Partnership liquidation is the winding-up through the court of a partnership on the petition of a creditor or partnership member(s). The effect of partnership liquidation is terminal. The partnership winding-up order brings the life of the partnership and the relationship between the partners to an end.
A partnership consists of two or more members who enter into a business relationship. Members can be individuals or companies (known as corporate members). A petition for a partnership liquidation is made under the Insolvent Partnerships order 1994.
Partnerships are distinct from limited companies in that partners can be held personally liable for the debts of the partnership. If a creditor is owed money by a partnership, the creditor can take recovery action not only against the partnership as an entity but also against individual members of the partnership.
Partners concerned about possible action being taken against the partnership or them personally should seek advice as soon as possible. Remedies may be available through a partnership voluntary arrangement and/or individual voluntary arrangements.
Creditors of a partnership have three options open to them when trying to recover money from a partnership that is unable to pay them. The creditor can petition for the winding-up of the partnership so that the partnership is placed into partnership liquidation. The creditor can file petitions for the personal bankruptcy of one or more of the partnership members. The creditor can also petition to wind up the partnership AND make the partners bankrupt at the same time.
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Following the making of the winding-up order, the Official Receiver will act as liquidator. If the partnership has assets a licensed insolvency practitioner may be appointed liquidator in his place.
Partnership members may take steps themselves to wind up the partnership and/or file their own bankruptcy petitions. They must do so in the County Court closest to where they trade from.
It is worth pointing out that the law surrounding insolvent partnerships is extremely complex and perhaps needs a revision by law makers to make it clearer and less complicated. The foregoing is merely a very simple, general overview of the partnership winding-up process.
If you are a member of a partnership and considering winding it up and/or filing your own bankruptcy petition, contact us now.