An insolvent general partnership in England and Wales is dealt with under the Insolvent Partnerships Order 1994, which allows the firm to be wound up as an unregistered company, the partners to be made bankrupt, or both at once. Because a partnership has no legal identity separate from its partners and their liability is unlimited, any shortfall on the firm’s assets falls on the partners personally, and a partnership creditor can bankrupt one partner without touching the firm at all.

Why are partners personally exposed when the firm cannot pay?

Section 9 of the Partnership Act 1890 makes every partner liable jointly with the other partners for all debts and obligations of the firm incurred while they are a partner (in Scotland severally as well). After a partner dies, their estate remains liable for unpaid firm debts, but in England only after their own separate debts are paid. Section 12 goes further for wrongs, such as negligence by a partner acting in the ordinary course of the business: liability for those is joint and several.

The official receivers’ technical guidance (chapter 52) explains the practical result. A partnership is the partners; it has no corporate personality, so any liability of the firm is enforceable against each partner individually. The only partners with limited exposure are limited partners in a limited partnership. A limited liability partnership is a different animal: it is a corporate body and is wound up much like a company, which is covered in our guide to limited liability partnerships.

Unless the partners agree otherwise, losses are met first from profits, then from capital and then by the partners personally in their profit sharing ratios, or equally if no ratio is agreed. The guidance points out that this can catch a partner who contributed less capital, or a salaried partner with no profit share.

What routes exist to wind up an insolvent partnership?

The Partnership Act has no insolvency provisions. Instead the Insolvent Partnerships Order 1994 (SI 1994/2421) applies modified parts of the Insolvency Act 1986. The official receivers’ guidance sets out five winding up routes:

Article Who petitions What happens
7 A creditor or other third party The firm is wound up as an unregistered company with no petitions against the partners. Former partners become contributories with unlimited liability for the deficiency.
8 A creditor The firm is wound up and there are concurrent petitions against one or more partners. If no orders are made against the partners within 28 days of the winding up order, the case continues as if under article 7.
9 A partner Winding up of the firm only. Available to a member of a firm with eight or more members, or to any partner with the court’s leave.
10 A partner Winding up of the firm with concurrent petitions against all the partners, including any corporate partners.
11 All the individual partners jointly A joint bankruptcy petition. The bankruptcy orders include an order winding up the partnership business and the official receiver becomes trustee.

The Insolvency Service’s guide on winding up an insolvent partnership lists the forms used: forms 14, 17 (one for each partner) and 18 for a joint petition by the partners, and forms 5, 6 and 7 for a creditor’s petition against the firm, any corporate partners and any individual partners, normally after a statutory demand on form 4. Whichever route is used, the office holder ends the business, sells assets, collects money owed to the firm and the partners, and distributes funds to creditors.

Can a creditor go straight for one partner?

Yes. The guidance confirms that partnership creditors may seek a bankruptcy order against one or more partners without involving the others and without petitioning against the firm. The Insolvency Service guide notes that the partnership may then continue trading only if there are enough assets to pay its debts, and that the official receiver or trustee in that partner’s bankruptcy cannot deal with the partnership’s assets. So a failing firm can lead to a personal bankruptcy for one partner while the others carry on.

Two further rules are worth knowing. When the court decides whether the firm itself is unable to pay its debts, it looks only at partnership assets and partnership liabilities, not at the partners’ ability to pay from their own pockets. And under section 33 of the 1890 Act a partnership is dissolved by the bankruptcy of any partner, unless the partnership agreement says otherwise.

How are partnership and personal creditors paid?

Where both the firm and the partners are in insolvency proceedings, two pools exist. The joint estate (partnership property) pays the joint creditors, and each partner’s separate estate pays their own personal creditors. A surplus on the joint estate can pass to the separate estates. If the joint estate is not enough, the total of unpaid joint debts becomes a claim against the separate estate of each partner subject to an insolvency order, ranking equally with that partner’s own creditors.

HMRC’s Insolvency Practitioner’s Handbook says that where all partners are insolvent HMRC lodges one claim in the name of the partnership, standing in the joint estate and the separate estates of all the insolvent partners, so it shares in any dividend from any of them. Some HMRC debts carry priority, explained in our page on HMRC’s preferential creditor status, and the mechanics of claiming are covered in proof of debt in insolvency.

Illustration only. Anna and Ben trade in partnership. The firm has assets of £40,000 and joint debts of £120,000, leaving a shortfall of £80,000. Both are made bankrupt. Anna has £30,000 of personal assets and £10,000 of personal debts. The £80,000 joint shortfall ranks alongside her £10,000 of personal debts, so her £30,000 is shared pro rata (before costs): about £26,700 towards the joint shortfall and £3,300 to her personal creditors. The same £80,000 shortfall is also a claim in Ben’s estate.

What about retired, new and limited partners?

Section 17 of the 1890 Act provides that an incoming partner is not liable for debts incurred before they joined, while a retiring partner stays liable for debts incurred before retirement unless the creditors agree to release them. Section 36 adds a trap: someone dealing with the firm after a change can treat all apparent members of the old firm as still being partners until they have notice of the change. A notice in the London Gazette counts as notice only to people who had no dealings with the firm beforehand, so those who already dealt with it need actual notice. The official receivers’ guidance confirms a solvent former partner can be pursued as a contributory. Tax and admin on joining or leaving are covered in partners joining and leaving.

In a limited partnership at least one general partner has unlimited liability, while limited partners are liable only up to their contribution and are excluded from management (Limited Partnerships Act 1907, sections 4 and 6).

Can the partnership be rescued instead?

Article 4 of the 1994 Order allows a partnership voluntary arrangement, which works much like an individual voluntary arrangement or a company voluntary arrangement: a binding deal with creditors supervised by a nominee. The partners can propose one unless an administration order is in force, the firm is being wound up or an order has been made on a joint bankruptcy petition. The official receivers’ guidance notes that in many cases creditors will only approve a partnership arrangement if the partners also enter interlocking individual arrangements. Article 6 also makes administration available to partnerships, for example to rescue the business in a restructured form or to achieve a better realisation than a winding up.

The personal debt respite scheme is of little help here. Under regulation 5 of the breathing space regulations, a debt incurred solely in connection with a business carried on in partnership is not a qualifying debt, as our breathing space page explains.

What happens to the partners’ conduct and future?

The 1994 Order treats a person who acted as a partner in the management or control of the firm as an officer, and article 16 applies the director disqualification regime, so partners of a wound up firm can face disqualification proceedings. Once a winding up order is made, the partners’ authority to deal with partnership property ends and they must hand it over to the official receiver. An undischarged bankrupt can still be a partner in another firm, subject to the trading disclosure rules in section 360 of the Insolvency Act 1986.

What mistakes do partners commonly make?

  • Assuming the trading name protects them. It does not; creditors can pursue any partner personally for the whole debt.
  • Retiring without telling existing customers, suppliers and lenders, leaving the retired partner exposed to new debts under section 36.
  • Moving property out of the firm shortly before failure. Transfers can be challenged by the office holder, for example as transactions at an undervalue.
  • Treating a general partnership as if it were an LLP, or assuming an agreement between the partners on sharing losses binds outside creditors.
  • Relying on breathing space for partnership business debts, which are excluded.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.