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PVA
At our recent seminar series we talked about the use of voluntary arrangements as an extremely valuable and under-used tool to help rescue businesses and individuals in difficulty. A question was asked about Partnership Voluntary Arrangements and whether they are more complex and difficult due to the partnership structure. This note aims to clarify this question.
Overview
Where a partnership cannot pay its debts as and when they fall due it is insolvent. Once it is insolvent creditors are likely to take action against the partnership or its individual partners to recover their money. Creditors are entitled to take action against any one or more of the jointly and severally liable parties to the debt, so watch out wealthy partners.
The action that is taken can result in the partnership being forced into liquidation or the individual partners being made bankrupt. However this may be avoided by a Partnership Voluntary Arrangement (PVA) which can be a life saving tool to deal with the debts.
A PVA is a legally binding contract between a partnership that owes money, its creditors (who are owed the money) and one or more Insolvency Practitioners (such as Philip Wood of BCR). The contracts sets out how the partnership will repay its debts over a period of time
It is designed to support fundamentally viable partnerships by allowing them to trade out of their current position and repay creditors from future profits. It is a powerful business recovery or business rescue tool.
Is a PVA different from other types of Voluntary Arrangement?
A partnership for the purposes of insolvency has its own identity, its own assets and its own liabilities and it may be possible to simply propose a PVA with the partnership creditors. However in a partnership the partners are jointly and severally liable for its debts, therefore it may also be necessary to propose Individual Voluntary Arrangement’s (IVA’s) for the individual partners to give them the protection and assurance they need that their own financial position is not in jeopardy. How would this work if one or more individual partner(s) is not insolvent? Contact us to discuss this further as this situation will need careful planning.
The PVA will be based upon either ongoing contributions from future profits, the sale of certain non essential assets, or the introduction of funds not available through another Insolvency process such as the Administration or Winding up of the Partnership or Bankruptcy of the individual partners. Whatever contributions are introduced they are all intended to put creditors in a better position than they would have otherwise been.
If a Partnership Voluntary Arrangement is appropriate the partnership will be continuing, therefore it is essential that the underlying business is viable. We will work with you to ensure this is the case, but also be honest with you where we believe this cannot be achieved – unfortunately we cannot work miracles if (for example) sales are in terminal decline or margins have been squeezed to a point of no return. The business may need restructuring - call us to discuss this in more detail.
With the aid of your existing advisers and/or our network of professional associates we will ensure you are provided with any help or assistance you need to maximise the viability of your business. We can bring in expertise to help with areas such as cost reductions, credit insurance, business/management development and refinancing.
How does the PVA work?
1. Once both you and we are confident the underlying business is viable we will work with you to put together the proposal. We will look at all of your existing and future liabilities, even liabilities that may be created as a result of how the PVA is structured. We will see what contributions the business can afford to make and then devise an appropriate strategy over a period of typically no more than 5 years.
2. Whilst doing this we will speak to any creditors who are aggressive or fundamentally important to the business or PVA succeeding such as your bank or HM Revenue & Customs.
3. Once the proposal is prepared we will complete our independent review and objective assessment known as the Nominee’s report before filing the necessary documents in court and circulating it to your creditors giving them between 14 and 28 days to review and vote upon the proposal.
4. Hopefully before or at the meeting sufficient percentages of your voting creditors (75% or more) will be in favour and the PVA will be put in place. If we can’t reach the magic 75% we can adjourn the vote for up to 14 days to discuss the proposal with the dissenting minority and attempt to change their mind. Fortunately this is normally achievable, but we have to be honest and say it is not always possible, not every creditor is driven by the commercial outcome. Where this is the case we will continue our work with you to provide the next most suitable solution, which is likely to be the administration of your partnership – known as a Partnership Administration.
5. Once the PVA is in place and/or the IVA’s are approved, each party is protected from any further legal action occurring giving the partners peace of mind.
6. As time goes by and the PVA continues, it may be that things don’t pan out as first expected. If this is the case, it is possible to change either what you pay in or the length of time – known as a Variation. The creditors vote on any variation proposal again and will therefore ultimately decide whether it can be changed or not.
7. If a variation is not approved or things pan out significantly different from that originally envisaged then the PVA and/or IVA’s may fail and leave the Supervisor with an obligation to petition for winding up or bankruptcy. We will work with you to do all we can to avoid this outcome.
If you or any of your clients need advice on any aspect of Voluntary Arrangements or other rescue procedures don’t hesitate to give us a call.
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BCR offer insolvency services throughout Staffordshire, Shropshire, Cheshire and Lancashire with insolvency practitioners helping individuals and companies in Stoke on Trent, Shrewsbury, Telford, Bolton, Preston, Blackburn, Stockport and Manchester.