Reviewed by: Alan Simon on 29 August 2018

Partnership Voluntary Arrangement (PVA)

A Partnership Voluntary Arrangement (PVA) is a formal agreement between a partnership and its creditors to repay all or part of its debts over time. If you run a partnership which is struggling financially, are facing regular creditor pressure and cannot pay your debts, a PVA could give your business the breathing space it needs to get back on track.

Partnership Voluntary Arrangement (PVA)What is a Partnership Voluntary Arrangement (PVA)?

Much like the very similar Company Voluntary Arrangement (CVA), a PVA is a legally binding agreement to repay debts owing to creditors through monthly contributions over a typical period of between three and five years. Depending on the circumstances of the business and the amount it can afford to repay each month, this could mean that only a proportion of the total debt is paid.

The PVA also provides the partnership with protection from creditor action. Once the PVA has been proposed, no creditor action can be taken. This extends for the length of the agreement if it is approved. That can make a PVA a very useful restructuring tool.    

Who can use a Partnership Voluntary Arrangement?

Partnership Voluntary Arrangements can only be used by partnership businesses which are viable or that have disposable assets that can be turned into cash in the short-term to keep the business running. If the business isn’t viable then it should be wound up to generate the best possible return for the creditors.

Almost all small businesses face cash-flow pressure at one time or another. It could be that you have had a number of bad debts or are spending all your time fire fighting and dealing with creditor pressure rather than concentrating on the business. However, that does not mean the business could not be successful in the future.  

A PVA could be an option for partnerships experiencing any of the following:

  • You have been the victim of a bad debt from a major customer
  • You lose a big customer
  • The business needs to be restructured in order to be successful
  • You’re facing pressure from HMRC
  • You know you have made mistakes but want an opportunity to do things better

What is the Partnership Voluntary Arrangement Procedure?

The partners of the business are responsible for proposing the PVA. The partnership deed may detail the majority of partners that must agree with the PVA before it can be proposed. The partners of the business will need professional assistance from a Licensed Insolvency Practitioner to create the proposal. The PVA proposal should contain details which include:

  • How the business got to this stage;
  • The value of the business’s assets, liabilities and details of the company’s financial position;
  • A cash-flow forecast and the amount the business could afford to pay each month;
  • Reasons why the creditors should agree to the PVA;
  • The duration of the PVA, the cost and the Supervisor’s duties;
  • Any guarantees that the partners may be willing to offer;
  • Proof that agreeing to the PVA will lead to a better return for creditors than liquidation.  

Once the partners have agreed to the proposal, the ‘Nominee’ (an Insolvency Practitioner) will write to the court stating their belief that the PVA has a reasonable prospect of being approved and implemented. A date for the meeting of creditors will then be set.

Creditors are sent the proposal at least 14 days before the date of the creditors’ meeting. The proposal is discussed at the meeting and amendments can be made on both sides. If more than 75 percent of creditors (by the value of debt) vote to accept the PVA then it is implemented.

Once the creditors has agreed to the arrangement, the Nominee of the PVA becomes the ‘Supervisor’ and is responsible for ensuring the arrangement is adhered to and for keeping all parties informed about its progress. During this time, the business is protected from creditor action by the PVA as long as all the scheduled payments are made. If the business defaults on a payment then it could be wound up.

What are the Advantages of a Partnership Voluntary Arrangement?

There are a number of compelling advantages of a PVA. That includes:

  • The partners retain control of the business;
  • The costs are significantly less than if the partnership was placed in administration;
  • A legal ring fence can put an end to creditor pressure and stay any ongoing legal action;
  • It can provide a better return for creditors than liquidation;
  • There’s no need to tell your clients about the process;
  • It provides partners with a continued income;
  • It allows creditors to continue trading with the partnership if they choose to.

What are the Disadvantages of a Partnership Voluntary Arrangement?

As with any formal insolvency agreement, there are also downsides of a PVA:

  • The presence of a PVA will affect the credit rating of the partnership and this may affect its ability to trade;
  • Employees may need to be made redundant as part of the plan to return the business to profitability;
  • Some creditors may not be willing to agree to the PVA and you may have to consider another option;
  • Secured creditors are not bound by the terms of a PVA, so a bank or HMRC could still push for the liquidation of the business.

How much Does a Partnership Voluntary Arrangement cost?

Only a Licensed Insolvency Practitioner can act on behalf of a partnership when entering into a PVA. Up to the point of the creditors’ meeting, they are known as the ‘Nominee’. Once the PVA has been agreed, the IP becomes the ‘Supervisor’.

The fees for the Nominee and the Supervisor are separate. The Nominee’s fee is agreed with the partners when the IP is instructed to proceed. This depends on the complexity of the case and can cost as little as £2000. The Supervisor’s fees are usually fixed by the creditors and are paid annually. These would usually be around £3000 to £4000 each year.

How can we help?

If you’re considering a Partnership Voluntary Arrangement as a potential route out of your debt problems, we can provide the no-obligation advice you need. Call 08000 746 757 to discuss your circumstances with our team or call our senior consultant Sue Collins directly on 07949 969 006.

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