When is Limited not Limited?

Having just undertaken the winding up of a Limited Liability Partnership (LLP) we are asking ourselves a very real question about how much liability is really limited by this form of partnership structure.  This article will be very relevant to accountants and solicitors who have themselves chosen the LLP route or are advising clients.

In this particular case, Cranfield has just dealt with a small, single location LLP business (international traders of frozen fish) where the partners had been advised by their accountant to trade as an LLP as a way of limiting the liability of the individual partners.  But as they have found out, limited liability isn’t all it’s cracked up to be as in their situation they could still be liable to repay a significant sum to the liquidator in respect of drawings for the last two years.
 
Therefore, any business considering limited liability partnership status as a route to limiting personal liability should give careful consideration to all the pros and cons before they commit.

It’s interesting however that the Companies House definition for an LLP seems to lack our degree of first hand understanding:

Limited Liability Partnership (LLP) shares many of the features of a normal partnership - but it also offers reduced personal responsibility for business debts. Unlike members of ordinary partnerships, the LLP itself is responsible for any debts that it runs up, not the individual partners. Source: Companies House Website

Whilst this definition may be accurate it certainly shouldn’t be taken at face value.  The amount of liability a partner in an LLP has on a winding up is effectively the amount set out in the limited liability partnership agreement. In most cases the amount the partner has put in, together with the net amount he has drawn for the last two years will be his contingent liability.

Having recently handled an LLP insolvency, we are happy to share our knowledge and experience with any newsletter readers.  Call Tony Mitchell on 024 7655 3700 or email Tony here.

Increase in Tax Efficient MVLs

As solicitors and accountants look for tax efficient solutions for their clients there’s been a marked increase in the number of Members' Voluntary Liquidations handled by Cranfield Recovery. This has in part been fuelled by the tougher stance being adopted by HM Revenue & Customs with respect to the extra statutory concession (ESC16) of treating final dividend distributions as capital distributions.

Definition:  A Members’ Voluntary Liquidation is a form of solvent liquidation, a mechanism for distributing the assets of a company to shareholders in a tax efficient manner.

In recent cases handled by Cranfield Recovery, MVLs have allowed a Housing Association to distribute £17m in assets, allowed the redistribution of shares in a subsidiary company
to members and also given protection to a company with a strong asset base but no liquid funds.

To wind-up a solvent company the directors must swear a declaration of solvency stating that they can/will pay all creditors within twelve months. This declaration must be followed, within five weeks, by a meeting of the shareholders (members) to adopt a resolution to wind-up the company.  This has the effect of placing the company in members’ voluntary liquidation.  A liquidator is appointed (who has to be a licensed insolvency practitioner) who settles all outstanding liabilities in full, together with statutory interest, and distributes the remaining assets usually within twelve months of the start of the members’ voluntary liquidation. 

To discuss the use of Members’ Voluntary Liquidations for your clients contact Brett Barton on 024 7655 3700 or email Brett here.

Brett Barton Joins the Elite

Cranfield Recovery manager Brett Barton has joined an elite group of individuals to pass the Joint Insolvency Examination Board (JIEB) exams in a single sitting.  Of 178 individuals who sat the exams alongside Brett, only 80 (45%) passed. The examination is a severe test of knowledge of insolvency law and practice through three gruelling three hour papers, which include questions on both corporate and personal insolvency.  Having passed Brett has now applied for his insolvency license and will start to take on cases in his own right.

Tony Mitchell comments:  “We are proud of Brett’s achievements.  There aren’t many who get through first time around.  With Brett expected to be granted his license any day now Cranfield will have two licensed insolvency practitioners based in Coventry, which we believe makes us unique not only in Coventry but in the whole of Warwickshire.”