A Partnership Voluntary Arrangement (PVA) is an agreement whereby Partnerships repay a proportion of business debts to unsecured creditors. It is useful to encourage viable partnerships back to profitability, and is similar to the limited company version which is the Company Voluntary Arrangement (CVA). Jason Elliott from The Insolvency Experts explains further. It’s essential that all partners are committed to making a success of an official payment plan and it’s important to know that even with a PVA in force each Partner may 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. Essentially, a PVA provides a partnership’s creditors with an improved return than would be possible if the partnership was dissolved, and it also offers a chance to restructure the business. The partners can put together a proposal for a repayment plan, usually with the help of an Insolvency Practitioner (IP), and this is based on repayment of a proportion of the debt – and an explanation is provided as to why the partnership has declined, and the reasons why its creditors should accept the proposed offer. If at least 75% by value 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 IP. If debts remain at the end of the PVA term they are 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 their creditors.
Gaining access to working capital via a PVA
Lack of cash behind the partnership’s insolvency could be due to temporary circumstances, making the underlying business potentially viable for the long term. The partners may be able to trade their way out of the situation, gradually improving cash flow with some alterations to operational practices or business structure. Alternatively, if the business owns one or more valuable assets that could be sold in order to generate a lump sum of working capital, the IP may decide that this is sufficient to support the business until things improve. There are numerous benefits to a PVA. Most importantly, partners stay in control of their business, and continue to trade. Further, a breathing space is created to deal with the partnership’s debts, without creditor pressure and creditors receive a higher return than if the partnership was wound-up. Refinancing or restructuring is more possible to achieve to overcome short-term cash flow problems and interest and charges on the debt are ceased. For more information on PVAs, contact one of our expert team at The Insolvency Experts in Bolton on 0300 303 8284 or via our contact us page