The Business Debt Advisor

Partnership Liquidation - Process

A petition for the winding up of a partnership can be presented by:

a) The partners

b) A creditor owed £750 or more

Alternatively, if joint bankruptcy petitions are presented against all the partners, the Trustee In Bankruptcy appointed to deal with all the partner's bankruptcies would be authorised to wind up the partnership.

The procedure is similar to that required to place a company into compulsory liquidation.

The Petition

A petition is presented to Court for the partnership's winding-up, a copy of which is served on the partnership. The Insolvency Rules 1986 stipulate the rules regarding the service of the petition and verification by affidavit. Service of the petition includes advertisement in one local and a national newspaper not less than 7 days before hearing of the petition.

The Winding-Up Order

Assuming the petition is not defended, on the hearing, the Court has various options including the dismissal or adjournment of the petition, the making of a winding up order or any other order it thinks fit.

The Effect

The partnership is treated as an unregistered company and wound up in a similar manner to a company. Therefore, the Liquidator must fulfil certain statutory duties as follows:

• To realise the assets of the partnership. This includes any deficiency due on the partners' individual capital accounts.
• To take possession of the books and records of the partnership
• To investigate the conduct of the partners
• To deal with creditors and agree creditors claims, if there are monies to return to creditors
• To make a distribution to creditors in order of priority
• To call a final meeting of creditors as soon as the liquidation is complete

Conclusion

As soon as the liquidation is complete ie the assets of the partnership have been dealt with, and if possible, monies returned to creditors, the liquidator will call a final meeting of the partnership' creditors. At the meeting the liquidator will report on the conduct of the liquidation and request that creditors authorise her release as Liquidator.

As the debts of the partnership can be recovered from one or all of the partners, where there is a shortfall to creditors, the partners must consider how to protect their personal position and deal with the deficiency to creditors.

Dealing with the Deficiency

If the partnership assets are insufficient to settle all the liabilities, then the shortfall will have to be met by the partners. They may be in a position where they can fund the shortfall out of their personal funds. If not, the partners may need to consider other options which include:-

• Individual Voluntary Arrangements
• Debt Consolidation
• Debt Management
• Bankruptcy

The options need to be very carefully considered between the partners as any action they take will affect the remaining partners. For example, if one of the partners opts for bankruptcy and there is little or no value in their estate, the remaining solvent partners may need to meet any deficiency if the debts are owed jointly and severally.

 

The Next Step

The options for a financially distressed business need to be very carefully considered. Simply forward your details on our Contact Form and we will contact you. Alternatively ring us on our FREE ADVICE LINE 0800 781 0990.