• The number of personal debtors who are denied debt relief because bank lenders are rejecting many proposals for Individual Voluntary Arrangements (IVAs). More generally, distressed debtors face a confused marketplace, populated by an “alphabet soup” of debt advisers and “debt solutions” without adequate objective information about their pros and cons and performance. These issues are discussed in detail below; and

• The operation of the administration procedure in the corporate sector. There are concerns that administration is being used as a substitute for liquidation without the “checks and balances” inherent in the latter. There are arguments that reform of the Company Voluntary Arrangement procedure is needed to improve the chances of rescuing companies.

We repeat our concerns elsewhere in this report about the insolvency profession’s handling of conflicts of interest in relation to pre-arranged sales of businesses back to the previous directors.

Individual Voluntary Arrangements (IVAs) and Personal Indebtedness
The Insolvency Service’s end-year statistics (see Tables below) show that the total number of personal bankruptcies and IVAs in England & Wales and Northern Ireland, while still at historically high levels, have fallen slightly below the record levels of 2006, with IVAs falling from the second quarter of 2007.

CCCS, the largest provider of informal debt management plans (DMPs), also reports that the numbers of new DMPs they arranged stabilised in 2007 at just over 31,000. This suggests that the total number of new DMPs may have been at least 125,000.

Table 1 – Personal Insolvency Statistics
IVAs and Bankruptcies in England & Wales and Northern Ireland between 1998 and 2007



Table 2 – Sequestrations and Protected Trust Deeds in Scotland


These reductions in numbers may reflect efforts by consumers to rein in their indebtedness. But financial pressures on households increased in the second half of 2007 as a result of the rising costs of food and fuel and higher council taxes, so personal indebtedness problems could clearly get worse if there is a serious economic slow-down.

The sharp reduction in the numbers of IVAs was mainly the result of deliberate decisions taken by some of the major lenders to reject a higher proportion of IVA proposals submitted to them, particularly in the second half of the year. These decisions appear partly to reflect a determination by the lenders to seek better returns from IVAs by pressing for both higher contributions from debtors and for lower fees and charges from Insolvency Practitioners (IPs) but also a preference expressed by some lenders for putting borrowers into informal Debt Management Plans (DMPs) rather than IVAs.

Against this background the Insolvency Service and the British Bankers’ Association set up an IVA Forum on 17 January last year, bringing together representatives of the insolvency profession, its regulators and of the banks and other lenders. The main aims of the Forum were to simplify and reduce the costs of IVAs and to improve the information and quality of advice given to debtors by IPs and other debt-advice firms.

As a result of these negotiations the insolvency profession and the lenders reached agreement on 29 January 2008 on a Standard Protocol to be followed by IPs when proposing and supervising straightforward consumer IVAs and a simplified set of Standard Conditions for IVAs. An IVA Standing Committee chaired by the Insolvency Service was set up to oversee the working of the agreement.

This agreement and the associated undertakings given by the parties are intended to complement the Government’s proposals to introduce a Simplified IVA (SIVA) by secondary legislation aimed at reducing the costs resulting from the regulatory burden imposed by the Insolvency Act 1986.

The IPC participated, as an observer, at meetings of the IVA Forum and in its working groups and subsequenly accepted an invitation from the IS to be an observer on the IVA Standing Committee. In the meetings of the IVA Forum we argued, as we have consistently in previous years, that there should be no misleading advertising of IVAs; that IPs must give clear information to all debtors who seek their advice about the alternative debt solutions available to them; and give objective advice, based on the individual debtor’s circumstances, on the most appropriate solution for them. Many of the commitments agreed by the IVA Forum (see box below) are along the lines we have recommended and we welcome them.

Along with other parties at the Forum meetings we also argued that it is in the public interest that insolvent debtors should be given access to IVAs, when that is an appropriate solution for them and gives the creditors a better return than bankruptcy.

It will clearly be unsatisfactory, if, where the case for an IVA has been reasonably made out consistently with the requirements of the IVA Forum agreement, the debtor is denied an appropriate solution to his or her problem by the creditors insisting on unrealistic rates of repayment (“hurdle rates”) or imposing other unreasonable restrictions.

Unfortunately, there has so far been no commitment by the creditors to treat IVA proposals, which comply with the terms of the Standard Protocol, on their merits. In a letter circulated to all the negotiating parties the lenders which belong to the BBA have indicated only that they will review their current policy stance on approving IVAs when they see how IPs are complying with the Standard Protocol. The IVA Standing Committee will be reviewing progress on this matter in May. We trust that there will be a positive response from the banks and other lenders.

The lack of clarity about lenders’ willingness to approve IVA proposals is only one of many uncertainties that face distressed personal debtors when they try to find the most appropriate solutions to their problems. Individual debtors are confronted by a confusing array of “debt solutions”, often heavily advertised.

They include loan consolidation, re-mortgages, informal Debt Management Plans, IVAs and bankruptcy and their Scottish equivalents. Any one of these may be suitable for some debtors, depending on their circumstances; none of them will be suitable for every debtor.

There is similarly an “alphabet soup” of debt advisers from both the commercial and voluntary sectors in addition to the agents and staff of the major lenders. There is no common “hymn-sheet” that all advisers can “sing from” and some advisers are dependent for their finances on one or two of the options on the “debt solutions” menu.

Bankruptcy, which may be the most appropriate solution for a higher proportion of today’s debtors than at present resort to it, produces lower fees for debt advisers than several of the alternatives. In contrast to other financial services, there are, outside the insolvency profession, as yet no common standards of training or regulatory guidance for debt advisers.

This confusion is to a large extent the result of the play of competition in a free market. For the most part this competition is healthy. Both creditors and debtors need to have the freedom (within acceptable limits) to resolve their problems on a voluntary basis.

We do not suggest that every debtor can or should be unerringly directed to one and only one “debt solution”; and many debtors remain keen to avoid the perceived stigma of bankruptcy. But there is a strong case for greater transparency and better information for debtors, creditors and debt advisors not just about IVAs, but about the pros and cons of all statutory and informal “debt solutions”.

We make recommendations on this elsewhere in this report. There is also a strong case that all debt advisers, who offer themselves as giving independent and objective advice, should accept a similar obligation to that currently imposed on IPs to give debtors full information about the alternatives available to them and a reasoned recommendation on the option most appropriate for each debtor’s circumstances.

With the boundaries rapidly disappearing between the insolvency profession and other debt advice organisations there is also a need for strengthened co-ordination at government level to ensure a coherent strategy. The departments and agencies involved include Department for Business, Enterprise and Regulatory Reform, the Insolvency Service, the Office of Fair Trading and the Ministry of Justice.

The latter has recently published proposals for an Enforcement Restriction Order and is also consulting lenders on a form of regulated Debt Management Scheme. We remain concerned that both these proposals may only add to the existing confusion in the already complex market place described above.

Finally, the requirement on debt advisers to give objective and appropriate advice will be reinforced if personal debtors, who wish to complain about bad advice, have easy access to an independent complaints system which can also provide redress (both financial and otherwise) when complaints are upheld.

With this in mind we last year commissioned research by the Nottingham Law School of Nottingham Trent University into complaints handling by IP firms and by their regulators. It is clear from this report that the current arrangements do not provide a redress-based complaints system which will cover all complaints by personal debtors against all IPs. We make recommendations below on how this could be remedied.

We are optimistic that progress can be made on a number of these issues in the course of 2008. In particular:

•The IVA Standing Committee is committed to improving the information available to debtors, debt advisers and creditors about IVAs. It is important that there should also be as much equivalent information about DMPs as possible; we understand from both Citizens Advice and the Financial Ombudsman Service that they receive many more complaints about DMPs than about IVAs;

• The IVA Standing Committee is also working on a debtor-friendly and objective guide to the pros and cons of all types of statutory and informal “debt solution.” The aim should be to produce a document of sufficiently high quality that all debt advisers, both commercial and voluntary (and the major creditors), will make it available to debtors seeking advice;

• The OFT is about to begin inspections and investigations of debt advice firms to verify that they are “fit and proper”; and

• The Debt Resolution Forum (DRF), set up by a large number of commercial debt adviser firms as a selfregulatory body, is making progress in setting up a system of accreditation and training which will be used by all its member firms. Similar efforts to improve advice standards and training in the not for profit sector are being made under the auspices of the Money Advice Trust.

We will continue to observe and, where appropriate, participate in some of these developments in 2008.