There are three options to deal with severe cashflow problems, this page looks at Plan C pre pack administration to sell the business or practice, winding up the partnership and possible personal bankruptcy.
Plan C for partnership law firms
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 administration
If the business is viable but creditors are threatening winding up petitions, putting the business up for sale, as a pre-pack deal may be the best option (if agreed to by the SRA).
We can assist with the pre-pack administration by marketing the business for sale prior to administration. Insolvency practitioners (IPs) have a duty to find potential buyers by advertising online and in the local press. If there is no interest, the IP can then sell the business to a third party or previous partners of a new partnership.
There will need to be asset valuations and details of intellectual property drawn up by qualified surveyors. If you and other partners plan to buy the partnership, tread carefully as you could put your own personal financial position at risk. Please seek legal advice regarding the old and new business partnership. Call Keith Steven on 07974 086779 for a list of recommended lawyers who can help.
Before you decide to go ahead with a pre-pack, ask yourself whether your bank will approve as many do not support previous partners/shareholders in a pre-pack. Will your landlord allow these changes and will your suppliers be willing to continue working with you?
At all times the SRA needs to be involved in order to prevent actual SRA intervention to protect clients and their files. Along with KSA, who owns this website you need to inform the Solicitors Regulation Authority of insolvency and set out plans for dealing with the risk to the firm and its clients.
KS has extensive experience of dealing with insolvency law firms and working with the SRA to achieve positive outcomes.
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.
Once again the SRA will need to be kept carefully involved and the above option or pre-pack administration of some or all of the assets/client files to other firms should have been considered FIRST.
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.
Issuing a Petition
Either a creditor or a partner can wind up a partnership.
A creditor can petition to wind up the business at the same time as issuing bankruptcy petitions against one or more partners. Similarly, a partner can petition to wind up the business at the same time as issuing bankruptcy petitions against other partners.
It’s preferably best if partners initiate proceedings as it gives a bad impression if partners allow creditors to do the work.
The Winding Up Process
A partnership is wound up in a similar way to a company and all assets will be noted and collected in by an insolvency practitioner to be turned into cash for creditors. The IP acting as liquidator will also investigate the partners and the running of the business. If partners have acted fraudulently or there has been any wrongdoing, the liquidator can initiate legal action to disqualify them.
The liquidator completes his or her work by making payments (called distributions) to the creditors in order of priority (if any distributions can be made).
As the SRA will be involved, they will likely remove clients’ files and take control of trust accounts so it is always best to contact the SRA as soon as possible.
For advice on winding up a business or if you have any questions about insolvency, call us on 08009700539. We can talk you through the process and discuss your specific situation.
Worried about poor cashflow? Feel you have got into a bit of a mess? Covid-19?, How to pay wages on pay day? For reassuring advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539
Please note that the guide includes updates due to Covid-19 For instance there have been some changes to insolvency legislation that limits creditors actions. A new 20 day moratorium for distressed businesses has also been introduced.