IVA – An Alternative to Bankruptcy

IVA – An Alternative to Bankruptcy Presented by Mr. Michael Cheung

What is an IVA? • A voluntary agreement sanctioned by the court • Entered into between debtor and his creditors • Debtor’s liabilities settled by composition or scheme or combination of both

Procedure 1 Approach a nominee and prepare proposal • Undischarged bankrupt / Non-bankrupt • Proposal must include • reasons for going IVA • assets and liabilities • duration of arrangement • how creditors are to be paid

Procedure 2 Interim Order • 14 days moratorium • Section 20C Bankruptcy Ordinance • intention to make proposal • undischarged bankrupt/able to present his own petition • no application in previous 12 months

Procedure 3 Nominee’s Report • Viable proposals • Statement of Affairs • Recommendation as to holding of creditors’ meeting

Procedure 4 Creditors’ Meeting • Between 14 to 28 days • Majority in excess of 75% in value

Procedure 5 Implementation of the IVA • No challenge made to court within 28 days • Interim order discharged • Binding on all creditors having notice of and entitled to vote at meeting • Details of the IVA be entered into a register for public inspection

Advising a creditor • What is in the proposal? • How reliable is the information disclosed? • Is there anything hidden by the debtor?

Advantages • Less traumatic • Cheaper and more beneficial to creditors • No statutory disabilities • Professional help and advice • Interim order - breathing space • Binds all creditors

Disadvantages • Depends very much on debtor’s desire to ‘come clean’ with creditors • Nominee has no right to take action on preferences or undervalue transactions

I. Formulation of the proposal • Initial Contact with the debtor • Principal tasks of the Nominee prior to the approval of the debtor’s proposal • Nature of proposal • Statement of Affairs

II. Formulation of proposal • Attitude of the creditors • Possible claims by a trustee in bankruptcy • Duration of the arrangement • Continuation of the debtor’s business

III. Nominee’s report • Professional judgement • A critical eye on the debtor’s statement of assets and liabilities • The proposal meets the criteria set out in the legislation

IV. Creditors’ meeting • Convening creditors’ meeting • Chairman of the creditors’ meeting • Voting rights • Majorities required at meetings

V. Creditors’ meeting • Adjournment of creditors’ meeting • Report of result of creditors’ meeting

Bankruptcy Rule 122ZD • An offence if makes any false representation or commits any other fraud for the purpose of obtaining the approval of a voluntary arrangement. • Liable to a fine at level 2 and to imprisonment for 6 months.

Civil Service Regulation No. 458 • An officer who becomes insolvent or bankrupt, even though no proceedings have been taken against him is required at the earliest possible moment to submit a complete statement of the facts of his case to his Department, for transmission to the Civil Service Bureau.

IVA – An Alternative to Bankruptcy