Liquidation Options for a Limited Liability Partnership (LLP)

How insolvency affects Limited Liability Partnerships (LLPs)

If you’re a partner in a limited liability partnership and facing the prospect of your LLP becoming insolvent, you should ensure swift action is taken to assess your options and protect your creditors from suffering any further financial losses.

Can an LLP be liquidated?

Liquidation is a formal process which sees a licensed insolvency practitioner appointed to wind-up the affairs of a limited liability partnership which is insolvent or no longer needed.

Limited liability partnerships are more similar in nature to limited companies than they are to unincorporated partnerships when it comes to how they are treated when insolvent. This is due in large parts to their operational structure which grants limited liability to its partners in respect of debts belonging to the business.

Under the Limited Liability Partnership Act of 2000, an LLP is defined as a distinct legal and corporate entity. This means that – like any limited company – should an LLP become insolvent it can enter formal insolvency proceedings such as liquidation.

This process will see all trading brought to a halt as the appointed insolvency practitioner works to identify and realise company assets, deal with outstanding creditors, and bring the partnership to an orderly end.

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What are the liquidation options for a Limited Liability Partnership?

There are three common types of LLP liquidation. The most appropriate option will depend on a number of factors, such as who is initiating the liquidation and the financial position the LLP is in at the time of liquidation.

Creditors Voluntary Liquidation (CVL) – A CVL is a common option for a limited liability partnership when it can’t pay its debts. Once the partners have reached the decision that, because of insurmountable debt, winding-up the LLP would be for the best, they appoint an insolvency practitioner to deal with the company's creditors and outstanding affairs. 

Members Voluntary Liquidation (MVL) – An MVL is where the partners/members in an LLP decide to liquidate the business even though it is solvent and able to pay its debts. This is often the option chosen when all partners have made the decision to retire, move onto a new venture, or cease trading for another reason.

Compulsory Liquidation – This is where the limited liability partnership is ordered by the court to be liquidated, following a petition presented by disgruntled creditors. A creditor can instigate this type of liquidation if they are owed more than £750. In the event that you’ve received a winding up petition, there really is no time to waste and you should consult a licensed insolvency practitioner immediately to prevent your company being forced into liquidation.

For further information on limited liability partnership liquidation and insolvency, call Real Business Rescue today.

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