IVAs offer welcome option to debtors

INDIVIDUAL VOLUNTARY arrangements, or IVAs, are growing in popularity in Hong Kong as they offer the debt-ridden a welcome alternative to declaring bankruptcy.

Personal and corporate bankruptcies have hit new records this year as economic hardship persists, according to the Official Receiver's Office. In the first eight months, 14,847 individuals were declared bankrupt, triple the rate in the same period last year, while the number of firms winding up reached 858, on track to break last year's record of 1,066.

Coming to an IVA with your creditors has only been an option in Hong Kong since April 1998, when the government enacted changes to the bankruptcy law. In the first year, a mere three cases were approved - a number that has by now risen to almost 150. Forty-eight of those IVA approvals took place last month.

'Originally, you could count on one hand the number of successful IVAs [in Hong Kong] but they are growing in popularity,' says Bruno Arboit, director at accounting firm Baker Tilly. 'It is understandable that if you are seeing an increasing number of bankruptcies you will see a corresponding increase in IVAs.

'There are definite advantages for individuals, but ultimately you have to have something tangible to offer to creditors. Unfortunately a lot of people just don't have anything to offer.'

According to Mr Arboit, the beauty of an IVA arrangement is the flexibility. Individuals can formulate a repayment strategy that can range from a one-off payment to monthly instalments - depending on their circumstances. The trick is getting the plan approved by 75 per cent of creditors. Bankrupts, on the other hand, remain under various constraints beneath the eagle eye of a trustee until they are discharged, normally after four years.