Partnership debt and the partnership voluntary arrangement

Are partners personally liable for partnership debts?

Partners in an ordinary partnership are jointly liable for the partnership's debts under section 9 of the Partnership Act 1890 (opens in a new tab), so a creditor can pursue any partner personally.

Section 9 makes every partner “liable jointly with the other partners” for all the debts of the firm incurred while they are a partner.

GOV.UK puts it more plainly: you and your partners personally share responsibility for your business (opens in a new tab), including its losses and the bills for stock or equipment. A debt the firm runs up is a debt of each partner, on top of their own household borrowing.

Limited partnerships and limited liability partnerships (LLPs) follow different rules, so this page is about ordinary partnerships. For LLPs and limited companies, see our group's corporate practice. NTF Corporate Solutions Limited is part of the NTF group and run by the same two practitioners, so the group benefits from any work it takes on. If you are working on your own, read about debt help for sole traders, where the business debts are yours alone.

What is a partnership voluntary arrangement?

A partnership voluntary arrangement is a formal arrangement that lets an insolvent partnership in England and Wales propose terms to its creditors, using the company voluntary arrangement rules as modified by the Insolvent Partnerships Order 1994 (opens in a new tab), with a licensed insolvency practitioner as nominee and supervisor.

The practitioner acts as nominee while the proposal is considered and as supervisor once it is approved. Those are insolvency practitioner roles in law (opens in a new tab), and James Kaye and Nick Morgan, licensed insolvency practitioners, can take them on for an insolvent partnership in England and Wales.

The partners can also propose their own Individual Voluntary Arrangements, alongside a PVA or without one: article 5 of the Order (opens in a new tab) keeps that route open. Read how an IVA works for the individual side.

A PVA only works if the creditors accept it and the firm can keep to it. Fees apply, it may not be suitable in all circumstances, and each partner's credit rating may be affected. We set out every option open to the firm and to each partner before anything is proposed.

What happens if a partnership cannot pay its debts?

If a partnership cannot pay its debts, the Insolvent Partnerships Order 1994 (opens in a new tab) gives it a choice of formal procedures: a partnership voluntary arrangement, a winding up of the firm as an unregistered company, or a joint bankruptcy petition presented by all the partners together.

In a joint bankruptcy petition (opens in a new tab), every partner asks the court for a bankruptcy order against each of them, and the firm's business is wound up without the partnership being wound up as an unregistered company. The trustee in that procedure is a licensed insolvency practitioner.

Creditors can act as well, by petitioning to wind up the firm, sometimes with petitions against one or more partners at the same time. For what a personal procedure means for you, read our guides to an IVA and bankruptcy.

Every option has fees and risks, and none suits every firm.

Can one partner go bankrupt without the others?

Yes, one partner can go bankrupt without the others, because article 19(5) of the Insolvent Partnerships Order 1994 (opens in a new tab) lets a creditor of the firm petition against one or more partners liable for the debt without including the others and without winding up the partnership.

Bankruptcy does not shift the burden off the firm's other partners. When the bankrupt partner is discharged, section 281 says discharge does not release any other person (opens in a new tab) from a liability they share as partner. The other partners stay liable for the firm's debts.

A partner in difficulty can also propose their own IVA, which may let the firm carry on while that partner pays what they can afford to their creditors. Whether that works depends on the partnership agreement and on the other partners, so we look at the firm and each partner together.