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.