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A Partnership Voluntary Arrangement, or PVA as it is frequently abbreviated to, is a way for a partnership who has encountered financial difficulties but has a fundamentally viable business to restructure its debt repayments.
We have said on our Partnership Liquidation page that the law surrounding insolvent partnerships is extremely complex and in need of revision by our lawmakers and anyone contemplating entering into any kind of partnership insolvency needs to seek professional advice as soon as possible.
Like an Individual Voluntary Arrangement (IVA), a PVA is a legally binding agreement between the partnership and its creditors. It takes the form of a proposal to creditors setting out how the partnership intends to repay its debts. A creditors' meeting is called and the creditors are invited to vote for the approval, approval with modifications or rejection of the proposal. For the Partnership Voluntary Arrangement to be implemented three quarters in value of creditors voting must vote for its approval. Voting is not compulsory but the PVA is binding on all non-preferential creditors even if they do not vote. The PVA is overseen by a "Supervisor" who must be a licensed insolvency practitioner.
The PVA proposal document sent to creditors before the creditors' meeting sets out in some detail the problems the partnership has encountered and the reasons why the partnership believes in the future viability of its business. Cash flow forecasts are prepared to support the partners' optimism for the future, assure suppliers of the ability of the partnership to pay future bills and to evidence how the restructured debt payments will be made.
It is not necessary in a PVA to repay creditors in full but for it to be approved by creditors the proposed Partnership Voluntary Arrangement document will need to demonstrate to creditors that its approval will result in creditors receiving more of their money back than they would get if the partnership ceased trading and was wound up.
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If the PVA does not provide for payment in full to creditors then it might be necessary for the partners to consider their own personal positions and enter into Individual Voluntary Arrangements simultaneously. There is no limited liability in a partnership (except in a formal LLP) and if a PVA does not repay creditors in full the creditors have recourse to the partners individually- this is where the situation can become quite complex. A licensed insolvency practitioner will be required to guide partnerships and its members through this complex area of law.
As professional partnerships such as solicitors, architects and accountants have been more prone to financial problems in recent years and in particular through the recent recession, PVAs have become a much more common tool to restructure debt repayments for partnerships.
If you are in a partnership and struggling to repay creditors please contact us now.