Under the Limited Liability Partnership Act of 2000, an LLP is defined as a distinct legal and corporate entity. This means that â€“ like any limited company â€“ an LLP can be insolvent, and can be dealt with in a similar way to an insolvent company.
Dealing with an insolvent LLP
LLP insolvency occurs if the firm incurs debts that it cannot pay. For an LLP in financial difficulty, the options might include:
- A voluntary arrangement â€“ formally agreeing repayment terms with creditors.
- Entering administration or receivership â€“ appointing an administrator or receiver to manage the LLP’s financial affairs.
- Liquidation â€“ the LLP is wound up, and assets are liquidated and distributed to creditors. This can be voluntary or ordered by a court. In some circumstances liquidators can also ‘claw back’ any profits or property members have taken from the LLP.
Members of an LLP in financial difficulty should be aware that, like a company, a liquidator of an LLP has the same power to investigate members for wrongful trading, fraudulent trading or misappropriation. Members can also be disqualified from being a company director or member of an LLP.
Advice on LLP liquidation and insolvency
This is a complex area and it is essential that members of an LLP facing insolvency seek legal advice at the earliest possible opportunity, to avoid or mitigate any complications. It is also essential that a limited liability partnership agreement contains clear provisions for insolvency proceedings and winding up, such as ownership of property, and responsibility for debts and account keeping.
The expert solicitors at Ralli Partnership Law are experienced in all aspects of partnerships, from partnership tax issues or setting up an LLP agreement to resolving partnership disputes, so contact us today on 0161 832 6131 for guidance.Back to our services