2018 saw the launch of a new IVA initiative. Andrew Smith, director, explains what drives it.

The Insolvency Panel Limited (TIP) is a social enterprise that aims to improve outcomes in individual voluntary arrangements (IVAs) for creditors, debt advisors, licensed insolvency practitioners and, most of all, debtors – as well as providing a new source of funding for free to client debt advice.

TIP, which launched on 5 February 2018, aims to restore trust in the IVA for advisors and creditors, which has been undermined in recent years by market changes and industry practice.

IVAs have been the most-used personal insolvency solution in England and Wales for many years, growing from just over 40,000 in 2015 to just short of 60,000 by the end of 2017.

IVAs: failing creditor and debtor?

Many reasons have been put forward for this growth, and not all of them positive. TIP’s view is that some of the rise is due to a switch from fee-charging debt management plans, caused by regulatory flight after the Financial Conduct Authority (FCA) became responsible for consumer credit regulation in April 2014.

Some former debt management plan providers have obtained authorisation from the FCA for debt counselling alone, and this has created a new source of IVAs for insolvency practitioners – some of which may be poorly advised.

This has undoubtedly contributed to a reduction in returns to creditors due to falling disposable incomes and reduced trust in the solution. Many free sector debt advisors are reporting approaches from clients who they feel have been shoe-horned into IVAs; the advisors frequently think the clients should have instead been advised to enter a debt relief order (DRO).

Should there be more IVAs?

TIP believes that with more than eight million people needing debt advice and only one in five receiving it (according to the Money Advice Service), the number of people who could be helped by an IVA far exceeds current numbers.

TIP believes that most IVAs are put in place appropriately and that the procedure is being held back more by perception than reality. This has unfairly cast doubt on the reputation of the licensed insolvency practitioner, and TIP is working with a panel of professionals who are prepared to be transparent and committed to achieving the balance between creditors’ and debtors’ interests that is fundamental to a fair and achievable debt solution.

Improving outcomes

TIP is putting in place measures that rebuild trust in IVAs and improve outcomes. These include:

• working with a panel of insolvency practitioners who commit to low fees and disbursements
• a continuous monitoring process, based on transparent, real-time case data
• using that data and cooperating with other stakeholders to improve returns for creditors and outcomes for debtors

Clients who get TIP IVAs will have been advised about their options by free to client debt advisors (TIP is working closely with Britain’s second largest advice network, AdviceUK), ensuring a comprehensive advice process with no commercial motivation to make the case fit the procedure. This will create sustainable IVAs and reduce early failures, meaning better returns for creditors and more certain supervisors’ fees for IPs.

TIP will ease the advice process by providing individual debt data to debt advisors through a credit reference agency, and will increase client engagement in the process through a variety of add-ons, designed to confer financial capability on clients in TIP IVAs, and helping to create sound financial futures for these individuals.

Funding debt advice

TIP is paid by members of its IP panel for the work done in providing information relating to the statement of affairs and the data and other services that TIP provides. But TIP asks for far less than the fees demanded by the commercial lead generators, who face accusations of mis-selling, helping IPs make an appropriate return on the IVAs they put in place and administer.

And 40 per cent of all TIP’s revenue (likely to be well above half of gross profits) is donated to a separate charitable trust – which will use the proceeds to make grants to fund free debt advice services and projects.

About the author

Andrew Smith is a director at The Insolvency Panel, @TIP_IVA.