Partnership Voluntary Arrangements (PVA's) - Advice & Case Study

What is a Partnership Voluntary Arrangement (PVA)?

A Partnership Voluntary Arrangement (PVA) is a legal agreement between a partnership and its creditors designed to restructure its debt and allow the Partnership to continue to trade as a going concern.  A PVA does not affect the rights of secured creditors and therefore only deals with preferential and unsecured creditors. This means that the Partnership will still need to pay any secured creditors that it may have.

How to Put Forward a Partnership Voluntary Arrangement Proposal?

The process of putting forward a proposal is as follows:

1. Take Advice From a Licensed Insolvency Practitioner

Only a Licensed Insolvency Practitioner can act as the Supervisor of a Voluntary Arrangement. This is a complex legal process and taking advice to ensure that not only is a PVA a viable option, but that it is the best option available to the Partnership, and the individual partners.

2. Draft the Proposal

It will be important to determine what the "offer" to the creditors is.  For example will the Partnership be making monthly payments over a five year period, or do the Partners intend to put forward a lump sum from their personal funds, to make a full and final settlement offer to the creditors?

Once the Partners and the Insolvency Practitioner have agreed on the terms of the "offer" to the creditors, the Insolvency Practitioner will draft the PVA Proposal for the creditors to consider.

3. Creditors Meeting

The proposal is then sent to the creditors and a meeting of creditors is called.  This is usually between 14 and 28 days from the date that the proposal was sent to the creditors.  At that meeting the creditors will vote on whether or not to accept the proposal.

In order for the proposal to be approved, 75% or more of the creditors who actually vote, will have to vote for the approval of the arrangement.

4. Implementation

Once the proposal has been approved the Insolvency Practitioner will be appointed as the Supervisor of the Arrangement.  Their role will be to monitor, or supervise, the arrangement.  This will include, making sure any monthly payments are receivedby the due date, reporting to the creditors annually, adjudicating on creditors claims, and ultimately paying a dividend to creditors.

Benefits of Partnership Voluntary Arrangements

The benefits of a PVA over other insolvency options include:

1. Avoiding Liquidation and Bankruptcy: A PVA prevents the need for the partnership to be liquidated and for the individual partners to be made Bankrupt.
2. Continuation of Trade: A PVA allows the partnership to continue to trade and gives it the opportunity to trade out of its financial difficulties.
3. Consolidation of Debt: By putting forward a monthly payments PVA, the partnership effectively consolidates all of its preferential and unsecured debt into one manageable monthly payment.
4. Legal Protection: Once the PVA is approved, preferential and unsecured creditors are bound by it and cannot take any further action against the partnership, including enforcement action such as instructing bailiffs.

Is a Partnership Voluntary Arrangement Right For You?

A Partnership Voluntary Arrangement is a powerful tool to assist insolvent partnerships to trade out of their difficulties and avoid the consequences of liquidation and bankruptcy. 

However, in a Partnership, which is not a Limited Liability Partnership, the Partners are jointly and severally liable for all of the debts of the partnership.  So while creditors will be bound by the PVA in respect of the partnership, they will still be entitled to pursue the individual partners personally.  

Accordingly, it is often necessary for the partners to put forward Individual Voluntary Arrangements as well, and further information on this can be found by clicking on the link.

Putting forward a Partnership Voluntary Arrangement is complex as both the business' financial affairs and the partners' individual financial affairs need to be considered, and a coordinated solution needs to be agreed.  Accordingly seeking advice from a Licensed Insolvency Practitioner is recommended. 

For a free meeting please contact Chris Parkman on 01326 340579 or email at help@purnells.co.uk.