Partnership Voluntary Arrangements (PVA)
With that in mind the PVA is a powerful tool rather like CVA and can be used to restructure the partnerships debts. The THREAT of a PVA is also a powerful but informal option. Using the analysis of the partnership’s statements of affairs, forecasts and a determined advisor, the PVA “Sword of Damocles” can be an important weapon.
In other words, we do the preparation work for the PVA to set out an informal deal (no court involvement and no formal creditors meetings) to buy time and repay 100p in £1 over an agreed period.
The more powerful PVA tool has most of the powers of the CVA save for the inability to protect partners from the joint and several personal risk. What to do? Well, often a 100p in £1 PVA can avoid the need to provide formal rescue tools for the partners. But on occasion, the PVA may only offer partial repayment. Then the creditors of the partnership may pursue the PARTNERS individually.
In that event the partners can either provide more capital to support the PVA, propose linked individual voluntary arrangements or in the worst case go bankrupt.
Constructing the PVA is, therefore fraught with difficulty and requires (in our opinion) an assessment of the estates of the individual partners. The easy question HMRC may ask is, “if the partnership is insolvent why don’t the partners put more capital in”? Therefore, we would always prepare the statement of affairs and often get partner’s properties valued to support the PVA.
In 2011 KSA Group is advising an increasing number of professional services firms such as accountants, lawyers, IFAs and architects trading as partnerships. Most often we avoid the need for PVAs as most creditors see the common sense of the informal deal. The trick is getting advice from a professional firm SOON ENOUGH. The later specialist turnaround and insolvency advice is taken, the greater the risk that an informal deal is not an option. The PVA is the only solution to avoid administration of the partnership and linked IVAs or bankruptcy for the individual partners.
Learn more about the PVA mechanism here
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