Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Insolvency definition

What does Insolvency mean? In practice, insolvency describes a financial state where a debtor cannot meet liabilities when due, triggering remedies such as administration, liquidation or bankruptcy and informing directors’ duties and avoidance claims. For companies in England & Wales, Scotland and Northern Ireland, the Insolvency Act 1986, s 123 sets two alternative tests: - Cash‑flow insolvency: an inability to pay debts as they fall due. The inquiry is practical and forward‑looking, not confined to today’s bills (Re Patrick & Lyon Ltd [1933] Ch 786; BNY Corporate Trustee Services Ltd v Eurosail [2013] UKSC 28). - Balance‑sheet insolvency: liabilities (including contingent and prospective liabilities) exceed assets on...

Individual voluntary arrangements: effects on secured/unsecured creditors, proceedings, third parties, completion/default, challenges, and 2025 Protocol updates (England and Wales)

Published by a LexisNexis Restructuring & Insolvency expert

Practice notes

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Effect of IVA on unsecured creditors

The consequences flowing from approval of an individual voluntary arrangement (IVA) are set out in section 260(2) of the Insolvency Act 1986 (IA 1986). Under that provision, once an IVA is approved it:

is deemed to have been made by the debtor at the moment the creditors decided to approve the IVA proposal; and
binds, as if they were a party to the arrangement, every person who, in accordance with the Rules, was entitled to vote when the creditors decided to approve the proposal, or who would have been so entitled had they received notice of it.

An IVA becomes operative by creditor approval alone—no court order is required to bring it into effect. In legal terms, the arrangement operates as though a consensual agreement had been concluded between the debtor and each creditor at the time of approval (see Lloyds Bank plc v Ellicott at para [51]). By virtue of IA 1986, s 260(2), that agreement is treated as extending to creditors who voted against the IVA, as well as to those who were otherwise entitled to vote, binding them as if they were parties to the arrangement...

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Ali Tabari

St Philips Chambers

Ali is a well-established leading junior, consistently ranked in the legal directories since 2014 and described variously as “a highly skilled and persuasive advocate”, “exceptional on his feet.”, “very incisive”, “a pleasure to deal with”, “very approachable, responsive and friendly”, and “absolutely fantastic”. He has a busy and thriving commercial practice focussing on heavy commercial litigation involving fraud, insolvency and finance aspects. His experience in those fields also leads to instructions in professional liability cases involving solicitors, accountants, IFAs and surveyors.He regularly appears in lengthy trials in the High Court, and has been instructed alone in the Court of Appeal several times. He has recently been a led junior in cases variously concerning large-scale breaches of warranty, defective share sale agreements, fraudulent trading by a company director, and civil orders resulting from the largest-ever successful prosecution by the Serious Fraud...

Web page updated on 21/05/2026

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