Partnership

What to do when a Partnership Becomes Insolvent

1. All the partners need to approach Lines Henry for help. We will talk to you about your financial circumstances, how you got into difficulties and how we will be able to help you.

2. You will need to provide us with details of about all the assets you own in the business and also the assets you own individually. This is because the partners are personally liable for debts of the business.

3. If you own a property then we will need to know how much it is worth and what the mortgage is.

4. You will need to tell us about who you owe money to. Again, this will need to include both the debts of the partnership and your personal debts.

5. We will need to know how much you need to live on so that  we understand what you need to earn to provide for your reasonable domestic needs.

6. We will look at the profitability of the partnership to establish whether or not it produces enough money to pay the drawings that the partners need to take home and whether there is anything left over to pay creditors.

7. Once we have all the information we will be able to give you the options that you have and what is the best way of achieving your objectives.

What is a Partnership?

A Partnership is were two or more people enter into business together with a view to making a profit. There are many businesses in the United Kingdom trading as Partnerships. These range from small, two partner businesses, to substantial professional practices turning over millions of pounds.  The problem with Partnerships is that they do not have a separate legal identity from the Partners themselves which means that the liabilities of the Partnership are also payable by the Partners individually. Partners will also be jointly and severally liable which means that if one Partner cannot pay his or her share of outstanding debt, then the remaining Partners have to pay the shortfall.

Limited Liability Partnership (LLP)

An LLP is a form of incorporated business that is similar to a limited company whist retaining some of the advantages of a partnership. Once an LLP is registered with Companies House it acquires a separate legal identity from the partners, or designated members, which means that they are not automatically personally liable for the debts of the business. An LLP can be put into administration; be wound up; or propose a voluntary arrangement with its creditors all in the same way that a limited liability company can.

Tax Arrears

If you trade through a Partnership one of the earliest warning signs of financial difficulty is tax arrears. Since H M Revenue & Customs lost their status as preferential creditors they have become much more active in using the Courts and Bailiff’s to take enforcement action to recover unpaid tax. It should be noted that whilst all the Partners are individually liable for any VAT or PAYE arising from the business of the Partnership, they are not all liable for the income tax liability arising from the profit share of an individual Partner.

If the partnership is an LLP then the designated members of the partnership are not personally liable for debts due to HM Revenue & Customs or to any other creditors of the LLP.

Partners Tax Arrears

The situation for Partners is that there is often a problem in paying their own tax which is due in January and July on the profit of their business. This is especially so when the business has traded profitably previously but has now suffered a downturn in trade. In such cases, it can be that monies that have been put aside to pay tax bills has been used to fund the business instead.

Telephone Lines Henry on 0800 012 6649 for free initial advice about how to deal with problems with paying tax .

Partnership Voluntary Arrangements

We have helped many Partnerships to restructure their business and overcome financial problems. This can be by way of an informal arrangement with creditors, or by using a formal insolvency procedure such as a Partnership Voluntary Arrangement (PVA).

A PVA is an arrangement between the Partnership and all of  its creditors. It is extremely flexible and can be anything from a short repayment holiday to a full and final settlement of all of the unsecured debts. The method of repayment can be through monthly contributions out of profit, the sale of surplus assets or a one off payment. In some instances third parties (usually friends or relatives) have introduced a lump sum to pay creditors a one off dividend in full and final settlement of creditors’ claims. Whichever route is chosen, it is important that the business itself is fundamentally profitable and able to pay its way going forward even if it cannot pay all of its past debts. A PVA has to be completed through a Licensed Insolvency Practitioner.

For further information and a free consultation contact Lines Henry on 0800 012 6649.

The problem with any insolvent Partnership is that not only is the business affected but the Partners’ individual assets may also be at risk if it has not registered as an LLP.  This may result in the Partners proposing an Individual Voluntary Arrangement, as well as the Partnership Voluntary Arrangement.  Lines Henry can advise on the best course of action.

The insolvency legislation provides a number of possible solutions for insolvent Partnerships. The Partners can put forward a Partnership Voluntary Arrangement (PVA). This is similar to a Company Voluntary Arrangement (CVA). A Proposal is usually put to the Partnership creditors in full and final settlement of their debt. That Proposal often involves contributions from the Partnership’s trading profits and/or an injection of funds from other sources. These monies are paid into a fund administered by the Licensed Insolvency Practitioner who acts as Supervisor of the Arrangement.

As with all forms of insolvency the sooner advice is sought, the greater the number of options remain that may be available. If you trade in a Partnership and are suffering financial pressure we offer a free initial consultations.

For further information and a free consultation contact Lines Henry on 0800 012 6649.