Partnership Insolvency

Dealing with partnership difficulties

Where the business is not a limited company and there are several people running it, then it is classed as a partnership. If such a business experiences financial difficulties there are several ways in which it can be dealt with:

• A partnership voluntary arrangement can be applied – similar to a company voluntary arrangement.
• One or all of the partners can become individually bankrupt.
• The partnership can be wound up by the court.
• Each partner could enter into an individual voluntary arrangement.

During a meeting of all the partners, we would discuss the most suitable way forward, to ensure that the best outcome is obtained for all concerned.

A partnership can be deemed as insolvent for two reasons:

• They are unable to pay its debts when they fall due and;
• if its assets would be insufficient to pay off the debts when realised in cash.

A partnership will not be insolvent solely based on one of its members being individually insolvent, provided it is able to pay its debts as they fall due or if its assets are greater than its liabilities.

Partners are personally liable for the debts of a partnership. Therefore, this means that the partnership can itself be wound up and bankruptcy orders can be made against the individual members of the partnership.

Due to the unique nature of a partnership, a creditor can pursue any one or more of the partners individually, as well as the partnership itself, for any partnership debt.

When a petition for insolvency is put in place by a creditor, they can position for either:

• The winding-up of the insolvent partnership as an unregistered company, with no action taken against the individual partners; or
• The winding up of the insolvent partnership as an unregistered company, with bankruptcy petitions also presented against one of more of the partners.

Alternatively, a creditor may choose to only pursue the partners for the debt by petitioning for the bankruptcy of one or more of the partners without petitioning for the partnership to be wound up. The debt will then be treated as the debt of the partner against the bankruptcy petition is presented.

A member of a partnership may also petition for the insolvent partnership to be wound up as an unregistered company with no action against the insolvent partners, or with action taken against the insolvent partners individually.

A creditor can only apply for a winding-up order against the partnership if that partnership has traded in England and Wales at any time in the three years before the petition is presented.

Finding the right method can be difficult when it comes to the insolvency of a partnership, so we can offer our advice and assistance and help you choose the right route for you. That way, the most suitable option is chosen, and you can trust that a positive outcome will be obtained.

You can read more about Partnership Voluntary Arrangements here.

If you are interested in understanding how Irwin & Company can help you with your Insolvent Partnerships work, then please contact us on 0800 2545122.