PVAs take a similar form to that of a CVA (Company Voluntary arrangement), and assist insolvent partnerships with larger numbers of members which find themselves at risk of being wound up to regain control over their financial security. This is achieved through a procedure during which a debt repayment deal is agreed with the partnership’s creditors, usually lasting three to five years.

A PVA is not an easy process to go through but can be seen by the partners as a preferred debt restructuring solution over bankruptcy, which has longer term, stigmatic consequences for the members and can involve the loss of personal assets. It is also much less expensive than if the partnership was to be put into administration.

A PVA can be a preferred option for creditors than if the partnership were to be wound up, as in this case the losses they suffer are usually substantially higher. However, if the PVA only provides partial repayment and the partners’ individual estates are solvent, creditors may opt to pursue the partners individually to recoup their losses. This can make approving the PVA more complicated than a CVA.

The key is to first establish whether the partnership is viable. If the partners are all in agreement and are able to prove conclusively that it is, and that they are committed to its future, a PVA could provide a much needed rescue solution to preserve the future of the partnership. If the partnership is not viable, (i.e. it has never made a profit, does not have a realistic and achievable sales and marketing plan in place or has overheads which are consistently too high, etc.) the better solution would be for it to be wound up. Once it has been established that a partnership is viable, it is advisable at this stage for the partners to appoint an advisor – normally an insolvency practitioner - to guide and support them through each step of the PVA process. The advisor also liaises with creditors on behalf of the partnership, as well as other parties including banks and the HMRC.

The partners must next create an exhaustive list of all creditors to whom the partnership owes money – not just immediately and debts which are in arrears but calculated estimates of upcoming future debts as well, such as VAT and PAYE for example. Then they should conduct an analysis of the partnership’s assets, and of the assets of the individual partners, including an estimate of their value. Their advisor can support them with this.

The next step is for the partners to design a proposal which outlines to the creditors the partners’ plan to restructure the partnership and sell off any assets in order to allow them to repay their debts either in full or in part, over an agreed period of time. It should also contain an explanation as to why the partnership has found itself in its current position of insolvency. The partners are able to design the PVA proposal themselves, and in most cases all the partners must give their consent to the proposals in order for it to proceed.

Once the PVA proposal has been approved in principle it is filed in court and then a date for a meeting with each of the creditors is set, at which they each provide their agreement (or refusal) of the document. If it is agreed, the partnership is able to continue in operation, subject to its restructuring, the disposal of assets to free up capital and other terms of the PVA, and to continue to bring in revenue for the partners and to satisfy the creditors. Throughout the process the partners are able to retain control over the daily management of the partnership.