A partnership that cannot meet its debts can enter into a formal agreement with the partnership’s creditors to repay their debts either in full or more likely partially over a fixed period of time. This freezes all unsecured debts and interest charges and can allow the partnership to restructure its debts and look to a future possibly without the need for obtaining further finance.
It is a legally binding agreement, and can also prevent the individual partners being made Bankrupt, which may result in losing the ability for professionals to practice, as individual membership may be revoked by the respective professional body.
It should be remembered though that partners individual debts are not covered under a PVA and if these are significant an Individual Voluntary Arrangement may be appropriate in addition to the partnership arrangement.
The proposed repayment plan will need to be approved by in excess of 75% in value of the voting creditors. However once approved the agreement is legally binding on all unsecured partnership creditors, irrespective of whether the creditor voted against the proposals or didn’t express an opinion at all.
Assuming the partnership stays within the terms and conditions set out in the proposals unsecured creditors who are bound by the arrangement cannot pursue the partnership, or it’s individual partners, for the recovery of their debt.