www.iva.co.uk

My wifes debt problems arise from a business partnership that went wrong. Just prior to Christmas she was about to make her IVA proposal in respect of her business and personal creditors. Her former partner has the capacity to meet all of the business debts but as usual is prevaricating. The main creditor is a bank. The bank have indicated that unless my wifes proposal is accompanied by a proposal from her former business partner they will reject her proposal. My wifes IP has advised that as the bank will reject it could be to her advantage to postpone filing her interim order. I cannot understand what the advantage could be to the bank. Surely the fact that she is applying for an IVA says "here you are this is the best I can do". What difference would it make to the bank to accept her proposal now as opposed to when her former partner can get himself organised?

Hi there

I cannot see why the bank would reject your wife's proposal on grounds that they have not received an offer from her former partner. Is her former partner also in financial difficulty? You seem to suggest not, so it would be more beneficial for the bank if she were to stay outside of insolvency proceedings and deal with them directly!

Which bank are we talking about here - the strategy you describe seems very odd.

Thanks Melanie,

I think its strange. The bank has asset schedules confirming her former partners ability to cover any debts.

The message from her IP is that he "has a duty to maximise the prospects of (any) arrangement being accepted by the creditors" but then goes on to say if any creditor takes formal action then an interim order will be applied for to provide protection!

It is all very frustrating. One step forward and ten back.

A complicating factor is that the WIP of the former partnership has yet to be realised and because of the nature of the work it could be a couple of years before it is maximised but the bank have a pretty good idea of what the recovery is going to be. The former partner controls about 90% of the WIP and so an IVA would not only protect my wife from creditors but also from his lack of efficiency in realising the WIP and dealing with creditors. The business debt in a couple of years could be relatively small but its getting there!

The bank is a mainstream high street bank. I am paranoid these days so I will leave it at that.

One thing that does really drive me mad is subrogation. My understanding is that if my wifes former, and dishonest, partner did have to meet the bulk of the business debts he would become a creditor of my wife. Could he seek monies from her outside the IVA at a future date?

(Sorry for going on)

What type of business do they/did they run?

With regard to subrogation, your wife's partner has a right under the law of equity to pursue her for a proportion of the debt he may settle on her behalf, and therefore would have to be treated as a contingent creditor within the IVA. This area of the law is complex, and ultimately the Court may need to get involved to ratify any claim.

From a personal point of view, I think that partnerships are the worst form of business entity, and there are usually problems when one partner wishes to extract.

I would recommend that your wife gets some good legal advice as to her position as soon as possible.

On the subrogation point unfortunately yes - however an IVA tailored to meet the requirement of getting better value from working throught he WIP is a possibility. Who is the high street bank in question? Also the Interim Order protects pending voting on a Proposal but only until then.

Hi Melanie

Solicitors!!!!!!!! ..... the worst!

She has had plenty of highly expensive "advice" and I picked the subrogation point up from this fantastic forum. I get more information in ten minutes on here than I have had in the last three months!

Hi David

Could you just expand a little on the WIP point. Its RBS.

When you say "protects pending voting" that doesnt sound like the moratorium on action that is promised

The WIP point is that your friends partner will over a period of time get better value by working the WIP to obtain a highrer value thus increasing revenue to all parties benefits.

RBS can be difficult but the fact that they are now majority owned by the Government will help.

The Interim Order is the moratorium.

Hi
For anybody wondering WIP is work in progress
Regards

So in this situation where one partner controls the majority of the WIP and has assets to cover any possible shortfall wouldnt you just accept the IVA from the other partner and get on with it?

Subrogation and contingency claims are really of no relevance to the bank ..... are they?

I have dealt with the insolvency of several law practices in my career, and this can bring quite complex issues particularly if the practice were involved in an legal aid work.

Is this a 50/50 partnership - in which case I cannot understand why the other partner has control of realising the WIP. Is the practice still trading and is there a credit balance on your wife's current and capital account?

It is difficult to undertstand the bank's stance on this point, but of course we are only seeing a brief snapshot of your wife's circumstnaces and are really unable to comment with any great depth. Can I enquire which IP firm your wife is using, and whether they are experienced in dealing with trading partnerships?

Its actually fairly straightforward.

It was 50:50. My wife had discovered a number of "discrepancies" in the firms accounts and rather than dissolve and lose control of the WIP they agreed to merge the practice and my wife went her own way with her own work. The practice was merged with another firm by the other partner and that firm became the successor practice. My wifes leaving and the merger was the same date.

Unfortunately her former partner seems incapable of realising the WIP efficiently and putting forward a coherent proposal to the old firms creditors. It means that she is open to claims by those creditors. For Law Society rules she cannot be bankrupt and therefore seeks the protection of an IVA to protect herself as much from her former partner as her creditors.

The IP are a large national firm with the assistance of a medium sized corporate law firm. I get the impression they have bigger fish to fry at the moment and to be honest are a little intimidated by the pair of them but particularly the other partner.

I just feel that we have to crack on here. I dont see an option.

So presumably the partnership has been dissolved, with monies due to your wife as WIP is realised. If I were acting as her IP, I would have concerns that she were not involved in this exercise, which in my experience will get messier and messier as time rolls on.

When the practice was merged, why did your wife not agree a lump sum settlement based on the value of WIP which existed at that time. The new practice have acquired goodwill relating to the old practice, and your wife is entitled to a share of that.

Is your wife's IVA to be based upon contributions from future earnings, the realisation of WIP or a mixture of both? And if you are not happy with the current IP, it can do you no harm to take a second opinion - this will cost nothing and sometimes a fresh pair of eyes can view things from a different perspective.

Best of luck with whatever you decide to do, and I hope this is resolved for all of you soon.

The former partners intial attempt to merge the practice fell through at the last minute and he would have been left as principal of a medium sized firm my wife having left for her new firm. He wanted rid of my wife but wanted to ensure that any potential debt was shared with her and therefore merged the business with another firm. The process took just over a week! In the circumstances there was really no option. He was adamant the practice wasnt going to continue. In the circumstances the new firm took over as a successor practice taking on things like the archive. A dissolution was to be avoided. In return we understand there was £8 consideration and guarantee that 100% of the WIP would be available to the partners to distribute to creditors.

As for the IVA at the moment the total debt is gross partnership debts and a few personal debts. WIP hasnt been taken into account at the moment and so the IVA is based on future earnings and the realisation of my wifes share in the matrimonial home after 18 months the bulk of the WIP should have been realised and presumably a reveiw and variation of the IVA will take place.

Thanks for taking the time to respond. I will make enquiries as to the cost of an alternative IP have a quick look.

Sorry, but this whole case does not seem quite right to me. WIP is an asset which has to be valued for the purpose of your wife's statement of affairs, and to ignore this in the IVA proposal would effectively cause her to make a material misdeclaration.

There is also goodwill which appears to have gone walkies which also ought to be investigated. An alternative IP should not cost your wife anything for taking a look at her case, and given that fact that she remains a practising solicitor, I feel that it is imperative for this to be looked into to avoid causing her any additional difficulties along the way.

The other partner cannot simply steal the business, and leave your wife holding the debts, and one wonders what he is going to be doing to satisfy his own creditors in the meantime. It sounds to me as if there are grounds for a PVA (Parnership Voluntary Arrangement) here, assuming that the other partner wishes to play ball. Has this been suggested to your wife?

I think the full facts as to what was merged or taken over by your wife's former partner at what values and who determined the values needs to be looked at and also your wifes current personal liabilities and the liabilities of the old partnership.

As Melanie says a fresh pair of eyes covering all of the above is needed to see what exactly has happened, what is being offered and whether anything is amiss. Choose a competant IP who will give initial advice free. Visit www.iva.com for possible IP's. Good luck.