A partnership is a relationship which exists between two or more persons carrying on business together with a view to making a profit. A partner can be an individual or a company (known as a corporate member), and is personally liable (usually without limit) for the debts of the partnership. Therefore a creditor of a partnership can pursue one or more of the partners personally, as well as the partnership itself, for a partnership debt.

How to take action against partnership

You can either:

  • petition for the winding up of the partnership as an unregistered company with no bankruptcy petitions presented against the individual partners or
  • petition for the winding up of the partnership as an unregistered company where bankruptcy petitions are also presented against all the individual partners
  • petition for Bankruptcy orders to be made against all the partners. The petition must be presented jointly by all the partners. It can only be presented where all the partners are individuals - if one or more of the partners is a corporate member.

If a bankruptcy petition has already been presented against one of the partners, and the court is made aware of the insolvent partnership, the court may make an order regarding how the partnership affairs should be dealt with.

As the partners are personally liable for the debts of the partnership, an individual partner can apply for his/her bankruptcy without applying for the partnership to be wound up.

Options for partners

There are a number of options available to an insolvent partnership. The Insolvent Partnership Order 1994 is the legislation that the partnership must follow.

A partnership can be wound up in the same way as a limited company. The winding up will deal with the partnership assets. The partners become personally liable for any shortfall to the creditors following the winding up. This method is often used when there is a break down in the partnership, and where no agreement can be made to resolve the issues.

Partnerships can apply for a partnership voluntary arrangement, or a series of interlocking individual voluntary arrangements. In practice, they are difficult to draft as partners can have significantly differing personal financial circumstances. A partner with a great deal of personal wealth may if he is in partnership with an individual with a great deal of personal debt.

Individual partners could petition for their own bankruptcy. The remaining partners become liable for the bankrupts share of the partnership debt.

In professional partnerships, the bankrupts’ main asset may be the share in the partnership. It is often difficult to sell a share in such a practice.