Company registration, Other Legislation :LIMITED LIABILITY PARTNERSHIP LIQUIDATION AND INSOLVENCY PROCEDURES AND REGULATIONS
Partnerships that have their debts in amounts far exceeding their assets may face financial redundancy and in a few cases liquidation or insolvency. Liquidation is thoroughly a legal process by which the court appoints a liquidator to terminate the activities of the partnership. At the end of the liquidator’s term the partnership is declared non-existent and its name is stuck off the register.
If, you’re connected with a Limited Liability Partnership (LLP) Company in Scotland that is faced with insolvency or if you’re owed money by such a partnership, it becomes almost imperative for you to understand the procedure and legislations involved in the liquidation of the partnership firm. There are reserved procedures to deal with the debts of a limited liability partnership. The relevant legislation for such a proceeding can be found in the Insolvency Act of 1986. For your convenience, we have tried to emulate the basic guiding principles behind these proceedings.
There are several provisions for initiating the liquidation procedure of a Limited Liability Partnership firm. Briefly, they are:
- Voluntary Arrangement: A Voluntary Arrangement is a process by which the partnership enters into an agreement with its creditors. It is an arrangement between the partnership and its creditors regarding settlement of debts that has to be approved by the court. The court follows the proceedings of the arrangement through an administrator or liquidator, who reports to the court regularly intimating it of the meeting of creditors, of the regular payments and receipts, and upon the completion of the proceedings.
- Administration: This process entails the appointment of a person, ‘the administrator,’ who will run the partnerships finance and asset matter keeping the creditors’ interest in mind. The person may be appointed by the court, by the members of the partnership, or one of the creditors. In any case, he/she must be a registered insolvency practitioner. The functions of the administrator includes trying to deliver the partnership from its state of affairs, obtain better prices for the assets of the partnership, and make a distribution to one or more creditors.
The administration comes to an end with the distribution or dissolution stating that the partnership does not have enough properties to pay its creditors.
- Receiver: In some cases, a creditor may appoint a ‘receiver’ or an ‘administrative receiver’ who has the sole rights to obtain the value of the debt by actualizing the partnership’s assets. The primary duty of the receiver is to pay off the creditor, who appointed him/her.
- Voluntary Liquidation: Voluntary liquidation can again be of two types; Members’ Voluntary Liquidation (MVL) in which the members of the partnership make a formal declaration of insolvency, and Creditors’ Voluntary Liquidation (CVL). The liquidation can start when the members decide to dissolve the partnership according to terms in their partnership agreement or in absence of such an agreement by a majority decision. After the members declare insolvency to the court a liquidator is appointed, who distributes the partnerships assets to its creditors.
- Compulsory Liquidation: Upon a petition made by its creditors, a court (the High Court or a county court) may order Compulsory Liquidation of a partnership.
In most cases, where a partnership becomes insolvent it is terminal for the life of the partnership. Employees are also made redundant. Only in a few cases, such a partnership firm facing insolvency can be rescued through a voluntary arrangement or through administration. Also, the general partners with unlimited liability may face personal bankruptcy and sharp plunge in credit ratings.