:

  1. takes effect as if made by the debtor at the time the creditors decided to approve the IVA proposal, and

  2. binds, as if they were a party to the arrangement, every person who in accordance with the rules was entitled to vote at the time the creditors decided to approve the IVA proposal or would have been so entitled had they had notice of it

An IVA becomes effective as a result of the approval given by the creditors—no court order is required. As a matter of legal analysis, an IVA operates as though a consensual agreement was entered into between the debtor and each of their creditors at the time the IVA was approved (see Lloyds Bank plc v Ellicott at para [51]). This agreement is, however, extended by IA 1986, s 260(2) to those creditors who either voted against the IVA or who were otherwise entitled to vote.

Creditors who were not given notice to consider the IVA proposal will nonetheless be bound by the IVA. This is in stark contrast to the position that was in place before the coming into force