INSOLVENCY AND LIMITED LIABILITY
PARTNERSHIPS
SEBASTIAN KOKELAAR
THIRTEEN OLD SQUARE CHAMBERS
13 – 14 OLD SQUARE
LINCOLN’S INN
LONDON
WC2A 3UE
THIRTEEN OLD SQUARE CHAMBERS © November 2012
What is an LLP?
• Section 1, Limited Liability Partnership Act 2000:
• A body corporate with legal personality separate from
that of its members
• Unlimited capacity
• Members of the LLP have such liability to contribute
to the assets of the LLP in a winding up as is provided
for by virtue of the Act
THIRTEEN OLD SQUARE CHAMBERS © November 2012
What is an LLP?
• An LLP is formed when two or more persons associated for
carrying on a lawful business subscribe their names to an
incorporation document: section 2(1), LLP Act 2000
• Incorporation document must be delivered to the Registrar.
THIRTEEN OLD SQUARE CHAMBERS © November 2012
What is an LLP?
An LLP is a like a company in that:
• It has legal personality separate from its members and has
its own rights and liabilities
• It has unlimited capacity so the validity of any act done by it
cannot be called into question by reason of some limitation
in the LLP agreement: section 39(1), Companies Act 2006
• It will continue to exist even if its membership is reduced to
one or none until wound up and dissolved
THIRTEEN OLD SQUARE CHAMBERS © November 2012
What is an LLP?
An LLP is like a partnership in that:
• No distinction in the internal structure between the owners
of the business and the managers
• Every member of an LLP can act as its agent and bind it:
section 6(1), LLP Act 2000
• LLP liable for the wrongful acts and omissions of members
done in the course of the business of the LLP: section6(4),
LLP Act 2000
• Tax transparent: section 1273(1), Corporation Tax Act 2009
• But: partnership law does not apply: section 1(5), LLP Act
2000; Brown v InnovatorOne plc
THIRTEEN OLD SQUARE CHAMBERS © November 2012
Statutory framework
• Sections 14 and 15, LLP Act 2000: power to make
regulations to apply insolvency and company law to LLPs
• Limited Liability Partnerships Regulations 2001
• Limited Liability Partnerships (Amendment) Regulations
2005
• Limited Liability Partnerships (Application of Companies
Act 2006) Regulations 2009
THIRTEEN OLD SQUARE CHAMBERS © November 2012
Insolvency
All corporate insolvency procedures are available in respect of
LLPs, i.e.:
• Compulsory liquidation
• Voluntary liquidation
• Voluntary arrangement
• Administration
• Administrative Receivership (but prohibition in appointment
of AR applies)
THIRTEEN OLD SQUARE CHAMBERS © November 2012
Administration
Administrator may be appointed in one of two ways:
• By an administration order made by the court on the
application of:
• the LLP itself
• one or more of its creditors
• the designated officer for a magistrates court
• Out of court by:
• the holder of a qualifying floating charge
• the LLP itself
THIRTEEN OLD SQUARE CHAMBERS © November 2012
Administration: court route
Court must be satisfied that:
• LLP is or is likely to become unable to pay its debts
• It is reasonably likely that the purpose of administration
may be achieved
DKLL Solicitors v HM Revenue & Customs
Re Halliwells LLP
THIRTEEN OLD SQUARE CHAMBERS © November 2012
Administration: out of court route
• Procedure same as for company: filing of notice of
appointment at court
• Only LLP itself can make the appointment; individual
members cannot do so.
• Decision to appoint administrator to be taken in accordance
with terms of the LLP agreement
• Otherwise common law rules relating to decision-making of
corporate bodies apply: Merchants of the Staple of England v
Governors & Company of the Bank of England
THIRTEEN OLD SQUARE CHAMBERS © November 2012
Liquidation
•Part IV of the IA 1986 applies in modified form
•Voluntary winding up is initiation by a ‘determination’ of the
LLP: section 84(1), IA 1986 (as modified)
•Compulsory winding up: section 122, IA 1986 (as modified)
•Standing to present/be heard on a petition: section 124, IA
1986 (as modified):
• LLP itself
• Creditors
• Individual members? Charit-Email Technology
Partnership LLP v Vermillion Investments Ltd
THIRTEEN OLD SQUARE CHAMBERS © November 2012
Liquidation
Statutory powers of liquidator to pursue claims against
individual members:
• Summary procedure under section 212, IA 1986
• Fraudulent and wrongful trading
• Transactions at an undervalue, preferences and
transactions defrauding creditors
• Claw back of withdrawals of LLP property: section 212A,
IA 1986
THIRTEEN OLD SQUARE CHAMBERS © November 2012
Taxation of insolvent LLPs
• Tax transparency of LLP continues in administration
• Tax liabilities incurred by members as a result of the
activities of the administrator cannot be treated as expense
of the administration
• Effect of LLP ceasing to trade: section 1273(3), Corporation
Tax Act 2009
• Effect of LLP being placed in liquidation: section 1273(4),
Corporation Tax Act 2009
THIRTEEN OLD SQUARE CHAMBERS © November 2012