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HOW TO DEAL WITH DEBT AS A SOLE TRADER OR AS A PARTNER
When the business is not an incorporated company and operated by a group of individuals, it is a “Partnership”. A Partnership is not the same as a Limited Company. When it runs into financial difficulties, insolvency liability is different:
- Partners are jointly liable; therefore, not protected from Bankruptcy.
- A court may wind a partnership up.
- Individual partners may enter an individual voluntary arrangement”.
- A procedure very similar to a “voluntary company arrangement “may be implemented.
Partnerships may be insolvent for two reasons:
- When not able to pay its debts as and when they are due.
- When assets if sold, were not sufficient to pay liabilities when converted into cash.
A partnership is not insolvent entirely based on one of its members being individually insolvent, provided it can pay its debts as they fall due or if its assets are more significant than its liabilities.
Partners are personally liable, for debts of a partnership. Therefore, the partnership can be wound up. Bankruptcy orders also may be served against members of the partnership individually.
By the nature of a partnership, a creditor may pursue partners individually, also the partnership itself, for partnership debt.
When a petition for insolvency is put in place by a creditor, they can position for either:
- Winding-up the insolvent partnership, with no action against individual partners; or
- Winding-up of the insolvent partnership with bankruptcy petitions served upon one or more partners.
Furthermore, a creditor has the option to chase the partners for debt, by petitioning the Bankruptcy of one or more partners without petitioning the partnership.
The outstanding debt then is with the partner who has the bankruptcy petition.
Any member of the partnership may petition that the insolvent partnership is wound up as an unregistered company with no action against any of the insolvent partners, also by taking action taken against insolvent partners separately.
Creditors may only apply against the partnership for a winding-up if the partnership traded in England or Wales in the last three years before presenting the petition.