Scotland: insolvency of ordinary partnerships and limited partnerships
Produced in partnership with Tim Cooper of Addleshaw Goddard
Last updated on 28/07/2020

The following Restructuring & Insolvency practice note produced in partnership with Tim Cooper of Addleshaw Goddard provides comprehensive and up to date legal information covering:

  • Scotland: insolvency of ordinary partnerships and limited partnerships
  • Legal personality of Scottish partnerships and limited partnerships
  • Self-sequestration
  • Creditor’s petition for sequestration
  • Other differences for Scottish LPs
  • Registration
  • Modified Persons with Significant Control (PSC) regime

Scotland: insolvency of ordinary partnerships and limited partnerships

This Practice Note relates to insolvent partnerships and limited partnerships in Scotland, by which it is meant:

  1. ordinary partnerships: with a principle place of business located in Scotland, and

  2. limited partnerships (LPs): registered at Companies House in Scotland as a Scottish LP

(referred to together for the purposes of this Practice Note as Scottish partnerships).

Scottish partnerships have separate legal personality under Scots law, and as such are governed by the Scottish bankruptcy regime for sequestration of individuals (see Practice Note: Scotland: the process for applying for sequestration), and are not within the reserved competency of the UK parliament at Westminster.

This Practice Note does not cover limited liability partnerships (LLPs) registered in Scotland, which are treated the same as companies for corporate insolvency purposes (for more information, see Practice Notes on Scottish compulsory liquidation—Scotland: compulsory liquidation, Scottish creditors' voluntary liquidation—Scotland: process to enter creditors’ voluntary liquidation (CVL)). For a glossary of commonly used Scottish insolvency terms, see Practice Note: Glossary of Scottish insolvency words and expressions.

Legal personality of Scottish partnerships and limited partnerships

In Scots law, a Scottish partnership ‘is a legal person distinct from the partners of whom it is composed’ (see Partnership Act 1890, s 4(2) (PA 1890)).

A Scottish partnership can therefore sue and be sued in its own name, enter into contracts, debts, credit, security and other legal

Related documents:
Key definition:
Insolvency definition
What does Insolvency mean?

This can be defined by two alternative tests (Insolvency Act 1986, s 123):

• cash flow test: a company is solvent if it can pay its debts as they fall due, no matter what the state of its balance sheet (Re Patrick & Lyon Ltd [1933] Ch 786);

• balance sheet test: a company which can pay its debts as they fall due may be insolvent if, according to its balance sheet, liabilities (including contingent liabilities) exceed assets.

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