Partnership Voluntary Arrangements
A Partnership Voluntary Arrangement (‘PVA’) can enable a partnership to resolve debt problems that might otherwise overwhelm their business. A PVA can allow partners to keep trading whilst addressing financial difficulties.
If your partnership business is struggling with debt, our specialist insolvency solicitors can provide clear, practical advice about your options, including advice on PVAs.
We understand the pressures that financial challenges can place on you, particularly the vulnerability that can come with being jointly and severally liable for your partnership’s debts with your fellow partners. However, with the right support, it is often possible to reach a workable solution. We will guide you through the entire process step-by-step, including:
- Helping you decide whether a PVA is right for your business (or whether another option, such as interlocking Individual Voluntary Arrangements, might suit you better)
- Negotiating the terms of the Arrangement
- Liaising with the Insolvency Practitioner
We can also advise a debtor who, for whatever reason, has been unable to comply with the terms of the PVA. If you would like to talk to us about this, or need any other related advice, please get in touch.
If you are a partner in a Limited Liability Partnership (‘LLP’), your options for resolving debt issues are different. We can provide specialist advice to LLPs looking for insolvency and restructuring advice.
We also advise creditors, and Insolvency Practitioners, in relation to PVAs. Visit our Lender and Creditor Services and Insolvency Practitioner pages for more information.
Ready to speak to our insolvency lawyers? You can contact your local Isadore Goldman office in London, Norwich or Portsmouth or email info@isadoregoldman.com.
Why choose our specialist insolvency solicitors for advice about Partnership Voluntary Arrangements?
Independently recognised expertise
Our legal experts are market leaders in this area, with consistent recommendations in prestigious client guides, Chambers & Partners and the Legal 500.
Bespoke, commercially-astute advice
We will provide a highly personalised service to meet the unique needs of your partnership. All of our legal advice will be delivered through a commercial lens, enabling you to find the most effective solution in the circumstances.
We have experience handling a wide range of complex PVA issues, including resolving disputes.
Your legal options explained in plain English
We are a specialist insolvency and restructuring firm dedicated to supporting individuals and businesses through financial challenges. A PVA is one method you could utilise to deal with partnership debts, but we can provide advice about all the available options, so you can make a confident and informed decision about the best way forward.
What is a Partnership Voluntary Arrangement?
A traditional (or general) partnership is formed by two or more individuals who come together to run a business, either informally or in accordance with a partnership agreement. As it is not a separate legal entity from its partners, the partnership cannot acquire rights or incur obligations. The individual partners share responsibility for the partnership business, and are jointly entitled to a share of the profits, but are also jointly and severally liable for its debts.
If the partnership becomes insolvent, the options open to the partners or creditors include:
- The presentation of a winding up petition by a partner or creditor, pursuant to which the partnership is wound up as an unregistered company
- The bankruptcy of one or more of the partners, which can have serious personal consequences and terminates the partnership
- A combination of both
One alternative to these very final methods of debt resolution is a PVA.
A PVA is an agreement made between the partners and their unsecured creditors to address outstanding debts, when the partnership is facing insolvency.
A PVA is an attractive option for partners, because it allows them to maintain control and continue trading, as opposed to entering into insolvency proceedings which would require the business to close.
PVAs are flexible but require the commitment of the partners to be successful. As an alternative, or in addition to the PVA, the partners may enter into Individual Voluntary Arrangements (‘IVAs’) rather than bankruptcy. It is vital to seek legal advice before proceeding, to ensure that you are making the best choice for the partnership business, and for yourself.
How does a Partnership Voluntary Arrangement work?
PVAs are entered into voluntarily, between the partners and the partnership creditors. A PVA is implemented under the supervision of an insolvency practitioner known as the nominee before the PVA proposals are approved by the partnership's creditors, and as the supervisor afterwards. A PVA benefits both partners and creditors, because it allows the partners to resolve debt issues, often by reducing or halting repayments and restructuring, while boosting the creditors’ chances of making a commercially acceptable recovery. The return available to an unsecured creditor through a PVA, will often be greater than if the partnership is wound up.
Under a PVA, the partners enter into a compromise or bargain with the partnership creditors, with the aim of repaying a proportion of the overall partnership debt. If there are no concurrent insolvency proceedings, the partners will propose the PVA. The proposal will set out why the PVA is needed and why the creditors should agree it.
If at least 75% (in value) of the partnership creditors agree to the PVA at the relevant decision procedure, the PVA will come into force and bind every creditor who was entitled to vote at the decision procedure (even if they did not receive notice of it).
Once the PVA is approved, the creditors are bound and the nominee or other appointed supervisor will oversee the implementation of the PVA. Broadly, the terms of the PVA will dictate what steps the partnership is expected to undertake while the PVA is in force.
Creditors bound by the PVA cannot take action against the partnership while the PVA is in place, giving the partners breathing room to address their debt issues.
PVAs cannot affect the rights of secured creditors (creditors who have the benefit of security, such as a mortgage over property) to enforce their security, or affect the debts of preferential creditors, without their consent.
At the end of the PVA term, provided its terms have been adhered to and it has been fully implemented, any remaining debt is effectively written off, to the extent provided for by the PVA proposal, and the partnership can continue trading.
How long does a Partnership Voluntary Arrangement last?
PVAs need to last long enough to give the business adequate time to restructure and improve profitability. The terms of the PVA will govern the length of the PVA, early termination (and how this is to be effected) and what constitutes full implementation of the PVA. As such, a PVA is typically in place for three to five years.
The agreement is legally binding during the whole of the period it is in force, so you must ensure that this option is right for your business before proceeding. Our insolvency solicitors can provide advice on this.
Is a Partnership Voluntary Arrangement right for your business?
Financial troubles can be temporary. For example, a cash flow issue may be caused by late invoice payments or an unexpected downturn in the market. In such circumstances, it is often possible to recover the business once the external factors affecting it have been resolved.
A PVA can support a partnership business through hard times, allowing the partnership to continue trading while the partners address the debt issues. The benefits of entering into a PVA include:
- Vital breathing space to deal with your outstanding debts
- Partnership creditors are likely to receive a better return than if they took action to wind up the partnership
- An opportunity to restructure the business to improve profitability
- The business can ultimately continue to run
A PVA may not be appropriate for your partnership if the business is not viable. In such circumstances, winding up the partnership may be in the best interests of the partners and the creditors. Winding up a partnership does not necessarily mean bankruptcy for the partners, but it may be beneficial for the partners to enter into interlocking Individual Voluntary Arrangements (‘IVAs’) to deal with any personal liabilities.
Our experienced solicitors can provide tailored advice about whether a PVA is right for your partnership business, or whether you have other options that may suit your needs better. For information about IVAs, visit our Individual Voluntary Arrangements page.
Limited Liability Partnerships and insolvency
Limited Liability Partnerships (‘LLPs’) are a distinct type of partnership, governed by different legal rules. Unlike a traditional partnership an LLP does have a separate legal personality from its partners. The partners of an LLP have the benefit of limited liability, although they may have entered into personal guarantees in respect of the LLP’s liabilities, and may therefore be called upon to pay if the LLP is unable to do so.
The options for insolvent LLPs do, however, bear similarities to other types of partnership. LLPs can enter into voluntary arrangements, which follow very similar rules to Partnership Voluntary Arrangements. LLPs can also be wound up, by compulsory or voluntary liquidation (the latter being unavailable to general partnerships), or be placed into administration. If the partners have personal liabilities relating to the business of the LLP, they may also face bankruptcy proceedings.
We can also provide expert insolvency and restructuring advice to partners of LLPs. Please get in touch for further information.
Contact us
For clear, practical advice about dealing with debt, including Partnership Voluntary Arrangements, please speak to our expert team today in London, Portsmouth or Norwich.