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Any unpaid creditor can take insolvency action against a limited company that refuses to pay an undisputed debt by issuing a winding up petition. Although limited companies are the most common recipients of a winding up petition, this form of action can also be used to liquidate unregistered businesses such partnerships.
In the case of a partnership, the provisions of insolvency legislation apply to the winding up, in the same way, they would to a registered company, save for the exception that the owners and partners of a business are responsible for the company’s debts.
Unregistered partnerships do not receive the same level of protection as limited company directors/owners. In this case, once a winding up order has been made, partners have to personally contribute to the debts of their business if the partnership assets are not sufficient to cover the partnership’s debts.
In the case of a partnership, there are three different courses of action the petitioning creditor can take. They can:
- Petition to wind up the partnership, but not take any action against individual partners.
- Petition to wind up the partnership and file a bankruptcy petition against one or more of the partners.
- Issue an individual bankruptcy petition against one or more of the partners, without petitioning to wind up the partnership itself.
If the creditor chooses to issue a winding up petition against the partnership, and files a bankruptcy petition against one or more of the partners, the court will consider the winding up order before moving on to bankruptcy petitions. A creditor can only issue a bankruptcy petition against an individual partner if they are owed £5,000 or more.