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What is a Partnership Voluntary Arrangement?

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What is a Partnership Voluntary Arrangement?

Reviewed: 13th December 2017

A Partnership Voluntary Arrangement, or PVA, is an agreement with unsecured creditors to repay a proportion of business debts. It can be a useful tool to encourage viable partnerships back to profitability, and is designed in a similar way to the limited company version – the Company Voluntary Arrangement (CVA).

It’s crucial that all partners are dedicated to making a success of an official payment arrangement such as this, and they may each require their own Individual Voluntary Arrangements (IVAs) in addition to the PVA. Interlocking, or simultaneous IVAs, serve to protect partners from personal bankruptcy whilst also safeguarding the business.  

How does a PVA work?

The essence of a PVA is to provide a partnership’s creditors with a higher return than would be possible if the partnership was wound-up, and it offers a chance to restructure the business.

The partners put together a proposal for a new repayment plan, often with professional assistance, and this is based on repaying a proportion of the debt – 40p for every pound, for example. An explanation is provided as to why the partnership has declined, and the reasons why its creditors should accept the proposed offer.

If 75% (by value) or more of creditors agree, the business will make a single payment each month rather than paying multiple creditors. The amount is distributed to creditors by the appointed insolvency practitioner (IP).

Any debt remaining at the end of the PVA term is written off, and the business carries on trading without the burden of unsustainable debt. PVAs generally last for three to five years, and are legally-binding agreements for both the partners and the partnership’s creditors.

Gaining access to working capital via a PVA

The lack of cash behind the partnership’s insolvency could be due to temporary circumstances, making the underlying business potentially viable for the long-term. As a result, the partners may be able to trade their way out of the situation, gradually building up cash flow with a few changes to operational practices or business structure.

Otherwise, if the business owns one or more valuable assets that could be sold relatively quickly to generate a lump sum of working capital, the IP may judge that this is sufficient to support the business until trade improves.

Benefits of a Partnership Voluntary Arrangement

  • Partners stay in control of their business, and continue to trade
  • A breathing space is created to deal with the partnership’s debts, without creditor pressure
  • Creditors receive a higher return than if the partnership was wound-up
  • Allows for refinancing or restructure as appropriate, to overcome short-term cash flow problems
  • Interest and charges on the debt are ceased

 

For more information on PVAs tailored to your partnership, contact one of the expert team at Real Business Rescue. We’ll identify your risk of personal bankruptcy due to the failure of your business partnership, and explain the merits and drawbacks of each option. Real Business Rescue provide director advice online, over the phone, or in-person at one of our 55 UK offices or a place of your convenience.


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