On Thursday 17 October 2024, the Insolvency Service published its ‘Individual Voluntary Arrangements: Research into Concerns’ report. This report, which was commissioned in November 2023 by the Insolvency Service and carried out by RSM UK Creditor Solutions LLP, focused on concerns about the Individual Voluntary Arrangements (IVA) process in the UK. It was commissioned after concerns were raised about the way IVAs were being offered to people who signed up to them.

Summary

The research paper makes the following points -

(1)      Poor "take-on" practices: This refers to insufficient application of the requirements for setting up an IVA, as outlined in the relevant SIP 3.1 and the IVA Protocol.

(2)      IVA "mis-selling": While there is no agreed definition of IVA mis-selling, and some dispute its relevance, it is used to describe poor adherence to the relevant requirements of SIP 3.1 and the IVA Protocol.

(3)      Categories of poor take-on: The accuracy and review of the consumer’s income and expenditure (75% of cases), ensuring the consumer understood the terms of their IVA proposal (51%), other debt solutions incorrectly discounted (refused) by the consumer (51%), other debt solutions incorrectly disregarded by the insolvency practitioner’s staff (45%), and the category of ‘vulnerability’ (30%).

(4)      Impact of being referred to an IVA provider by a third party: There was no material difference when comparing IVAs referred by a debt-packager and those that were not, suggesting that the likelihood for poor take-on is unlikely to deviate regardless of the origin of a given IVA.

(5)      Impact of recent regulatory changes: The report does not cover the impact of recent regulatory changes, such as SIP 3.1 revisions and FCA action concerning debt-packagers, on the rates of poor take-on.

(6)      Aggressive marketing and affordability of repayments: There are reports of direct and aggressive marketing of IVAs towards people in financial distress, and cases where the required repayments were not affordable for the consumers.

(7)      Call handlers not complying with SIP 3.1: In 82% of cases where call data was provided, there was poor take-on, suggesting that call handlers are not sufficiently complying with the requirements of SIP 3.1.

(8)      Reasons for IVA termination: The primary reason for IVA termination in the dataset was consumers' arrears of payment, occurring in 74% of the cases.

(9)      Debt levels and dividend levels: The most prominent level of debt in the dataset was between £6,000 and £10,000, while the median dividend level was 22%.

(10) Further research: The report suggests further research into the impact of poor take-on on IVA termination and the extent of poor take-on in ongoing IVAs.

R3

While we acknowledge the concerns raised by The Insolvency Service and are keen that any instances of poor practice are addressed in consultation with the profession, we believe it is important to note that there are some limitations to the research, namely:

• It only looked at IVAs that terminated within two years, so it and its findings cannot be generalised to the whole population of IVAs;

• It was not looking to establish whether there was a link between the take-on experience of individuals and the termination/failure of their IVA;

• The research did not look to establish poor practice to a misconduct threshold; and

• A proportion of consumers opted to take on an IVA despite guidance / advice that it was not the best option.  

We also note this study looked at 310 IVAs that began and finished between 2021 and 2023. During this period of time, a number of changes were made to the rules and regulations around IVAs in an attempt to reduce the likelihood of anyone entering an IVA where there may be a more appropriate alternative option. The size of the research sample is also a very small percentage of the market during that period, when more than 233,000 people entered an IVA (1) according to the Insolvency Service’s figures.

Furthermore, between 2021 and April of this year, a number of changes have been made to other personal insolvency processes and these have had an effect on IVA numbers, as well as numbers for other personal insolvency processes, such as bankruptcies.

We are aware that IVAs are a valuable option for many people – one that allows them to benefit from the flexibility and greater degree of certainty over what contributions they need to make and what will happen to assets such as their family home than other processes provide. We therefore think members working in the volume IVA space should consider the research in full and review their own practices to ensure improvements have been made.

We will be continuing to work with the Insolvency Service to put members’ recommendations forward for improvement in the volume IVA space and for wider reform of the personal insolvency framework. The RPBs will need to take time to consider the findings of the research and explore how it may inform their approach to ensuring regulatory compliance in this area of the profession, if appropriate.