Insolvency advice for sole traders & partners

Sole traders are responsible personally for the debts of their business. Partners are jointly and severally liable. This means that each partner is potentially responsible for the entire debts of the partnership if the other partners cannot pay.

If a sole trader or partnership has financial problems, it is therefore the owners who have to find the money to settle the debts. This often means that the trader or the partners themselves fall into financial difficulty. If you find that your business is failing or needs some breathing space, it is important to act immediately. Failure to recognise the problem can result in heavy penalties if you continue to trade whilst insolvent.

The ways in which sole trader or partnership businesses can be dealt with are similar to those for individuals, but with the additional complication that a separate process is needed for the business and for each individual.

It may be that in a partnership, each partner has a different profile and therefore a different best solution. Perhaps one partner would be best advised to declare bankruptcy, whereas another should undergo a Voluntary Arrangement. It is important that the partners work together to give each the best result.

We try to avoid bankruptcy if the business requires credit facilities and is totally dependent on the individual running it, because a bankrupt has restrictions imposed on him which can make it very difficult to continue a business, including restrictions on taking credit from suppliers and a ban on holding a position as a director or officer in a limited company. This can prevent the business converting to limited liability status, which can be a useful means of preventing future problems.

Even if bankruptcy cannot be avoided, there are ways in which the business can continue until the bankruptcy period is served (usually no more than one year) and we can advise on these ways.

The partnership itself may be able to continue or settle its debts under a Partnership Voluntary Arrangement. This is where the debts of the partnership are settled or partially settled over a period, with support from the partners. In this case, each individual partner could have their own Individual Voluntary Arrangement, possibly with different terms from other partners.

Likewise, a sole trader may be able to trade on or settle its debts under an Individual Voluntary Arrangement. In either case, the individual’s total debts, from the business and those incurred personally, can be included.

You may have been advised to consult an Insolvency Practitioner. This is someone who is an Officer of the Court, whose responsibility is exclusively to your creditors.

There are ways to deal with your debts in a responsible and legal manner, whilst at the same time protecting your own interests. But an Insolvency Practitioner has no obligation or incentive to tell you what these are. We act only for you, the debtor, and can advise you which of the alternatives satisfies best your own interests, and help you through the entire process.

We can advise on how to deal with the problem including advice on:

Debt and Bancruocy adviceBankruptcy – a complete guide to IVAs and business bankcrupcy

When you or your company are made bankrupt, your assets (possessions, home, income etc) can be used to pay your debts. You have to agree to certain restrictions and your financial affairs will be investigated. Find out how bankruptcy affects you and where to get advice on dealing with your debts.

see our Bankruptcy Advice Centre

bankruptcy advice

Debt Management

  1. Your options at a glance
  2. Debt Management Comparison
  3. Credit Scores and what you need to know