You are recommended to consult a lawyer if you want to apply for an IVA.
The advantages of IVA
- An IVA is a private agreement with your creditors. As such, there is far less stigma with an IVA agreement compared with bankruptcy. There is no requirement to advertise in the newspapers, or notify your landlord or employers. However, any IVA through creditors' meeting (see the summary of procedures below) will be recorded in the list (i.e. a record will be kept by the Official Receiver's Office).
- 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 will not 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. It would be very difficult, if not impossible, for a discharged bankrupt to get a mortgage.
- 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 should deposit $12,150 with the Nominee to cover the fees, expenses and remuneration to be incurred by the Nominee in respect of 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 (this is not required if the debtor is a bankrupt).
- Before the approval of the proposal, 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), the Court fee is 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.
What are the consequences for the debtor if the IVA proposal is approved?
The proposal is effective from the date of the creditors' meeting on approval of the proposal. The Nominee appointed at the meeting will take control of all of the debtor's assets that are included in the IVA proposal, and the debtor should follow the approved proposal to repay the debts.
Any bankruptcy petition entered previously against the debtor will be dismissed by the Court. In case of any existing Bankruptcy Order, the Court may cancel it, with or without conditions.
However, if the IVA proposal cannot be approved by all parties or if the debtor has failed to perform all of the obligations as stated on the IVA proposal, then the creditors may still proceed with the bankruptcy petition against the debtor.