Liquidation: LLPs
| Author | Elspeth Berry/Rebecca Parry |
| Pages | 399-484 |
Chapter 7
Liquidation: LLPs
7.1 SCHEME OF THE INSOLVENCY ACT 1986 AND THE LIMITED LIABILITY PARTNERSHIP REGULATIONS 2001 FOR LLP LIQUIDATION
The failure of LLPs has been referred to, somewhat pessimistically, as ‘their primary raison d’étre’, on the basis that ‘the LLP is created so that it may perish in the event of unsustainable losses or a catastrophic claim, rather than its members be exposed to the threat of bankruptcy’.
Although the LLP Regulations 2001 modify the IA 1986, they provide the same three winding up procedures that are available to companies, only one of which (winding up by the court) is available to partnerships (see further Chapter 6). An LLP (or a company) may be wound up:
(1) voluntarily, by either:
(a) the members, or
(b) the creditors, or
(2) by the court.
Partnerships: A Guide for Professionals (Centre of Construction Law & Management in association with Construction Industry Council, 2001), pp 49–59 at p 49.
400 Law of Insolvent Partnerships and Limited Liability Partnerships
All three procedures involve the winding up of the LLP as a registered company (cf a partnership, which is wound up as an unregistered company; see further Chapter 6), but the procedures vary according to whether the LLP is insolvent and, if it is, the extent to which the court is involved.
7.2 APPLICABLE PROVISIONS OF THE INSOLVENCY ACT 1986
Each of the three types of winding up procedure is governed by the provisions of the IA 1986 as applied by article 5 of the LLP Regulations 2001, with the modifications set out in Schedule 3 to the Regulations, and references in this chapter are, unless otherwise indicated, to the IA 1986 as so applied and modified.
These provisions are be read in the light of the statement in article 5 of the LLP Regulations 2001 that a number of terms in them (for example, company and director) are to be read as referring to the corresponding LLP concepts (for example, LLP and LLP member). These terms are discussed in detail at 1.4:
Part IV (sections 73–219: winding up of registered companies). Part VI (sections 230–246: miscellaneous insolvency and liquidation provisions).
Part VII (sections 247–251: interpretation). Part XII (sections 386–387: preferential debts). Part XIII (sections 388–398: insolvency practitioners). Part XIV (sections 398A–410: public administration). Part XV (sections 411–422: subordinate legislation). Part XVI (sections 423–425: debt avoidance). Part XVII (sections 426–434: miscellaneous and general provisions). Part 17A (sections 434A–434C: supplemental provisions). Part XVIII (sections 435–436A: interpretation). Part XIX (sections 437–444: final provisions). Schedule 3 (winding up in Scotland). Schedule 4 (powers of liquidator). Schedule 6 (preferential debts). Schedule 7 (insolvency practitioners tribunal). Schedule 8 (company insolvency rules). Schedule 10 (offences). Schedule 11 (transitional provisions and savings).
These IA 1986 sections and schedules apply subject to:
the modification of a significant number of sections
the disapplication of certain sections by Schedule 3.
Schedule 3 to the LLP Regulations 2001 does not set out the modified sections in full (as the IPO does in relation to partnership liquidation; see further Chapter 6) but only explains the modifications to the original, and it is thus necessary to read Schedule 3 together with the IA 1986 in order to access the full text of each modified section.
In addition to the sections excluded by Schedule 3, certain other sections are in substance not applicable to the winding up of an LLP because they do not apply to the winding up of a UK entity.
The end result is the application, modification or disapplication of the relevant provisions of the IA 1986 relating to liquidation as summarised in Table 7.1.
It should also be noted that the SBEEA 2015 inserts a number of new sections into the IA 1986 and amends others. Some are already in force, while others will come into force from a date to be appointed. However, where the LLP Regulations 2001 contain modifications to the relevant IA 1986 section/ Schedule, additional LLP-specific legislation will be necessary to incorporate the SBEEA 2015 revisions. This is expected in the legislative session 2015–16. Where the LLP Regulations 2001 are likely to be so amended, this is noted in Table 7.1.
129–130, 148–149, 160, 165–166, 171, 173, 183–184, 194–195, 206–207, 210, 214–215, 218, 247, 249, 251, 386–389A, 402, 412, 415–416, 418, 420–422, 426A–427, 429, 432, 435–437 and 440–442.
242, 243, 427, 440 and 441 and Sch 3.
Regulations applying the IA 1996 and the CDDA do not apply to Northern Ireland, and reg 5(3) which provides that the provisions of IA 1986 listed in Sch 4 do not apply to Scotland.
Table 7.1 Sections of, and Schedules to, the Insolvency Act 1986 relating to liquidation, applied/modified by the Limited
Liability Partnership Regulations 2001
Section of
IA 1986
Applicable:
– without modification (IA)
– as modified (LLP Regulations 2001, Sch 3) – not applicable (NA)
Applicable to:
– members’ voluntary winding up (MVL) – creditors’ voluntary winding up (CVL) – winding up by court (court)
PART IV – winding up of registered companies
73 LLP Regulations 2001, Sch 3 All
74 LLP Regulations 2001, Sch 3 All
[75] Repealed
76–78 NA All Excluded by LLP Regulations 2001,
Sch 3
79 LLP Regulations 2001, Sch 3 All
80–82 IA All Applied by LLP Regulations 2001, reg 5 and not excluded/modified by LLP
Regulations 2001, Sch 3
83 NA (All) Excluded by LLP Regulations 2001,
Sch 3
84–90 LLP Regulations 2001, Sch 3 MVL and CVL
91–92 LLP Regulations 2001, Sch 3 MVL
92A IA MVL
93 LLP Regulations 2001, Sch 3 but NA to
English LLPs
(MVL) Refers to Scotland
Note: SBEEA 2015 amendments
Comments
Applicable to:
– members’ voluntary winding up (MVL) – creditors’ voluntary winding up (CVL) – winding up by court (court)
Comments
Section of IA 1986
Applicable:
– without modification (IA)
– as modified (LLP Regulations 2001, Sch 3) – not applicable (NA)
94–96 LLP Regulations 2001, Sch 3 MVL Note: SBEEA 2015 amendments
97 IA CVL Applied by LLP Regulations 2001, reg 5 and not excluded/modified by LLP Regulations 2001, Sch 3
98–101 LLP Regulations 2001, Sch 3 CVL Note: SBEEA 2015 repeal of s 98 and amendments to ss 99–101
102–104A IA CVL Applied by LLP Regulations 2001, reg 5 and not excluded/modified by LLP Regulations 2001, Sch 3
Note: SBEEA 2015 repeal of s 102
105 LLP Regulations 2001, Sch 3 but NA to
English LLPs
CVL Refers to Scotland
Note: SBEEA 2015 amendments
106 LLP Regulations 2001, Sch 3 CVL Note: SBEEA 2015 amendments
107–109 IA MVL and CVL Applied by LLP Regulations 2001, reg 5 and not excluded/modified by LLP Regulations 2001, Sch 3
110–111 LLP Regulations 2001, Sch 3 MVL and CVL
112 IA MVL and CVL Applied by LLP Regulations 2001, reg 5 and not excluded/modified by LLP Regulations 2001, Sch 3
113 IA but NA to English LLPs MVL and CVL Refers to Scotland
Applicable to:
– members’ voluntary winding up (MVL) – creditors’ voluntary winding up (CVL) – winding up by court (court)
Comments
Section of IA 1986
Applicable:
– without modification (IA)
– as modified (LLP Regulations 2001, Sch 3) – not applicable (NA)
114–116 IA MVL and CVL Applied by LLP Regulations 2001, reg 5 and not excluded/modified by LLP Regulations 2001, Sch 3
117 LLP Regulations 2001, Sch 3 Court
118–119 IA Court Applied by LLP Regulations 2001, reg 5 and not excluded/modified by LLP Regulations 2001, Sch 3
120 LLP Regulations 2001, Sch 3 but NA to
English LLPs
Court Refers to Scotland
121 IA but NA to English LLPs Court Refers to Scotland
122 LLP Regulations 2001, Sch 3 Court
123 IA Court Applied by LLP Regulations 2001, reg 5 and not excluded/modified by LLP Regulations 2001, Sch 3
124–124A LLP Regulations 2001, Sch 3 Court
124B–C NA Court Refers to European Companies/ European
Co-operative Societies
125 IA Court Applied by LLP Regulations 2001, reg 5 and not excluded/modified by LLP Regulations 2001, Sch 3
126 LLP Regulations 2001, Sch 3 Court
Applicable to:
– members’ voluntary winding up (MVL) – creditors’ voluntary winding up (CVL) – winding up by court (court)
Comments
Section of IA 1986
Applicable:
– without...
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