Partnership Voluntary Arrangement Solicitors

 The partnership should engage an insolvency practitioner (IP) to assess its viability and develop a realistic repayment plan.

The IP works with the partners to create a bespoke proposal covering an explanation of the partnership’s financial difficulties, a proposed repayment amount, the length of the repayment term (typically 3-5 years) and information on potential assets to be sold or cash injections to fund the arrangement and the repayments to creditors.

The PVA will be approved by the partners if a simple majority of those voting vote in favour (assuming they are equal partners). 

Creditors will be taken to have approved a PVA by the relevant decision procedure if it is approved by at least 75% (by value) of the partnership’s creditors who respond to the decision procedure, unless those voting against it include more than 50% (by value) of all the unconnected creditors whose claims are admitted to vote.

If the proposal passes, the partners and all unsecured creditors are legally bound by its terms (secured and preferential creditors are also bound if they agree). 

The appointed IP then distributes the agreed payments to creditors in accordance with the terms of the proposal.

Upon a successful completion of the PVA, any remaining debt is written off, allowing the partnership to continue trading as a solvent entity. 

Alternatively, the PVA may terminate early if the partnership fails to meet the agreed terms of the proposal, which could lead to the winding-up or administration of the partnership and/or bankruptcy proceedings in respect of the individual partners.     

Unless the partnership is subject to concurrent insolvency proceedings, the partners can propose a PVA.  If there are concurrent insolvency proceedings, the relevant insolvency office-holder appointed in those proceedings can propose a PVA.

When considering the PVA proposal for approval, both the partners and the creditors may suggest modifications and may approve a modified form of the proposal if both constituencies agree to the same modifications. 

There are limits to what modifications can be proposed: they cannot fundamentally alter the character of the PVA as a compromise or the arrangement of debts that is overseen by an insolvency practitioner as nominee/supervisor. 

The PVA will take effect at the time that the creditors approve the PVA.

The process for challenging a PVA is largely the same as for challenging a CVA.

A challenge must be made by an application to the court within 28 days of the PVA’s approval, beginning on the first day on which the outcomes of both the meeting of partners and the creditors' decision have been reported to court.  Alternatively, if a creditor was not given notice of the decision procedure, they have 28 days to make the application starting on the day on which they become aware that the decision procedure has taken place.

A challenge may be brought by any person entitled to vote at the partners' meeting, any person entitled to participate in the creditors' decision procedure (or who would have been if they had received notice of it), any nominee or person replacing the nominee and any insolvency office-holder appointed in respect of the partnership.

The grounds for challenge are unfair prejudice and material irregularity.

If the court upholds the challenge, it can:

• Revoke or suspend approval of the PVA.
• Direct further meetings of partners and/or a decision procedure for creditors to consider any revised proposal or (where there has been a material irregularity around the partners' meeting or creditors' decision process) to reconsider the original proposal.

Where the court has ordered that a revised proposal be produced, but the proposer of the PVA does not intend to produce one, the court must revoke its order and revoke or suspend any former approval of the PVA by the partners or creditors.

Where the court orders new meetings or decisions on the same or a modified PVA, or revokes or suspends the approval of the PVA, the court can give supplemental directions concerning the new meetings or decisions.  It can also give any directions it thinks fit to validate or otherwise deal with actions that have been taken under the PVA before it was revoked or suspended.

Pre-PVA fees and disbursements payable to the nominee can be agreed by the partners or any appointed insolvency office-holder.

The fees paid to the supervisor while the PVA is being implemented will invariably be recorded in, and form part of, the terms of the PVA proposal.

If the PVA is silent as to fees and expenses payable once the PVA is approved, then the approach taken in relation to fixing the supervisor’s fees and expenses will correspond to an administration or liquidation.

Where it has been agreed that the fees of the nominee or supervisor will accrue on the basis of time properly spent, the nominee or supervisor must keep records that can be provided to creditors or partners on request, covering each period of six months from the start of their appointment and showing:

• The total number of hours worked on the matter by the nominee or supervisor and their staff.
• The average hourly rate for each grade of staff involved.
• The number of hours worked by each grade of staff involved.

The main difference is the type of entity involved: a CVA is for limited companies, while a PVA is for partnerships. 

A CVA protects the company as a separate legal entity, whereas a PVA is for a partnership but requires the partners to consider separate IVAs if appropriate in respect of their liability for the partnership’s debts. 

A PVA can stop pressure from unsecured creditors because if a PVA is approved, it is a legally binding arrangement between the partnership and its unsecured creditors as to how the partnership’s unsecured debts will be paid and/or compromised. 

PVAs are not binding on the partnership’s preferential or secured creditors unless they agree so if debts owed to preferential and/or secured creditors are not paid, the partnership and its partners may become subject to other insolvency procedures such as administration, liquidation or bankruptcy. 

It is possible for partners to continue working because a key benefit of a PVA is that the partners remain in control of their business and can continue to trade while arranging to pay their debts (or an agreed proportion of those debts) over time.  However, the partners must adhere strictly to the agreed terms of the PVA proposal to avoid further action being taken that could lead to other formal insolvency processes being imposed.