Bankruptcy for general partnerships or partnerships with joint liability
If a general partnership is no longer able to meet its financial obligations, the Partnership Meeting must consider if the company is bankrupt. The partnership meeting should then apply for bankruptcy with the district court where the company is registered. The purpose of the proceedings is to get an overview of assets and to turn these into money for distribution between the creditors.
In order for a general partnership to be considered bankrupt, the partnership must be considered insolvent. This means that the enterprise is unable to fulfil its financial obligations by their due date and that there are not sufficient assets in the enterprise to cover the debt either. In the event of insolvency, the company must be unable to fulfil its obligations for the foreseeable future.
The district court will open bankruptcy proceedings at the request of either the enterprise itself or a creditor.
Applications for bankruptcy from the enterprise
- The partnership meeting is the body that can apply for the partnership to be declared bankrupt.
- Partnerships are a separate bankruptcy entity, and it is the enterprise's assets and debt that must be assessed in relation to whether or not the enterprise is bankruptcy. A partnership can be declared bankrupt even if the partners in the partnership are not considered to be bankrupt, but the bankruptcy of a general partnership or partnerships with joint liability will often also entail the personal bankruptcy of the partners.
- A partner in a general partnership or partnership with joint liability can be declared bankrupt without any significance as regards whether or not the partnership is bankrupt. If one of the partners are personally bankrupt, the remaining partner(s) can request the exclusion of this partner. In the event of exclusion, the remaining partner(s) are required to compensate the excluded partner for the value of his or her share of the partnership at the time of exclusion.
- In cases where a general partnership or partnership with joint liability or a partner is declared bankrupt, a distinction must be made between joint creditors and individual creditors. Joint creditors are the partnership's creditors and take precedence over other creditors when they attempt to recover what they are owed from the partnership's assets. Individual creditors are the partners' creditors and they must attempt to recover what they are owed from the partners. What belongs to the partnership and what belongs to the partners is therefore of considerable importance.
- When a partnership notifies the district court, this is known as 'applying for bankruptcy'. In addition to the application for bankruptcy, certain attachments (certificate of incorporation, list of creditors and pledged collateral, list of assets, minutes of partners' meetings and the most recent accounts) must also be submitted. Partnerships that apply for bankruptcy themselves are exempt from the requirement to pledge collateral and any liability for the expenses attributable to the bankruptcy proceedings.
The bankruptcy proceedings
- The district court will consider the application for bankruptcy and assess whether or not the general partnership is insolvent. If the general partnership is insolvent, the district court will open bankruptcy proceedings and an administrator will be appointed.
The administrator is normally a lawyer and is the person who will carry out the bankruptcy proceedings.
- Bankruptcy means that all the partnership's assets will be seized in favour of the joint creditors. When the district court has opened bankruptcy proceedings, everyone who acts on behalf of the enterprise will immediately lose the right of disposal over the assets. The right of disposal is transferred by the administrator to the bankruptcy estate.
- 'Assets' means all assets which belong to the partnership, such as cash, bank accounts, real property, vehicles, operating equipment, outstanding receivables, plant and machinery, registered trademarks and patent rights.
- In connection with the bankruptcy proceedings, administrators can in some cases opt to continue the business or to sell all or part of the business to a new owner.
- The partners, any board and the general manager of the partnership are obliged to assist the estate free of charge. They are obliged to provide the district court and administrator with all necessary information concerning their financial circumstances and their business before and during the bankruptcy proceedings. The debtor is also obliged to help obtain accounting vouchers and other documents of importance for the estate administration and provide other assistance as necessary.
- The partnership's accountant and auditor are obliged to disclose the debtor's accounting documents and inform the estate of the debtor's accounting and business practice. This obligation applies even if fees for the work that has been performed remain unpaid and irrespective of any confidentiality obligation.
- Once the administrator has carried out a complete review of the debtor's financial position, the administration of the estate will be concluded. The estate administration will be terminated by the district court if there are no funds to continue the process. If the estate does have funds, the estate administration proceedings will be concluded through the distribution of the estate's funds between the creditors, so that they receive proportional reimbursement.
After the bankruptcy proceedings
- The debt will not be deleted after the bankruptcy proceedings have been concluded. As a partner, you are personally liable and responsible in full for all debt which has accrued. This means that you will be liable for the component of the debt that is not repaid during the administration of the estate.
- If you still have serious debt problems after the administration of the estate has been concluded, you can apply for a debt management plan.