Voluntary arrangements
| Author | Elspeth Berry/Rebecca Parry |
| Pages | 41-91 |
Chapter 3
Voluntary Arrangements
A partnership
Potentially attractive features of the voluntary arrangement, whether PVA or LLPVA, are that the partners/LLP members will remain in control of the partnership/LLP while the voluntary arrangement is being proposed and the costs of the voluntary arrangement are likely to be much lower than those of administration. The voluntary arrangement enables existing partnership/LLP liabilities to be managed through the agreement of a composition in satisfaction of the debts of the partnership/LLP or a scheme of arrangement of its affairs. Creditors may be content to vote in favour of the proposed voluntary arrangement since there will be a prospect of higher returns than would be
42 Law of Insolvent Partnerships and Limited Liability Partnerships
possible if the partnership/LLP were instead wound up. Higher realisations may be possible as a result of continued trading, which may, for example, generate profits or enable the partnership/LLP to realise an asset that could not be realised for full value in an immediate liquidation. The arrangement binds the debtor and creditors under a statutory contract and the partnership/LLP gains protection from creditor claims in consequence of this, although, as discussed below, some creditors may be excluded from the voluntary arrangement, depending on the nature of their claims. Following the approval of the voluntary arrangement, the partners/members will retain control of the partnership/LLP
and the agreed terms must be complied with. The satisfactory performance of the agreed terms will be monitored by the supervisor of the arrangement and the voluntary arrangement may be brought to an end if the terms are not satisfactorily complied with.
3.1 ORDINARY PARTNERSHIPS: LEGISLATIVE FRAMEWORK
The provision which enables an ordinary partnership to propose and enter into a PVA is article 4 of the IPO. As is typical, this article draws upon provisions of the IA 1986, with terminological modifications and exceptions, to create the scheme that relates to partnerships. Helpfully, some modified version of sections 1–7B of the IA 1986 appear in Schedule 1 to the IPO. The IPO also applies various additional provisions in relation to partnerships.
One consequence of the PVA statutory framework having been based on that which applies to CVAs, rather than that which applies to an IVA, is that the
(preferential debts); Pt XIII (insolvency practitioners); ss 411, 413, 414 and 419 (miscellaneous provisions relating to rules, fees and other matters); and Pts XVI–XIX (miscellaneous provisions relating to matters including the avoidance of transactions defrauding creditors, assistance in cross border insolvency proceedings, as well as the final provisions of the IA 1986).
partnership does not have the opportunity to benefit from the protection afforded by the interim order which may be made by a court upon the application of an individual who is intending to apply for an IVA.
3.2 LLPs: LEGISLATIVE FRAMEWORK
The CVA framework also applies, as might be expected, to LLPs. Part I of the IA 1986 is applied to LLPs by regulation 5 of the LLP Regulations 2001, although with some procedural differences and with appropriate terminological modifications.
3.3 ADVANTAGES OF THE VOLUNTARY ARRANGEMENT
The voluntary arrangement, either on its own or combined with interlocking IVAs for some or all of the partners/members, offers several advantages to the partners/members. It can enable them to avoid the stigma, restrictions and other consequences of a bankruptcy. Depending on the terms of the voluntary arrangement, and their acceptability to creditors, the voluntary arrangement can potentially enable the partners/members to exclude some assets from the voluntary arrangement. A PVA may be a suitable framework for insolvent law or accountancy firms which have chosen not to incorporate and to trade as partnerships. However, it must be added that the usage of PVAs and LLPVAs appears to have been low, to date.
44 Law of Insolvent Partnerships and Limited Liability Partnerships
3.4 MORATORIUM
Although the CVA implementation procedure, which is applied to both PVAs and LLPVAs, lacks the IVA’s interim order, it is possible, as in the case of a CVA, for a moratorium to be obtained by a small partnership or small LLP. The relevant CVA provisions in this regard are to be found in Schedule A1 to the IA 1986, which applies also to LLPs. This Schedule is also applied to ordinary partnerships but with some modifications and with the exclusion of some provisions.
3.5 PROCESS
The partners should initially consider whether the voluntary arrangement is the right option and this should ideally be done in consultation with an insolvency practitioner, who will know the requirements of the voluntary arrangement process, as well as possible alternatives, such as administration or negotiation with creditors outside a formal insolvency framework. The decision to propose a voluntary arrangement must be made in accordance with the partnership’s constitutional documentation. Therefore, the proposal must be made in accordance with the partnership deed or LLP agreement, if there is one. In cases where there is express provision regarding the proposal of a voluntary arrangement, the process set out in the deed or agreement, including requisite majorities of partners/LLP members who must agree to the proposal being made, must be complied with. In the event that the deed or agreement is silent, or non-existent, is arguable that unanimity among the partners/LLP members will be required if a voluntary arrangement is to be proposed (see also the discussion at 7.3.1).
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