Advice for Partnerships
One important thing to remember about a partnership (joint and several) is that each member is also responsible for their partner’s business and personal debts; not just their own. This doesn’t apply if an LLP is in use. If a single partner or entire partnership is experiencing financial difficulty, each or all partners should seek advice before the situation gets any worse.
When it comes to insolvency, partnerships are dealt with via a hybrid of rules and regulations. Therefore, a partnership may be subject to the following procedures:
- Partnership Voluntary Arrangement
- Compulsory Winding up
- Partnership Administration Orders
- Interlocking IVAs
Partnership Voluntary Arrangement
A PVA will take into account a partnership’s assets liabilities and debts; providing a very similar concept to a CVA. The main difference is that, due to the personal liability of each partner, each partner will more than likely have to pursue an IVA to protect their personal assets. Each member is liable for the total debts in full. A Licensed Insolvency Practitioner is required to supervise these arrangements and a Nominee is needed in order to prepare the proposal and make comments to the court.
Partnership Winding up Order
In this circumstance, where the creditor has petitioned a winding-up order, each partner will receive a bankruptcy petition and the company will likely be closed for good.
Partnership Administration Orders
These are granted by the Court after application from creditors or partners when a partnership is proven to be insolvent. The business is then run by a professional insolvency practitioner who will hopefully be able to make the most of realisations by selling as a going concern. Administration is advantageous as it protects the assets by way of moratorium.
Partnerships may have interlocking IVA’s in place of the PVA, especially if it is a small partnership with indistinct assets. Each IVA will include all debts owed by the partnership and how much will be repaid.