Restructuring & Insolvency services for Sole Traders & Partnerships
Individuals who run a business, either as a sole trader or as a partner in a partnership, are personally liable for the debts arising from their business activity.
Should the business experience any financial difficulty, Mercer & Hole’s Restructuring & Insolvency team can offer advice on the options available and assist with implementing the most appropriate solution.
Restructruing & Insolvency advice for Sole Traders
Whilst operating as a sole trader is the simplest way to run a business, the business is usually run on a tight budget basis with limited external investment. A sole trader is personally liable for the debts of the business and does not have the benefit of “limited liability” protection available to businesses incorporated under the Companies Act or the Limited Liability Partnerships Act.
Should a sole trader experience financial difficulty, advice should be sought as soon as possible from Mercer & Hole who will carry out a review of the business and advise on the most practicable and workable solution available.
Solutions we regularly advise sole traders on include:
- Informal compromise with creditors – Mercer & Hole’s Restructuring & Insolvency team can assist with contacting key or significant creditors with a view to negotiating extended or reduced repayment terms, allowing time for the business to get back on track.
- Individual voluntary arrangement - if there is a real prospect that, with a bit of a breathing space, the business can survive its current financial difficulties and return to profitability, Mercer & Hole can assist with drafting a proposal to creditors for an individual voluntary arrangement. The proposal should offer a greater repayment to creditors than that which would be available if the business ceased trading. The proposal is likely to be based upon contributions from future profits and requires at least 75% of creditors, in value, to accept.
- Bankruptcy - in the unfortunate event that the business can not survive, then personal assets, as well as those of the business, will be at risk. Mercer & Hole can advise on the consequences of bankruptcy and the impact it may have, not just for the sole trader, but also for any third party who has an interest in the sole trader’s assets.
Restructuring & Insolvency advice Partnerships
The Insolvent Partnerships Order 1994 sets out a range of options available to partnerships in financial difficulty, which are similar to those available to a business incorporated under the Companies Act.
In a partnership, partners are personally liable for the debts of the business, although partners in a limited partnership (not to be confused with a limited liability partnership) who play no part in the management of the business, may have a limit on their liability set out in the Partnership Deed.
Mercer & Hole can advise on the following solutions available to a partnership experiencing financial difficulty:
- Operational or financial restructuring – working alongside the partners and other stakeholders, Mercer & Hole can deliver and implement a restructuring solution which will get the business back on track and help improve cash flow, profit and the value of the business.
- Partnership voluntary arrangement (PVA) – an initial viability review will establish whether the business has a profitable future and is able to trade out of its current financial difficulties. Working with the partners and creditors, Mercer & Hole can assist with preparing a proposal to creditors based upon repayment from future profits. Acceptance of the proposal by creditors will remove the immediate financial pressures allowing the business to continue to trade. As with a Company Voluntary Arrangement, a “small” and “eligible” partnership, as defined by insolvency legislation, can take steps to obtain a moratorium. If personal assets are at risk during this time, it may be appropriate for partners to enter into separate IVAs to run concurrently with the PVA.
Partnership administration – if the partnership requires protection from creditors whilst it is undertaking any restructuring, refinancing or considering a sale, a Partnership Administration may be appropriate. An administrator can be appointed by either an order of the Court, the holder of an agricultural floating charge or by the partners. An administration may be appropriate where the administrator is able to achieve the objective of:
- rescuing the partnership as a going concern, or
- achieving a better result for the partnership’s creditors as a whole than would be likely if the partnership were wound up, or
- realising property in order to make a distribution to one or more secured or preferential creditors.
- Once in administration, no legal proceedings can be commenced or continued against the partnership except with the permission of the administrator or consent of the Court.
- Mercer & Hole can advise and assist with the whole process including acting as administrator.
- Partnership liquidation – if having carried out a review of the business with Mercer & Hole and concluded that the partnership is insolvent and the alternative rescue options are inappropriate, a Partnership Liquidation may be the best way to maximise realisations for the benefit of creditors. A partnership can only be placed into liquidation by an order of the Court on the petition of either a creditor or partner and can not be wound up voluntarily.
Limited Liability Partnerships (LLPs)
Limited liability partnerships were created by the Limited Liability Partnerships Act 2000. They are a form of corporate business vehicle and share the features of a company. Whilst an LLP will be liable to the full extent of its assets, the liability of the partners will usually be limited to the capital they have invested in the LLP.
In the event of the insolvency of a LLP, the laws applicable to companies under the Companies Act 2006 and Insolvency Act 1986 will apply.