|This is the new thread after the name change
|Peace Breaks Out In The IVA Sector...
Dealing with dodgy debt
Created: 8 January 2008
Written by: Jonas Crosland
A truce has been called between leading lenders and providers of individual voluntary arrangements (IVAs) that should mark an end to the bitter acrimony that plagued insolvency practitioners for much of last year.
While IVAs have only recently become a subject of serious contention, they have actually been around for some time - they were introduced in 1986 as part of the Insolvency Act, primarily for use by small businesses. An IVA is an agreement between an overburdened debtor and his or her creditors to repay a fixed monthly amount for five years. In return, all interest charges are suspended and creditors agree not to pursue any further claims on the money outstanding. The amount repaid can be as little as 25 per cent of the outstanding amount. This may sound like a raw deal for creditors but it is better than making someone bankrupt, which is not only a costly process but carries with it the prospect of getting back no money at all. However, after two decades, lenders began to feel the rules of the game needed some changing.
So, following a year at loggerheads, IVA providers, working as insolvency practitioners (IPs) and represented by the Debt Resolution Forum, have thrashed out an agreement with the credit industry, represented by the British Bankers' Association . The deal incorporates a new fee structure and sets industry standards for advertising, advice, information and documentation. And with the big high street banks signing up, IVA providers can at last start to look forward to more visible revenue streams, although the business will be done on much less favourable terms.
The new fee structure is not yet set in stone, but the broad principle is that instead of receiving an upfront commission, IPs will now earn their income from the first four or five months of contributions made by a debtor. Clearly, this provides an incentive to ensure that debtors can meet their agreed payments while also encouraging IPs to make sure they repay as much as possible..
Before the new agreement, a new IVA was worth around £2,700 to an IP, plus a monthly management fee of £78, giving a total income per IVA of about £7,400. Based on the new system, IPs are now likely to receive about a third as much income per IVA from an the average-sized problem debt. Still, creditors and debtors as well as IVA providers had been happy with the old way of doing things until it became clear that some unscrupulous operators were pushing individuals into inappropriate IVAs and taking their commission up front. In many cases, once the IPs had pocketed their cash, debtors failed to maintain payments forcing banks to write off increasing amounts of bad debt. This had the unpleasant side-effect of highlighting just how sloppy their lending criteria had been in the first place. So, last year, creditors put their foot down.
Without the approval of 75 per cent of the creditors, an application for an IVA will fail. This was painful all round, but hit the legitimate IVA providers the hardest. Accuma , for example, saw its share price plummet by 92 per cent to just 21p at one stage. All this came at a time when margins were already being squeezed by increased advertising costs and a sharp rise in the number of IP firms, to over 600. Obviously, the situation could not be left unresolved, but it has taken a year of negotiations for the truce to be declared.
It looks like this could have come in the nick of time. Accountancy firm Grant Thornton is predicting that personal insolvencies will jump this year to 120,000, almost triple the amount in 2004, and the average owed by problem debtors has now hit £30,000. So the potential increase in demand could mitigate some of the pressure the new fee arrangement will put on margins.
Indeed, after the UK's annual Christmas spending binge, like anything else taken to excess, there is usually a hangover. And for many consumers this really starts to set in when bills begin to land on the doormat in January. In fact, the frenzied spending of someone else's money has now reached the stage where consumer debt is greater than the value of the UK's annual gross domestic product (GDP), and current estimates suggest that over 9m credit-card holders are struggling to keep up with their payments. What's more, there is evidence to suggest that over 4m people are still paying off debts from Christmas 2006.
In previous years, extended credit facilities and the ability to pay off debt by remortgaging the house effectively put off the evil day when loans had to be repaid. But neither of these options is now on the table. Credit card companies are cutting borrowing limits and applying much tougher lending criteria, while stagnating house prices have severely curtailed the ability to remortgage. And it gets worse. Around 1.4m homes face mortgage repayment increases of up to £200 a month when fixed-rate deals taken out two years ago come to an end, due to interest rate rises over the past two years. Add to that the spiralling cost of gas, electricity and petrol, and the picture is pretty gloomy. A vast majority of people in debt will get by with a bit of time-honoured belt-tightening, but for some it is already too late. So, having taken the pain of the new fee structure, IPs will now be rubbing their hands.|
|Shall we restart at
|Don't know but someone should tell their Marketing dept.....cos their adverts are still stating Debt Free Direct.....LOL!|
|Change of name? Is this a good thing? Any thoughts?|
|Shares mag says hope for 2008. We shall see|
|been a complete prat over this, been short for many months and accidently let my december contract bet expire while I wasn't paying attention. Only left with about 30% of position.|
|DRF Hails New IVA Protocol
O All parties agree on new IVA protocols
O Future secure for IVA as a debt management product
O Indebted consumers to benefit from secure new working arrangements
O All parties committed to work together for good of industry
The Debt Resolution Forum (DRF), representing 28 of the UK's leading debt
resolution firms, today welcomed the new working protocols agreed by an all
party committee on IVA's, which includes: DRF, British Bankers Association, The
UK Government's Insolvency Service and professional bodies from the accountancy
and insolvency practitioner industries.
The new protocol will enable severely indebted consumers to access effective
debt resolution advice and products such as the Individual Voluntary Arrangement
(IVA). The protocols follow a year of intense negotiations between all parties
Commenting, DRF chairman, Chris Holmes, said:
"We have all worked very hard to ensure that an equitable solution can be
reached. I believe it is now fair to say that the "creditor strike" has been
ended and that there will be an increasing flow of IVA's agreed as we move
through 2008. The agreement looks likely to come into force from February, but
we believe many on both sides will be working towards protocol compliant IVAs
"We have achieved an agreement to improve standards, increase transparency,
reduce process and allow greater access for debtors to this crucial and
effective statutory solution to financial crises.
"The real winners from this deal are not the banks, who will earn more income,
or the IVA providers, who will also benefit from this deal but is the UK's
society and economy, which we believe will greatly benefit from this move".
Speaking of the meeting, chair of DRF's standards' committee, David Mond, said:
"A key issue, that of creditor practices that limit access to IVAs was hard
fought - but there appears now to be a clear commitment on the part of the
British Bankers Association to the ultimate removal of hurdle rates and other
preconditions: I believe DRF members will do all they can to ensure IVA
proposals are compliant to the new protocol and to ensure creditor actions and
practices are accurately recorded to ensure things move swiftly in this area.|
|couldnt agree more felix99 - even the comment comparing a low of 382 IVAs to October's figure was created using the figure from last January - notoriously the lowest output month of the year, yet they have used it to try & show the upturn is bigger than it really is.
Lots of smoke & even more mirrors!|
|lol go read it again .
£4m credit taken from changing accounting policy. They are just pushing all thier revenue upfront - basically like a builidng contract they are front ending the revenue and will get costs at the back end.
Change of name and year end. Lets mix it up good and proper so no one has a clue how well we are doing with comparatives.
Not sure if market will see through this but it will be a good short at some point.|
|Interestingly positive H1 statement!|
|something brewing thats for sure. But still am a bit suspect on this one as a long unless Hanover is trying to take it private or something.|
|FELIX I hear what you say but we can't argue with what the graph is telling us|
|"The number of bankruptcies was up 2.2% year-on-year, to 15,833, but the number of individual voluntary arrangements (IVAs) entered into dropped by 14.3% to 10,239."
|its a short not a long Sandbank so save your cash. I am just struggling to see what it will be - I can only assume its IVA nominee fees that are crystallised on passing of the IVA but might take 6-12 months to collect. So either they are doing a hell of a lot of IVA's - I think not or at least its slowing down a lot - and the new regime is effectively to have 5 months payment outstanding going forward.
So to me it must be a lot fo old cases with big IVA nom fees being paid on the dribble. Thnig you have to remember is that actually a recession is probably worst thing for an IVA company. If peeps lose their jobs then the IVA is shafted and DFD can have a nice big write off.
At least ClearDebt insure the fees via an unemployment / sickness policy. Costs 3% or so I think but it guarantees their fees pretty much|
|FELIX: I was just about to press the buy button when I saw your post. Good question. Seems a helluva a lot of money outstanding.
Could it be that when clients can't afford to pay DFD's invoices they apply for an IVA? :-)|
|Any kind soul able to tell me whats included in the rather large debtors figure in the Annual Report of £13m quid odd. £3m is due after one year . Rest is due within 1 year - is this all nominee fees due ?|
|Increased short by 50% yesterday, this is holding up remarkably well considering the prospects.|
I just have a eye on buying for now. I do though beleave that this sector is a growth area.IMO people will continue to default as the credit crunch continues and possibly gets worste. People will need the service IMO.
kristini2 possible £1 target would take the M.c down to £45m still a lot to turn over, but you pay for growth.|
I do not know about shorting but i wish to go long on DFD. I have yet to buy so if the share price was to go down further more shares for me.
Thanks and good luck.|
i'm thinking of £100 P.P. sell to march on a spread bet?|
|what price are you looking at kristini2 ?|
|can these be sold through ig on a spread bet? I seem to remeber, they could not offer a sell on these last year when i asked.|
|Fidility increased holdings.