We are a firm of very worried solicitors. Our legal practice is a partnership. We are under growing pressure from all sides. How can you help us solve these problems, restructure and survive?
There are three options to deal with severe cashflow problems for partnerships. This page looks at Plan B for partnerships which is a partnership voluntary arrangement (PVA) and linked Individual Voluntary Arrangements (IVA) with creditors.
Partnership Voluntary Arrangement (PVA)
A partnership voluntary arrangement is a formal deal between the insolvent partnership and its creditors. If the partnership is falling behind with VAT or PAYE payments, action could be taken by one or more creditors. As it is a partnership with joint and several liability, partners could face bankruptcy as a result of the failing partnership.
A PVA is definitely worth considering if your partnership is suffering financially as it protects the partnership from unsecured creditors and legal threats. It could also protect you against personal liability, however this type of arrangement will likely affect your credit rating.
By allowing a repayment plan to be set up, bank and tax debts can gradually be paid off over a number of years and cashflow can drastically improve. Restructuring plans can go ahead while partners keep control of the business. As a PVA protects the partnership, legal actions like winding up petitions can be stopped.
As part of a restructure, employment contracts can be terminated and leases can be stopped, often tough to do when not in this type of arrangement.
The SRA usually accept PVAs when the business is viable and the partners are willing to fight for the business. Of course, it can be a very complex and legal process so getting outside help from turnaround experts is a must. Partner’s estates will be assessed prior to the PVA proposal so these must be in order for a PVA to ahead.
We can help restructure the partnership as well as deal with irate creditors to ensure every measure is taken to bring it back to a profitable business. If your law firm is an LLP, a Company Voluntary Arrangement could help.
Who should use a PVA?
As mentioned above, the business must be viable to go into a PVA. If it isn’t, the partnership should be wound up as soon as possible. If the business has never made profit and prospects don’t look good, don’t ignore the problem, act quickly to avoid further damage. Partners may need to enter into bankruptcy as a result. Read our plan C page for law firms for more advice.
For more information on PVAs and the process, read our detailed guide to PVAs.
What should the deal propose if we are to avoid IVAs?
Usually a voluntary arrangement will compromise or reduce the debts owed to unsecured creditors, however in a partnership voluntary arrangement, unless a very high or FULL 100% dividend is proposed, then the creditors may demand a contribution from partners personally.
So we would normally set out a PVA offering 100p in £1 of unsecured debts. This would mean that the partners would avoid the insolvency option of IVA. The PVA may require a contribution of capital from the partners to achieve this aim.
If the partnership cannot pay back creditors in full, it may be necessary to propose supporting IVAs (individual voluntary arrangements) for the partners. This then becomes complicated as each estate has to be linked to the PVA.
In each case we will look at the PVA as s standalone option but we may have to then rely upon linked IVAs if the partnership cannot repay a satisfactory dividend to creditors.
Often the bank is unsecured in these situations. It may not have a valid security over debtors for example. If so then the bank would be compromised by the PVA. We are currently negotiating with several banks to reduce debt where the bank does have security, but the partnership is unable to service that debt.
Solutions include debt write down, long term debt conversion from overdraft to long term loans. Re-banking with more appropriate facilities and debt write off.
Our fees usually come from cashflow savings that we can create for your partnership as part of this process. We often take a fee over several weeks and add a success fee if agreed targets are achieved. All fees are quoted in writing.
What now? If your business has cashflow problems you must act or the creditors will, sooner or later act aggressively against you.
What if neither Plan A nor Plan B is suitable? Try Plan C - pre pack administration, or winding up of the partnership and personal bankruptcy.
Of course, acquisition by another firm is a possibility too. Will this acquiror pick up all of the liabilities of your firm? Perhaps pre-packaged administration could preserve the business and employment?
Call KSA Group's DEDICATED LAWYER'S LINE now 0845 519 4930