Partners liable to pay nearly £600k costs of failed business

Two partners in a failed business have been told that the liquidator can call upon them to pay nearly £600,000 between them for the partnership’s liabilities and the expenses of the winding-up.

The issue arose after the liquidators had applied for a call order under the Insolvency Act 1986.

The order provided that the liquidators might call on the partners to each pay £292,820.

The partners argued that the order was an abuse of process because it was made ex parte (without their involvement or knowledge) and without notice to them.

The High Court rejected their appeal and upheld the order.

It held that the liability of a partner extended beyond the debts and obligations of the firm incurred whilst a partner and included the expenses of the winding-up.

The insolvency of a company imposed a responsibility on the present and past members to contribute to the payment of its debts and liabilities and the expenses of the winding-up and, if necessary, to adjust the contributions between contributories to ensure equality. 

The law set a ceiling on the contribution to an amount sufficient for paying those liabilities and expenses.

However, the judge added that in this case, the order simply gave permission to make a call and contained no form of conclusiveness. The partners could raise any points they wished in relation to enforcement.

It was common ground that the amounts claimed in the call were incorrect, but they could be challenged and adjusted, if necessary, at the enforcement stage.

Please contact Neil O’Callaghan if you would like more information about the issues raised in this article or any aspect insolvency and partner liabilities.