Winding Up an LLP
Winding up an LLP or limited liability partnership is a process that can be initiated in a couple of different ways. The business can be subject to a winding up petition from creditors who want to force the partnership into liquidation so the money they’re owed can be repaid. There are also instances when the partners of an LLP can choose to wind up the business voluntarily.
In this guide, we’ll take a closer look at the voluntary and compulsory winding up of an LLP and explore how the process works as well as the potential consequences for the partners.
What is a Limited Liability Partnership (LLP)?
A limited liability partnership is a business structure in which some or all of the partners of the business benefit from limited liability. That means the individual partners of the business are not personally responsible for the business’s debts beyond the value of their initial investment. LLPs exist somewhere between traditional partnerships and limited companies, as they offer the flexibility and tax benefits of a traditional partnership but with the protection of a limited company.
Firms that typically have this type of business structure include solicitors, accountants, architects, veterinary practices, medical practitioners, chartered surveyors and professional service providers.
The Voluntary Strike off and Dissolution of an LLP
If you and your fellow partners all agree to wind up the LLP and the business does not have any outstanding debts, it’s possible to close it down relatively simply by having it struck off the Companies House Register. This is a common way to close down a business if you or your partner(s) wish to retire and the business is no longer in active operation.
This procedure cannot be used as an alternative to formal insolvency proceedings. If the LLP is struck off with outstanding debts then creditors and other parties can apply for the business to be restored to the register so they can take action to recover the money they are owed.
How Does the Voluntary Strike off Procedure Work?
To strike of an LLP voluntarily, the application must be made by a majority of the partners or both partners if there are only two. Creditors, members and any other party that has an interest in the LLP’s affairs must be warned of the strike off before you apply so they can object to the strike off if they wish. You should also tie up any loose ends such as selling or transferring business assets, paying all tax liabilities to HMRC and closing the business’s bank account before you apply.
After that, striking off form LL DS01 must be completed and sent to Companies House along with a small disbursement fee of £10 when submitting the form offline, or £8 when it’s submitted online. The registrar will then publish notice of the proposed striking off in the Gazette to allow interested parties to object. If no objections are received and there’s no other reason not to do so, the registrar will strike off the LLP not less than three months after the date of the notice and the business will cease to exist.
The Compulsory Winding up of an LLP
If you’re a partner in a limited liability partnership which has outstanding debts it has not repaid, your business can be forcibly wound up by its creditors. The business’s creditors will start by taking action such as issuing a statutory demand or a county court judgement (CCJ) for the debt to be repaid. If no payment is forthcoming, creditors can then choose to issue a winding up petition against your business.
Being issued with a winding up petition is a stressful and worrying situation. That’s because, if you do not act immediately, the business will be forced into liquidation and its assets will be sold for the benefit of its creditors. The company will then be closed down and the partners will face an investigation into their conduct. That could lead to partners being made personally liable for company debts and even banned from operating as directors of a business for up to 15 years.
When Might an LLP be Wound up by its Creditors?
Issuing a winding up petition against a business is the final straw for a disgruntled creditor that has already explored every possible route to recover the money they are owed. The most common creditor to issue a winding up petition against an LLP or a limited company is HMRC.
A creditor can petition to wind up a company if it is owed at least £750, although, in the vast majority of cases, the debt will be significantly more due to the costs involved in the process. Some creditors may use the threat of a winding up petition as a scare tactic to force the repayment of a debt, while other creditors such as HMRC will be very serious about the process and will close your business down if the debt is not paid.
What is the Process for Winding up an LLP?
Once a winding up petition has been issued against a limited liability partnership, you have just seven days to respond to the petition or settle the debt. If you fail to respond within that period, the insolvency of your business will be publicised in the Gazette. That can be devastating for the LLP as the banks will freeze your company bank accounts, making it very difficult to pay your staff, buy supplies and continue to trade.
The next step is for the winding up petition to be heard in court. If the court supports the issue of the petition, a winding up order will be issued and the official receiver or an insolvency practitioner will be appointed to take control of the business and start the liquidation process. It will be their job to release as much value as possible from the business to repay its creditors. The assets of the LLP will be sold and the business will be closed down.
The liquidator is also obliged to conduct an investigation into the reasons for the company’s failure and your conduct as partner/director in the period leading up to the insolvency. The liquidator will also want to determine whether, once the insolvency of the business was realised, the interests of the creditors were put first. You will have to attend a comprehensive interview and if it’s found that you acted wrongly or the creditors’ interests were not prioritised, you could be held personally liable for all or a proportion of the company’s debts.
How can you Prevent the Winding up an LLP?
The simplest way to prevent your LLP from being wound is to repay the creditor who has or is threatening to issue a winding up petition against your business. However, if your business is struggling financially, that’s not always possible. In that case, there are several options you could explore. That includes:
- Reaching an agreement with your creditors to repay the money you owe over time.
- Considering whether other insolvency procedures such as a company voluntary arrangement (CVA) or administration are appropriate. That would allow the business to continue trading and the creditors would be repaid some or all of the money they are owed.
- Entering into a creditors’ voluntary liquidation (CVL) to close the business down voluntarily, repay creditors and reduce the level of scrutiny you’ll face as a partner.