What about the fees of an IVA?

One of the benefits perceived by creditors and debtors alike for IVAs is that the fees incurred tend to be much less than those seen in Bankruptcy where there are court costs and fees of the Official Receiver (which can often be seen as a tax on a debtor’s estate).

In essence there are two separate fees incurred in an IVA:

  • Nominee Fee
  • Supervisory Fee

Nominee IVA Fee

These represent the two stages of the IVA process, with the Insolvency Practitioner representing the debtor during the Nominee phase, when the IP will deal with:

  • Gathering all of the information and supporting documentation required to determine if an IVA is the right solution and workable.
  • Preparation of the IVA Proposal
  • Preparing all the documentation for the creditors
  • Sending the Proposal to the creditors
  • Setting a date for the Creditors’ Meeting and conducting that Meeting, recording the votes/results with a Chairman’s Report.

To cover the costs of the work involved in this part of the process, the IP is entitled to charge a fee known as a Nominee Fee. This fee nowadays tends to be fairly standard at around 5 times the monthly contribution made by the debtor into the IVA, inclusive of VAT – e.g. an IVA with monthly contributions of £300 will pay a Nominee Fee of around £1500 (inclusive of VAT).

Insolvency Practitioners are allowed to draw these fees from the IVA (NOT separately in addition to your contributions) as and when there are funds in the IVA account which they will have set up for you, and before any distribution of funds to the creditors.

Supervisory IVA Fee

Having gained approval from the creditors for the IVA, the Insolvency Practitioner’s role changes to that of the Supervisor of the IVA, charged with ensuring that the terms and conditions set out by the IVA and agreed to by the debtor and creditors are carried out, and to ensure that the creditors receive what they expect to get from the IVA.

In supervising the IVA, the Insolvency Practitioner will:

  • Regularly report to the creditors about the performance of the IVA, including detailing any instances where you have not made the required payments into the arrangement.
  • Obtain proof of the debts set out by the creditors so that claims by creditors are verified.
  • Regularly review your financial situation, including a review of your income and expenditure, to ensure that you can continue to afford the arrangements, and pay further sums where you have received bonuses or overtime etc.
  • Set out changes needed to the IVA arrangements if your circumstances have changed materially (known as Variations) which need to be formally voted upon again by the creditors.
  • Distribute funds to the creditors and deal with matters such as release of equity in your property where this is a requirement.
  • Duly account for all receipts and payments out of the IVA account.

As payment for these duties, the Insolvency Practitioner is entitled to charge a Supervisory Fee to the IVA account, usually amounting each month to around 15% of the monthly contribution paid into the IVA by the debtor (excluding VAT). This fee, however, cannot be drawn until distributions of funds are made to the creditors – in effect ensuring that the Insolvency Practitioner shares the risks of the IVA success with the creditors.