Partnerships as an entity are generally on the decline, but what happens when a partner becomes insolvent?

Firstly consider whether a formal partnership deed exists, as this will normally detail the basis on which the business will proceed.  However, in the absence of a deed, the Partnership will be determined by the Partnership Act 1890, and in this case the insolvency of one of the members will mean that the partnership will automatically dissolve.

The partners have joint and several liability for any partnership debts and therefore partners should consider their own exposure and the consequences should one of the members become insolvent.

Best practice should always be to draft a deed in order to accurately define the liability on private estates.

If the business is insolvent, a number of options are now available following the introduction of the Insolvent Partnership Order 1994, including Partnership Voluntary Arrangements (similar to an IVA) and Administration Orders.