A PVA is a formal
insolvency procedure enabling a partnership
to make a proposal to its creditors regarding
payment of debts, or a scheme of recovery
for the business interests involved.
A PVA is similar to a Company
Voluntary Arrangement in that it is a formal arrangement
with the partnership's creditors for an agreed
duration and under terms agreed with creditors.
When a partnership finds
itself in an insolvent position or it is
experiencing severe cash flow problems, but
it still has a viable business which will
generate profits by trading on, there are
a number of options available to the partners.
the first option is formal winding-up of
the partnership as an unregistered company
(possibly in conjunction with the bankruptcy
of one or more of the partners), it can al;so
consider a partnership administration order
(which is similar in procedure and effect
to a standard
administration order) or a
PVA (possibly in conjunction with interlocking
individual
voluntary arrangement's ('IVA')
of one, some or all of the partners).
In the case of a PVA, if approved by creditors,
the partnership will be protected from the
actions of its creditors to allow it to continue
its business. The PVA may be approved by
creditors on basis that it gives the partnership
a certain time frame to realize an asset
and/or to make contributions from future
profits for a set period, with a view to
achieving a recovery to creditors, which
may not be available in the case of a winding-up
of the partnership.
In a PVA, (unlike the
procedure for IVA's) there is no protective
interim order so consideration should be
given to first obtaining an administration
order in respect of the partnership, to obtain
protection from creditors prior to implementing
a PVA.
Implementing a PVA
The partners of
the firm must propose the PVA and, dependent
upon the partnership deed, it is likely that
unanimous approval is required. A qualified
insolvency practitioner is appointed and
acts as nominee and will assist and advise
the partners in completing proposals to creditors,
which will include details of the partnership's
and partners' individual financial affairs.
The nominee will report to the court on the
proposals and a copy of the report, together
with the proposals, will be sent to all creditors,
giving at least fourteen days notice for
a meeting for creditors to consider and vote
on the proposals.
At the meeting the proposals
will be approved if 75% majority in value
of the creditors present in person or by
proxy vote for acceptance of the PVA. Once
the proposal has been approved, it becomes
binding on all creditors who have notice
of the meeting of creditors. Secured creditors
will not, however, be bound unless they give
their express consent.
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Once the arrangement
is in place the partners will retain management
of the partnership and the supervisor will
monitor the arrangement and ensure that the
terms of the proposals are adhered to. It
will also be necessary for the supervisor
to agree creditors' claims and to distribute
funds as and when appropriate.
Advantages and disadvantages of
a PVA
The main benefit of
the PVA is that once it has been approved
by creditors, and assuming the partnership
complies with the terms of the arrangement,
the partnership creditors are unable to pursue
the partners' individual estates for payment
of any shortfall under the PVA. Other benefits
of this procedure are that in the cases of
larger partnerships, implementing interlocking
IVA's for all of the partners may be difficult
or impossible to administer.
It is also likely that,
particularly in the case of professional
partnerships, in view of the fact that any
value for goodwill will be tied up in the
partners themselves and their ability to
generate fees, trading on will probably enhance
realizations. In addition, by avoiding bankruptcy
proceedings from the partnership creditors,
in the case of professional partnerships
the partners may avoid expulsion from their
recognized public bodies, which could result
in an inability to continue working in their
profession.
The disadvantages of
an PVA; are that unlike an IVA there is no
interim order so the partnership may be forced
to consider an administration order to obtain
protection from creditors, pending the implementation
of the PVA. An administration order is costly
to obtain and may only be appropriate in
the case of larger partnerships. A further
disadvantage is that the PVA will not protect
the partners from the actions of their personal
creditors.
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