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Insolvency for Partnerships and Sole Traders

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Companies House Insolvency FAQs
How to Wind Up Your Business UK – Guide

Sole traders have two options to consider as a way out of company insolvency – Bankruptcy or an Individual Voluntary Agreement.

Bankruptcy

If as a sole trader you become insolvent, you can be made bankrupt. Insolvency is when you lack sufficient assets to cover debts or are unable to pay debts when they are due. If you trade as a sole trader in a partnership or have given a personal guarantee for the debts of a limited company, you are liable for these debts and can be made bankrupt.

If the court approves your application for bankruptcy, an insolvency practitioner or Official Receiver will take control of your estate. It is the Receiver’s responsibility to then sell assets to pay creditors.

Individual Voluntary Agreement

An Individual Voluntary Agreement (IVA) is an alternative to bankruptcy. For more information on how an IVA can benefit you click here.

Partnership Insolvency

Partnership Insolvency can take one of three courses:

    1) Company Liquidation
    A business ceases trading when it is liquidated ie, when its assets are sold to pay creditors. Creditors owed more than £750 can ask the court to wind up your business. This is known as compulsory liquidation.
    2) Partnership Voluntary Agreements
    Similar to other voluntary agreements, this formal insolvency arrangement allows the partners to propose a repayment scheme. Any repayment plan must be approved by 75% of creditors.
    3) Administration
    A court may appoint an administrator. An administrator will tackle company debt problems and if possible, re-establish the business as an ongoing concern. The court, specified creditors (such as a bank), or the business itself may appoint an administrator. An administrator takes over the running of the business and arranges a creditors meeting to discuss the next course of action.

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