PVA

A PVA is a formal insolvency agreement allowing a partnership to submit a proposal to its creditors in respect of debt repayment.

Similar to a Company Voluntary Arrangement, a PVA is a formal arrangement with the partnership’s creditors for an approved duration and under terms agreed with creditors.

Should a partnership find itself experiencing severe cash flow problems or in a position where it is insolvent, but has a viable business which may create profits by trading on, there are several options available to the creditors and/or the partners under the provisions of the Insolvency Act 1986 and the IPO; the formal winding-up of the partnership as an unregistered company (possibly coinciding with the declaration of bankruptcy of one or more of the partners), a partnership administration order (which is similar in procedure and effect to a standard administration order) or a PVA (possibly in union with interlocking individual voluntary arrangement’s (‘IVA’) of one, some or all of the partners).

With the approval of a PVA, if accepted by creditors, the partnership will be protected from the creditors actions to allow business to continue. The creditors may be in agreement to the PVA on basis that it gives the partnership an assured time frame to make contributions and or realise an asset from future profits over an agreed cycle, with a view to creditors realising recovery, which may not obtainable in the event of a partnership winding-up.

In the case of a PVA, (unlike the procedure for IVA’s) there is no shielding interim order so thought should be given prior to initially attaining an administration order against a partnership, in order that protection may be obtained from the creditor prior to initiating a PVA. This however would depend upon the level of pressures to the creditor at the time.

Implementing a PVA

Although in practice implementing a PVA is comparatively clear-cut, applications for the arrangement can be comprehensive and complex to prepare dependent upon the partnerships circumstances. Associates of the partnership must propose the PVA, and dependent upon the deed of partnership it is probable that unanimous approval will be required.

The appointment of a qualified insolvency practitioner, who undertakes the role of nominee, will offer advice and assistance to the partners in submitting proposals to creditors. This includes particulars of the individual partners’ and the partnership’s financial dealings. The nominee presents particulars of the proposal to the court, a copy of which is issued to all creditors and allows at least fourteen days in which they must deliberate and vote upon the application.

If 75% of the majority value present in person or vote for acceptance of the PVA by proxy-vote, the proposal will be approved. However if non-connected creditors voting to reject the PVA exceeds 50%, the application will not be upheld (connected creditors incorporates the workforce of the partnership, other partners and their kin)

Upon approval, the proposal is binding to all creditors who are notified of the meeting of creditors. However protected creditors will not be bound unless expressly approved. If the proposal does not affect the relative dividend entitlement or the priority, favoured creditors will be bound. The nominee, or an alternatively appointed person, will then oversee the execution of the arrangement.

With the implementation of an arrangement the partners will maintain management of the partnership, however to ensure that terms of the proposals are adhered to, the supervisor will oversee the arrangement, distribute funds as required and to consider claims submitted by creditors.