Guidance

Monitoring Individual Voluntary Arrangement providers

Guidelines for the monitoring of volume individual voluntary arrangement providers

Background

Each authorising body is required to monitor the insolvency practitioners it authorises. The principles governing the monitoring are set out in the Principles for Monitoring. The authorising bodies recognise that practices (which may be corporate entities) dealing with a large volume of Individual Voluntary Arrangements (IVAs) have developed business models that differ considerably from the traditional model often associated with practices dealing with a variety of insolvency appointments.

These guidance notes have been complied to assist the authorising bodies in the monitoring of the volume IVA providers, and to ensure consistency and confidence in the monitoring regime.

Business model

The insolvency practitioner is often not the owner or equity partner of the IVA provider, and may have no direct control over the development of the business. In this situation the monitor needs to be aware of the contractual relationship between the provider and the insolvency practitioner. Continuity agreements and contingency plans that set out the position should the insolvency practitioner leave the provider need to be examined.

Where the provider has other businesses, such as re-mortgaging facilities or debt management companies, the monitor needs to ensure they are aware of the organisational structure and the relationship between the businesses. Particular attention needs to be paid to the way in which work is referred between the businesses, and any payments of commissions, or payments for work carried out.

Systems and controls

The IVAs dealt with by volume IVA providers are typically “consumer” IVAs, where the debtor is employed or self-employed, and where a life event affects a debtor’s ability to service loan and credit card repayments, or they have incurred significant liabilities in the form of loans and credit cards to fund a lifestyle beyond their means. Payments into the arrangement are made from earnings on a regular (usually monthly) basis and where a debtor has a property, provision is usually made for any equity to be released into the arrangement, often at a later stage in the IVA.

As such, once the IVA has been approved and payments commence, the administration lends itself to being highly mechanistic. Providers deal with a high volume of cases, have a high number of non-JIE qualified staff and a high ratio of case numbers to insolvency practitioners. The monitors, therefore, need to fully understand and consider the systems and controls in place within the business. This will form a more significant part of the monitoring process than in a traditional monitoring visit. Areas to be considered include, but are not restricted to:

  • staff

    • recruitment process

    • level of training provided - this could include obtaining copies of any training manuals available

    • basis of remuneration - if remuneration is based on commission or bonuses, what safeguards are in place to ensure the link does not compromise the position of advice to the debtor

    • use of time records

  • appropriate advice

    • sources of work

    • advertising

    • listening to a sample of the recorded conversations between the IVA provider and debtor when the debtor is being provided with advice

    • testing advice provision by “mystery shopping”

    • consideration of any “script” used by the IVA provider

    • consideration of any computer-based “decision tree”

    • consideration of the options that the IVA provider offers to the debtor, and the level of knowledge of each of these options

    • standard letters issued to debtors at various stages of the process

    • verification process for information provided by the debtor

    • use of management information statistics kept by the IVA provider

    • discussions with members of staff

  • meeting of creditors

    • use of management information statistics kept by the IVA provider

    • consideration of information provided to creditors

    • the system used to log proofs and proxies

    • how the IVA provider deals with modifications, ensuring the debtor has agreed to them, and that the IVA is still viable

  • supervision of the IVA

    • the cashiering function, including banking arrangements

    • identification of non-compliance

    • compliance with modifications

    • annual reporting procedures

    • how husband/wife or inter-locking IVAs are dealt with

    • dealing with property

    • payment of dividends

    • closure of cases – either through completion or failure

Case samples

While the analysis of the business model and systems and controls is extremely important, case files also need to be examined to test whether these systems and controls are working in practice. The case sample size will be determined by, inter alia, the risk profile of the IVA provider, the extent of automation of systems and controls, the ratio of consumer to trading debtors, the proportion of proposals rejected and the failure rate. As a minimum it should cover the following:

  • a sample of new cases to ensure current systems are being adhered to

  • a sample of older cases to ensure cases are progressing satisfactorily and that information contained within the annual reports are appropriate

  • a sample of failed IVAs to assess whether they were viable and appropriate at the initial stage

  • a sample of rejected IVAs to assess whether they were viable and appropriate at the initial stage

  • a sample of recently closed cases

Frequency of monitoring visits

The frequency of monitoring visits to an IVA provider should be determined on a risk-based approach in accordance with the Principles for Monitoring. Due to the high numbers of IVAs and the rapidly moving IVA market, the risk-based profile of the IVA providers is such that in the short term it is likely that the authorising bodies will have an annual presence. Where possible, and when agreed by the insolvency practitioners, the authorising bodies will endeavour to arrange joint monitoring visits where insolvency practitioners within the business are authorised by different bodies.