Winding up a Limited Liability Partnership

The time may come when you need to close your Limited Liability Partnership (LLP). This process, known as winding-up, involves settling your affairs, paying off creditors, and distributing any remaining assets to the partners. There are two main ways to wind up an LLP: voluntarily or compulsorily.

This guide will provide an overview of the winding-up process, including:

• Different scenarios for voluntary and compulsory winding-up
• Steps involved in each type of winding-up
• Important considerations for partners

What’s the Winding up Process for an LLP?

Below, I’ll outline the two core methods of closing an LLP based on whether this is a voluntary or compulsory procedure.

Voluntary Liquidation of an LLP

The process of voluntarily liquidating an LLP in the UK is managed entirely by an appointed liquidator. Here are the steps involved:

• The members convene to pass a resolution for voluntary dissolution. This requires a majority vote, both by the number of members and by the value of their capital contributions.
• A liquidator (licensed insolvency practitioner) is appointed to oversee the winding-up process.
• The liquidator notifies Companies House of the dissolution by submitting the required form, either online or by post.
• The liquidator is responsible for settling any outstanding debts and liabilities of the LLP.
• After debts are cleared, the liquidator distributes the remaining assets to the members according to the terms of the LLP agreement.
• The liquidator submits a strike-off application to Companies House. The LLP will officially be dissolved three months after the application is processed, concluding the dissolution.

Compulsory Winding Up of an LLP

The process of compulsorily winding up an LLP in the UK is typically initiated by creditors and carried out under the direction of a court-appointed liquidator. Here are the steps involved:

• Creditors file a petition for the winding up of the LLP due to inability to pay debts.
• A court reviews the petition and, if it agrees, issues a winding-up order.
• A liquidator, usually a licensed insolvency practitioner, is appointed by the court to manage the winding-up process.
• The liquidator is responsible for settling all outstanding debts and liabilities, using the LLP’s assets.
• Any remaining assets after the debts are cleared are distributed as determined by the court or according to the LLP’s debt repayment priorities.
• The liquidator submits final accounts to the court and applies for the formal dissolution of the LLP.
• The dissolution is completed once the court processes the liquidator’s submission, officially ending the LLP’s existence.

Can you Prevent the Winding up of an LLP?

A winding up petition is the final demand from a creditor. You have 7 days to act before a judge rules on whether to make the petition into an order, which would liquidate the LLP and strike its name off the Companies House register.

If you can pay the debt, do so immediately. Winding up petitions are advertised in the Gazette, the official journal of public record. Once banks see the winding up advertisement, your corporate bank accounts will be frozen, making it difficult to run the business.

Call one of our advisors to discuss your options and whether there is a legitimate chance to stop the petition.

What are the Options for an LLP Struggling with Debt?

If your LLP is unable to pay its debts, there are several strategies you can consider:

It may be possible to negotiate directly with creditors to arrange a more manageable payment plan or to reduce the total debt owed. This can provide temporary relief and prevent more drastic measures.

Consulting with an insolvency practitioner such as ourselves is crucial. We can offer expert guidance on the most appropriate solutions for your LLP, which could include:

• Going into Administration: This is a formal process that protects your LLP from creditors while you try to find a way to save the business.
• Negotiating a Company Voluntary Arrangement(CVA): This is a formal agreement between your LLP and its creditors to repay the debt over a period of time.
• Choose Voluntary Liquidation: This is a formal process to wind up your LLP and sell its assets to pay off its debts.

If you don’t take any action, the creditor may apply to the court for a winding up order. This will force your LLP into liquidation, and you will lose control of the business.

Can the Members of an Insolvent Limited Liability Partnership be Held Personally Liable for Debts?

Typically, members of an LLP enjoy limited liability protection. This means that their personal assets are generally protected, and they are not personally liable for the LLP’s debts, provided there is no evidence of wrongful or fraudulent trading.

If the members have provided personal guarantees for any of the LLP’s debts, those members will be personally liable to the extent of the guarantee. This can include loans, leases, or other financial commitments made under such guarantees.

During the insolvency process, if there is an indication that the members acted wrongfully or fraudulently in the management of the LLP (such as continuing to trade when the LLP was insolvent), they can be held personally liable for the LLP’s debts. Legal actions can be initiated against them, which might include disqualification from serving as a director or in the management of any company.

Members of an insolvent LLP may face restrictions on forming or managing another company or LLP if they are found responsible for mismanagement or insolvency-related offences.

FAQs on Winding up an LLP