Partnership Liquidation

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Partnership Liquidation

Thinking of a Partnership Liquidation? What Are The Options?


A partnership liquidation is invoked where the partners have decided that the partnership has no viable future or purpose, and a decision may be made to cease trading and wind up the business.

As with winding up a company, there are two basic ways that the partnership can be wound up: the creditor’s petition and a partner’s petition.

Creditor’s Petition in a Partnership Liquidation

A creditor can petition to wind up the partnership, and at the same time decide whether or not to petition for the bankruptcy of each of the partners, some or none.

Partner’s Petition in a Partnership Liquidation

The partners can petition to wind up the partnership and also petition for their own bankruptcy or not. The partners may decide that instead of bankruptcy they would be able to contribute to IVAs.

The Winding-Up Process

The partnership is treated much like an unregistered company and is wound up in the same way as a company. The tasks of the liquidator in the partnership liquidation are therefore to:

1. Realise the assets in the partnership including any deficiencies due on the partners’ individual capital accounts. If the partners are in IVAs then only a proportion of these would be repaid. If they go bankrupt, then it is likely nothing would be repaid. All debtors, property and other assets will be collected by the liquidator.
2. Investigate the conduct of the "officers of the partnership" just as the liquidator in a company liquidation must do.

2.1. If the partners conduct warrants it, the liquidator can initiate actions against the partners to seek to disqualify them as partners in a partnership (Insolvent Partnerships Order 1994)
2.2. The liquidator must also ascertain whether any transactions known as preferences or transactions at undervalue have taken place. If such transactions have been completed before the partnership liquidation, they can be un-done. The court can order that the partners reverse the transaction.

3. The liquidator completes his/her work by making payments to the creditors in order of priority.

It is, in our opinion, never the right advice to simply close the company and let your creditors spend their money winding you up. This is not acting in the best interests of creditors, as a partner is obliged to do.
We see that there are certain advantages in initiating your own winding up. By taking such a partnership liquidation themselves the partners as individuals may avoid the disqualification of the partners and as company directors, however this will depend on their actions prior to the failure and whether they had acted at all times correctly and in the creditors’ interests.

The creditors appreciate that an insolvency practitioner must be appointed where the winding up process is used. This may realise a better return, an investigation into the officers’ conduct pre insolvency and the knowledge that the partnership will not increase debts. This way the liquidator can quickly terminate leases and contractual liabilities as part of the partnership liquidation.

If you would like to talk about a partnership liquidation to a specialist with 17 years corporate insolvency experience then enter your details into the web form below for a no-obligation chat.

However, if you need help with personal debt (rather than business related debt) go to our free debt management plan application form.






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