FID Trust International

Insolvency Proceedings

These are formal measures to deal with debts of limited liability partnerships. Many different types of insolvency proceedings apply to limited liability partnerships.

If the Registrar has reason to believe that a limited liability partnership is not carrying on business or is not in operation, the company’s name may be struck off the register and the company dissolved without going through liquidation. A limited liability partnership that is not trading may apply to Companies House to be struck off the register. This procedure is not an alternative to formal insolvency proceedings.

Insolvency procedures have to be supervised.

All liquidators, administrators, administrative receivers and supervisors taking office on or after 29 December 1986 must be authorised insolvency practitioners.

Receiver managers and Law of Property Act (LPA) receivers do not have to be authorised.

Insolvency practitioners may be authorised by:

  • the Chartered Association of Certified Accountants;
  • the Insolvency Practitioners' Association;
  • the Institute of Chartered Accountants in England and Wales;
  • the Institute of Chartered Accountants in Ireland;
  • the Institute of Chartered Accountants in Scotland;
  • the Law Society;
  • the Law Society of Scotland; or
  • the Secretary of State for Business Enterprise and Regulatory Reform.

The liquidator, administrative receiver or administrator has a duty to send the Secretary of State a report on the conduct of all members who were in office in the last 3 years of the limited liability partnership's trading. The Secretary of State has to decide whether it is in the public interest to seek a disqualification order against a member.

  1. Examples of the most commonly reported conduct might include:
  2. continuing to trade when the limited liability partnership was insolvent;
  3. failing to keep proper accounting records;
  4. failing to prepare and file accounts or make returns to Companies House; and
  5. failing to send in returns or pay to the Crown any tax that is due.

Voluntary Arrangements

A voluntary arrangement is when a limited liability partnership makes an agreement with its creditors by proposing a 'composition in satisfaction of its debt' or a 'scheme of arrangement of its affairs'. This means an arrangement, approved by the court, in which the limited liability partnership has formally agreed terms with its creditors for the settlement of its debts.

A voluntary arrangement may be proposed by:

  1. the administrator, if there is an administration order;
  2. the liquidator, if the limited liability partnership is being wound up; or
  3. the limited liability partnership, in other circumstances.

When the limited liability partnership has proposed the arrangement, the nominee appointed to supervise its implementation reports to the court within 28 days on whether, in his or her opinion, a meeting of the creditors should be called.

When the administrator or liquidator proposes the agreement, the nominee reports on whether a meeting of the members and a meeting of the creditors of the limited liability partnership should be called.

The meeting (s) summoned by the nominee decide whether to approve the voluntary arrangement which, subject to certain restrictions, may be approved with or without modifications. Any modifications must be agreed with the limited liability partnership. It is then binding on all creditors who had notice of the meeting and were entitled to vote. All creditors who had notice of the meeting are bound by the terms of the arrangement.

If the meeting of creditors and the meeting of members (in circumstances where a members meeting was held) approve a voluntary arrangement, then the nominee or his replacement becomes the supervisor of the arrangement. The supervisor must send a copy of the chairman's report of the meeting to the Companies House.

At least once every 12 months, the supervisor must send an account of receipts and payments, together with a progress report, to all interested parties including Companies House.

When the arrangement is completed, the supervisor must notify the Registrar, within 28 days after final completion. If the arrangement is suspended or revoked, Companies House must be notified. The appropriate forms are:

  • Notice of report of a meeting approving a voluntary arrangement - 1.1(Scot).
  • Notice of order of revocation or suspension of voluntary arrangement - 1.2(Scot).
  • Notice of voluntary arrangement's supervisor's abstract of receipts and payments - 1.3(Scot).
  • Notice of completion of voluntary arrangement - 1.4(Scot).

Administration Law

A limited liability partnership enters administration when the appointment of an administrator takes effect. An administrator may be appointed by:

  1. an administration order made by the court;
  2. the holder of a floating charge; or
  3. its members.

The administrator must perform his or her functions as quickly and efficiently as reasonably practicable.

When a limited liability partnership enters administration:

  • any pending winding-up petitions will be dismissed or suspended;
  • there will be a moratorium on insolvency and on other legal proceedings;
  • if an administrative receiver has been appointed, he or she must vacate office;
  • if a receiver of part of the company’s property has been appointed, he or she must vacate office(if the administrator requires this).

As soon as reasonably practicable, an administrator must send a notice of his or her appointment to the limited liability partnership and each of its creditors and publish notice of his or her appointment in the Gazette and in a newspaper in the area where the company has its principal place of business.

The Gazette is the official newspaper of record which contains various statutory notices and advertisements. References to the Gazette are to the Edinburgh Gazette in respect of companies registered in Scotland. It is published twice weekly and can be obtained from The Edinburgh Gazette, 26 Rutland Square, Edinburgh EH1 2BW. Visit www.gazettes-online.co.uk for more information.

The current law concerning administration was introduced with effect from 1 October 2005 as per Statutory Instrument 2005 No.1989, the Limited Liability Partnerships (amendment) regulations 2005. Under the new regime, a limited liability partnership will usually be described as being ‘in administration’.

Administration is when a person, ‘the administrator’, is appointed to manage a limited liability partnership’s affairs, business and property for the benefit of the creditors. The person appointed must be an insolvency practitioner and has the status of an officer of the court (whether or not he or she is appointed by the court).

The objective of administration is to:

  1. rescue a limited liability partnership as a going concern;
  2. achieve a better price for the limited liability partnership’s assets or otherwise realise their value more favourably for the creditors as a whole than would be likely if the limited liability partnership were wound up (without first being in administration); or
  3. in certain circumstances, realise the value of property in order to make a distribution to one or more preferential creditors.

While a limited liability partnership is in administration, every business document issued by or on behalf of the limited liability partnership or the administrator must state the name of the administrator and that he or she is managing the affairs, business and property of the limited liability partnership.

The administrator will request a statement of the limited liability partnership’s affairs from relevant people (e.g. an officer or employee of the limited liability partnership).

No later than 8 weeks after the limited liability partnership enters administration, the administrator must make a statement setting out proposals for achieving the purpose of the administration or explaining why they cannot be achieved. The proposals may include a voluntary arrangement or a compromise or arrangement with creditors or members.

The statement setting out the proposals must be sent to:

  1. Companies House.
  2. Every creditor of the limited liability partnership with an invitation to an initial creditors’ meeting, if one is to be held. The business of the initial creditors meeting will be to approve (with or without modifications) the statement of proposals. Following the initial meeting, the administrator may hold further creditors’ meetings, form a creditors committee, or deal with matters in correspondence between the administrator and creditors.
  3. Every member of the limited liability partnership, unless the administrator undertakes to provide a copy free of charge to any member of the limited liability partnership who applies in writing for a copy. Any revisions to the proposals following a creditors’ meeting must, likewise, be notified to members.

Decisions taken at creditors’ meetings must be reported to the Register of Companies on Form 2.23B(Scot), ‘End of Administration’ form.

There are several ways in which administration can come to an end:

  1. Administration can end automatically when the administrator’s term of office expires and must be notified to the Registrar on Form 2.21B (Scot). The appointment of an administrator expires after 1 year. However, this may be extended with the consent of creditors or the court. Any extension must be notified to the Registrar on Form 2.22B(Scot).
  2. An administrator appointed under a court order may apply to the court to end administration if he or she thinks that the purpose of the administration cannot be achieved or the limited liability partnership should not have entered administration, or a creditors’ meeting requires the application. The court will discharge the administration order and the administrator must notify the Registrar on Form 2.24B(Scot).
  3. An administrator appointed by the holders of a floating charge or by the limited liability partnership or its members may end administration when the purpose of administration has been sufficiently achieved. The administrator must file notice with the court and with the Registrar on Form 2.23B (Scot). Administration may end on the application of a creditor to the court alleging an improper motive on the part of the person who appointed the administrator or applied to the court for an administration order. The administrator must send a copy of the order with Form 2.33B to the Registrar within 14 days of the order being made.
  4. Administration may end when the limited liability partnership moves into creditors’ voluntary winding up. This can happen where the administrator thinks that each secured creditor is likely to be paid and a distribution will be made to unsecured creditors, if there are any. The administrator must notify the Registrar on Form 2.25B (Scot) and send copies to the court and each creditor. The limited liability partnership will then be wound up as if a resolution for voluntary winding up had been passed on the day on which notice is registered with the Registrar.
  5. Administration may end when the limited liability partnership moves into dissolution. This can happen if the administrator thinks that a limited liability partnership has no property with which to make a distribution to its creditors. The administrator must send notice to Companies House on Form 2.26B(Scot) and send copies to the court and each creditor 3 months after the date the form is registered with Companies House, the limited liability partnership will be dissolved unless, on application to the court, an order is made to extend or suspend the period or stop the dissolution. Notice of the order must be notified to Companies House on Form 2.27B(Scot).

Receivers

Appointed by or on behalf of the holder of a floating charge, a receiver has the power to sell or otherwise realise the charged assets of the limited liability partnership in an attempt to repay the debt owed to the charge-holder.

Within seven days of the appointment, the person who appoints the receiver must deliver notice to the Registrar and AIB. When the receiver ceases to act, the holder of the floating charge must deliver notice to the Registrar and AIB within 14 days.

Voluntary liquidation

There are two kinds of voluntary liquidation:

  1. members' voluntary liquidation (MVL) - which means the designated members have made a statutory declaration of solvency; and
  2. creditors' voluntary liquidation (CVL) - which means the designated members have not made such a declaration.

The liquidator is appointed to wind up the limited liability partnership's affairs. The liquidator does this by calling in all the limited liability partnership's assets and distributing them to its creditors. If anything is left over, the liquidator distributes it among the members of the limited liability partnership.

The liquidator must send a statement of affairs and a statement of receipts and payments for the first 12 months of liquidation. After that, statements must be sent every six months until the winding-up is complete.

If the liquidator decides that the limited liability partnership will not be able to pay its debts in full in the period stated in the designated members' statutory declaration of solvency, then he or she must call a meeting of the creditors which must be held within 28 days. The liquidation becomes a CVL from the date of the meeting.

Compulsory liquidation

Compulsory liquidation of a limited liability partnership is when the limited liability partnership is ordered by a court to be wound up.

The Court of Session or Sheriff Court may order the winding-up of a limited liability partnership. This may be, for example, on the petition of a creditor or creditors on the grounds that the limited liability partnership cannot pay its debts.

The court may also order the limited liability partnership to be wound up on the petition of:

  1. the limited liability partnership itself;
  2. one or more of the limited liability partnership's members;
  3. the Secretary of State for Business, Enterprise and Regulatory Reform;
  4. the Financial Services Authority (formerly the Securities and Investment Board).

When the Registrar and AIB receive notice from the liquidator of the final meeting that winding-up is complete, the Registrar will register it and publish its receipt in the Edinburgh Gazette.

Unless the Court directs otherwise, the limited liability partnership will be dissolved three months after the notice was registered at Companies House.

Voluntary striking-off and dissolution

A limited liability partnership that is not trading may apply to the Registrar to be struck off the register. It can do this if the limited liability partnership is no longer needed. For example, the active designated members may wish to retire and there is no-one to take over from them; or it is a subsidiary whose name is no longer needed; or it was set up to exploit an idea that turned out not to be feasible.

A limited liability partnership can apply to be struck off if, in the previous three months, it has not:

  • traded or otherwise carried on business;
  • changed its name;
  • for value, disposed of property or rights that, immediately before it ceased to be in business or trade, it held for disposal or gain in the normal course of its business or trade (for example, a limited liability partnership in business to sell apples could not continue selling apples during that three-month period but it could sell the truck it once used to deliver the apples or the warehouse where they were stored); or
  • ngaged in any other activity except one necessary or expedient for making a striking-off application, settling the limited liability partnership's affairs or meeting a statutory requirement (for example, a limited liability partnership may seek professional advice on the application, pay the costs of copying the Form LLP652a, etc). However, a limited liability partnership can apply for striking off if it has settled trading or business debts in the previous 3 months.

A limited liability partnership cannot apply to be struck off if it is the subject, or proposed subject, of:

  1. any insolvency proceedings (such as liquidation, including where a petition has been presented but has not yet been dealt with); or
  2. a Section 425 scheme (that is a compromise or arrangement between a limited liability partnership and its creditors).

There are safeguards for those who are likely to be affected by a limited liability partnership's dissolution. If your limited liability partnership has creditors, you are advised to warn all the people, before applying, as any of them may object to the limited liability partnership being struck off. Any loose ends - such as closing the limited liability partnership’s bank account - should be dealt with before you apply.

It is also advisable to notify any other organisation or party who may have an interest in the limited liability partnership's affairs, otherwise they might later object to the application. Examples include local authorities, especially if the limited liability partnership is under any obligation involving planning permission or health and safety issues, training and enterprise councils, and government agencies.

From the date of dissolution, any assets held by a dissolved limited liability partnership will belong to the Crown. The limited liability partnership’s bank account will be frozen and any credit balance in the account will be passed to the Crown.

You should request a Form LLP652a from Companies House or download it from our website at www.companieshouse.gov.uk

Defunct Limited Liability Partnerships

Before the Registrar strikes a limited liability partnership off the register, he must inquire whether it is still in business or operation. If he is satisfied that it is not, he will publish a notice in the Edinburgh Gazette that he intends to strike the limited liability partnership off. A copy notice is placed on the limited liability partnership's public record. If he sees no reason to do otherwise, the Registrar will strike the limited liability partnership off not less than three months after the date of the notice. The limited liability partnership will be dissolved on publication of a further notice stating this in the Gazette. At the date of dissolution any assets held by a dissolved limited liability partnership will belong to the Crown. The limited liability partnership's bank account will be frozen and any credit balance in the account will be passed to the Crown.