Mar 2017
Author: Nigel Cook
The applicants had been involved as partners in a partnership business which had been wound up under the Insolvent Partnerships Order 1994 which provides for procedures to be applied equivalent to the insolvency regimes for companies and LLP’s.
The applicants set up a limited company which acquired the business and goodwill of the insolvent partnership from its liquidator, and wished to both re-use the name and to be involved in the management. The Insolvency Service took the view that s.216 applied to the partnership as an unregistered company.
Wishing to have their potential civil and criminal liability clarified the applicants applied for a declaration as to the effect of s.216 in these circumstances.
The High Court decided that s.216/217 did not apply because although s.216(8) includes a company which is liable to be wound up under Part V (as an unregistered company) it did not transform a partnership into a company (in contrast to LLPs).
The court also considered the ‘mischief’ addressed by s.216 (the ‘Phoenix’ problem) and noted the following differences: the partners would remain personally liable for partnership debts; the new corporate business would not appear to be the same as it would operate as a limited company; and the insolvency of the partnership would be well known and not hidden. It therefore followed that notice did not need to be given to the partnership’s creditors.
This appears to be the first time the issue has been brought before the courts and the decision is entirely consistent with the intention of the legislation.
For further information please contact Nigel Cook, either by email [email protected] or on 01306 502294.
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