The dividend ‘dilemma’: How to protect yourself and your business
January 23, 2022
Just as with a company in financial distress, a partnership can negotiate an arrangement with its creditors to give it the breathing space to deal with its problems, either through agreeing debt write offs or deferring payment of liabilities to ease current cash flow constraints.
The Partnership Voluntary Arrangement (PVA) was introduced within the Insolvent Partnership Order 1994. It is similar in many ways to the more common Company Voluntary Arrangement (CVA).
The PVA process is virtually identical to that of a CVA, although it will be the partnership members who will be responsible for drafting the PVA proposals, whereas in a CVA this task falls to the directors.
It is imperative that a PVA is only proposed and agreed where it operates a viable business. The exception would be when the partnership has valuable and readily saleable assets, which can be disposed of to generate cash to pay down debts or provide a short term increase in cash flow while the business is either sold or restructured.
Partnerships facing creditor pressure and cash flow problems, with a viable business may look to a PVA or creditors of a business partnership can cooperate in setting up a PVA to ensure that some or all of their debt is paid rather than waiting for their client to collapse and receiving little or no money back.
Unlike an Individual Voluntary Agreement (IVA), a PVA does not provide the partnership with protection, so enforcement action can continue in the period before the creditors meeting that must be called to approve the PVA. Where creditors take action and particularly if the partners have personal assets and liabilities both personally and jointly and severally for the partnership’s liabilities, they may each have to enter into IVAs, which will run concurrently with the PVA.
For more information on Partnership Voluntary Arrangement, we offer an initial free consultation to review the situation and make recommendations on the best way forward. If we think that a Partnership Voluntary Arrangement is the best route forward, our specialists can support the business at every step of the way through the process.
Contact our Head Office on +44 (0) 20 3326 6454 to arrange a no obligation and confidential call with one of our Partners.
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