Creditor strategy in individual insolvency

Abstract

Explains the option of individual voluntary arrangements (IVAs) when formal insolvency proceedings are taken against a UK individual, noting their rapid growth since they were introduced by the Insolvency Act 1986. Applies games theory (the prisoner’s dilemma) to previously published research data (Pond 1988) on the choices made by debtors and creditors for IVAs in order to analyse and discuss their srrategies. Shows that creditors can do better by assessing the risk of IVA failure, using it to discount the projected dividend and comparing the result with the returns from bankruptcy. Considers the implications for policy makers and others involved.

Spatial variations in personal insolvency choices: The role of stigma and social capital

“…Second, IVAs embody the concept of an 'earned fresh start' in which individuals make restitution for their violation of trust by partially paying off their debts. This is in contrast to bankruptcy which typically involves individuals being discharged from most debts, with creditors receiving minimal recompense (Pond, 2002). Third, until 2009, an IVA permitted a higher level of confidentiality than bankruptcy as the arrangement was not advertised in the local press (Walters, 2009).…”

“…This procedure embodied a payment plan approach in which individuals retained their assets but made payments out of ongoing income (Di Martino, 2005). However, Deeds accounted for less than 1% of insolvencies by the mid-1980s (Pond, 2002). IVAs sought to provide an updated and more attractive payment plan.…”

“…On the surface, the need for co-operation creates a paradox. IVAs impose a greater financial burden on debtors than bankruptcy due to higher payments to creditors (Pond, 2002) and substantially greater fees (Business, Innovation and Skills Committee, 2013). However, debtors have opted for IVAs in increasingly greater numbers.…”

Causes of Early Failures in Individual Voluntary Arrangements

“…Despite all the media interest there has been very little research into the IVA process (Green, 2002a;Ziegel, 2003), the literature review in the next chapter will concentrate mainly on findings published by Green (2002) and Pond (1995Pond ( -2002.…”

“…Having increased duration creditors have also sought to increase the level of contributions. Pond (2002b) identified this as a debtor non-cooperation factor.…”