Updated: 5th February 2020
Unlike ordinary partnerships, the individual designated members of an LLP have limited liability. Therefore, solutions can be similar to the sort of debt-help solutions used by limited companies – such as a company voluntary arrangement.
When a limited liability partnership is a viable ongoing business but is being hampered by debts, a company voluntary arrangement (CVA) can be a solution to protect your company from creditor action – providing breathing space to pay those debts over time.
If an LLP is insolvent, a company voluntary arrangement would be a possible solution depending on the financial circumstances surrounding the business. It’s critical to note that a Partnership Voluntary Arrangement (PVA) is purely an option for standard partnerships, not LLPs, and is a completely different legal process. A key strength of a CVA is the time it can give your business to restructure and prosper again. In some cases, there are benefits of placing the firm into administration first but if the partners/members take action as soon as possible before that situation arises, a sole company voluntary arrangement will suffice.
However, if an insolvency practitioner believes that the LLP is not viable going forward, it is likely that liquidation will be the outcome or the sale of assets through administration if the assets are of significant enough value.
A CVA comes into play when the LLP members form an agreement with creditors through 'composition in satisfaction of its debt' or a 'scheme of arrangement of its affairs'. In other words, the members of the LLP and creditors come to an agreement – through a legal arrangement approved by the courts – approved by the court, in which the limited liability partnership has agreed binding terms with its creditors over the settlement of debts.
So if your LLP is fundamentally sound but has cash flow difficulties and needs time to recover, what are the key benefits that a CVA could provide for you?
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Continuation of Trade – One key plus-point of a CVA is that it allows a limited liability partnership to continue trading, even if a creditor has initiated a petition against you. At this stage, bank accounts are often frozen due to the petition but the CVA can act as a validation order to unfreeze the account and allow business to continue as normal.
Business Control – Partners/shareholders/owners will still be able to control the affairs of their business during the CVA process, unlike in administration where the management and stewardship is passed over. This is can be crucial as no-one knows the business better than the key partners involved.
No Transition – A CVA allows a firm to continue trading in their registered name which means any contracts, accreditations and legal documents continue to be valid with no need to transfer documentation to a new name.
Repayments Scheduled with Frozen Interest – Historical debts are frozen meaning no further interest or costs will accrue. In addition, the repayment structure is flexible; you pay what you can afford.
Understanding Where You Are – A CVA is a structured, scheduled process with no grey areas; as a business you will know exactly where you stand and your repayments will remain the same over, usually, a three to five year schedule.
Improved Cash-flow – Surprisingly, the fees for a CVA are lower than many people expect and most of that bill is paid by creditors. You’ll benefit from the advice of an experienced insolvency practitioner who can devise a well-formulated CVA to assist the business in its time of financial distress – helping to improve cash-flow along the way.
Restructuring Advice – This is touched on above but is worth highlighting; a key benefit of a CVA is also the professional business rescue advice at your disposal. An insolvency practitioner or business recovery specialist can help restructure your business model – planting seeds for the long-term and allowing you to carry on with your business in the short-term.
If you feel like a CVA could help your LLP in its current situation, speak to us today. There is usually very little time to waste in matters of financial insecurity. It’s crucial to note that although limited liability partnerships can be restructured and turned around using company voluntary arrangements (CVAs), supreme care needs to be taken with the tax implications of partners involved which is where you must rely on licensed insolvency practitioners with vast expertise in this field – that’s why you can trust Real Business Rescue to find the best possible outcome for all involved.