A partnership that cannot meet its liabilities 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. The procedure is called a Partnership Voluntary Arrangement (‘PVA’). 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, which can prevent the individual partners being made Bankrupt. Bankruptcy may result in losing the ability for professionals to practice, as individual membership may be revoked by certain professional bodies.
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 Voluntary 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 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 outside of the arrangement. Like an IVA though, if the proposals are not complied with the supervisor may have to petition for the partnership to be wound up.