Updated: 5th February 2020
In this guide, we’ll explain what is meant by limited liability partnership administration including why it might be the right option for your business, how the process works and the implications it can have going forward.
You may have heard the term ‘administration’, particularly in reference to high-profile companies and businesses suffering from financial troubles such as a professional football clubs, but the process can be a complex one and requires detailed explanation. We’ll do our best to shed some light on the process but do not hesitate to contact us should you require more personalised assistance.
Administration in an LLP shouldn’t be misconstrued with partnership administration orders. The law that governs administrations in relation to LLP’s was introduced in October 2005 through the Limited Liability Partnerships (Amendment) Regulations 2005.
The process an ‘administrator’ appointed to manage and oversee all business affairs within the limited liability partnership – including trade, staff, finances etc – for the benefit of all creditors. The administrator will be a licensed insolvency practitioner with experience in taking over a company’s operations in times of distress, with the ultimate objective of rescuing the company or LLP as a ‘going concern’.
The administrator will also look to secure the best possible price for the LLP’s assets with proceedings going to the outstanding creditors. They are duty-bound to realise as much money as possible for the creditors who wouldn’t be as likely to receive as much repayment if the firm was wound-up instead.
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As soon as the administrator takes control of the LLP, the firm is effectively in administration. From this moment onwards, any winding-up petitions that may have been served by creditors are immediately dismissed. There will also be a delay on any other legal/insolvency proceedings which is known, by law, as a moratorium.
At this stage, it is a legal requirement to publicise the news of the administration in a publication called the London Gazette (for LLPs formed in England or Wales) or the Edinburgh Gazette (for LLPs formed in Scotland). News of the administration will also be placed in the LLP’s local newspaper.
Within eight weeks of the LLP entering administration, a statement must be issued by the administrator which proposes whether the administration will be successful or whether a satisfactory conclusion cannot be reached. This statement often includes information on how creditors can be repaid through methods such as a voluntary arrangement.
In addition to being sent to all creditors, the statement must also be forwarded to Companies House (‘The Registrar of Companies for Scotland’ for those north of the border) and every member within the LLP. In the event that the administrator wishes to hold a creditors’ meeting, all creditors must be invited. At this meeting, creditors will be able to voice their concerns or agreement with the administrator’s proposed statement.
A key benefit of the administration process is that they tend to be the best solution for insolvent firms when it comes to saving jobs - if a buyer for the firm is found. Redundancies are inevitable with liquidations but are less frequent in successful administrations.
This brings us onto pre-pack administrations which differ from normal administrations in one key area; a pre-pack is where a future buyer for the limited liability partnership or company is already lined-up and this buyer can effectively cherry-pick which parts of the business they want to purchase with any historic debts left behind. Of course, where a buyer for the firm is already arranged, the opportunity for jobs to be saved is greatly enhanced. Government statistics show that around 85% of jobs are safeguarded in pre-pack administration.
Although deemed somewhat controversial in terms of ethics, a pre-pack is often seen as an optimum solution for members, employees and creditors as a relatively smooth transition from one company to a new firm. It can be a great opportunity to restructure the firm from top to bottom and often provides a better chance of a higher repayment for creditors due to the lower costs associated with a pre-pack.
For more information on administration for limited liability partnerships, including advice on pre-pack administration or any other queries, contact our insolvency experts at Real Business Rescue. We have an extensive network of 78 offices offering confidential director support across the UK.