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How to wind up an insolvent partnership

The Insolvency Service Updated 20 July 2016

The Insolvency Service

 

 Contents

  1. Overview
  2. Wind up your own partnership
  3. Wind-up a partnership that owes you money

1) Overview

A partnership is formed by two or more people (including companies) who want to run a business together.

Partners share the profits and are all responsible for paying the debts of the business.

An insolvent partnership can be wound up through the same processes used for bankruptcy, liquidating (winding-up) a limited company or both.

This guide outlines both how you can wind up your own partnership and how a creditor can wind up a partnership that owes them money.

2. Wind up your own partnership

2.1 Wind-up the partnership by jointly applying for bankruptcy

If all the partners are individuals and you agree to end the partnership because you are unable to pay your debts, you can jointly apply to the court for you all to be made bankrupt. In this case the court will allow the official receiver to also wind-up the partnership business.

You must make your application to court under the Insolvent Partnerships Order 1994 by completing forms 14, 17 and 18 and paying the correct fees. (Please note that form 17 should be completed by each member of the partnership).

The fees are:

  • 180 – court fee
  • £550 – petition deposit

You can pay using cash, postal orders or a solicitor’s cheque made payable to ‘HM Courts and Tribunals Service’.

2.2 Where to send the petition

You need to take your fee payments and three copies of your completed forms to your nearest court that can deal with bankruptcy. Use the court finder to find your nearest court.

2.3 What happens after the bankruptcy order has been made

The process is the same as liquidating a company or a bankruptcy. The official receiver or an insolvency practitioner will:

  • make sure all contracts are completed, transferred or otherwise ended
  • cease the business
  • settle any legal disputes
  • sell (realise) any assets
  • collect money owed to the partners or the partnership
  • distribute any funds to creditors

The official receiver or insolvency practitioner will be dealing with both the personal and business debts and will look to sell the individual’s assets as well as any business assets. Read the full guidance on what happens after a bankruptcy or winding-up order has been made.

3. Wind-up a partnership that owes you money

There are three main ways of winding up a partnership that owes you money:

  • apply to wind up the partnership business without applying to make any of the partners bankrupt
  • apply to make one or more of the partners bankrupt – if one of the partners is a limited company you can apply for it to be wound up as well
  • apply to wind up the partnership business and apply to make one or more of the partners bankrupt – if one of the partners is a limited company you can also apply for it to be wound up as well

3.1 Wind up the partnership without applying to make the individual partners bankrupt

You can apply to wind-up the partnership in the same way as winding up a limited company (compulsory liquidation).

You will need to ask the court to wind-up the partnership as an unregistered company. This will bring the partnership business to an end.

3.2 Making one or more of the members bankrupt

Because the partners are all responsible for the debt you can try to recover your money by just making any of the members of the partnership bankrupt . Or, if the partner is a limited company you can apply to wind it up (compulsory liquidation).

The partnership may be able to continue trading but only if enough assets exist to pay the debts of the partnership. In this case the official receiver or the insolvency practitioner will not be able to deal with the assets of the partnership.

3.3 Apply to wind up the partnership and make the individual partners bankrupt at the same time

You can apply to wind-up the partnership business (compulsory liquidation) and at the same time apply to make any or all of the partners bankrupt if they are individuals, or wind them up (compulsory liquidation), if they are companies.

Forms

You must make your application under the Insolvent Partnerships Order 1994.

You will first need to issue a written (statutory) demand for the debt. You should use ‘form 4 written/statutory demand by creditor’ – this is available from legal stationers.

If the debt is unpaid and you want to start the process for winding up the partnership you need to:

  • complete form 5 to wind-up the partnership
  • complete form 6 for all company partners to be wound-up (complete one form for each partner)
  • complete form 7 for any individual partners to be made bankrupt (complete one form for each partner)

 

These forms are available from legal stationers.

You’ll need to:

  • make sure the partnership’s details and each partner’s details are correct, and state if any European Community regulations apply (this applies if the partnership does business in England and Wales)
  • ask the court to restore any company partners (if they have been dissolved) before winding it up

You’ll also need to give the reason for winding up, for example:

• you got a court judgment- include the amount awarded (and your costs and interest), the date of the judgment, the court name and case number
• you made a statutory demand - include the amount and date the demand was served

You’ll also need to provide a statement of truth confirming the details of your petition.
Fees
The fees are:

• £280 – court fee
• £1600 – petition deposit

You are also required to pay to advertise the petition in The Gazette.
You might be able to get the fees back if the partnership can afford to repay them.

You can pay by postal order or a building society, bank or solicitor’s cheque made payable to ‘HM Courts and Tribunals Service’. Send your payment to the court with your petition.

Where to send the petition

Use the court finder to find a court dealing with insolvency. You must use the court nearest to the partnership’s trading address.

After you apply

You must:

• deliver (‘serve’) a copy of form 5 to a the partnership’s trading address and copies of form 6 to the company’s registered office and copies of form 7 to the individual
• provide a certificate of service to the court confirming that the petitions have been served

You can get a ‘process server’ to help you - your solicitor can arrange this.

3.4 What happens next

The process is the same as a liquidation of a company or a bankruptcy. The official receiver or an insolvency practitioner will:
• make sure all contracts are completed, transferred or otherwise ended
• cease the business
• settle any legal disputes
• sell (realise) any assets
• collect money owed to the partners or the partnership
• distribute any funds to creditors

If bankruptcy orders are made the official receiver or insolvency practitioner will be dealing with the personal and business debts and will look to realise the individuals assets as well as any business assets.