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How does Partnership Insolvency work?

Moneymagpie Team 25th Jun 2024 No Comments

Reading Time: 2 minutes

Many people choose to engage in some form of partnership in order to better pursue their business interests. While this can come with a wide range of legal and financial benefits, it’s also important to be aware of potential complications. 

In the case that your business runs into serious financial difficulties, it’s possible that you’ll need to navigate some form of insolvency process. In this piece, we take a look at what that process might look like, when it might be necessary, and some other important factors to keep in mind.

What is partnership insolvency?

Partnership insolvency essentially refers to the process through which partnerships navigate serious financial issues, often – but not always – resulting in some form of formal insolvency proceedings.

In most cases, it will necessitate working together with an insolvency practitioner like Chamberlain & Co, who will be able to take the partnership through the relevant steps in a legally compliant manner. This might involve a thorough investigation of the company’s finances, along with an analysis of the various solutions that might be appropriate given the circumstances.

When might it be necessary?

Broadly speaking, insolvency refers to a company that is unable to repay its debts. Those debts could be employee wages, repayments of business loans, or any other range of different lines of credit.

As a result, any partnership that finds itself in such a serious financial situation may need to navigate a partnership insolvency. There are a number of different tests you can do to assess the financial health of your business, many of which will compare the relative value of assets and turnover against debts and outgoings. Where the size of the debts and other outgoings is larger, it’s important to seek assistance from an insolvency practitioner as soon as possible.

Alternative solutions

While businesses that are truly insolvent will often need to be wound up, having their assets sold off and distributed to the relevant creditors, this isn’t the only solution for partnerships facing serious financial problems. 

Insolvency practitioners will first check whether any other potential options might be available that would not involve dissolving the business in question. This might involve negotiating with creditors, to see if they’re open to an alternative repayment plan. 

It could also involve placing the business into administration, with a new leadership put in place with new plans for taking the business forward. In some cases, this will be preferable for creditors as well as any relevant partners, as it may very well increase the probability that they receive all of their initial investment.

Partnerships and other business structures that find themselves in dire financial straits can generally benefit from assistance sooner rather than later. The earlier an intervention is made by a qualified and experienced insolvency professional, the more potential solutions will likely still be available. It’s critical that you reach out for assistance before relations between partners and creditors start to sour; taking action early on will almost always result in a better outcome, for all parties involved.

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

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Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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