If you’re currently in a partnership, whether an LLP or a general partnership, you may be facing a time of financial distress. Should your organization decline to a certain state of financial ill health, you may find that you have to navigate some kind of insolvency proceedings.
This can be quite confusing, especially in the context of a complex legal arrangement such as a partnership. Let’s explore what partnership insolvencies might look like, how you can reach out for help, and which options might be available to you.
Partnership insolvency
Partnership insolvency refers to a kind of business structure - a partnership - navigating insolvency - a state of financial distress where debts exceed income and assets. It doesn’t refer to a single kind of insolvency proceedings, and there will often be a range of different options available, depending on the kind of partnership in question, how serious the debts are, and how various stakeholders (especially creditors) are able to agree on which route to take going forward.
When will a partnership insolvency occur?
A partnership insolvency will occur when a partnership reaches a certain state of financial ill-health. This can be due to a wide range of reasons, from bad financial management to unlucky market conditions.
Essentially, what will have happened is that debts will have started to grow, due to the partnership’s financial performance not meeting its targets. This might have been something that the partnership realized all along, or it could be something that suddenly creeps up.
How to navigate a partnership insolvency
If you find yourself facing a partnership insolvency, there are a number of steps you’ll need to take to navigate the situation.
Can the partnership be saved?
Your partnership will hopefully still have several different options open to it in terms of how it wants to proceed. For example, general partnerships may be able to enter into administration, go into a voluntary arrangement, or be forced into liquidation. Obviously, some of these options will be far more attractive than others, and it’s important that you choose one wisely if that choice is still open to make.
Find an insolvency practitioner
Legally and practically speaking, it’s impossible to navigate insolvency proceedings without professional help. You’ll need to find an insolvency practitioner from somewhere like Chamberlain & Co, both for initial advice on how you should proceed and, later on, to potentially take the reins of your organization while things are being sorted out.
Consider your options
Whether or not you are able to save your partnership from dissolution depends on a number of factors. These include the size of your debts, the willingness of creditors to wait for you to rebuild your business, and the realistic probability that your business can return to a profitable state.
Navigating insolvency is a stressful process, but if you take the right approach, you can maximize your chances of success. Act quickly, get help from an experienced insolvency practitioner, and hopefully, you’ll be able to achieve a result that you’re happy with.
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