AuthorElspeth Berry/Rebecca Parry

Chapter 1



This book provides a detailed account of the law of insolvency as it applies to three types of business organisation: general partnerships, limited partnerships (collectively referred to as partnerships in this book unless otherwise noted) and limited liability partnerships (LLPs).

In the UK there are approximately half a million general partnerships, an ever increasing number of LLPs made up largely of professional practices, and a small number of limited partnerships playing a particularly significant role in the private equity market and also in family and farming enterprises. Despite the economic importance of these forms of businesses, relatively little has been written on the application to them of the insolvency legislation.1This is particularly marked when compared with the extensive literature on the insolvency of companies.2

1But see e.g. the coverage in R I’Anson Banks (ed), Lindley & Banks on Partnership (Sweet &

Maxwell, 19th edn, 2010), Ch 27; M Blackett-Ord and S Haren, Partnership Law (Bloomsbury Professional, 4th edn, 2011), Chs 22–23; J Whittaker and J Machell, The Law of Limited Liability Partnerships (Bloomsbury Professional, 3rd edn, 2009), Chs 28–35; G Morse, Partnership Law (Oxford University Press, 7th edn, 2010), Ch 8.

2This extensive literature includes general works on corporate insolvency, notably RM Goode,

Principles of Corporate Insolvency Law (Sweet & Maxwell, 4th edn, 2011); E Bailey and H Groves, Corporate Insolvency: Law and Practice (Butterworths, 4th edn, 2014); I Fletcher, G Lightman and GS Moss (eds), Lightman & Moss: The Law of Administrators and Receivers of Companies (Sweet & Maxwell, 5th edn, 2011); IF Fletcher, The Law of Insolvency (Sweet & Maxwell, 4th edn, 2014); P Totty, G Moss and N Segal (eds), Insolvency (Sweet & Maxwell, looseleaf); I Fletcher, P Davies, M Bridge and D Bennett (eds), Palmer’s Corporate Insolvency (Sweet & Maxwell, looseleaf); AR Keay and P Walton, Insolvency Law: Corporate and Personal (Jordan Publishing, 3rd edn, 2012); H Rajak, Corporate Rescue and Liquidation (Sweet & Maxwell, 3rd edn, 2013). There have been texts devoted to particular insolvency procedures, including AR Keay, McPherson’s Law of Company Liquidation (Sweet & Maxwell,

2 Law of Insolvent Partnerships and Limited Liability Partnerships

However, even a cursory reading of the relevant legislation or such brief literature as there is gives a clue as to the reason. Bolted on to the underlying company and individual insolvency legislation, which itself is often neither clear nor concise, are pieces of secondary legislation which apply selected parts of the insolvency legislation to partnerships or LLPs, often with modifications. Even with careful reading and constant cross-referencing, it is evident that not all aspects of the various company and individual insolvency procedures and concepts have been fully transposed into the partnership and LLP legislation, with the result that the legislative framework for the three types of partnership is difficult to comprehend, and especially so in relation to general and limited partnerships.


In order to understand the way in which insolvency legislation applies to each, it is necessary firstly to explain briefly their key features.

1.2.1 General partnerships

A general partnership is defined in section 1 of the Partnership Act 1890 (Partnership Act) as ‘the relation which subsists between persons carrying on a business in common with a view of profit’. Thus the fundamental requirements for such a business from a legal perspective are that there must be a minimum of two persons (who may be natural or legal persons), they must be carrying on a joint enterprise,3and they must intend to make a profit. A partnership will come into existence as soon as section 1 is satisfied even if the parties do not intend to form a partnership, but while a partnership can only be wound up (see Chapter 6) or the joint bankruptcy procedure invoked by its partners in their capacity as such (see Chapter 8) if the partnership exists at the time, it is worth

3rd edn, 2013); GM Weisgard and M Griffiths, Company Voluntary Arrangements and Administration (Jordan Publishing, 3rd edn, 2013); P Loose and M Griffiths, Loose & Griffiths on Liquidators (Jordan Publishing, 8th edn, 2014). There have been theoretical analyses, including D Milman, Governance of Distressed Firms: Corporations, Globalisation and the Law (Edward Elgar, 2013); V Finch, Corporate Insolvency Law: Perspectives and Principles (Cambridge University Press, 2nd edn, 2009); RJ Mokal, Corporate Insolvency Law: Theory and Application (Oxford University Press, 2005). More recent years have seen some good comparative works, e.g. R Bork, Rescuing Companies in England and Germany (Oxford University Press, 2005); G McCormack, Corporate Rescue Law: An Anglo-American Perspective (Edward Elgar, 2008); C Mallon and S Waisman (eds), The Law and Practice of Restructuring in the UK and US (Oxford University Press, 2011).

3Khan v Miah [2001] All ER 20.

noting that partnership disputes frequently centre on whether a partnership exists at all or the date of its commencement.

A general partnership in England and Wales has no legal personality separate to its partners,4and its partners have joint and several liability without limit for its debts and obligations.5

1.2.2 Limited partnerships

A limited partnership is a variation on the general partnership. Like a general partnership, a limited partnership must comply with the definition in section 1 of the Partnership Act, has no legal personality6and its general partners have unlimited liability for its debts and obligations. However, the application of the Partnership Act is modified by the Limited Partnerships Act 1907 (the Limited Partnerships Act), which provides that a limited partnership must be registered with the registrar of companies,7and the certificate issued by the registrar of companies is conclusive evidence that the limited partnership came into existence on the date of registration.8It also provides that a limited partnership must have at least one general partner and one limited partner,9and that a limited partner is required to make a contribution of capital to the partnership,10

to which his liability is limited11so long as he does not engage in management of the business.12If he participates in management, he incurs personal liability for the debts and obligations of the firm incurred during that time.13

1.2.3 LLPs

An LLP is rather different and combines features of both partnerships and private limited companies. The key pieces of governing legislation are the Limited Liability Partnerships Act 2000 (the LLP Act), the Limited Liability Partnerships Regulations 200114(the LLP Regulations 2001) and the Limited

4A general partnership in Scotland has legal personality, but its partners nonetheless have unlimited liability for its debts and obligations just as in England and Wales.

5Partnership Act, s 9, and Civil Liability (Contribution) Act 1978, s 3.

6Except in Scotland; see n 4.

7Limited Partnerships Act, s 5.

8Limited Partnerships Act, s 8C.

9Limited Partnerships Act, s 4(2).

10Limited Partnerships Act, s 4(12).

11Limited Partnerships Act, s 4(2).

12Limited Partnerships Act, s 6(1).

13Limited Partnerships Act, s 6(1).

14SI 2001/1090.

4 Law of Insolvent Partnerships and Limited Liability Partnerships

Liability Partnerships (Application of Companies Act 2006) Regulations 200915

(the LLP Regulations 2009). Certain of the provisions of the LLP Act and the LLP Regulations 2001 are based on partnership law; but many of the other provisions as well as the whole of the LLP Regulations 2009 and a number of other Regulations,16are based directly on the Companies Act 2006 (CA 2006). Similarly to a general or limited partnership, an LLP is defined as ‘two or more persons associated for carrying on a lawful business with a view of profit’,17but like a company it is a body corporate,18with legal personality separate to its members,19and the liability of its members is limited to the amount they have invested. This limited liability is subject to one exception specified in the LLP legislation itself – that a member will incur personal liability where he has been guilty of wrongdoing,20the exceptions set out in the insolvency legislation (see Chapter 9) and the exceptions to the principle of separate legal personality established by the courts in relation to limited companies (see further 7.5.12).21

Like a limited partnership, an LLP must also be registered with the registrar of companies and it comes into existence on that date.22


1.3.1 Partnerships

In relation to general and limited partnerships, the Partnership Act envisages that a loss-making partnership will be dissolved,23either with or without the

15SI 2009/1804.

16Principally, the Limited Liability Partnerships (Accounts and Audit) (Application of Companies

Act 2006) Regulations 2008 (SI 2008/1911); the Small Limited Liability Partnerships (Accounts) Regulations 2008 (SI 2008/1912); the Large and Medium-sized Limited Liability Partnerships (Accounts) Regulations 2008 (SI 2008/1913); and the Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012 (SI 2012/2301).

17LLP Act, s 2(1)(a).

18LLP Act, s 1(2).

19LLP Act, s 1(2).

20LLP Act, s...

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