Insolvency practitioners today expressed anger at the Government’s decision to abandon plans for a simplified scheme for debtors to come to an arrangement with their creditors.

They have labelled the U-turn a missed opportunity and fear it will harm both debtors and creditors.

Their concern follows yesterday’s announcement by the Insolvency Service, a Government body, that it was no longer proceeding with proposals to introduce a new simplified form of Individual Voluntary Arrangement (IVA), which provides a framework agreement between debtors and their creditors as an alternative to bankruptcy.

Under the simplified IVA, or SIVA, it would have been easier to secure approval for an arrangement than for an existing IVA. For a SIVA the requirement would have been reduced to 51 per cent of voting creditors, compared with 75 per cent for a standard IVA.

The Insolvency Service said it had halted plans for a simplified scheme because the existing IVA process had been streamlined to such an extent that SIVAs were no longer thought necessary. It also said that some groups of creditors felt a simplified scheme would reduce their ability to decide the terms of an IVA.

David Kerr, chief executive of the Insolvency Practitioners Association (IPA), said his members were very disappointed at the Government’s change of heart. He said: “The SIVA scheme would have made it more difficult for creditors to defeat reasonable proposals for repayment by setting arbitrary minimum levels of return which take no account of debtors’ circumstances and ability to pay.

“Certain crditors are still insisting on receiving more than debtors can afford to pay in some cases, resulting in proposals being rejected even where the creditor represents only 25 per cent of the debts. That can be in nobody’s interest.”

The IPA is also concerned that the Insolvency Service has, at the same time, decided to shelve existing plans for authorising a new body of voluntary arrangement practitioners, who would have specialised in handling IVA cases.

The Insolvency Service has blamed the hold-up on difficulties in making the required amendments to existing legislation. But Mr Kerr, of the IPA, says: “The Insolvency Service claims this is a postponement rather than a withdrawal but it has not come up with a timetable for implementing the plans for voluntary arrangement practitoners.”

He added: “There is a big demand for additional expertise in this area. Back in 2004 the number of IVAs taken out each year was about 10,000. Now the figure is running at about 40,000.”

A spokeswoman for the British Bankers’ Association, whose members account for the majority of unsecured lending in the UK, said: “Banks are pleased with the decision not to proceed with simplified IVAs as we had concerns about the effectiveness of the proposals."