The Insolvency Service has published its annual performance data for 2020 about Individual Voluntary Arrangements (IVAs).

The figures show that early termination rates of IVAs have dropped 11% in the past year, while total IVAs have risen by almost 20,000 since 2018 and that IVAs have risen steadily on an annual basis since 2015, although the total in 2020 was similar to 2019, with about 78,000 new registrations in both years. IVAs comprised 70% of total individual insolvencies in 2020, up from 64% in 2019.

The statistics show the percentage of IVAs registered in 2019 that were terminated within one year has decreased to the lowest level since 2014. This partly coincides with the publication of updated guidance for the IVA protocol in April 2020 in response to the pandemic.

There were 7,143 IVAs registered in 2019 that failed early. This was 11% less than early terminations from IVAs that started in 2018.

IVAs are one of the three forms of insolvency-based debt solutions available in England and Wales alongside bankruptcy and Debt Relief Orders (DROs). The data published today is broken down on a named basis among the larger firms who arrange them and shows a wide discrepancy in the number of IVAs arranged by different firms. Sixteen IVA providers accounted for over 90% of new IVAs registered in 2020.

Jane Tully, Director of External Affairs at the Money Advice Trust said “These figures, showing an increasing trend in IVA termination rates, are a concern as they suggest that many people in financial difficulty have been directed to IVAs when they may not be the right option for their situation. In many cases, other debt solutions may be more suitable.’

“The prevalence of online adverts that promote ‘solutions’ to debt involving insolvency procedures may well be a contributing factor to this. The Government needs to step in and to give the FCA the power it needs to tackle this issue head on.”

“Insolvency options should not be undertaken lightly and it is crucial that people receive free, impartial debt advice before deciding the best course of action to take. Findings from the recent Woolard Review highlighted the need for a more joined-up approach to the debt solution market. Increasing eligibility criteria for Debt Relief Orders is a welcome step but beyond this, we need a full review of all debt options in the wake of Covid-19.”

Debt charity StepChange says that. it has been concerned about the performance of the IVA market as a whole, given the discrepancy between the sales and failure rates of IVAs among different firms and that this year’s data does nothing to alleviate the charity’s concerns.

StepChange Head of Insolvency Services Peter Wordsworth said “IVAs are absolutely right for some people, but not for all. We are highly doubtful whether everyone who is being sold an IVA should be getting one. Our own experience of having to deal with a large number of misleading advertisers pretending to be StepChange in order to generate leads for commercial IVA sales underpins this view. It’s crucial, as we head out of the pandemic period, that people struggling with a Covid debt legacy aren’t inadvertently hoodwinked into taking out an IVA by unscrupulous sales practices.”

The charity has also says that it welcomes the Insolvency Service’s consultation on changes to widen eligibility for Debt Relief Orders (DROs) which the debt charity says that the proposals are welcome, and likely to result in an increase of more than a quarter in the number of DROs that the charity arranges.

If the Insolvency Service proceeds with these changes, many more people will have access to DROs. In particular, based on the charity’s modelling, around a third of people who currently pursue bankruptcy as an insolvency solution may be able to access DROs under the new proposals, meaning they would face far lower costs than at present. However, even the modest £90 fee to access a DRO, while far lower than the £680 fee for bankruptcy, is a struggle for many clients. Clients frequently have to save for this fee over a period of months before they are able to proceed.

StepChange Head of Policy, Research and Public Affairs Peter Tutton said “We agree with the Insolvency Service that now is the right time to update the eligibility limits to ensure that, in the wake of Covid, more people with low income and low assets who can really benefit from DROs are able to access them, and make a fresh start after a year. It’s also time for policymakers to make sure that insolvency is safe harbour for those who need it by removing barriers to access and rooting out business practices that are currently causing harm.”