Partnership Voluntary Arrangement
A partnership can enter into a binding debt-forgiveness arrangement or repayment schedule with its creditors instead of Liquidation. A Partnership Voluntary Arrangement (‘PVA’) is very similar to a Company Voluntary Arrangement (‘CVA’). It is a formal process that enables a financially troubled partnership to reach a legally binding agreement with its creditors, to pay all or part of its debts over an agreed period of time.
The partnership will usually be required to make monthly contributions over a fixed period of time, or alternatively, will sell its assets and pay creditors from the proceeds. A PVA is likely to result in an improved outcome for creditors and may allow the partnership to survive. The arrangement allows members to retain control of the partnership whilst attempting to trade out of difficulties. However, the arrangement will be overseen by a licensed Insolvency Practitioner, known as a Supervisor.
The members of the partnership may propose a PVA where no Administration Order is in force and the partnership is not being wound up as an unregistered company. A PVA can also be proposed by an Administrator of the partnership, Liquidator of the partnership, or a Trustee in Bankruptcy where members have presented a joint bankruptcy petition under Article 11 of the Insolvent Partnerships Order 1994.
A PVA must be approved by a majority of 75% of creditors voting in favour of the PVA proposal. Once approved, all creditors will be legally bound under the terms of the arrangement, including all non-voting creditors, or creditors that did not receive notice of the meeting required to approve the PVA. Creditors will require assurance that the terms of the PVA proposal are realistic and achievable. Creditors will generally support a PVA in the knowledge that they are unlikely to recover the full amount of their debt, as they are likely receive significantly less should the partnership be wound up.
Although a PVA will protect an individual partner’s estate from the claims of partnership creditors, it will not protect them from their own personal creditors. If members of the partnership have substantial personal debts of their own, they can propose an Individual Voluntary Arrangement (“IVA”) at the same time as the PVA. The Insolvent Partnerships Order 1994 does not provide for a combined arrangement covering the partnership and its members – however, this may be achieved by each member proposing interlocking voluntary arrangements with that of the partnership.
A PVA can be an unattractive as no moratorium is available. Consequently, they are generally used for larger partnerships where entering into IVAs or CVAs with each partner is too time-consuming and costly.
Projected cash flow forecasts are required to evidence a partnership’s ability to adhere to the PVA terms. As licensed Insolvency Practitioners, we are able to assist partnerships with preparing such forecasts, preparing a PVA proposal and seeking the appointment as Supervisor of the PVA.
If your partnership is experiencing financial difficulties, we can work with you to identify the most appropriate solution. We have helped partnerships of all sizes across many different sectors. We understand that being pursued for unpaid debts is a hugely stressful time. If you believe your business is potentially viable but is struggling financially, a PVA may be the most appropriate solution. Contact us today on 0800 061 4002 for further information on a Partnership Voluntary Arrangement