Partnership insolvency

If your business trades as a partnership and your business becomes insolvent, then the insolvency can be dealt with in the following ways:

• Liquidation
  Your business can cease trading and sell off its assets to pay off the creditors. Liquidation can be compulsory or voluntary. Compulsory liquidation involves your creditors applying to a court to wind your business up.
• Partnership Voluntary Arrangements
  This is similar to other voluntary arrangements. The arrangement is drawn up with an insolvency practitioner and allows the partners to put forward a repayment scheme. The insolvency practitioner then presents this to the creditors, in order for the arrangement to be accepted 75% of creditors must agree. The result is then reported to the court where the agreement becomes binding, once an agreement has been reached no creditors can take any proceedings against the partnership without the permission of the court.
• Partnership Administration
  Partnership administration is an option for a partnership that is insolvent or is struggling from severe financial difficulties, but whose partners are all solvent. The purpose of this process is to protect the partnership whilst the finances are restructured of the business is prepared for sale. In order to start the process, a statement of affairs must be drawn up, once it is decided that the business is at threat of liquidation due to insolvency. With the help of an insolvency practitioner the partners petition to the court for the administration order, creditors can also make this petition but it is very rare. The court holds a hearing to decide whether to grant powers of administration to the partnership and if so the partnership is protected by the court from the creditors taking any further legal action against them.

An insolvency practitioner is appointed to administer the process and take control over the businesses finances. The benefits of partnership administration include protection from legal action taken by creditors and the opportunity to try and rescue the business.