What is Partnership Administration Order?
A Partnership Administration Order is very similar to the process used to place limited companies into Administration. The procedure operates in much the same way, and allows an Administrator to be appointed to the partnership with, or without, a court order.
A partnership may be placed into administration in one of the following ways:-
- by the court, on application of the members of the insolvent partnership; or
- by the court, on application of a creditor of the insolvent partnership; or
- by the court, on application of a Partnership Voluntary Arrangement Supervisor
- out of court, by the members of the insolvent partnership.
Where an application is made to court (either by members’ or creditors’) the court will only appoint an Administrator to the partnership if it is satisfied that the partnership is unable to pay its debts. This is in contrast to corporate Administration where the court need only be satisfied that a company is likely to become unable to pay its debts.
In cases where an Administrator is appointed out of court, the members’ of the partnership will sign a statutory declaration that the partnership is unable to pay its debts.
The effect of a Partnership Administration Order is similar to that of corporate Administration, as is the effect of a moratorium on proceedings. However, a key difference is that a moratorium in relation to a Partnership Administration Order will not prevent a creditor from bringing proceedings against a partner in respect of a partnership debt for which that partner is liable.
Is a Partnership Administration Order a suitable option?
A Partnership Administration Order is designed to protect a partnership business from creditor action whilst a restructuring or sale plan is developed. Overall suitability will depend on many factors, and in any case an administration order must achieve one or more of the following purposes:-
- the survival of the whole or any part of the undertaking of the partnership as a going concern;
- the approval of a partnership voluntary arrangement;
- a more advantageous realisation of the partnership property than if it was to be wound up.
The effect of a Partnership Administrator Order is that any legal action against the partnership, or its property, cannot be commenced or continued with, without the leave of court
What does the Administrator do?
An Administrator must be a licensed IP, and acts as an officer of the court (whether or not he or she is appointed by the court).
Generally, an Administrator will take any action which is necessary regarding the management of the partnership, or any of its property.
An Administrator has certain powers which enable them to perform their duties, and for the duration of the Administration, these powers take precedent over existing management. However, it is usually preferable for the Administrator to work closely with senior members’ of the partnership to ensure that a successful outcome is achieved.
Benefits and Risks of a Partnership Administration Order
The main benefit of a Partnership Administration Order is the possibility of rescuing the partnership as a going concern, or at least, preservation of the core business. The Administrator appointed to the partnership will have 3 months to examine the issues affecting the partnership and set out the best proposal for dealing with the partnership business.
Throughout the entire period of Administration, partnership creditors’ are prevented from taking legal action, or continuing with an action which has already been started. This provides the partnership with breathing space and generally serves to maximise the interests of creditors’ as a whole.
The Administrator will ensure that all decisions made during the Administration are taken with the interest of the company and its creditors’ in mind, and will prevent the partnerships financial position from worsening.
There are some risks involved with a Partnership Administration Order.
When a partnership becomes subject to a Partnership Administration Order, this must be notified to all creditors’ and customers’ of the business. In addition, future communication (written or electronic) must state that the partnership is “in Administration” and managed by the Administrator.
Throughout the duration of the Partnership Administration Order, control of the partnership business will transfer to the appointed Administrator. The involvement of a licensed IP as Administrator to the partnership will inevitably lead to higher costs than some other partnership solutions. As such, this is likely to be an option which is only really suitable for larger partnerships, or those which have greater assets then SME partnerships.
There must be sufficient working capital available to the partnership to enable it to trade through the Administration process. The existence of the administration order could affect customer confidence. For these reasons it is usual for the administration to last only a few months. Frequently this process is used to effect a sale of the business and assets.
Careful consideration must be given to all options available to a financially distressed business. For more advice, fill out our Contact Form and we will be in touch. Alternatively, call our FREE ADVICE LINE on 0800 781 0990.