QIS is the second large IVA firm to go under in 2022 · Debt Camel

Quality Insolvency Services (QIS) went into administration on 23 November 2022.

They are one of the larger IVA firms. It is estimated that there may be about 13,500 IVAs currently in progress at QIS and they were 5th in the Insolvency Service’s table of IVAs registered in 2021:

What happens to your QIS IVA?

Your QIS IVA is still continuing. The administration doesn’t cancel or change it:

• the terms of your IVA are unchanged;
• you should carry on making monthly payments to it.

The money that you have paid to your IVA already that will go to your creditors should be ring-fenced in a separate account. It is not part of the assets of QIS so it will not be affected by the administration.

You can still contact QIS in the normal way if you have any queries.

If your monthly payments are no longer affordable, contact QIS to get them reduced. IVA firms now have much greater flexibilty to reduce payments because of cost of living problems. If you can’t get a response, talk to your local Citizens Advice to get help.

It will be some weeks before the administrators publish their proposals, but it would be normal for the administrators to sell all the IVAs to another IVA firm.  You cannot object to who your IVA is sold to or ask for your IVA to go to a different IVA firm.

After this sale, your IVA will continue with the same terms and conditions. If the new firm wants to change them, then you have to agree to that.

The IVA Advisor went under in August

QIS is the second firm in the top 10 list to fail this year. In August The IVA Adviser (TIA) went into administration.

The administrators’ proposals were published in October, so by now we know more details about this one. In August TIA had 8,500 open IVA cases and employed 48 staff in the UK.

An investor called Balbec had advanced the astonishing sum of £26m to TIA over a period of just over a year. The administrators say:

The funding has primarily been used to purchase IVA cases from lead generators.

The proposals said that:

The IVA book will be transferred to an alternative provider in due course, a transition process is underway and it is anticipated that the IVA book will transition mid-October 2022.

This has now happened – TIA’s IVAs have been bought by Anchorage Chambers, who were 14th on the list of firms registering IVAs in 2021. Anchorage’s website now says:

We are delighted to welcome the clients of The IVA Advisor. The terms of your IVA proposal have not changed and if you have already set up your monthly payments no further action is required. If you wish to make a payment please click on the online payments button – please use your newly allocated client reference number.

Why are these IVA firm failures happening?

You might think IVAs are a growth industry at the moment:

• there are many more people in financial difficulty in 2022;
• personal insolvencies have increased by nearly 50% since 2014;
• IVAs are now taking an increasing share of personal insolvency. Ten years ago IVAs were less than 50% of personal insolvency, now they are about 75%.

Also IVA fees are notoriously expensive.

So how can a large IVA firm not be doing well?

Increasing expenses

Very high fees are being paid to lead generators. The FCA found in 2021 that the average fee being paid to an FCA-authorised lead generator was £930. There are anecdotal reports this year of fees of over £1,200 being paid.

Another key point is that many people with IVAs are being badly affected by the cost of living crisis. People will be missing payments and asking about reductions in payments or payment breaks. This will increases the IVA firm’s admin costs and, if IVA s fail, may reduce their fee income.

To increase efficiency, many firms have outsourced much or all of their IVA administration function abroad, but this leads them exposed to hikes in charges from these third party firms, who may also provide services for their competitors.

The fixed fee model

Most large IVA firms have adopted the “fixed fee” model. This results in IVA fees being paid more slowly and the creditors getting some money earlier in the life of an IVA.

In theory, this should disincentivise IVA mis-selling as the IVA firm will want the IVAs to continue for longer to get its fees paid. But when combined with the high up-front lead generator fees, it creates a huge cash flow problem for IVA firms especially if they are trying to expand.

The solution often adopted is by getting an investor to advance the discounted value of the future fee flow when an IVA is registered.

This weakens the incentive not to mis-sell. Of course, it’s still there as the business will have major problems in the medium/long term if the fee income doesn’t arrive.  But in the short term, the answer to looming cash flow problems may look like registering as many IVAs as soon possible and getting the cash advance from the investor.

IVA firms aren’t regulated

These cash flow problems would matter less if IVA firms were well capitalised. But many of them aren’t, as a look at QIS’s last published accounts shows.

One of the reasons for this is that the firms themselves are not regulated, only the Insolvency Practitioners are. So there are no checks by anyone that firms dealing with thousands of customers, many of them vulnerable, are financially stable.

There may be more failures

Investors want to see a return on their money. Balbec will lose money on its TIA investment. The same may happen with QIS – we will know more when the administrators’ proposals are published.

Investors may be less likely to fund other IVA firms, or charge more for it, after these failures. If this happens, it will increase instability.

And if there are more failures, which IVA firms will want to buy the books of a failed one, especially if it is large?

Why this matters for people with IVAs

It may sound as though being transferred to a different IVA firm with your IVA continuing on the same terms is not a problem. I hope it turns out well for people with TIA or QIS IVAs.

But the history of many previous transfers is that they can create significant communications problems. People report that emails are ignored, or customer service staff are unhelpful and don’t seem able to see details of what was previously discussed with the old firm.

A regular on IVA forums who posts as Foggy says:

I find it egregious that those in an IVA have, effectively, no voice once they are ‘hooked’…Those in financial difficulties should not be left as helpless pawns in these chess games between the insolvency world oligarchs!

To make things worse, these transfers can happen several times. For many people with Aperture IVAs that were transferred to Debt Movement in 2020 that was the second or even third time their IVA had been sold.

Peter Wordsworth, Head of Insolvency Services at Stepchange says;

The recent collapse of two firms should act as a reminder that it’s IVA clients who risk suffering the fallout of instability in a sector that has, in recent years, seen some firms borrowing heavily to fund rapid growth. There is currently no formal mechanism for ensuring that clients of failed firms receive “safe harbour” for the remainder of their IVA if they are transferred to another provider. It would be helpful if the Insolvency Service intervened in these situations to ensure that the interests of clients are properly recognised and protected.

StepChange’s mass IVA variation

Personal insolvency – the need for change

Changes for Aperture & Vanguard IVAs