Guide To Partnership Voluntary Arrangements or PVA

• The content on this page has been written by Keith Steven and approved by Chris Ferguson Licensed Insolvency Practitioner and Director of RMT Insolvency and Recovery.

Why Use a PVA Instead of Winding Up?

A PVA is the primary alternative to the forced closure of a partnership. It is designed for businesses that have a profitable business but are currently burdened by historic debt or temporary cash flow crises. By using a PVA, you move from firefighting to restructuring.

Maintaining Control

Unlike a partnership winding-up order, the partners remain in control of the day-to-day business. You continue to deal with customers and manage operations while the Insolvency Practitioner (IP) acts as the Supervisor, overseeing the agreed repayments to creditors. This protects the goodwill of the partnership and avoids the reputational damage of bankruptcy.

The Interlocking IVA Shield

General partners are jointly and severally liable for 100% of the partnership’s debts. This means partnership creditors can legally pursue your personal home or savings even if the business is trying to pay. To stop this, we create interlocking IVAs for each partner. This dual-layer approach provides total legal protection for both the business and the individuals involved.

Eligibility and the 28-Day Moratorium

To use a PVA, the partnership must be insolventmeaning it cannot pay its debts as they fall due but it must also be demonstrably viable. If the business cannot return to profitability, it should be wound up as soon as possible to avoid accusations of wrongful trading.

The Small Partnership Moratorium

Under the modified provisions of the Insolvency Act, eligible small partnerships can apply for a 28-day moratorium. This creates a legal breathing space where no creditor can petition for winding up or seize partnership property without court permission. This time is used to finalize your proposal and win creditor support. To qualify, a partnership must meet at least two of these criteria: a turnover under £5.6m, assets under £2.8m, or fewer than 50 employees.

The HMRC Veto

The single biggest hurdle in modern PVAs is the treatment of tax arrears. Since HMRC regained secondary preferential status, the rules for “cramming down” debt have changed significantly.

Preferential vs. Unsecured Debt

VAT and PAYE are now preferential debts. In a PVA, you generally cannot ask HMRC to accept less than 100p in the pound for these specific arrears without their express consent. Unsecured creditors (like trade suppliers) can still be asked to accept a lower percentage, often between 25% and 60%. Because HMRC is an “involuntary creditor,” they are often the largest voting block; if your proposal does not clear their preferential debt over the 3-to-5-year term, they will likely veto the deal.

From First Meeting to Legal Protection

The law allows for a rapid implementation of a PVA to stop aggressive legal action. At CompanyRescue, we aim to complete the full process within 28 days.

1. Assessment (Days 1-7): We review your business dispassionately. We look at cash flow, overheads, and the “99 marketing questions” to see if the core is profitable.
2. The Proposal (Days 8-14): We draft a bespoke repayment plan. This includes a Statement of Affairs (SOFA) that proves creditors will receive more in a PVA than they would in a bankruptcy fire-sale.
3. The Decision (Days 15-28): We distribute the proposal to creditors. Under 2026 rules, we use virtual voting and deemed consent. No physical meeting is required.
4. Binding Agreement: If 75% by value of voting creditors approve, the deal is binding on everyone. Any legal action stops immediately, and interest is frozen.

The Process of Nominee to Supervisor

Once the creditors approve the deal, the IP transitions from the role of Nominee to Supervisor. Their job is to monitor your monthly contributions and distribute them to the creditors. So long as the partnership adheres to the terms, any debt remaining at the end of the term is legally written off.

Writing the PVA Proposal

The law envisages that the partners write the proposal and then ask an Insolvency Practitioner to act for them. Because the legal process is complicated and you have a business to run, we work closely with you to draft this document. However, for a proposal to be accepted by creditors and the court, it must be based on hard reality, not optimism.

Avoiding the “Over-Optimism” Trap

The most common cause of PVA failure is promising too much too soon. When we help you write the proposal, we follow these strict guidelines derived from years of business rescue experience:

• Base the plan on sensible cashflows, sales, and costs. Do not guess and do not expect large, immediate increases in sales.
• Expect the first year to be difficult. It is common for sales to dip slightly during the restructuring phase.
• Keep initial repayments affordable. In our experience, the maximum amount we would usually advise a partnership to promise in the first year is 12,000, or even less for individual debtors.
• Be dispassionate. Decide whether there is enough activity for the business to be profitable with its current overheads, or if it must be restructured first. Often, removing a couple of problem areas is enough to restore viability.

PVA Proposal Contents and the SOFA

To help creditors decide whether to accept the deal, the proposal must include a current description of why the business failed and why it is technically insolvent. It must also contain a Statement of Affairs (SOFA).

The SOFA is a detailed financial picture that serves two purposes:

1. It demonstrates that the partnership is currently insolvent.
2. It provides a “comparison test,” showing exactly what creditors would receive in a liquidation or bankruptcy fire-sale versus what they will receive if the PVA is approved.

The proposal will detail the duration of the deal (typically three to five years) and the specific amounts the partnership will pay from the business in the months and years ahead. Once the document is completed, it is verified by a statement of truth (affidavit) from the partners and filed at court.

Do you need to stop irate creditors from threatening your business and your home? Let us conduct a viability review today to see if a PVA is the right framework for your rescue.