Partnerships and LLPs

Start with the legal structure

Check the registration documents, partnership agreement and names of the contracting parties. An LLP is a body corporate with a legal personality distinct from its members. An ordinary partnership has different rules, and Scottish partnerships have a distinct legal personality under Scottish law.

Limited partners and general partners can have different liabilities. A label on a website is insufficient evidence of the legal structure. Guarantees, contributions and obligations arising from particular conduct may also affect a member’s exposure.

Available procedures are structure-specific

Corporate insolvency procedures are applied to LLPs with statutory modifications. An LLP can therefore use procedures resembling company administration, voluntary arrangements and liquidation, but the applicable regulations and member duties must be checked.

Ordinary partnership insolvency may involve a winding up of the business, an arrangement with creditors, and separate insolvency proceedings for individual or corporate partners. The route and court powers vary by jurisdiction. Do not use a limited company’s voluntary winding-up checklist for an ordinary partnership.

Business assets and personal estates

A partnership estate and the separate estates of partners require separate accounting. Identify which estate owns each asset, which parties owe each debt and whether security or guarantees apply. The same underlying debt must not be recovered twice simply because it can be claimed in more than one estate.

The insolvency of one partner does not automatically establish the insolvency of every other partner. Conversely, ending the firm does not necessarily discharge a partner’s existing liabilities. Employees’ legal employer and the exact insolvency event can affect state-backed employee claims.

Records needed for a reliable assessment

Preserve partnership agreements, amendments, member histories, accounts, capital and drawings records, guarantees, bank mandates and tax records. The identity and solvency of corporate partners may be relevant alongside the business itself.

In an LLP, withdrawals and members’ conduct can be examined under the applicable insolvency provisions. Limited liability is not a promise that no recovery can ever be sought from a member. Any proposed individual liability needs a legal basis and supporting facts.

The Scottish framework

A Scottish ordinary partnership is a legal person distinct from its partners, but that does not remove partners’ potential liability for firm debts. Sequestration and partnership-specific Scottish rules may be relevant to an ordinary firm; the England and Wales Insolvent Partnerships Order checklist should not be assumed to apply.

A Scottish LLP is a separate corporate structure. The corporate insolvency provisions apply with modifications, alongside the appropriate Scottish rules. Establish the exact structure and the status of each estate before describing the available route.

The process, at a glance

1. Confirm the structure and parties. Identify the registered body, ordinary or limited partnership, partners and guarantees.Process stage — practical timing varies
2. Map the estates and liabilities. Separate business property, member interests and personal liabilities before selecting the legal route.Process stage — practical timing varies
3. Use the applicable statutory procedure. Court applications, arrangements or corporate procedures depend on the structure and jurisdiction.Statutory milestone — check its trigger and exceptions
4. Administer each relevant estate. Deal with assets, claims, accounting and distributions without double recovery.Process stage — practical timing varies
5. Close the procedure and record continuing liabilities. Business closure does not by itself discharge every partner, guarantee or separate estate.Process stage — practical timing varies