There may be situations where a partnership gets into financial difficulty and the individual partners wish to avoid the partnership being petitioned into Liquidation, with the individuals facing bankruptcy for the following reasons:
To avoid the stigma of bankruptcy
To avoid the possibility of losing professional qualifications by virtue of bankruptcy orders where the partners are members of certain professional bodies
To continue trading the business to generate contributions for the benefit of creditors
Where the business can be sold as a going concern in order to generate a higher return for the creditors of the business
Where, as a result of cost savings, the creditors of the business would receive more than if the business were to be placed into liquidation and the individual partners made bankrupt
A PVA is a formal agreement between the partners of the business and partnership creditors and, where the business is inherently profitable, allows the partnership to continue to trade and repay creditors out of future profits or possibly through the orderly sale of assets.
Unlike an Individual Voluntary Arrangement, the PVA does not provide protection from creditors taking enforcement action to recover their debts in the period leading up to the creditors meeting at which the proposals are considered. In order to protect the partners from the possibility of enforcement action being taken, it may be necessary to propose Individual Voluntary Arrangements for the partners, to run concurrently with the PVA, where the partners also have personal assets and liabilities.
Where the proposals for a PVA are approved by the creditors, the partners retain day to day control of the running of the business and make contributions from income or from profits to a Supervisor (who must be a Licensed Insolvency Practitioner). When there are sufficient funds available, the Supervisor will declare and pay a dividend to the creditors of the business.
The PVA may provide for creditors to be paid in full over a period of time, or may provide for creditors to receive a percentage of the amounts due to them, with the balance being written off upon the successful conclusion of the arrangement. |