2. What are the advantages of an IVA?(With a brief procedural guide for applying for an IVA)
You are recommended to consult a lawyer if you want to apply for an IVA.
The advantages of IVA
- An IVA is a voluntary agreement with your creditors. As such, there is far less stigma with an IVA agreement compared with bankruptcy. However, a record will still be kept by the Official Receiver's Office and is open to public search.
- If you are made bankrupt, then all your assets will be vested in your Trustee. It is very likely that the Trustee will sell your major assets, in order to repay your debts. Unlike bankruptcy, however, you do not necessarily have to sell your home and other major assets under IVA agreements.
- If you set up an IVA, your professional or employment status is less likely to be affected. By contrast, your professional career may be in jeopardy, if you are a bankrupt. In addition, you can continue to serve as a director in a company or run your own business, neither of which is allowed in bankruptcy.
- There is a better chance for you to obtain credit after you have repaid your debts pursuant to an IVA agreement.
- Legal proceedings for bankruptcy can involve considerable time and cost.
- Creditors may expect better repayment from a debtor.
The disadvantages of IVA
- The period of an IVA is usually longer than that of bankruptcy (assuming the bankrupt co-operates fully with the Official Receiver/Trustee).
- If there is no realistic prospect of an IVA, then you may still have to face a bankruptcy lawsuit (the relevant consequences are listed in the previous section).
A brief summary of the procedures for applying for an IVA
- The debtor must propose a person to act as the Nominee to implement and monitor the IVA.
- The debtor must submit a proposal to the Nominee. The debtor can appoint a lawyer to prepare the documentation.
- The debtor must also submit a Statement of Affairs to the Nominee.
- Before the approval of the proposal by the creditors, the debtor should apply to the Court for an Interim Order (for a 14-day-period during which no bankruptcy or other legal proceedings can be taken or continued against the debtor without the permission of the Court). According to the Bankruptcy (Fees & Percentages) Order ( Cap. 6C), a court fee is charged and computed by the following rates on the gross amount of the proposal:
a. $15 on every $1,000 or fraction of $1,000 up to $100,000 of the repayment amount; and
b. $7.50 on every $1,000 or fraction of $1,000 beyond $100,000 of the repayment amount.
If the gross amount of repayment stated in the proposal is $150,000, then the court fee would be:
$[15 x (100,000÷1,000)] + $[7.5 x (50,000÷1,000)] = $1,875.
- The Nominee must submit a report concerning the debtor's proposal to the Court, stating whether a creditors' meeting should be held. If the Court is satisfied that a meeting should be held, then it can extend the Interim Order so that the proposal can be considered by the creditors.
- During the creditors' meeting, there will be negotiations amongst the creditors and the debtor on the repayment matters. Approval or modification of the proposal requires the agreement of the majority of the creditors who totally hold in excess of 75% of the gross amount of the debts owed and who present in person or by proxy and vote on the resolution. Any modification of the proposal also requires the debtor's consent.
- If the proposal is approved, then it will bind all the relevant creditors whether or not they were present at the meeting. The Chairman of the meeting must submit a report to the Court within 7 days of the meeting. Within 28 days of submitting the report, the debtor, creditors, Nominee, Trustee or the Official Receiver (in case the IVA applicant is a bankrupt) may apply to the Court to challenge the decision of the meeting.
The role of the Court
Section 20K of the Bankruptcy Ordinance provides that the nominee may apply to the Court for directions in relation to any particular matter arising under the voluntary arrangement. The whole provision applies only to implementation and supervision of approved voluntary arrangement.
The role of the Court is limited to giving directions on matters relating to implementation and supervision, although no provision is specifically made as to the nature of the order that the court may make. It seems that the section is limited to enabling the nominee to seek assistance of the Court for a situation which is not envisaged by the proposal itself and which, for whatever reason, cannot be determined by the nominee exercising his own professional judgment.