Benefits of Interlocking Individual Voluntary Arrangement Proposals for partners
Benefits of dealing with partnership & personal creditors over a three to five year period
Why Do Partners need an Individual Voluntary Arrangement
Quite often when a Partnership Voluntary Arrangement Proposal is put forward to partnership creditors, each of the individual partners has to propose Individual Voluntary Arrangements (sometimes called interlocking IVA's) to address their personal financial positions.
This is because each of the partners has an individual personal liability for all of the creditors of the partnership. The legal concept is called "joint & several liability". In other words any partnership creditor can sue a partner in his individual capacity. The failure or financial problems of a partnership therefore cause financial problems for each of the individual partners.
To address the problem of joint & several liability an individual partner can propose an Individual Voluntary Arrangement, either alone or by having a similar but "interlocking" individual voluntary arrangement with his other partners. Interlocking Voluntary Arrangements are separate Individual Voluntary Arrangements but each of which have similar provisions as to how to deal with the partnership debt burden and if one fails then then all fail.
Further information on Individual Voluntary Arrangements can be found in another section of this site.
Case Study
Thomas & Partners, Chartered Accountants is the partnership of Simon Thomas, Peter Price, Richard Richards and Walter Williams.
They have realised that the partnership is insolvent. To continue the trade of the accounting practice the firm proposed a Partnership Voluntary Arrangement with the partnership creditors. That PVA was approved by the partnership creditors. Subsequently three partnership creditors decided to issue county court claims against two of the partners in their individual capacities. Partnership creditors can do this as each partner is "jointly & severally" liable for all of the debts of the partnership.
Each of the partners also have large personal credit card debts. Those personal debts have mainly resulted from them using their personal funds to pay business debts over the last few months in order to keep the partnership afloat.
To address the claims of the partnership creditors and their personal creditors each partner decided to propose an Individual Voluntary Arrangement (IVA), These IVAs were interlocking and encompassed all of the partnership and personal debts. The IVA's were agreed by the creditors.
The personal and partnership creditors were effectively frozen by the PVA and IVAs. Agreed monthly instalments were paid under each IVA and under the PVA. These agreements left the partners free to concentrate on their work and to turn around the affairs of the partnership.
If you want free advice on partnership insolvency solutions and learn more about the benefits that can be obtained from Partnership and Individual Voluntary Arrangement proposals then please contact us on 01326 340 579 or email us at help@purnells.co.uk.
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