The IVA Explained: Who It Actually Binds, and What It Costs You

Free help first (read this before anything else)

• Free legal advice: the Duty Lawyer Service's Free Legal Advice Scheme, no means test — see legal aid and free advice .
• Understand the alternative too: bankruptcy explained .
• The official register: the Official Receiver maintains a register of individual voluntary arrangements, open to public inspection (detail below).

Important: this page explains the system. This site does not recommend an IVA or bankruptcy — the decision depends on your debts, income and occupation.

The biggest myth: "once approved, it binds every creditor"

This is the most common thing said about an IVA, and the sentence most worth reading word by word.

Bankruptcy Ordinance (Cap. 6) section 20H(1)(a) states the effect of an approved arrangement:

What the section binds is not "all creditors" but every person who satisfies two cumulative conditions: notice of the meeting in accordance with the rules, and entitlement to vote at it. "Being a creditor" is not one of the conditions the section states.

How does the first condition — notice — work?

• Bankruptcy Rules (Cap. 6 sub. leg. A) rule 122M(2): "Notices calling the meeting shall be sent by the nominee, at least 14 days before the day fixed for it to be held, to all the creditors specified in the debtor’s statement of affairs, and any other creditors of whom the nominee is otherwise aware."
• Section 20E(2) of the Ordinance says the same thing from the other side: "The persons to be summoned to the meeting are every creditor of the debtor of whose claim and address the person summoning the meeting is aware."

Read only that far and the conclusion would be that a creditor nobody listed is simply not bound. But you cannot stop there. Rule 122M continues:

The two subrules have different histories, and the difference matters. The publication duty in subrule (4) dates from L.N. 150 of 2014 and was later amended by 22 of 2023 section 42. What 22 of 2023 section 42 added, with an appointed date of 29 December 2023, is subrule (5) — the constructive-notice effect. Publishing the notice has been the nominee's duty since 2014; that publication counting in law as notice to every creditor began on 29 December 2023.

"Specified means" is defined by section 2A(1) of the Ordinance: "For the purposes of this Ordinance, a notice, an order or a matter is published or given by the specified means if it is published in a medium specified in Schedule 4" — and Schedule 4 presently lists one medium: "1. Gazette".

In other words: besides notifying each creditor it knows of, the nominee must publish the meeting notice in the Gazette in Chinese and English, and since 29 December 2023 that publication is deemed in law to be notice to all of the debtor's creditors. What closes the unlisted-creditor gap is the deeming in subrule (5), not the act of publishing: publication was already required from 2014, but the rule did not then say what it counted as.

The second condition — entitlement to vote — is not closed. Rule 122Q(1) and (3):

Read the words closely: the bar is on voting "in respect of a debt", not on the creditor. A debt for an unliquidated amount, or one whose value is not ascertained — an undetermined personal-injury or damages claim against the debtor, for instance — cannot be voted on unless the chairman agrees to put an estimated minimum value on it. But a creditor who also holds a liquidated debt is still a person entitled to vote at the meeting, and so still falls inside section 20H(1)(a)(ii). The person who drops out of that class is the one none of whose debts carries a vote.

Two further subrules belong with it. Rule 122Q(4): the chairman "has power to admit or reject a creditor’s claim for the purpose of his entitlement to vote, and the power is exercisable with respect to the whole or any part of the claim". Rule 122Q(6): where the chairman is in doubt "he shall make a note of it and allow the creditor to vote, subject to his vote being subsequently declared invalid if the objection to the claim is sustained" — in a doubtful case the default is a provisional vote, not exclusion.

Secured creditors are not a third class left outside the binding rule. The Ordinance does protect them: section 20F(3) provides that "The meeting shall not approve any proposal or modification which affects the right of a secured creditor of the debtor to enforce his security, except with the concurrence of the creditor concerned", and rule 122R(3)(b) leaves a claim, or the part of it that is secured, out of account in the count of votes. But the first limits what the meeting may approve and the second is a vote-counting rule. Neither speaks to entitlement to vote, and neither removes a secured creditor from section 20H(1)(a)(ii). A secured creditor who has notice and is entitled to vote on an unsecured shortfall is bound by the arrangement like anyone else. This discussion is confined to secured creditors; the immediately following section 20F(4) gives the same protection to preferential creditors — where a proposal or modification would mean a debt given priority under section 38 no longer ranks in priority for payment, or a creditor entitled to section 38 priority would be paid less than his entitlement under that section, the meeting likewise cannot approve it without that creditor's concurrence.

In one line: an IVA binds those who had notice and were entitled to vote — not "all creditors". In most cases the two sets coincide. They are not the same set, and they come apart at exactly the place you would least want them to: an unquantified claim.

The name is wrong: the statute says "voluntary arrangement"

Worth knowing before you search: the statutory term is "voluntary arrangement", and neither the Ordinance, the Rules nor the Fees and Percentages Order uses the marketing label "Individual Voluntary Arrangement". The adjective "individual" does appear in the Rules, in two places only: rule 122W(1), where the Official Receiver "shall maintain a register of individual voluntary arrangements", and rule 122X(2), which requires notice to the Official Receiver from "a person who is appointed to act as nominee of an individual voluntary arrangement". The Chinese position is sharper still: the market term 個人自願安排 is nowhere in Cap. 6, Cap. 6A or Cap. 6C; the Ordinance uses 自願安排, and rules 122W(1) and 122X(2) use 個別自願安排.

Section 2 also defines the term:

Hold on to that definition — it is what settles the estate-agent question below.

Are you eligible? Three conditions, all of them mandatory

Section 20C(1):

Check yourself against each:

• You must genuinely intend to make a proposal (s.20C(1)(a)). Section 20A(2): "The proposal must provide for a nominee to act in relation to the voluntary arrangement either as trustee or otherwise for the purpose of supervising its implementation." No nominee, no proposal.
• On the day of application you must be an undischarged bankrupt, or able to petition for your own bankruptcy (s.20C(1)(b)). This surprises people: an IVA is not a separate road that runs alongside bankruptcy — the statute requires you to have already reached the point where you could petition for your own bankruptcy.
• No interim order application in the preceding 12 months (s.20C(1)(c)). A hard bar: if one attempt failed, you wait.

If you are an undischarged bankrupt, section 20A(4) adds: "An application shall not be made by an undischarged bankrupt unless he has given notice of the proposal to— (a) the Official Receiver; and (b) the trustee, if any."

Even with all three satisfied the court "may", not "must" — section 20C(2): "The court may make an order if it thinks that it would be appropriate to do so for the purpose of facilitating the consideration and implementation of the debtor’s proposal."

From application to approval: the statutory timetable

An IVA is not an open-ended negotiation; it is a chain of deadlines counted in days.

So why do people say an IVA runs for years? Because the table covers application to approval only. The repayment period afterwards is set by the proposal itself — rule 122C(2)(e) requires the proposal to state "the proposed duration of the voluntary arrangement" — and the legislation sets no maximum or minimum for it.

How far does the interim order protect you? (Not a total ceasefire)

Section 20(2):

Two limbs, different in force. Limb (a) is absolute as to bankruptcy petitions. Limb (b) is not: the words "except with the leave of the court" mean a creditor may apply to the court and be permitted to start or continue. Advertising that says an IVA stops all recovery action the moment it is granted has dropped that half-sentence.

And while the application is still pending, section 20B(1) gives the court a discretion rather than automatic protection: "At any time when an application under section 20A for an interim order is pending the court may stay any action, execution or other legal process against the property or person of the debtor." Note "may".

If a creditor has already petitioned, what happens to that petition? Section 20H(3) answers it: "Where proceedings on a bankruptcy petition have been stayed by an interim order which ceases to have effect under subsection (1)(b), that petition is deemed, unless the court otherwise orders, to have been dismissed." The stayed petition falls away with the interim order unless the court orders otherwise. And the 28-day lapse of the interim order itself is not unqualified — section 20H(2): "Subsection (1)(b) applies except to such extend as the court may direct for the purposes of any application under section 20J." Where someone has challenged the arrangement under section 20J, the court may direct that the order continue to that extent.

One related point on the 3 days' notice of the interim-order hearing (r.122E(4)): the rule names who must be told. In Case 2 that includes "any creditor who (to the debtor’s knowledge) has presented a bankruptcy petition against him" — a creditor who has already petitioned is entitled to be at the hearing.

What it costs: more than two statutory layers

Coverage usually mentions only the HK$12,150. The Rules and the Fees and Percentages Order in fact prescribe several distinct amounts: a flat deposit, a court fee calculated on the size of your proposal, a set of percentage charges that arise where the Official Receiver is involved, and — for a private nominee — remuneration that is not prescribed at all.

Layer one: the deposit with the nominee. Bankruptcy Rules rule 52A:

Three things to hold on to: the figure is prescribed by legislation, not set by the nominee; the rule opens with the qualifier "Unless the applicant is also the nominee"; and subrule (2) says in terms that the rule applies whether or not the arrangement is approved.

Layer two: the court fee, on a sliding scale. Bankruptcy (Fees and Percentages) Order (Cap. 6 sub. leg. C), Schedule, Table A item 12:

Working the numbers, using the item's own formula:

• Gross amount HK$60,000 → 60 units of "$1,000 or fraction of $1,000" × $15 = $900
• Gross amount HK$300,000 → first $100,000: 100 × $15 = $1,500; remaining $200,000: 200 × $7.50 = $1,500 → $3,000 in total
• Gross amount HK$1,000,000 → $1,500 + (900 × $7.50 = $6,750) = $8,250

So "plus court fees" is not a rounding item on a large proposal. Note also what "gross amount" means under the item: the amount provided for ordinary and preferential creditors plus costs, charges, expenses, fees and percentages — not only the money reaching creditors.

Layer three: the nominee's remuneration, which is not a prescribed amount where the nominee is in private practice. Rule 122ZB lists the fees that may be incurred as including "any disbursements made by the nominee prior to the approval of the arrangement, and any remuneration for his services as such agreed between himself and the debtor or the trustee" — that is, agreed between you and the nominee. For a private nominee the legislation sets no ceiling.

Layer four: once the Official Receiver is involved, the percentages are prescribed. Table B of the same Schedule carries several charges written expressly for voluntary arrangements:

• Item 1: on payments made by the Official Receiver into a bank account opened by him "in his capacity as nominee under a voluntary arrangement", after deducting sums paid to secured creditors in respect of their securities and excluding money received and spent in carrying on the debtor's business, "a charge of 10%".
• Item 2(a): "On the amount distributed to creditors by the Official Receiver when acting as nominee under a voluntary arrangement, a fee of 5%."
• Item 2(b): a charge arises even where a private nominee acts — "For the work done by the Official Receiver in connection with an approved voluntary arrangement to which the Official Receiver was not appointed to act as nominee by the creditors at the meeting, a fee of such amount as the appointed nominee and the Official Receiver may agree or as the court may approve."
• Item 3: "On the amount paid to preferential creditors or distributed in dividend or otherwise by the Official Receiver when acting otherwise than as nominee under an approved voluntary arrangement, a charge of 5%."

The proviso to Table A item 12, quoted above, deducts what has been "paid under item 9 of Table B". Item 9 is the scale applied to the aggregate amount of the assets realized and brought to credit: $100 on every $1,000 or fraction of $1,000 of the first $500,000, tapering down to $10 per $1,000 on all further amounts beyond $50,000,000.

Set against the cost of opening a bankruptcy. On your own petition, rule 52(1) provides that "Upon the presentation of a petition, the petitioner shall pay to the Official Receiver a deposit of— (a) in the case of a debtor’s petition, the sum of $8,000; or (b) in the case of a creditor’s petition, the sum of $11,250." — only limb (a) applies here, since this is your own petition; limb (b) is the creditor's-petition alternative — and Table A item 3 of the Fees and Percentages Order sets the fee on a "Bankruptcy petition" at $1,045. That is roughly $9,045 to open your own bankruptcy, against $12,150 for the IVA deposit alone, before the court fee and any nominee's remuneration beyond that deposit. It is a comparison of what it costs to start, not of what each process costs in total.

Occupation: solicitors, SFC licensees and estate agents are treated as in bankruptcy

The market says an IVA "generally preserves occupations restricted in bankruptcy (solicitor, estate agent, company director)". Read the four ordinances — the Legal Practitioners Ordinance, the Estate Agents Ordinance, the Securities and Futures Ordinance and the Companies Ordinance — and, of the three occupations the market names, only the director limb survives. Cap. 6 itself also imposes a consequence running the other way — see "If the arrangement fails" below.

Solicitors — treated identically to bankruptcy. Legal Practitioners Ordinance (Cap. 159) section 26A(1)(d), among the circumstances in which the Law Society Council's Schedule 2 powers become exercisable:

Bankruptcy and a voluntary arrangement sit in the same paragraph, as alternative triggers of the same power.

The same ordinance carries a second provision in almost identical terms. Section 40F(1)(d) makes a notary public liable to be disciplined if "he has become bankrupt or has entered into a voluntary arrangement with his creditors within the meaning of the Bankruptcy Ordinance (Cap. 6)" — nearly word for word the wording of section 26A(1)(d), whose only difference is the subject: "a solicitor or foreign lawyer" there, against the pronoun "he" here.

Licensed securities and futures practitioners — treated identically to bankruptcy. Securities and Futures Ordinance (Cap. 571) section 195(1)(a)(i), among the grounds on which the Commission may revoke or suspend a licence:

Again, listed together.

Estate agents — different wording, but it maps on. Estate Agents Ordinance (Cap. 511) section 19(2)(a), on what the Authority must have regard to in assessing fitness:

Cap. 511 never uses the words "voluntary arrangement". But compare the Cap. 6 section 2 definition set out above: a voluntary arrangement "means a composition in satisfaction of a debtor’s debts or a scheme of arrangement of a debtor’s affairs". In the Chinese texts the terms are identical word for word: 債務重整協議 and 債務償還安排 appear in both ordinances. In English the two nouns are the same but the qualifiers are not — Cap. 6 has "in satisfaction of a debtor’s debts" and "of a debtor’s affairs", Cap. 511 has "with his creditors" — so the match is exact in one language and partial in the other. The two ordinances do not cross-refer, and no conclusion is drawn here; but an IVA proposal falls squarely within the language of section 19(2)(a), and that paragraph carries a 5-year look-back — as long as the relevant period for a person previously adjudged bankrupt, and longer than the 4 years for a first-time bankrupt (s.30A(2)).

That look-back is not confined to section 19(2)(a). Section 19(2)(a) governs an individual estate agent's licence. The same words appear twice more: in section 21(3)(a), on a salesperson's licence — which is what most people in the trade hold — "the fact that the person is an undischarged bankrupt, or has, within the 5 years immediately prior to the day on which the Authority considers, or, where appropriate, begins to consider the matter, made a composition or scheme of arrangement with his creditors"; and in section 20(3)(a)(i), on a director of a licensed estate agency company — "where the person is an individual, such individual is an undischarged bankrupt, or has, within the 5 years immediately prior to the day on which the Authority considers, or, where appropriate, begins to consider the matter, made a composition or scheme of arrangement with his creditors".

Company directors — here, and only here, an IVA really does differ from bankruptcy. Companies Ordinance (Cap. 622) section 480(1):

The status the prohibition attaches to is "undischarged bankrupt". Neither "voluntary arrangement" nor 自願安排 appears anywhere in Cap. 622. Read the closing words as well: "except with the leave of the Court by which the person was adjudged bankrupt" — even a bankrupt may apply. Section 480(3) requires notice of intention to apply to be served on the Official Receiver first, and section 480(4) obliges the Official Receiver to attend and oppose where he considers the grant contrary to the public interest.

The two regimes side by side:

The nominee: how the law regulates him, and how it does not

The nominee is the statutory heart of an IVA. Section 2 of the Ordinance already sets a threshold in its own definition of "nominee": other than the Official Receiver, a nominee must be a person who "by reason of his experience and qualifications is, in the opinion of the court, a suitable person" to perform the duties specified in sections 20A, 20D, 20E and 20G — so the court must be satisfied of suitability; but the Ordinance prescribes no further, specific professional qualification (no named licence or membership). The other relevant provisions are these:

• Section 20A(2) requires only that "The proposal must provide for a nominee to act in relation to the voluntary arrangement either as trustee or otherwise for the purpose of supervising its implementation" — no qualification at all.
• Rule 122E(1)(e) requires the affidavit supporting the interim-order application to state "that the nominee under the proposal (naming him), other than the Official Receiver, is a person who is experienced in insolvency matters, and is willing to act in relation to the proposal."
• Rule 122C(2)(o) requires the proposal to contain "the name, address and qualification of the person proposed as the nominee of the voluntary arrangement, and confirmation that he is (so far as the debtor is aware) experienced and qualified to act as a nominee in relation to the voluntary arrangement either as trustee or otherwise for the purpose of supervising its implementation." — note "so far as the debtor is aware". The confirmation is the debtor's.
• Section 20K(3) sets a standard only where the court replaces a nominee, and only once two gateways are both met — that it is expedient to appoint a person to carry out the nominee's functions, and that it is inexpedient, difficult or impracticable to do so without the court's assistance: only then may the court "make an order appointing a person who is experienced in insolvency matters, either in substitution for the existing nominee or to fill a vacancy."

One thing not to confuse. Schedule 3 to the Ordinance restricts appointment to accountants, solicitors and current members of the Hong Kong Chartered Governance Institute — but that schedule governs appointment as provisional trustee under section 12(1A), not as a nominee. The two are different offices.

Which means: the legislation requires the court to be satisfied the person is suitable by reason of experience and qualifications (the section 2 definition of "nominee"), but prescribes no specific qualification — "what are this nominee's qualifications, in fact" is still a question you have to ask and check yourself.

If it is approved and you are unhappy: section 20J

Section 20J(1) allows an application to the court on either or both of two grounds:

Who may apply (s.20J(2)): the debtor; a person entitled under the rules to vote at the meeting; the nominee or his replacement under section 20K(3); and, where the debtor is an undischarged bankrupt, the trustee or the Official Receiver.

Read that against rule 122Q(3) above. The qualifying condition in s.20J(2)(b) is worded slightly differently from the second condition in s.20H(1)(a)(ii), but it is the same entitlement-to-vote test. So a creditor all of whose debts are for unliquidated or unascertained amounts, and for whom the chairman puts no estimated minimum value, is not merely outside the class the arrangement binds — he also has no standing to challenge it under section 20J. A creditor who also holds one liquidated debt is on both sides of that line: bound, and entitled to apply.

The court may revoke or suspend the approval, or direct a further meeting (s.20J(4)). The deadline is the 28 days in section 20J(3), running from the day the nominee's report of the meeting was made to the court.

Read the last subsection too — section 20J(8): "Except in pursuance of the preceding provisions of this section, an approval given at a creditors’ meeting summoned under section 20E is not invalidated by any irregularity at or in relation to the meeting." Once the 28 days pass, procedural irregularity does not by itself undo the approval.

Passing the vote: the majorities

Rule 122R(1) and (4):

Two thresholds: more than three-quarters in value of those present and voting must be in favour; and, separately, the resolution fails if more than half in value of the notified, non-excluded, non-associate creditors vote against. The "associates" limb in (4)(c) is what stops a debtor from manufacturing a majority out of debts owed to friends and family.

Section 20F(2) adds: "The meeting may approve the proposed voluntary arrangement with modifications, but shall not do so unless the debtor consents to each modification." Creditors can change your plan, but not without you.

If the arrangement fails

The Ordinance builds an exit for failure. Section 3(1)(c) allows a bankruptcy petition to be presented "by the nominee of, or any person (other than the debtor) who is for the time being bound by, a voluntary arrangement proposed by the debtor and approved by his creditors". Section 20L(1) then bars the court from making a bankruptcy order on such a petition unless satisfied:

Section 20L(2) then settles the order of payment: "Where a bankruptcy order is made on a petition under section 3(1)(c), any expenses properly incurred as expenses of the administration of the voluntary arrangement in question shall be a first charge on the bankrupt’s estate." In other words, if you end up bankrupt anyway, the cost of administering the failed arrangement ranks first against your estate.

There is a further consequence, and it sits inside the Bankruptcy Ordinance itself. Section 30B(1) lets a bankrupt apply to the court for early discharge before the relevant period has expired. Section 30B(2)(a) then provides:

Having once entered into a voluntary arrangement closes the early-discharge route permanently if you are later made bankrupt. This one is not in an outside ordinance; it is in the Bankruptcy Ordinance itself, and it runs the opposite way to the idea that an IVA leaves you better placed than bankruptcy.

There is also a criminal provision the advertising will not mention. Rule 122ZD:

What is a level 2 fine? Criminal Procedure Ordinance (Cap. 221) section 113B(1): "Where an Ordinance provides for a fine for an offence by reference to a level, the fine applicable for the offence is the amount shown for that level in Schedule 8." Schedule 8 sets level 2 at $5,000.

The statement of affairs you give the nominee is not an administrative form.

How to read IVA advertising critically

With the provisions above in hand, each claim can be checked:

• Who is the nominee? Other than the Official Receiver, a nominee must be a person the court is satisfied is suitable by reason of experience and qualifications (the section 2 definition), but no specific qualification is prescribed; rule 122E(1)(e) requires only an affidavit statement that he is "experienced in insolvency matters". Ask for the name, the professional qualification, and the relationship to the marketing firm.
• "Binds all creditors"? Section 20H(1)(a)(ii) binds those who had notice and were entitled to vote. Do you have an unliquidated claim outstanding against you — an unresolved damages claim, say? Ask.
• What is the total cost? HK$12,150 (r.52A(1), unless the applicant is also the nominee) — this deposit is itself meant to cover the nominee's fees, expenses and remuneration (r.52A(1)); only if the nominee's remuneration (r.122ZB(a), agreed with you) exceeds that deposit does a further sum, agreed or court-directed under r.52A(1), become payable — plus the court fee computed on the gross amount of the proposal (Cap. 6C, Schedule, Table A item 12). If the Official Receiver opens an account or makes distributions as nominee, add the Table B item 1 or item 2(a) percentage charges; even where he is not the nominee, item 2(b) can still apply, charged at an amount agreed with the nominee or approved by the court. Ask for each of them in writing.
• "No fee unless it succeeds"? Rule 52A(2): "This rule applies whether or not the voluntary arrangement is approved by the creditors."
• "All recovery action stops immediately"? Section 20(2)(b) covers other proceedings, execution and distress only "except with the leave of the court" — a creditor may apply.
• "No record at all"? Rule 122W: the Official Receiver maintains the register of individual voluntary arrangements and "The register shall be open to public inspection." Rule 122J(4): once the nominee's report is filed, "any creditor of the debtor is entitled, at all reasonable times on any business day, to inspect the file."
• "Approval guaranteed"? Rule 122R(1) requires more than three-quarters in value in favour, and rule 122R(4) provides a blocking mechanism. Nobody can guarantee it.

None of this means every IVA provider is problematic — accountants and solicitors legitimately provide nominee services. The point is to bring the provisions with you when you ask.