Recommendations 2005 - “Best Advice”

In our Annual Report for 2004 we recommended that there should be a more specific requirement imposed on IPs and monitored by their regulators to give written “best advice” to debtors on which of the options open to them is most appropriate to their circumstances. We made this recommendation because we remain concerned that some debtors are being advised to opt for an IVA when bankruptcy might be more appropriate.

The JIC’s response to this was that the RPBs would prefer to review this recommendation once the Working Party set up by the IS to consider the introduction of a simplified IVA had reported its conclusions. The IS has now consulted the profession and the public on the introduction of a simplified IVA (SIVA) and the consultation paper covered the questions of whether and, if so, how best advice should be given.

In our response to the consultation paper on SIVAs we said that we believed “best advice” should be given and documented whenever an IVA (whether simplified or not) is being considered. We accepted in our response that a “face-to-face” interview should not be regarded as an essential element in giving “best advice” on IVAs or SIVAs, though we said that “best practice should be at least to offer the debtor a “face-to-face” meeting in the IP’s office.

We accordingly repeat, with minor modifications, last year’s recommendation below, which is intended to apply whether initial advice is given to the debtor face-to-face or by telephone. We see no justification for the RPBs waiting for the introduction of SIVAs before they address this issue, which is just as relevant to the existing form of IVA as to SIVAs.

A number of cases have been drawn to our attention this year in which IVAs have been recommended to debtors whose only available source of finance was unemployment or disability benefits and who in our view could not reasonably have been expected to meet the payments required by the IVA.

RECOMMENDATION: The IPC recommends that an IP or a member of his/her staff authorised by the IP should have a thorough discussion with an insolvent debtor in order to gain a detailed understanding of the latter’s financial circumstances.

Whether or not an oral recommendation was made in this initial discussion, the IP should then send the debtor a written copy of the financial assessment together with a full explanation of all the options open to him or her and a reasoned recommendation, signed off by the IP, as to which the IP considers is most appropriate for the debtor’s circumstances.

Before the IP agrees to set up an IVA for the debtor, the debtor should be asked to confirm in writing that they have read and understood the written advice and that the IP’s understanding of their financial circumstances is accurate. The RPBs’ monitors should carry out appropriate checks on compliance with these requirements.

For this purpose IPs should be required to retain records (whether written or recorded) of the initial conversation with the debtors as well as the of subsequent written assessments and advice.

We do not believe there are any circumstances in which an IVA can be appropriate for debtors who have no financial resources available to them other than means-tested social security benefits; and we think that IVAs are unlikely to be appropriate for most debtors whose sole financial resources are non means-tested unemployment or disability benefits.

The IS and RPBs should give guidance to IPs not to recommend IVAs to debtors on means-tested benefits and to exercise great caution in assessing whether debtors on means-tested benefits could sustain an IVA.

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