Case Illustration

Individual Voluntary Arrangement (IVA) Scenario

Miss M borrowed a total sum of $100,000 from 3 financial institutions. She is now unable to repay any of the loans. She does not want to be declared bankrupt because she wants to retain her existing job as an insurance agent. She wishes to apply for an IVA to settle her debts.

Question 1:
What makes an IVA better than bankruptcy in Miss M's case? Answer 1

Question 2:
What should Miss M do during the IVA application? Answer 2

Question 3:
What should be stated on Miss M's IVA proposal? Answer 3

Question 4:
What will happen during the creditors' meeting? Answer 4

Question 5:
What are the consequences for Miss M if her proposal is approved? Answer 5

Question 6:
Can the decision made at the creditors' meeting be challenged? Answer 6

Question 7:
Can Miss M avoid bankruptcy proceedings against her during the effective period of the IVA proposal? Answer 7

Answer 1:
Miss M can retain her existing job as an insurance agent. In contrast, a bankrupt cannot act as a company director or practise in certain professions such as lawyer, estate agent or insurance agent, etc. The bankrupt cannot purchase luxuries such as new car or travel by taxi unless the bankrupt has reasonable grounds to do so.

Although the Official Receiver or the Nominee may approach Miss M's employer to gather information about her case, this will not be carried out unless it is necessary to do so. Miss M can also avoid the stigma of bankruptcy, and be free from the legal restrictions imposed on a bankrupt. For example, she can travel freely in and out of Hong Kong without having to report to the Court or the Official Receiver. She can also act as a company director or an insurance agent.

Answer 2:
Miss M should first propose a Nominee to implement and monitor her voluntary arrangement. She must then submit her IVA proposal and her Statement of Affairs to her Nominee for checking. She should also apply to the Court for an Interim Order (for a 14-day-period in which no other legal proceedings can be taken or continued against her without the Court's permission) to allow the relevant parties to have adequate time for considering or revising her proposal.

The Nominee will submit a report concerning her proposal to the Court stating whether a creditors' meeting with Miss M should be held to discuss the proposal. Such a meeting will be held in usual circumstances.

Answer 3:

In general, Miss M must clearly state her assets owned and the details of her liabilities to her immediate knowledge. She must also propose the duration of the voluntary arrangement, repayment dates and the amount to be paid in each time. Her proposal should also include the functions to be undertaken by the Nominee and the Nominee's personal details.

For more details of the IVA proposal, please refer to “What should be stated on the IVA proposal?” on this website or see the webpage of the Official Receiver's Office at http://www.oro.gov.hk/eng/publications/ivaguide.htm#06 .

Answer 4:
During the creditors' meeting, the creditors and Miss M will negotiate on the IVA matters. The approval or modification of the proposal requires a majority of those creditors who totally hold in excess of 75% in gross amount of the debts owed and who are present in person or by proxy and vote on the resolution. Any modification of the proposal also requires consent from Miss M.

Answer 5:
Once the proposal is approved during the creditors' meeting, it will legally bind every creditor and Miss M. The proposal is effective from the date of the meeting. The Chairman of the meeting must submit a report to the Court within 7 days of the creditors' meeting. The Nominee who was appointed at the meeting will take control of all Miss M's assets, and she must follow the approved proposal to repay her debts.

Any bankruptcy petition entered previously against Miss M will be dismissed by the Court. The Court can cancel any existing Bankruptcy Order with or without conditions.

Answer 6:
The debtor, the creditors, the Nominee, and in the case of an undischarged bankrupt, the Trustee or the Official Receiver, may submit an application to the Court to challenge the decision of the meeting within 28 days after the submission of the Chairman's report to the Court.

Answer 7:
Miss M can avoid bankruptcy proceedings if she complies with her obligations under the IVA.

Under section 20L of the Bankruptcy Ordinance, however, the Court can still make a bankruptcy order against the debtor if:

• the debtor has failed to comply with the relevant obligations under the IVA; or
• the debtor provided false or misleading information or omitted items that were important for considering and approving the IVA proposal; or
• the debtor failed to do all such things for the purpose of the IVA that have been reasonably required by the Nominee of the voluntary arrangement.