Different strokes for different folks

Trawling the internet also throws up delicious nonsense. A news alert on posts referring to 'IVA' came up with the Indiana Volleyball Academy. Might be a team playing in the unregulated leagues, made up of insolvent players and owned by investors in the debt industry.

Just goes to show that you can't put a good acronym down.

Clear Debt.co.uk report drop in IVA business

Following last month's report from Price Waterhouse Coopers that the numbers of people taking up IVAs seems to be falling, this now seems to be reflected in trading reports.

Sharecast now report IVA provider Cleardebt saying that the last six months have been a testing period for the IVA industry as creditors put pressure on IVA providers to return a higher proportion of the debtor payment.

Sharecast quote the group as saying that: "Fortunately for ClearDebt, our flexible business model means we are able to offer what we believe to be the lowest cost IVA currently available and have not been failed by creditors on a fees basis".

Their claims about fees do seem to be borne out by their web site which sets the 'entry level' for IVA debtors at £7,500 rather than the mimimum £15,000 debt which seems to be the profit threshold for most of the IVA factories but The Manchester Evening News nonetheless reported that shares in Manchester-based ClearDebt slumped to a year-low after it posted interim operating losses of more than £450,000.

If this is another indicator that the IVA market is being squeezed, at one end, by creditors and, at the other end, by debtors put off IVAs by recent bad publicity then the competition for the business of wary and better informed debtors can only increase.

It will therefore be interesting to see if this leads to reductions in fees and improved service or even more aggressive marketing and increased mis-selling from a small number of major players trying to maintain their market share.

IPA supports new IP-lite

Financial Director report that the Insolvency Practitioners Association (IPA) has become the second insolvency practitioners licensing body to move towards creating a so-called ‘lite’ qualification for people focused only on the UK’s rapidly expanding debt management industry.

According to the report, IPA chief executive Nick Sabin said the move is another step towards better policing of the much-maligned debt management industry, following the IPA’s recent appointment as the body charged with regulating the newly formed Debt Resolution For

Sabin said the proposal, which was made to the DTI, is crucial in managing the huge number of IVA proposals effectively. Upcoming changes to the IVA process will make them quicker, easier and simpler to undertake.

He is also quoted as saying:

‘Limited licensing is in that same spirit. A number of practitioners could think it would devalue the brand, but the growth in personal indebtedness means it has become an industrial process, and I can’t see this reducing in the near future. In the interests of all, we need some specialism.’

According to the report, Sabin believes that managers within accounting firms handling vast numbers of IVAs on behalf of an IP would be ideally placed to take the qualification.

‘An IP acts as nominee and supervisor for several hundred debtors, but the tier below them is manager level – some of whom have 20 years of experience as managers. They’re interested in a limited license as they can’t get a full license without corporate work'.

Whose fault is this ?

For years, junior staff and managers with lower level entry qualifications have been encouraged to take the Certificate of Proficiency in Insolvency (CPI) exams. According to the R3 careers brochure, the exam is designed for staff for staff working full time in insolvency who 'do not necessarily intend to become licensed insolvency practitioners'.

The brochure says the exam is a basic test of insolvency competence and consists of a single three hour paper but questions on personal insolvency only account for approximately one third of the marks and corporate insolvency about two thirds. It would have taken no great effort from the IPA to introduce a certificate of proficiency in personal insolvency for the managers specialising in this lower prestige work.

There are also no industry-wide recruitment standards which makes achievement of the CPI qualification essential for the personal insolvency managers who currently carry out the work of 'supervising' IVAs on a day to day basis. That could be a first step but using an 'IP-lite' qualification as a relatively quick - five year ? - conversion route to creating hundreds of licensed personal IPs will not address the problem of regulation.

Sabin said that managers in accounting firms handling vast numbers of IVAs would be ideally placed to take the qualification but accounting firms do not handle the work of the IVA factories and most of the problems with the "much-maligned debt management industry" are caused by the initial mis-selling of IVAs, not by the day to day management of the arrangements once they have been sold.

IP-lite might well increase the membership of the IPA and it might also improve the professional standing of personal insolvency managers but it sounds as though Sabin is proposing IP-lite as a solution to a problem that it cannot resolve: the commission based sales advisors who are actually selling IVAs and the already qualified insolvency practitioners who are signing off that process.

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See previous posts on IP-lite and The Debt Resolution Forum.

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New bankruptcy forum launched

Creditman are reporting the launch of a new bankruptcy advice site and bankruptcy forum by the organisers of IVA.co.uk, the UK’s biggest online community for information and advice about Individual Voluntary Arrangements.

BankruptcyHelp.org will be operating alongside the seemingly well subscribed bankruptcy board on Martin Lewis' Money Expert site and the bankruptcy forum on the Myvesta site but any new initiative that might do something to counterbalance the aggressive sales activity on the IVA front has to be welcomed. It certainly provides some antidote to our report on adviser recruitment in Manchester.

As the new site develops and the forum attracts members it will be interesting to see how the independence of the new site is maintained. The forums on IVA.co.uk are well supported by practising experts - including a very experienced independent IP - who volunteer their own time to provide advice but commercial providers can also post on the site.

Both Thomas Charles and their parent company Accuma are, for example, contributors to the site and although their online advice seems to be objective there is at least an enlightened self interest in their regular association with the site. It will be interesting to see if the less lucrative field of bankruptcy advice attracts similar expertise.

'Debt Advice' recruitment boom in Manchester ?

It looks like demand is booming for 'debt advisors' in Manchester. A recruitment consultancy called Corebusiness are currently advertising for IVA/Debt Advisors for a number of their clients. Not just one client !

clipped from jobview.monster.com

Debt / IVA Advisors UK-NW-Manchester

Apply Online

We have a number of clients seeking people who have a telesales or customer service background in finance. You will be responding to enquiries and selling the benefits of either a Debt Management programme or an IVA. You will be an excellent communicator and have the determination to succeed and earn a high salary

Additional Information. Location: UK-NW-Manchester
Salary/Wage: 16,000 - 18,000 GBP/year Bonus OTE 28k

The Corebusiness advert is interesting because they are recruiting 'debt advisors' but there is no requirement for any experience or qualification in debt counselling and advice. The emphasis is on candidates able to sell either DMPs or IVAs to achieve the commission based earnings quoted in the advert.

The companies selling IVAs need salespeople to maintain both profits and market share but the industry is trying to regulate 'debt advisors' through the new Debt Resolution Forum. It seems unlikely that sales targets and the linked sales-related earnings can be reconciled with the need for objective debt counselling that the regulators want to establish.

Surely the ideal counselling skills and the objectives of the 'regulators are just too far apart from the realities and objectives of the debt industry for the Forum to work ?

Trapped.co.uk and Your Clear.com

Some web sites pop up on google that are only intended to lead to other sites. Anyone searching for debt advice might, for example, stumble across infobloggs which then lead to an article called Could an IVA Help You Out of Your Debt Crisis? placed by a company called Trapped.co.uk.

The article reassures uninformed debtors that:

"Many people see IVA’s as an easy way out of their debt. However, this is not strictly true. Often, companies only allow you to take on an IVA if you are really struggling. With so many people in debt, they need to know that you are truly in need of help. So, if you are just about getting by but you would like extra help, an IVA may not be for you. It is only if you really, honestly cannot afford your current repayments that certain companies will help you."

The fact that IVAs have anything to do with insolvency and are intended - in appropriate cases - to provide an alternative to bankruptcy is not mentioned.

Duly encouraged, debtors might then follow the link to the Trapped.co.uk web site where their headline blurb says that IVAs are: "formal agreements that could see up to 95% of your debt written off".

This claim is clearly in breach of Office of Fair Trading (OFT) guidelines and although Trapped also seem to offer advice on Debt Management Plans, IVAs and Consolidation Loans there is no indication that they have a consumer credit licence.

It is only by ferreting around in the Trapped terms and conditions that we can discover they are owned by a company called Net Basic Ltd who claim to simply act as an online information source.

They say that none of the financial information featured on the site or accessed as a result of a link displayed on the site is intended or considered to be financial advice offered by Net Basic.

As they are clearly providing debt advice and (according to their own terms) taking commissions from the sale of financial products, the OFT might disagree with this claim, Netbasic nonetheless admit that they are not authorised by the Financial Services Authority in relation to the supply of advice in relation to financial products.

Debtors seeking help are unlikely to dig this deeply into the site and are more likely to complete the online 'debt option' calculators which provide the valuable sales contact information that can earn potential commissions.

For debtors who may be seeking IVAs, the Trapped contact information shows that their IVA enquiries are referred to Your Clear Ltd and loan consolidation enquiries to Central Capital Ltd

The Your Clear site makes less extravagant claims about IVAs saying - in common with many providers - that debts can be reduced by up to 75% and they also clearly say on their site that they work with business referral partners.

The payment of commissions for referrals is not mentioned although these costs must inevitably be written into the final fees charged for setting up and supervising IVAs - but Your Clear are still only another agent in the process. They are not the end of the food chain.

They are not listed as an IVA provider on the IVA.com web site and they are not listed on the Insolvency Service database but this is not unusual.

Your Clear act as advisors and according to their information on IVAs they carry out the preparatory work before the proposal for an IVA is passed on to a licensed insolvency practitioner. They do not say who that might be.

This is also not unusual - although it is unusual for Your Clear to claim that they handle applications for interim orders and the filing of IVA proposals with the courts. Only licensed IPs can do this.

Debtors could enter at any point along the sales food chain and might, unknowingly and accidentally, even make direct contact with the IP who would end up supervising their IVA.

If this happened would the eventual nominee & supervisor's fees be reduced by a sum equivalent to any referral fees or commissions that would otherwise be paid along the way ?

Unless the IP is also a solicitor regulated by the SRA - see the previous blog entry on this issue - the answer to this question might not be straightforward because there is no general requirement for the IP to declare the payment of referral fees to either debtors or creditors.

There are also problems because the trail followed here is not exceptional.

False or misleading claims made online by agents or referral sources can lead debtors into the IVA process and misinformation is like a rolling snowball. Some will always stick.

Somewhere behind or at the end of this commission-based sales food chain there are also licensed IP who remain anonymous throughout and can also deny any responsibility for the claims that have persuaded debtors to engage them as supervisor in their IVAs.

How can anyone say that this a properly regulated process ? If corporate insolvencies were either sold or dealt with on this basis it is a safe bet that a statutory regulatory regime would have been put in place by now.

ClearStart.org

Q. When is it The National Debt Helpline ? i.e. The national debtline charity.
A. When it is Clear Start running a Google Ad sponsored link claiming to be a National Debt Helpline.

Still Misleading ?

clipped from www.google.co.uk

National Debt Helpline
National Debt Helpline
Government Insolvency Act can clear
personal debt over £20k for £200 pm
www.clearstart.org

Debtadviseronline.co.uk

Q. When is it The National Debt Helpline ? i.e. The national debtline charity
.A. When it is Debt Advisor Online running a Google Ad sponsored link claiming to be a National Debt Helpline.

Misleading ?

clipped from www.google.co.uk

National Debt Helpline
National Debt Helpline
Reduce your debt now
Up to 75% debt written off

www.debtadvisoronline.co.uk

Fluffy Debt

Fluffy lifestyle, casual debt ? Google alert came up with this posting on My Live Journal which just about bears quoting here:

"Those who know me also know my friend Jordan. He's been is a spot of trouble financialy lately. He went on holiday using he credit cards and is now suffering it. He mentioned looking at getting an IVA from a company called Debtsolver. He wants to blog about about his problem but I'm a bit worried if something like that will affect his application from Debtsolver.

I've told him to do a bit of research but I've done some in the mean time too. So he's decided to go with Debtsolver because his uncle had a good experience with them."

Sounds cool ..... and Jordan reports in his equally minimalistic blog:

"I've got to start thinking of heading back home to the UK now. I'm having a blast but I've spent so much cash. Well the pound gets you plenty of rands, but the thing is I borrowed against my credit cards (yes that is a plural) to come here. Now I'm just about broke. In my spare time I did a little research and found that I can look at getting some financial help back home. I'm not entirely sure what an IVA is just yet or if I'm eligible to get one, but I'm reading up about it on this website I found... with (sic) me luck!"

When you're all cashed out, sounds as though an IVA might cover the cost of the trip.

Insolvency Service boosted IVA advertising

The Insolvency Service stakeholders working group which aimed to improve IVAs and their availability to debtors included in its membership major IVA providers Debt Free Direct and Accuma. Their initial report was published for consultation back in July 2005 and one section of the report dealt with the 'problem' of increasing debtor awareness.

The problem was identified following research - quoted in the report - and carried out by Debt Free Direct (not the most independent of sources) in 2004.

They concluded that:

The Working Group agrees that the existence and usefulness of the IVA needs to have a higher profile, possibly through advertising. However, both the funding of such advertising and where those responding to the advertisements would be directed are issues to be addressed, particularly as some nominees and supervisors are not members of R3 and have a variety of regulatory bodies.

They nonetheless asked respondents in Q.12 of their consultation to come up with practical suggestions to increase awareness of IVAs.

The response to the proposals for Improving IVAs were published in January 2006.

By then, they were able to report that the majority of respondents thought that "there is already adequate awareness among consumers of the IVA process, especially with the recent rapid rise in numbers".

The Insolvency Service report therefore drily noted that:

In the year ending 31 December 2005 there were 20,293 IVAs, this shows an 88.7% increase on the 2004 figures. We do not propose to take action to increase awareness of IVAs at this time.

It seems surprising that some of the stakeholders on the Working Group did not already know from their own sales figures that IVAs were being taken up at significantly inreasing rates when the original proposals were published.

It is perhaps less surprising that the IVA providers did not really need that much more encouragement from the government to boost its advertising and marketing spend to increase consumer awareness of IVAs and the take up of the arrangements.

Not surprising - to quote Jack London - "for they alone knew how to reap the whirlwind and make a profit out of it".

Strangling the golden goose

BBC News are reporting a claim from Price Waterhouse Coopers (PwC) that the numbers of people going into IVAs is now falling.

The report is interesting when read alongside the profit warnings issued by major IVA providers at the end of January. It is obviously in the best interests of the IVA providers to put the best possible spin on events so the PwC report comes from the other side of the counter. They act in IVAs for many of the major lenders including banks.

The PwC report may also reflect a blip in the figures rather than a trend but the BBC report says the reason for fewer IVAs seems to be that the total amount of personal debt was stabilising after booming in the first five years of this decade.

But the other reason given is worth quoting in full. It says:

"Another reason for a fall in IVA numbers is that some lenders are adopting a more hostile attitude to the IVA proposals that are made to them on behalf of their indebted customers. IVAs are entirely voluntary and a creditor is not obliged to accept one if it thinks the person can in fact pay more of their debts than is being suggested.

In the past year banks have becoming increasingly irritated by a minority of people trying to push through IVAs who, they believe, would be perfectly capable of paying off more of their debts without such an arrangement.

Government research has shown that typically IVAs involve men in their 40s with debts of between £40,000 and £43,000. In such a case, an IVA usually cuts that debt to about £24,000, which is then repaid over five years.

But of that, about a third can be taken by the IVA company which has arranged the deal, with the lender such as a bank being offered only £16,000. The new hard-nosed attitude by lenders has led some of the new IVA companies, which have sprung up in the past few years, to report a downturn in business recently."

Doesn't this also sound as though someone has been strangling the golden goose by overheating the market for IVAs ? The marketing of IVAs by the debt factories - and particularly the TV ads - often seemed to be creating a demand for IVAs that might not have existed before.

The OFT are belatedly acting on the mis-selling of IVAs but the mis-selling has occurred at both ends of the market and this is not really reflected in the report.

At one end of the market, IVAs have been sold when bankruptcy would be more appropriate and, at the other end, IVAs have been wrongly sold as a debt avoidance tool that is simply another option in a credit card lifestyle.

IVAs are supposed to be a solution to insolvency, not indebtedness. Many of the factories - and the insolvency practitioners hiding behind them - do not seem to apply this test as rigorously as they should.

When mis-selling is mixed with sizeable profits it is no surprise that major lenders now pool their resources and act through agents like PwC to squeeze some of the abuses out of the system but the problem here is that the people who are now beginning to suffer are the genuine cases who have made every effort to make the best possible IVA offer to their creditors.

It seems that both sides are strangling the golden goose.

The IVA factories have been churning the debt market to satisfy their shareholders and, in an attempt to cut out bad practices, some lenders are now voting down the proposals put forward by those same factories and, as a result, lenders may also reach the tipping point where they will start to see a lower return on their bad debts as more debtors are forced into bankruptcy.

This may all be a tactic designed to move the supervision of voluntary arrangements away from the counselling factories towards the less expensive and more thoroughly scrutinised FTVAs supervised by the Official Receiver - but that is probably too fanciful.

One thing is certain. Debtors whose IVAs might have been approved only twelve months ago are seeing them voted down as a crude means of regulating an unregulated market.

PVAs - The invisible voluntary arrangement

Partnership Voluntary Arrangements (PVAs) are the seldom mentioned and virtually invisible form of insolvency. They were introduced under the Insolvent Partnerships Order 1994 as an amendment to the 1986 Insolvency Act. Where the case raises issues relating to personal insolvency the law on IVAs applies and where the case raises issues of corporate insolvency the law on Company Voluntary Arrangements (CVAs) applies.

PVAs were intended to provide for insolvent partnerships so that they could continue trading after making the arrangement with their creditors. The technicalities of a PVA differ very little from those of an IVA except that they were intended to cover partnership debts and it was envisaged that individual partners who were also personally insolvent would take up linked IVAs but there is no requirement to do this. Partners can enter 'stand alone' PVAs.

There are however no figures on PVAs because there is an anomoly in the law which means that PVAs are not recorded anywhere despite the fact that IVAs are placed on public record with the Individual Insolvency Register and CVAs are recorded with Companies House.

The only 'place of record' for PVAs are in the filing cabinets of the County Courts which have jurisdiction in the case but these files are not listed and they are not available for public scrutiny.

You would need to know that a particular PVA existed before you could even ask the court if they had the file and, as there is no public record, this also means that a PVA would not appear on the individual partner's credit history.

Although PVAs can be more complex than IVAs because they were intended to keep partnerships afloat they also have the advantage for traditional professional partnerships - solicitors, accountants, insolvency practitioners - that they do not effect the professional's ability to practice.

All forms of insolvency are serious matters but it should come as no surprise that - either deliberately or by default - the voluntary arrangement available to professional partnerships is based on principles of confidentiality that do not apply to either personal debtors or insolvent companies.

Who knows, the insolvency practice dealing with your insolvency might itself be insolvent and you would have no way of finding out unless they told you. No surprise then that no one seems to be complaining about the mis-selling of PVAs.

ASA investigate IVA advertising

The Advertising Standards Authority (ASA) have confirmed to us that they are currently investigating several advertisements for IVAs and similar 'products'. One of the issues being investigated relates to advertised claims about the percentage of debt that can be written off in an IVA.

This will undoubtedly tie in with the recent warnings from the Office of Fair Trading to IVA providers who were falsely claiming that 'up to 90 per cent of your debt may be written off' when the maximum would be in the region of 60 – 70 per cent.

The OFT were wrong on the last point because, until quite recently, it was not uncommon for 75% of debts to be written off in an IVA but adverts which claim to 'write off' 90% or - in three cases which we have reported - 95% of debts are clearly false and must amount to mis-selling of IVAs.

The ASA say that their investigation is wider than the question of 'percentages' and we have also complained about major IVA providers falsely claiming to provide 'no fee' IVAs both on their web sites and in online adverts which link to their sites.

Google ads are often used to make questionable claims and as they can be hard to pin down they can also provide a neatly deniable moving target that nonethless sucks in the punters.

For now, all complaints against individual IVA providers are on hold while the ASA carry out their investigation and they are looking to make precedent decisions by which all advertisers selling IVAs will be obliged to follow.

The ASA have explained that, because their investigation could have wide ramifications for the way all IVAs are advertised, they will not be investigating new complaints or current complaints against individual advertisers and, once the precedents have been set, they will then be able take appropriate action on future complaints.

The ASA investigation is overdue and has to be welcomed but their position on advertising currently used by IVA providers to make significant profits raises serious concerns.

The ASA's powers are limited but it is too easily forgotten that somewhere behind every incidence of mis-selling or false and misleading advertising for IVAs there is a licensed Insolvency Practitioner. The recognised professional bodies (RPBs) have been remarkably silent on this but advertising complaints upheld by the ASA would lend significant support to complaints to the RPBs about the conduct of the IPs they are supposed to regulate.

As the OFT have already carried out their own investigation - without naming the IVA providers - it should not require new 'precedents' to decide that some IVA adverts are patently false but it seems that the ASA investigation might let past and current offenders off the hook without actually naming them.

Someone somewhere has to start naming, shaming and regulating !

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Tip from The Mole : Make a pdf copy of any web pages carrying offending google ads and use the copy to support your online complaints to the ASA.

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IVA debtors owe more than bankrupts

The Lancashire Evening Post came up with an interesting figure. Quoting from an interview with the head of personal insolvency at KPMG, they say that the average debtor taking out an IVA owes an average of £52,000 while the Insolvency Service estimates the average bankrupt has debts of nearer £46,587.

This seems to be counter-intuitive because we would have expected bankrupts to go down with more debts than people trying to repay at least some proportion of their debt through an IVA.

However, as the differences between the two sums are not significant and given that the numbers for IVAs are now pushing towards those for personal bankruptcies, this seems to support the view that choices between IVAs and bankruptcy are based on something more than straightforward financial factors.

Aggressive advertising and marketing by the IVA factories must now be a more significant factor in the huge surge in the numbers of people taking up IVAs - up 81.9% in the last quarter of 2006 - and it's tempting to ask if all those debtors who were sold IVAs would otherwise have opted for bankruptcy - or would they have simply struggled and carried on servicing their debts ?

Debt Counsellors.co.uk use Survey to sell IVAs.

The Debt Counsellors - a commercial operation owned by Debt.co.uk plc - have released their Annual UK Debt Survey.

Debt Counsellors asked people seeking help for their debt problems about their attitudes towards bankruptcy and according to their press release they are claiming that the results show that there are still people who do not realise the risks involved in going bankrupt.

They quote the fact that 34.4% of respondents said bankruptcy was nothing to be ashamed of but, if we turn these figures around, this means that 65.6% of the debtors answering the question felt that they would be ashamed to be bankrupt.

Given the frequent criticisms of feckless debtors using bankruptcy as a 'lifestyle choice' to avoid paying their debts, surely this is the more remarkable finding ?

The press release also highlights the fact that 7.6% of respondents were under the misapprehension that they would not be putting their home at risk by going bankrupt. Isn't this finding remarkable for the opposite reason ?

Reverse the figures and it seems that a staggering 92.4% of the debtors surveyed do know that their home could be at risk if they declared themselves bankrupt.

The press release headline says that the survey highlights lack of awareness among debtors when, on a closer reading, it really seems to show that the majority of debtors are painfully aware of the consequences of bankruptcy and probably better informed than the general population. It would be a fair guess that 92.4% of the general population probably couldn't even spell 'bankruptcy' correctly let alone know its consequences.

The way that Debt Counsellors present the results of their survey may suffer from its intellectual dishonesty but its real purpose is to bolster the business of selling IVAs as an alternative to bankruptcy. There is no money to be made by actually counselling bankruptcy as the more appropriate choice for some debtors.

The press release even quotes a senior counsellor with The Debt Counsellors who emphasises that bankruptcy is a situation that should be avoided if at all possible. There is no doubt this is good general advice but the counsellor blows the gaffe when he says that "bankruptcy can often be avoided in, even in serious debt cases, through debt solutions like the IVA."

Well, they would say that wouldn't they ?

Which - thinking laterally - all brings to mind the Autumn 2005 Insolvency Practitioner's Association Student Bulletin which included a report from the Examiner for the IP's Certificate of Proficiency in Insolvency (CPI) exam.

In the article, the examiner referred to what he called the 'bread and butter' exam question on the advantages/disadvantages of IVAs vs bankruptcy and commented that some candidates would have fared better if they had given more thought to the layout and clarity of their answer.

Maybe Debt Counsellors could be persuaded to apply the same principle to their press releases and advice on bankruptcy.

'Irrelevant' professional institutes

According to a survey carried out by 'Accountancy Age' a precise 44.9% of accountants think that their professional institutes are either 'quite irrelevant'or 'totally irrelevant'.

As the professional accounting bodies are responsible for regulating the members who are also licensed insolvency practitioners this is heartening news. Perhaps it is at last a spin-free and honest assessment of the institutes.

It would be really interesting to know if the accountant IPs as a group are equally dismissive or more dismissive of the institutes that are supposed to regulate their conduct.

Perhaps 'Accountancy Age' could run another survey to test this teasing point. Rounded percentages would be acceptable.

The Observer repeats nonsense on fees.

The Observer ran a special feature on debt this weekend but, despite all their research, they still managed to get it wrong on IVAs and ended up repeating the nonsense about fees peddled by many of the IVA factories.

The Observer article by Lisa Bachelor on the options of bankruptcy or IVAs refers to fees and she said:

"Fees vary enormously between IVA firms but, typically, they will amount to £7,000, which includes a £2,000 set-up fee and a continuing annual supervisory fee. The size of the fee does not affect how much debtors have to repay each month, as an insolvency practitioner will work out a repayment plan for a debtor based on how much they can afford each month for a five-year period, and the fees are taken out of this amount".

This is simply repeating the financial gobbledegook of the debt industry. Of course the size of fees effect how much debtors have to repay. If the dividend agreed by the creditors meeting remained the same and fees were lower, the monthly repayment costs would go down.

If fees were lower, the risks of failure in the early years of the IVA would also be reduced and overall returns to creditors would improve with the additional benefit that they would be paid earlier in the arrangement. This could be achieved without any change in the current dividend written into any individual arrangement.

Part of the problem here is the lack of transparency about fees and the deliberately contrived language used to explain them away. It is in the interests of the IVA providers to ensure that confusion continues.

It's therefore interesting that The Observer article also confirms that The Advertising Standards Authority is investigating four complaints about ads for IVAs and their investigation may produce additional industry-wide rules on issues such as transparency of fees.

This is something that The Mole knows about because he filed the complaints with the ASA about the misleading language on fees used to sell IVAs. It would have helped if The Observer had scratched away at that language and not simply repeated it.

Who set the IVA debt threshold at £15,000 ?

A google search using the terms 'IVA + £15,000' throws up a cascade of links to sites offering IVAs or advice about IVAs to debtors who owe more than £15,000 but there is no indication as to why this sum has become the debt threshold for IVAs.

There are some IVA providers offering arrangements for debtors owing £10k and a few have even upped their threshold to £20k but that magic figure of fifteen thousand seems to have emerged as the benchmark. Why ?

There is nothing in Part VIII of the Insolvency Act which says that IVAs can only be provided to debtors who owe more than £15k . Indeed, the only figure mentioned in the Insolvency Act in relation to personal insolvencies is the sum of £750 that a debtor must owe before they can be declared bankrupt.

Perhaps Individual Voluntary Arrangement.com inadvertently provide an answer. Their google ad came up in the search. The ad reads: "Comprehensive IVA Advice. Write off up to 85% of your debt with an IVA".

If we ignore the questionable claim that 85% of debts can be written off in an IVA and follow the google ad link to their web site we find that anyone with debts of less than £10,000 is provided with a further link which leads them to the web site of Consolidate UK.com where applicants can apply for a debt consolidation loan.

If we also ignore the fact that independent debt advisors and even sites like MSN Money warn against taking up consolidation loans, we can probably tease out the answer to our question.

Self-styled 'debt advisors' earn commissions from both consolidation loans and IVA referrals but it seems a fair guess that the difference in profits between the two comes in somewhere around the point where debts hit the £15,000 mark. This is probably where it becomes worthwhile for the advisor to sell an IVA ahead of any other alternative.

Clear Start provide a useful explanation on their web site because they admit that "creditors will reject an IVA if they see that the majority of the funds paid into it are going towards the Insolvency Practitioner's fees. As a guideline, at least 60% of funds paid into an IVA must be paid towards the creditors".

To put this the other way round, it seems that the level of debt needs to be high enough to achieve target fees that can be equivalent to 40% of the sum that the debtor pays into the IVA each month.

Most IVA providers like Clear Start also insist on a minimum monthly payments of around £200 over the lifetime of a 60 month IVA. Again, this has nothing to do with the requirements of the Insolvency Act but it does establish a base level for the fees that the IP is trying to achieve.

So, the benchmark for the amount that debtors owe before they will be nominated for an IVA has nothing to do with the provisions of the Insolvency Act. The threshold is set at a point where the major providers can achieve the IVA sales volume and the rolling profits needed to cover the huge marketing and TV advertising spend that sustains their market share.

And as IVA fees have escalated - along with the numbers of debtors taking up IVAs as a result of the spend in TV advertising - we have reached the absurd position where the government has proposed the introduction of Simple IVAs (SIVAs) which will be available to debtors owing (quelle surprise) less than £25,000 and the fees will also be less than those charged for an IVA.

There was of course nothing whatsoever in Part VIII of the Insolvency Act to prevent any competitively minded IP introducing a simplified and less expensive IVA but it seems that the 'debt market' is the only market where competition pushed prices up, not down.

Interesting too, that in such a closely regulated field as insolvency that the domain name SIVA.org has already been sold and is up and running but the government might like to note - before they introduce any new legislation - that the site is already offering 'Simplified Individual Voluntary Arrangements' to debtors. Although, in this case, there is of course a debt threshold of £15,000.

The DTI and The Insolvency Service clearly have a firm grip on the insolvency market.

Accuma Group Insolvency Practitioners Ltd.

IVA.com list Accuma Group Insolvency Practitioners Ltd on their database of companies providing IVAs but, according to IVA.com, they do not employ any insolvency practitioners (IPs).

IVA.com provide a link to the Accuma Group plc web site and, in their FAQs, they refer to the limited company as being part of the Accuma group and say: " Accuma Insolvency Practitioners Ltd ........ is one of the largest personal insolvency practices in the UK and we are highly skilled in helping to resolve debt problems for people just like you."

It seem unlikely that a company could claim to be insolvency practitioners in their trading title if they were not licensed and it is certainly also true that only individuals - not companies - can be licensed to serve as IPs. It would be difficult to license a 'corporate officer of the court' as this would probably generate one almighty legal mess - and fortunes for starving barristers.

Maybe IVA.com have made a mistake on this one.

But why don't Accuma list the IPs who head up the limited company on their web site ? Surely a public notice giving the names of their IPs alongside a public declaration of the recognised professional bodies licensing them would help reassure debtors that they are dealing with qualified professionals ?

'IP-lite' providers for IVAs.

IVA co.uk provide an online forum on IVA matters and it was interesting to read (belatedly) the IVA News blog posted on their site about proposals from the Institute of Chartered Accountants in England and Wales (thankfully known as the ICAEW) for a new qualification dubbed 'IP-lite'.

We posted our initial comments on the site but they're worth repeating here because it sounds as if the ICAEW may be trying to lighten a sector that is already top heavy with lightweights.

The IVA News blog quotes reports that a new insolvency qualification is being prepared that will distinguish professionals undertaking IVAs from those doing other types of insolvency work and could see IVA specialists - with a lesser qualification - being hived off from the insolvency profession.

The report says that a controversial aspect of the plan includes the possibility of revoking the full licenses of qualified insolvency practitioners focused on IVA work and giving them the lesser IVA qualification instead.

Surely the proposal to remove the licences of the IPs who specialise in personal insolvency - particularly IVAs - would make a nonsense of both the Insolvency Act and case law relating to IVAs ?

IPs are officers of the court and they are, at least technically, only supervising IVAs on behalf of the courts. The way the law works at present, an IP supervising an IVA is protected from civil legal action so long as he acts within the insolvency laws and the terms of the voluntary arrangement.

That's why complaints about the actions of supervisors have to be made on application to the County Court under s.263 of the Insolvency Act and the courts are supposed to deal with with these applications as insolvency matters.

If you remove the IPs licence then you probably also remove their statutory protection and statutory regulation and, as a result, supervisors in IVAs will be exposed to civil legal action whilst carrying out their duties.

Perhaps we should welcome that - it would certainly make legal action against IPs a lot easier - but I suspect that the proposals for an 'IP-lite' qualification only arise because the ICAEW are seriously underestimating the potential complexity of personal insolvencies.

If the ICAEW are simply proposing that 'IVA advisers' should be better qualified - if not formally qualified - no one would disagree with that but the creation of a two-tier insolvency profession as a solution to the problems surrounding IVAs sounds more like an act of expediency rather than a serious solution based on clear understanding of the problems.

Perhaps there is a hidden agenda here. Introduction of an IP-lite qualification and removal of the licence would also require a change in regulation and the ICAEW would no longer be responsible for any of their members who might be dealing with 'lighter' (less serious?) personal insolvency business rather than heavyweight corporate insolvencies.

With the upsurge in bad publicity about the mis-selling of IVAs, it seems worth asking if this proposal is really the ICAEW's way of trying to wash its hands of the whole business by shifting the regulation of personal insolvency practitioners elsewhere ? If so, perhaps that should also be welcomed - so long as it is a step towards setting up a new independent regulator.

Limits to the Advertising Standards Authority powers.

Anyone wanting to complain about false or misleading claims made by some of the 'IVA providers' swarming all over the internet might think that the Advertising Standards Authority (ASA) was a sensible place to start but - as with everything else to do with the regulation of voluntary arrangements - the common sense solution ain't necessarily the right solution.

The Mole has lodged a number of complaints with the ASA about claims made online by the IVA industry. The internet is, after all, a crucial contributory factor in the explosion of IVA sales because it is the point where many debtors start their search for information - a search that can all too frequently lead to misinformation and bad advice. But, sadly, the ASA can only deal with the first click in the search and not the destination.

If the IVA provider is using 'paid for' advertising like google ads, banner or pop-up adverts then the ASA can take action. They can also act if there are grounds for complaints about the content of commercial e-mails or 'sales promotions' that appear on web sites.

This means that the ASA cannot act if an IVA provider is making false and misleading claims on their own web site or in the 'unpaid' google listings that first led the debtor to that site - despite the fact that search engine links might themselves have been promoted to higher visibility for a fee.

The ASA's explained these limits on its powers in a recent letter to The Mole and, as the explanation seemed logical, it bears repeating here. The ASA said:

"The Internet allows organisations to communicate directly with those who have actively sought out their websites in much the same way as consumers or businesses might develop relationships with organisations in a retail environment after being introduced to them by advertisements. Furthermore, the directness of tha relationship bypasses the mddlemen (the owners of newspapers, magazines, poster sites and other media) on whom the ASA has traditionally relied to help apply the Code to the 'introduction' process but not to the subsequent 'relationship' that develops between the consumer and the organisation. The ASA believes that by applying the Code to all online claims would go too far into regulating the 'relationship' and would, moreover, prove impossible to enforce effectively."

These limits on the ASA's reach may well make sense in defining the demarcation line between the various authorities who may ( or may not ) have a finger in the regulatory pie and they may also take honest account of their limited powers, but they nonetheless provide - from a complainant's viewpoint - a good example of the prior knowledge that debtors will need to help them overcome the bureaucratic hurdles that can be placed in the way of their complaints.

How many hurdles would the average - relatively uninformed - debtor be prepared to jump before they gave up with their complaint ?

If the ASA cannot act on false or misleading claims on a web site - many of which operate as fishing holes for sales contact details - and the OFT cannot 'name and shame' because of the potential harm it may cause to the debt advisor's business - where does the complaining debtor go to get satisfaction ? Next stop Trading Standards or the Financial Services Authority ?

Too Late for Self-Regulation ?

In 2004, Professor David Graham Q.C. from the Centre for Insolvency Law and Policy at Kingston University published notes on the centre's web site. The notes were posted before a meeting in August 2004 with the Insolvency Practices Council (IPC) but they are still worth reading because they demonstrate how little progress has been made since they were written.

Professor Graham's criticisms were remarkably prescient because they were written during the year when the numbers of IVAs began to soar after the corporate IVA providers entered the 'debt market' and the following commentary on the failure of the complaints system applies today. He said:

"Cork as a whole appreciated the need for a satisfactory complaints system. Sadly the climate was not then right to address the issue head on and it has, I suspect, been sidetracked ever since for whatever reasons. The absence of such procedures I regard as a serious blot on English insolvency law. What then can now be done to improve matters, with or without parliamentary intervention?

In theory at any rate the situation could be tolerated in the past by the fact that in a deserving case a legal aid certificate might be granted limited initially to obtaining specialist advice, followed if appropriate by a full certificate covering the cost of litigation. This approach is, I am pretty sure, no longer available so that the case for some non-court based mechanism becomes much stronger, if not imperative. Continued failure to tackle the problem can only bring the community of those holding themselves out as insolvency specialists, consultants and advisers into serious disrepute."

Professor Graham was arguing for the insolvency profession - "with its confusing array of regulatory and other similar bodies" - to tighten up its own regulatory and complaints procedures before change was forced upon them.

Almost three years later and the regulation of personal insolvency is an even greater mess and the IPC are still talking to the Joint Insolvency Committee about revising the ethical guidelines for insolvency practitioners.

This may be a worthy exercise and interested parties can provide their own input by contacting the IPC but surely this is only more tinkering at the edges ?

Example: Behind every IVA that is mis-sold there is a licensed insolvency practitioner - only an IP can act as nominee and supervisor in IVAs - and if practitioners are exercising their expert professional judgement to recommend acceptance of IVAs that have been mis-sold they must already be in breach of existing ethical guideines, let alone s.256 of the Insolvency Act.

More guidelines, more regulations, more laws are of little value if the existing ones are ignored or abused. Debtors and creditors in larger corporate insolvencies can probably look after themselves but personal debtors need protection and a 'one stop' agency with the power to resolve their complaints.

Professor Graham identified this problem three years ago. Pity he was ignored.

Googling 'Debt Resolution Forum'

Without intending to make a point about the lack of regulation of the IVA providers, The Mole decided to follow up on his article below by running a google search using 'Debt Resolution Forum' as the search term and, irony of ironies, the results produced links to various statements about the virtuous Forum but those references were surrounded by links to the dissolute.

So, in the red corner we have the knight in shining armour and in the blue corner we have a company called Debt Specialists with a google ad that provides a link to their site which says: "Debt solutions. Take 60 second debt test and see if you qualify to write off 95% debt". They make the same 95% debt reduction claim on their web site under the heading of 'Flexible IVAs'.

And in the blue corner we also have Debt Advisor Online with another google ad which says "Debt Resolution. Reduce your debt now. Up to 95% debt written off." The link also leads to a similar promise on their web site.

The OFT recently issued warnings to (anonymous) companies who the OFT said were falsely claiming that 'up to 90 per cent of your debt may be written off' when the maximum would be in the region of 60 – 70 per cent.

And here, when we google for the new policeman on the block we can come up with two 'advisers' that promise debt reduction of 95%..

The Mole suspects that the Insolvency Practitioners Association - who are heading up the Debt Resolution Forum - may find that it is preaching the virtues of chastity in a brothel full of pimps.

Too little, too late ?

Toothless 'Debt Resolution Forum'

Financial Director report that the Insolvency Practitioners' Association (IPA) will now monitor, regulate and accredit members of a new body called The Debt Resolution Forum that represents the biggest IVA and debt resolution companies in the country.

This seems to be overstating the case because the biggest 'IVA provider' has refused to join and the Department of Trade and Industry has said that it does not endorse the new body.

The head of business recovery at leading regional law firm DWF has already criticised the Forum in a press release saying that this attempt at self-regulation will not have sufficient teeth to punish cases of malpractice.

The Forum's aims are nonetheless admirable. According to the report, the members have agreed to sign up to the body's standards, which include measures to make sure appropriate advice is given to debtors, fees and charges are made transparent and advertising material is monitored.

The 'monitoring' will be carried out by the IPA who will apparently make accreditation visits to all of the Forum's members over the next 12 months. This seems odd because the IPA is already supposed to monitor the standards of the practitioners who are members of the association.

It seems likely that the lesser qualified insolvency practitioners - those who had not first qualified as either accountants or solicitors - would tend to be members of the IPA rather than the other professional bodies and it also seems more likely that these are the IPs most likely to be employed by the 'IVA providers'.

The IPA is already supposed to be 'monitoring' the standards of these members who are acting as 'office holders' in insolvencies by supervising IVAs but perhaps this is where the nonsense begins.

How do the IPA - or any of the other regulatory bodies - discipline IPs who are not partners in traditional insolvency practices and are simply employed by one of the 'IVA factories'? The IPA cannot impose standards on an employer and it seems that the occasions when they might revoke a practitioner's licence are extremely rare.

In the past, the IPA's critics have complained that their monitoring of professional standards is little more than a box ticking exercise and their disciplinary powers certainly seem to be exercised with extreme caution.

According to their 2005 Report, the IPA only had 291 members actually serving as insolvency office holders but they still had to complete investigations into 209 formal complaints that year.

The IPA dismissed 184 of the complaints, issued 9 warning letters and 10 insolvency practitioners agreed to accept reprimands.

In what seems to be the most serious case, summarised as : "Remuneration taken in excess of that approved by creditors (five cases)" the IP was reprimanded, fined £,3750 (easily recoverable from the profits of one IVA) and his activities were temporarily restricted.

There may be mitigating circumstances in this particular case but let's be clear about this. Insolvency practitioners hold the funds paid to them in trust. If they take money that has not been approved by creditors they are breaking the law. This is spelt out in Statement of Insolvency Practice 9 (SIP) and copies can be downloaded from the IPA's own web site.

Breaches of trust and fiduciary duty should rank quite highly on the disciplinary scale employed by any regulator but, if offences as serious as this top out at a reprimand and a £3,750 fine, then it does not bode too well for the IPA's role in this latest bid for self-regulation by the debt industry.

It seems hard to avoid the cynical conclusion that the Debt Resolution Forum will be used by some of the IVA providers as a marketing tool to persuade uninformed debtors that they are regulated by an authority with an impressive sounding name but no power to regulate.

Regulations but no Controls.

The recent press release from the Office of Fair Trading on the mis-selling of IVAs was widely reported but the final paragraph of their press release passed by without mention.

The paragraph is worth quoting in full because it unintentionally underlines the lack of controls over the 1800 or so insolvency practitioners who are the only people entitled, by law, to supervise formal IVAs. The OFT say:

"The Insolvency Service is responsible for authorising and regulating the insolvency profession. An insolvency practitioner (IP) has to be appointed to 'supervise' an IVA. The IP must be authorised by the Secretary of State for Trade and Industry (SoS) directly, or by one of seven professional bodies recognised by the SoS as being competent to do so. IPs must comply with several statutory requirements and follow best practice guidance and ethical guidance. Complaints about IPs considered to be acting unprofessionally, improperly or unethically can be made to the appropriate authorising body. Neither the SoS nor the professional bodies can intervene directly in individual insolvencies or give directions in relation to the conduct of individual cases. The SoS has no power to impose any disciplinary sanction or penalty against an IP but if complaints are found to be justified, the SoS will take them into account when an IP seeks re-authorisation, together with other relevant issues."

So, complaints about insolvency practitioners can be made to the Secretary of State - this is done via the Insolvency Service IP Unit in Birmingham - or to an IP's professional body but neither of them have the power to intervene in individual cases. Not very helpful as debtors are only likely to complain about the conduct of their own cases and the majority will therefore see no point in complaining.

We then find that the OFT have the power to investigate companies mis-selling IVAs but it seems they cannot 'name and shame' those companies because, according to their own press release, that might damage their businesses. The continuing stress and misery they might have caused for debtors along the way is incidental. The fact that they continue to sell IVAs while they read the OFT's warning letter is immaterial.

But it seems the point is also missed that - by law - companies cannot set up IVAs. The companies - even the most incompetent and even those with the ethics of a loan shark - can only act as a front for the insolvency practitioners who are required - again by law - to exercise their independent professional judgement when they recommend an IVA to the courts in the form of their Nominee's Report.

The county courts are also supposed to act as the 'expert supervisory body' in IVAs. There is case law which emphasises this but - with some notable exceptions - the courts do not monitor Nominee's Reports. The IVAs are simply given a reference number and filed away in the court office and another link in the regulatory chain is broken. Unless an interim order is sought, the IVA will not be referred to a judge.

If even a sample percentage of the IVAs filed with the courts were referred to an experienced District Judge the risk of mis-sold IVAs slipping through would be reduced and the protection for debtors would probably improve overnight but the courts seem unable to act on their own initiative. They can only act on complaints made by debtors - and these are extremely rare.

The courts have the power to overturn any action or decision made by the supervisor of an IVA because technically the supervisor is only acting on behalf of the court. Debtors can apply to the County Court that has jurisdiction in their IVA under s.263 of the Insolvency Act but it seems that these applications are rare.

This should not be surprising. Debtors are in a vulnerable position because IPs are given extraordinary powers in personal insolvencies and complaining debtors are always open to abuses of that power and authority. Debtors can be intimidated.

Debtors are also unlikely to be able to afford legal representation. Public (CLS) funding is not normally available in insolvency matters and, if debtors try to represent themselves, they will inevitably be up against a legal team paid for by the insolvency practitioner's insurers.

Complaining through the courts can be a long-winded and expensive lottery that debtors in an IVA cannot afford to lose - but debtors have nowhere else to go.

And - despite all of this - insolvency practitioners continue to claim that are heavily regulated. The specialists in corporate insolvency may be regulated - but those dealing with personal insolvencies are not.

There is no doubt that there are volumes of regulations governing IVAs and IPs. There is the Insolvency Act; the Insolvency Rules; the Insolvency Practitioners Regulations; the Statements of Insolvency Practice and the Insolvency Service technical manuals and notices but, for regulations to work, there also has to be effective controls. Effective laws need both police and prosecutors.

If any insolvency practitioner is recommending 'mis-sold IVAs' then the OFT should also refer their complaints about the companies that employ them (or take kickbacks in the form of commission) to their regulatory body and they should be struck off for professional misconduct ....... and, if they really want to put their house in order, shouldn't the professional bodies be insisting that the OFT provide them with the evidence they need to initiate disciplinary action ?

Or do they really prefer to keep passing the buck ?

Declaring kickbacks to IVA touts.

The Times recently reported that the Solicitors Regulation Authority (SRA) - the independent arms-length body now in charge of standards and conduct in the profession - has announced a crackdown on solicitors if they do not disclose any “kick-backs” paid to insurance companies, estate agents or others for work referred to them.

The Times interviewed the head of the SRA who said that the authority wanted to take tough action over the abuse of so-called referral fees — sums of up to £600 a case widely paid by law firms to receive work, mostly from insurance companies, to handle accident cases.

The article says that the SRA had decided for now against a ban on such fees. Instead, it would be issuing a warning making it clear that it would take action if solicitors did not disclose the fees to the public.

This rather weak announcement was made despite an earlier and even more alarming Times report which revealed that some lawyers had offered sums of cash as large as £10,000 for the names of injured policyholders to secure motor injury business from life insurance companies.

The report said that some insurers were auctioning the names of policyholders injured in motor accidents to solicitors without the injured parties' knowledge.

Critics are already saying that the SRA should have questioned the ethics of paying 'kickbacks' at all rather than simply insisting that they are declared - but the insistence on the principle of transparency is at last an important step forward.

So, how does this effect Insolvency Practitioners ?

We have previously picked up on the question of undisclosed fees or commissions paid for business referred by IVA touts.

A relatively small number of solicitors are also licensed IPs and they will be required to follow the new instructions from the SRA for all of the business that they undertake - including personal insolvency matters.

There is no specific evidence that any solicitors are paying 'kickbacks' for referral of IVA business but the important point here is that the SRA have established the principle of transparency with regard to referral fees and solicitors are now required to declare them to their clients.

The SRA have taken over the regulatory role of the Law Society and they should also now be the regulatory body for solicitors licensed to act as IPs and, to ensure consistency, the new professional standards that now apply to solicitor IPs should also now apply to all insolvency practitioners.

But what should happen and what will happen are two different things because there is no way of immediately ensuring consistency across the insolvency profession and this exposes the realities of a profession that always claims to be regulated.

It takes seven recognised professional bodies (RPBs) to regulate the conduct of some 1800 licensed IPs operating in the UK and with so many closely guarded vested interests involved it is anybody's guess how long it will take before all IPs are required to follow the standards of disclosure required by the Solicitors Regulation Authority.

It will be interesting to see who objects and protests the loudest when the question arises.

IVAs are not a 'Debt Solution'

IVAs are not a 'debt solution' they are a declaration of insolvency - but the IVA touts insist on selling and advertising voluntary arrangements as if they were a form of legalised debt reduction. They appeal to a desperate and often deep-seated wish to shake off the stress of financial problems and to be able to simply walk way.

If only it were that simple.

The majority of people in the UK are in debt. The majority of people could not afford to repay their mortgage if a demand for payment in full dropped through their letterbox tomorrow but they can afford to meet their mortgage repayments when they fall due. That is the test.

A debtor is only insolvent if their liabilities exceed their assets - the 'balance sheet test' - and if they are unable to meet the repayments on their debts when they fall due - the 'cashflow test' .

Failure to make a number of payments may also not be enough to mean that someone is insolvent. There may have been hiccups in payments that lenders have accepted and sensible arrangements have been agreed for payment of arrears.

The problem - and the insolvency - arises when matters have gone past that point and there is little prospect of ever being able to recover the situation. At this point, when the instalments on personal debts are overdue and cannot be paid and when the prospects of an informal arrangement with creditors have past then there are only two choices: an IVA or bankruptcy.

The courts take a passive role in this and problems can arise because the County Courts do not apply any kind of insolvency test. Debtors can be made bankrupt for non-payment of any debt in excess of £750 although they may not actually be insolvent.

Bankruptcy was not intended to be the automatic consequence of unpaid debt. It is supposed to be a consequence of insolvency but the court's scrutiny of the bankruptcy process is often perfunctory and the Official Receiver (OR) is left to sort out the detail.

There is however one saving grace in referral to the OR. If they decide that a post-bankruptcy Fast Track Voluntary Arrangement (FTVA) is a more appropriate solution to the debtor's insolvency then the bankruptcy can be struck out and a FTVA - with the Official Receiver acting as both nominee and supervisor - is a less expensive process than the IVAs provided by the private sector IVA profiteers.

But, welcome as they are, it should also be acknowledged that FTVAs only exist because of failings in the pre-bankruptcy process and the mis-selling of IVAs has become an increasingly aggravating factor in that stressful process.

IVAs are being sold, on the one hand, as if they were a debt avoidance solution and a lifestyle choice rather than a declaration of insolvency and, on the other hand, they are are also being sold to the truly insolvent who should really be declaring themselves bankrupt.

Too many debtors are entering into IVAs which simply result in the payment of excessive fees to the unscrupulous or incompetent insolvency practitioners hiding behind the IVA factories. Creditors can often receive little or nothing.

Debtors are sucked into these inappropriate IVAs because the touts also exploit the fact - all too frequently overlooked - that many of the people struggling with debt are struggling because they are trying to do the right thing. They want to keep up with their repayments and they often carry on fighting to do that long after they should have given up the struggle.

IVAs help assuage the guilt that comes with not being able to pay back money that is owed. Debtors are led to believe that they are least paying 'something' back to their creditors. The sad reality is that they will be disappointed because they have been misled by IVA providers who make blatantly dishonest and misleading claims about the fees they charge.

An ombudsman or an independent regulator with statutory powers is needed now !

ClearStart.org making basic errors.

Clear Start are another debt solution company who claim to have a high volume insolvency department that processes hundreds of IVA applications every month - although it might be worth noting that, according to IVA.com, they only employ one IP to supervise this heavy workload.

Clear Start nonetheless claim to be a big player with considerable expertise in the consumer debt market and it therefore seems reasonable to ask why, if they have so much expertise, do they leave basic errors on their web site.

In their introduction to IVAs they claim for example that: ".... under either bankruptcy or IVA they are the same assets and income that are up for distribution to the creditors; it is just that it is the individual who proposes what will be paid into an IVA, whereas under bankruptcy the magistrate at the hearing decides what the outcome will be."

This is nonsense. Bankruptcy hearings are held in County Courts not Magistrate's Courts - an important legal distinction - and a District Judge (not a magistrate) decides whether the debtor should be declared bankrupt or not.

The district judge does not make any decisions about the debtor's assets at all. That is dealt with, in the first instance, by the Official Receiver and - if there are sufficient assets - the case may be handed over to an IP who will act as a 'trustee in bankruptcy' to arrange the distribution of assets to creditors.

Having failed to understand which court deals with bankruptcy petitions, Clear Start also lead into this display of their own lack of basic knowledge with the remarkable comment that: "The IVA was designed initially to be a more convenient means for processing individual insolvency cases without incurring the excessive costs and court time involved in bankruptcy."

This is simply misleading. IVAs were not designed for 'convenience'. They were originally introduced as an alternative to bankruptcy that would provide a greater return for creditors.

Indeed, when an insolvency practitioner acts as Nominee for an IVA they are required to produce a report on the IVA proposal which includes a comparison of the costs and the returns to creditors that would be achieved through bankruptcy or through the IVA.

IVAs were also originally designed for small business owners to enable them to continue trading their way out of insolvency. They were not originally intended to provide for personal insolvencies on the current scale.

To imply that IVAs are a less expensive solution is also wrong. The likelihood of the costs of 'processing' a bankruptcy being greater than the costs of a setting up and supervising an IVA are close to zero.

That's why so many debt providers are scrabbling to increase their share of the 'IVA market' - it's more profitable and, despite claims to the contrary, IVAs are also under-regulated and they have also been subject to less scrutiny by the courts than bankruptcies.

If excessive costs are being incurred, they are now very obviously being incurred - whatever the original intentions when they were introduced - in IVAs.

The suggestion that bankruptcies also took up excessive court time is also nonsense. Most uncontested personal bankruptcies are held in the judge's office (chambers) and they are over in a matter of minutes. An uncontested bankruptcy hearing probably takes up no more court time than an application for an interim order in an IVA.

So what ? Nit picking ?

Not really. When companies set themselves up to offer advice to often desperate debtors it is important that they get the detail right. IVAs stand or fall on points of detail in both the proposal itself and in sticking to the very precise requirements of the Insolvency Act.

When Clear Start lead their introduction to IVAs with references to bankruptcy that are either wrong, misleading or designed to scare - by references to magistrates courts and excessive costs - they are simply reinforcing negative images of a bankruptcy process that may actually be the best and most cost effective solution for the debtor.

If this is unintended. If there is no deliberate, cynical intent in their sales pitch then surely Clear Start should at least be able to get even the basic facts right about the 'product' they are selling ?

Displays of incompetence can sometimes be excused as endearing displays of human frailty but they might also prove very expensive for debtors. Caveat emptor.

DebtAdvisoryCentre.co.uk - Straight talking on fees.

It's unusual to find an IVA provider admitting that debtors pay their IP fees so it's worth taking note when someone actually tells the straight unvarnished truth.

The Debt Advisory Centre spell out the truth on their web site and it's worth quoting what they say.

Their FAQs cover the question of IVA costs and they say quite simply that: "All the costs associated with your IVA are taken from the payments you make in to it. You don’t pay anything extra."

The Debt Advisory Centre also add - perhaps speaking volumes about other players in the 'debt industry' - that they do not pay or receive any undisclosed fees or commission.

No smoke and mirrors here. No playing with words. No misleading claims that somehow the creditors pay the IP fees.

This should not be remarkable. The principle of 'transparency' runs through all insolvency law like a golden thread but it seems that principle ends when it comes to selling IVAs.

The reference to 'extra payments' is also illuminating - suggesting malpractice elsewhere ? - because debtors should only have to make the payments agreed with creditors.

This is normally limited to the monthly contributions to the IVA fund. The IP should take their fees and permitted expenses from that money.

By law, the only money that an IP can take are the sums shown in the terms of the final (modified) IVA proposal. Demands for any additional payments would be unlawful.

The relevant section of the law here is Insolvency Rule 5.33 which limits the fees, costs, charges or expenses which may be drawn to those which (quote) ".... are sanctioned by the terms of the arrangement...."

Insolvency Practitioners are also bound by mandatory professional guidelines known as SIPs (Statements of Insolvency Practice) and one of these covers remuneration of insolvency practitioners.

The relevant version is SIP 9 and it also clearly spells out that: "Members should be aware that the drawing of remuneration otherwise than in accordance with the relevant statutory provisions (i.e. Insolvency Rule 5.33) will render them in breach of the law."

Couldn't be clearer.

So why is it necessary for some of the big players to throw up such a smokescreen of ambiguity around the question of fees ?

Insolvency Practitioners are placed in an extraordinary position of authority and trust and if they are not being straighforward and transparent about their fees - and everything they do - then they are simply exploiting the ignorance and vulnerability of debtors.

Googling Bad Debt Advice

The UK Insolvency Helpline - I've 'borrowed' their warning sign - provide a useful and cautionary list of things to watch out for in adverts from debt advisers who may be mis-selling IVAs.

Insolvency Helpline - who are a network of accountants and lawyers - rightly flag up abuses by unregulated debt advisers and even provide links to help debtors complain to enforcement bodies about bad advice.

However, it's one thing to complain about the 'bad advertisers' - and it may even be possible to pick them off one by one until they are regulated by law - but it's another thing to deal with one of the primary sources of those adverts: Google itself !

Significant numbers of debtors find their debt adviser or IVA provider by searching online and most of the warning signs of bad debt advice listed by Insolvency Helpline can be found in the google ads that pop up with every search term related to personal insolvency.

One of the reasons why I've not signed this blog up for google ads is because I would have no control over the content of the ads and providing links from this site to a series of unregulated 'bad' debt advisors would defeat the object of the blog for the sake of a few quid.

Aren't Google in a similar position ?

In the first instance, their credibility relies upon their effectiveness as a search engine but, if the advertising that accompanies that service becomes increasingly questionable, then surely it would also be in Google's best interests to get ahead of the game and clamp down on the 'bad advice' ads before the regulators trundle into view and before googling simply refers in generic terms to 'online searches' rather than the brand leader itself.

There are other search engines.

IVA Providers up 40% - Supervision down.

The vultures are still circling. The Financial Times reported Friday that the number of companies providing an insolvency agreement service to debtors were up by 40 per cent last year.

The FT quotes research by the TDX Group - a company which claims to be revolutionising the debt industry with its focus on data and analytics.

Guess we could all do with more analytic focus but the detail of the TDX research is more important because it goes on to say that this increase in the number of Individual Voluntary Arrangement (IVA) providers also meant that the number of companies with insolvency practitioners setting up at least 250 IVAs each quarter had doubled.

Isn't that obscene ? No matter how many junior staff they employ, how can any IP competently supervise that volume of new IVA proposals ?

The simple answer to my own question ? They can't !

The number of IPs licensed in 2006 hasn't increased in proportion to the growth in IVAs or the number of companies offering them. So the quality of supervision must go down. But where is the accountability ?

Insolvency Practitioners are officers of the court and public servants and, so long as they carry out their duties according to the letter of the law, they are protected from civil legal action. But most of the big players in the so-called 'personal debt market' are not advertising themselves as IPs - they call themselves IVA providers and this is a different beast altogether.

Somewhere behind the adverts there must lurk an Insolvency Practitioner because only a licensed IP can set up and supervise an IVA - but they remain anonymous. The big players in the market never advertise the number of licensed IPs they employ and I wonder if they're getting away with something here.

Firms of solicitors and accountants do not operate anonymously. They declare their partners and their qualifications up front. They are visible. Why are the IPs employed by the IVA providers invisible ? Shouldn't they be named and listed in company adverts or literature ?

This visiblilty is important because the law gives IPs a status and protection that is similar to that granted to solicitors. They are also supposed to be a regulated profession and if there is any mis-selling of IVAs this should be a disciplinary matter for their regulatory body - not a matter for the Advertising Standards Authority or the Office of Fair Trading who can only direct their attention at the company rather than the IP.

The industry is accused of mis-selling but If IPs can hide behind the corporate facade of an IVA provider how can they be held accountable ? After all, they must be underpinning the mis-selling by their very presence. There are no IVAs without them.