Over our years of working within insolvency, we have been asked many questions by partners concerned about the financial state of their partnership. When designing this website, we thought that it would be best to summarise those queries that have been raised most frequently. If you have a question that you would like to ask, please contact us. We will be happy to reply to you directly and keep this page updated.
What insolvency processes are available in relation to a partnership ?
We must first distinguish between a Limited Liability Partnership (LLP) or a traditional partnership. In many situations an LLP is treated in a similar way to a company, as it is defined by the Limited Liability Partnership Act 2000 as a separate legal entity to its partners (called members), whereas a traditional partnership is not.
Ok, so what can happen to an LLP ?
All three types of Liquidation are possible; CVL, MVL and Compulsory. Administration is also available to protect an LLP. A CVA is replaced by a Partnership Voluntary Arrangement (PVA), but is proposed to creditors in a similar way to a company proposing a CVA.
What can a traditional partnership do ?
Voluntary Liquidation is not possible; either solvent or insolvent. That leaves us with Compulsory Liquidation, Administration and a PVA.
I’ve heard the partners can be held liable for the partnership’s debts. Is this true ?
Because an LLP is a separate legal entity to its members, no. But partners in a traditional partnership are liable for the debts that they would consider to be owed by the partnership.
So, what options are there to protect my partnership ?
There are three ways to protect a partnership:
- a Partnership Voluntary Arrangement;
- an Individual Voluntary Arrangement for each partner; or
- an Administration.
What are the advantages of a PVA over multiple IVAs ?
With larger partnerships, using “interlocking” IVAs may become significantly more complicated than a single PVA proposal. As a result, costs may be higher too.
Is there a downside to just doing a PVA ?
IVAs would protect the individual partners’ assets. A single PVA will deal with the partnership’s assets, but if creditors don’t feel that the dividend is high or quick enough they may also look to the partners’ own assets. There is clearly a balance to be stuck and our experience at Sadlers will guide you as to the most appropriate procedure(s) in your, your partners’ and your partnership’s situations.
How would an Administration compare ?
An Administration is usually the most costly procedure to deal with a traditional partnership’s financial difficulties due to the high level of involvement of the Administrator and their team. However, initially at least it doesn’t need the consent of creditors and is, relatively, quick to implement. Therefore, sometimes it is the only viable option.
Something we’ve not covered yet ? Send us a query via our contact page and we’ll answer you and add it to this section too.