On 13 May 2022, the Insolvency Service announced that Vanguard Insolvency had been wound up “in the public interest”.
Vanguard set up and ran Individual Voluntary Arrangements (IVAs). These are long-term agreements between a customer and their creditors that are increasingly criticised as being mis-sold to vulnerable customers.
However, Vanguard has not been shut down for mis-selling IVAs, but for abuse of fees.
This article looks at this Vanguard announcement, a previous IVA fee scandal involving Creditfix, and why IVA regulation needs to be changed urgently.
Insolvency Service investigation
IVA firms are allowed to charge certain fees and claim for certain expenses they incur while running IVAs.
The Insolvency Service said:
Following complaints about Vanguard’s practices … the Insolvency Service launched confidential enquiries before investigators uncovered serial abuse of the payments made by Vanguard’s customers.
Vanguard used third party firms to help it administer IVAs and claim customers’ assets, for example by applying for PPI refunds.
Between August 2018 and June 2020, Vanguard paid about £9million to these third party firms.
But some of these third parties had an arrangement to share the fees they were paid by Vanguard with two other firms, MDN Consultancy and KIS Financial Consultancy. Both these firms, which have also been wound up by the court, were connected to Vanguard through personal or family relationships.
The Insolvency Service investigators found that Vanguard’s practices “lacked transparency”.
The Insolvency Service said:
The Judge commented that it was of particular concern that the director of Vanguard seemed incapable of seeing anything wrong in the company’s failure to disclose to creditors and debtors the mechanism that was used to pay money from the IVA estates, effectively for the benefit of himself and his companies.
Shocking for such a large IVA firm
In April 2020, Vanguard had more than 14,000 open IVAs.
Insolvency Service statistics show that it had been one of the top ten IVA firms for several years:
- 2018 – 6th largest
- 2019 – 5th largest
- 2020 – 9th largest.
For the Insolvency Service to describe such a major player as “a rogue firm” is shocking.
Vanguard’s customers and their IVAs
In August 2020, the administration of all Vanguard IVAs was transferred to Ebene Gate, a Creditfix group subsidiary that operates out of Mauritius.
There have been various criticisms of Ebene Gate on forums including that they have tried to make Vanguard customers pay by recurring card payments, rather than direct debits or standing orders.
The Insolvency Service says customers who were sold an IVA by Vanguard should not be affected by this announcement. And that they should contact Oakfield with any queries:
- the Ebene Gate Phone Number is: 0141 218 4816
- the Ebene Gate email is: firstname.lastname@example.org
IVAs belong not to the firm that sets them up, but to the Insolvency Practioner (IP) named on the IVA.
The Insolvency Service announcement said the Vanguard IP did not properly explain to Vanguard customers what their fees were being used for, but it didn’t name him.
Vanguard’s IP was Peter Jackson, who is regulated by the Insolvency Practitioners Association. In August 2020 Jackson switched from working for Vanguard Insolvency to Oakfield. Jackson moved on again in January 2022 and now works for The IVA Advisor.
At some point the IP on these IVAs was changed from Peter Jackson to Tim Pope – his email is email@example.com
IVA fees – who loses out?
It seems that the purpose of the fee arrangements was to allow Vanguard to benefit from higher fees, so someone has paid more fees than they should. So who has paid these fees?
IVA fees and disbursements are taken out of the payments a customer makes. This reduces the money that is distributed to the creditors. It is usually the creditors who lose out if the IVA fees and disbursements are too high.
But, as I argued when Creditfix were trying to increase their fees, there are some situations where the IVA fees paid may matter to the customers: where there are joint debts in an IVA; if an IVA fails and you owe money for fees; when you pay off your IVA in full; or if you want to settle your IVA early.
If you were a Vanguard customer and you are wondering if you have lost out, you could start by asking Tim Pope to explain what happened and then consider making a complaint. But IVA complaints are themselves a non-transparent process and you may find it hard to get anywhere.
A previous IVA fee scandal – Creditfix
The RBS v Munikwa et anor judgment was given in April 2020. Early in the first lockdown, this may have received less attention than it would otherwise.
RBS was unhappy with the fee structure in the IVA and with the approach adopted by the Creditfix IP in the approval of the IVAs. 8 IVAs were looked at in detail but the judgment said that RBS’s complaints were replicated in 1,098 cases between April and mid-August 2019.
In these IVAs, RBS voted to accept the IVA proposal being put forward by Creditfix provided that the customer agreed to accept the modifications that RBS proposed which changed the fee structure.
An IVA is approved by creditors’ voting. Creditors don’t actually attend a physical meetings – they give the chair of the meeting a proxy to vote on their behalf as the creditor directs. The chair of the meeting is the IP, or someone appointed by them – in these cases a Creditfix employee.
RBS said it would only vote in favour if the modifications were accepted by the customer. They were not accepted by the customers, but the Chair used its proxy to vote in favor of the unamended proposal, contrary to the proxy instruction.
The judge described Creditfix’s belief in its fixed fee structure as “evangelistic”. Creditfix claimed it would lead to lower fees, but in 7 of the 8 IVAs under consideration, RBS’s modifications would result in lower fees.
The judge found that:
Plainly there has been a material irregularity; and that has been brought about by Creditfix’s promotion of its own interests.
2022 – IVA reform is urgently needed
That a large IVA provider such as Vanguard has been closed down “in the public interest” suggests a major failure in regulation.
From a debt adviser’s point of view, issues about IVA fees may seem less important than the problem of IVA misselling to customers who have better debt solutions available:
- about a third of IVAs are failing at the moment, leaving customers back with their debts and a wrecked credit record. In many cases it seems that a Debt Relief Order or bankruptcy would have been a more appropriate debt option;
- other IVAs complete but the customer may have paid much more than they anticipated and, in some cases, a debt management plan would have been better.
But IVA fees are at the heart of the IVA misselling. The IVA proposed for Mr Munikwa, set out in the judgment above, demonstrates how large these fees are and how little the creditors actually receive:
- total debts of £11,048, proposed monthly payments of £85 for 5 years – a total contribution of £5,100
- of this £5,100, only £1,450 would be paid to the creditors, the rest went on IVA fees.
The Insolvency Service has consulted on reforming insolvency regulation, but that applies to corporate as well as personal insolvency and changes aren’t likely to happen soon.
We can’t wait for this – the problems associated with IVAs are more urgent than that.
UPDATE the IS started consulting on the reform of Personal Insolvency in July 2022. My response is here: Personal Insolvency – the urgent need for change.