There are three options to deal with severe cashflow problems, this page looks at Plan “C” Pre-pack Administration to sell the business. Winding up the partnership and possible personal Bankruptcy.

Please look at Plan “A” and Plan “B” guides if the business is viable and just needs time to restructure.

If the debts are very large, and your business is no longer viable no matter what steps you take to revive it, then the sensible answer to stop the terrible pressure you face is either sell the practice’s business assets or wind it up.

Pre pack of the business:

If there is a viable business but there are threats from creditors to wind up the partnership up, then it may be possible to package the business up for sale. SRA advice would have to be taken and the plans well developed before so doing.

Perhaps you already have an interested party who may acquire the business but not the liabilities. If not it may be worth setting out the plans for the pre-pack approach, which KSA group can assist with. Then we would market the business for sale before the administration process. Again prior to the application for the administration discussions must be held with the SRA.

See a general guide here to pre-pack administration

Suffice to say that pre-pack is a public domain event and one that may lead to a risk of personal bankruptcy for the partners, under joint and several liability.

Under insolvency practitioners guidelines (known as SIPS) the IP must market the business. Often this requires sending sales memos to a database of potential buyers, or the IP may place an advert on his website and/or a local or national newspaper. If he gets no interest or no indication of interest he can then sell to the newco or third party. 

He or she will also have to get formal valuations of the assets, intellectual property and or goodwill of the insolvent company by RICS qualified surveyors. Generally any offer needs to be commensurate with such valuations.

At this stage if you and your colleagues are planning to buy the business you must be careful with regards to your personal position. As partners in the dying partnership you have a fiduciary duty of care to the creditors. Of course the end of that business could lead to personal liability.

Starting "newco" can put you at risk of conflict of interest. It's likely that you will need separate legal advice on both businesses. Best to talk to lawyers with insolvency and pre-pack experience. Contact Keith Steven for a list of good lawyers.

The IP will take advice from his lawyers as to compliance and risk. He may require this advice to be paid for along with his disbursements.

WARNINGS?

Beware. Will your client's contracts or BANK allow you to pre-pack? (The current stand point of several clearing banks is no they won't support pre packing to the incumbent partners/ directors/ shareholders).

Will your landlord(s) allow a new partnership or company to occupy their property? Are your suppliers prepared to supply a newco? Will your creditors be angry about this approach? careful consideration must be given to all of these issues and a plan developed. Again KSA can advise you on this.

Talk to Keith Steven now on how pre-pack may be an option. 0845 5194930 or 07974 086779

Winding up the partnership:

Winding up the partnership can often result in personal bankruptcy for the individual partners. Winding up the partnership is a final step, if it has any viability all other options should be considered carefully.

Where the partners have decided that the partnership has no viable future or purpose then a decision may be made to cease trading and wind up the partnership. Clearly such a decision should not be taken lightly and we would recommend that all other options are carefully considered and compared to the objectives of the partnership and the individual partners. Before the process starts it is vital to speak to the SRA and get it involved.

There are two basic ways that the partnership can be wound up: the creditor’s petition and a partner’s petition

Creditor’s Petition

A creditor can petition to wind up the partnership but not issue bankruptcy petitions against the individual partners. Or the creditor can issue a petition to wind up the partnership concurrently with a bankruptcy petition against one or more of the individual partners.

Partner’s Petition

The partners can petition to wind up the partnership but not issue bankruptcy petitions against the individual partners. Or the partners can issue a petition to wind up the partnership concurrently with a bankruptcy petition against the individual partners.

The Winding-Up Process

The partnership is treated much like an unregistered company and is wound up in the same way as a company. The tasks of the liquidator are therefore to

1. Realise the assets in the partnership including any deficiencies due on the partner’s individual capital accounts (the partners will have to pay such deficiencies if required). All debtors, property and other assets will be collected by the liquidator.

2. Investigate the conduct of the "officers of the partnership" just as the liquidator in a company liquidation must do.

2.1. Interestingly the liquidator can initiate actions against the partners to seek to disqualify them as partners in a partnership (Insolvent Partnerships Order 1994)

2.2. The liquidator must also ascertain whether any transactions have taken place that put the partners (individually or collectively) into a better position than they should be then such transactions (known as preferences or transactions at undervalue). If such transactions have been completed before the winding up, they can be un-done. The court can order that the partners reverse the transaction.

3. The liquidator completes his /her work by making payments (called distributions) to the creditors in order of priority (if any distributions can be made).
Common sense dictates that allowing creditors to initiate such proceedings indicates to creditors and the liquidator that the partnership /partners have failed to act in the best interests of the body of creditors as a whole. Many people in companies or partnerships are told by accountants or advisors to just cease trading and "let someone wind the thing up". In our opinion this is very poor advice. We always recommend taking decisions to ACT.

As a law firm the SRA will almost certainly intervene in the process and remove the clients files and seize the trust accounts. It is vital to discuss the plans to wind up the partnership with the SRA at the earliest opportunity.

Before deciding to wind up the partnership please review all the contents of this site and take advice from either an insolvency/turnaround practitioner in your area or call us on 0800 9700 539. Or email us with your basic details and we will call you back at an agreed time and in confidence.

What now? If your business has cashflow problems you must act or the creditors will, sooner or later act aggressively against you.

Personal bankruptcy, please click this link to read more on this issue

Call KSA Group's DEDICATED LAWYERS LINE now 0845 5194930