The effect of a bankruptcy order on an individual voluntary arrangement (IVA), its assets, and the creditors
Produced in partnership with Iain Pester of Wilberforce Chambers
The effect of a bankruptcy order on an individual voluntary arrangement (IVA), its assets, and the creditors

The following Restructuring & Insolvency guidance note Produced in partnership with Iain Pester of Wilberforce Chambers provides comprehensive and up to date legal information covering:

  • The effect of a bankruptcy order on an individual voluntary arrangement (IVA), its assets, and the creditors
  • The gap in the insolvency legislation
  • Circumstances in which a bankruptcy order may be made against a debtor despite the IVA
  • Effect of a bankruptcy order on the IVA creditors and the IVA assets
  • Effect of completion of an IVA on the IVA creditors and the IVA assets

The gap in the insolvency legislation

It is a striking gap in the drafting of the insolvency legislation that the effects of the making of a bankruptcy order on an individual voluntary arrangement (IVA) are not spelled out in the legislation. The consequences flowing from the making of the order have therefore been derived by the courts.

The starting point is that, where a bankruptcy order has been made, either on a petition brought by the supervisor or a creditor bound by the IVA, the IVA comes to an end. While not spelt out by the legislation, this is implied from the fact that section 276(2) of the Insolvency Act 1986 (IA 1986) provides that any expenses properly incurred in the administration of the IVA should be a first charge on the bankrupt’s estate. The courts have picked up on this.

This can be contrasted with the position where a bankruptcy petition is brought by a creditor who is not bound by the IVA. In those circumstances, the weight of authority supports the view that the making of a bankruptcy order does not automatically bring the IVA to an end for all purposes, at least where there is no breach of the IVA which would have entitled either the supervisor, or a creditor bound by the IVA, to bring a petition