The Initial Assessment
When considering whether a PVA is the most suitable option for a partnership in financial distress, the first step will be to contact a licensed Insolvency Practitioner (“IP”). The IP will then arrange a meeting at which the best course of action for the partnership, and its members’ can be determined.
It is important that we have sufficient information to understand the structure of the partnership, the terms of any partnership agreement, its trading history, and events which led to present difficulties. It is also vital to obtain information as to the partnership’s assets and liabilities, and prepare projections for the short (and long) term.
This might seem like a big task, but we will take on as much of this work as possible.
Drafting the PVA Proposals
Once it is established that a PVA is viable, and is likely to be viewed favourably by the partnership creditors’, the partnership will appoint an IP to prepare the proposals, and a statement of assets and liabilities. This process will provide an opportunity to restructure the partnership, where necessary, and could include reducing overheads, staff redundancies, improving operational efficiency, or any other specific measures to promote long-term viability. The cost of redundancy will be picked up by The Redundancy Fund who will then lodge a claim in the PVA.
The proposal must demonstrate that the problems which gave rise to financial difficulties have been addressed, that the partnership is capable of trading on a cash positive basis going forward, and what will happen if the partnership cannot, or does not adhere to the proposed terms.
The Nominee's Report
Once the PVA proposals are finalised, and approved by the partnership, the Nominee will produce a report on these proposals and offer an opinion as to whether the proposal has a reasonable chance of being approved, and implemented, and whether it should be put forward to the partnership’s creditors’ for their consideration. The IP must also be satisfied that there is no conflict between the advice provided in relation to the joint and separate estates.
Once satisfied of the above, the Nominee will serve notice of the creditors’ meeting on every creditor of the partnership, and to individual estate creditors. If the decision is made to propose interlocking IVA’s, each meeting will be treated separately, although practically, the Nominee might decide to hold all meetings simultaneously for practical purposes.
Approval - The Creditors’ Decision Procedure
The Nominee will seek a decision from the partnership’s creditors as to whether they approve the PVA proposal. The partnership’s proposals will be approved if 75% or more (by value of debt) of its creditors, who are entitled to vote, agree to support the arrangement.
If modifications to the proposal are requested then the same majority of creditors’ must agree the proposed change. This is the part of the process that directors’ may be most concerned about, but if care is taken when drafting proposals, then there is not usually a problem in obtaining approval in most cases.
The Supervisor will have to report to creditors annually on the progress of the PVA, how the partnership is trading post approval of the PVA, what recoveries have been made and what payments have been made to creditors.
Voluntary arrangements do require commitment and hard work by the partnership to ensure they adhere to the terms. If the partnership does struggle to meet it’s obligations, the proposal usually provides the Supervisor with the ability to agree payment breaks. This may require creditor approval by way of variation meetings.
Approval - The Meeting of Partnership Members’
A physical meeting of the partnership‘s members’ is held immediately following the date and time of the creditors’ decision procedure. Assuming that the proposals are approved by the required majority of creditors’, the members’ must decide whether or not they can agree to the proposals, and any modifications that the creditors’ may have suggested. The partnership’s proposals will be approved if at least 50% of members’ vote to support the PVA.
Effect of the PVA
The PVA takes effect from the date of the creditors’ decision. No action can then be taken against the partnership by its existing unsecured creditors’ unless the terms of the PVA are not adhered to.
The partnership will be expected to make the agreed contributions as set out within the proposal. These contributions must be paid to the Supervisor and will be held in a designated trust account. As long as the partnership continues to adhere to the terms of the arrangement, unsecured creditors’ bound by the PVA, cannot pursue the partnership any further for the recovery of their debt.
Once partnership creditors’ approve the proposal, they are legally bound and cannot make any further demands on the partnership. However, additional procedures may be required if the partners’ personal assets are at risk from personal creditors.
Termination / Conclusion of the PVA
If the partnership cannot adhere to the terms of the PVA, or it breaches any other obligation, then the likely result will be that the PVA will terminate, and the outcome for the partnership might be that a petition for it to be wound up as an unregistered company is presented against it.
The Supervisor will always work with the partnership to remedy any breaches, or seek approval to vary the terms of the PVA. If the PVA is successfully adhered to, the Supervisor will conclude the PVA and issue a Certificate of Completion. The partnership can then continue to operate, without being subject to any other insolvency procedure.
Careful consideration must be given to all options available to a financially distressed business. For more advice, fill out our Contact Form and we will be in touch. Alternatively, call our FREE ADVICE LINE on 0800 781 0990.