The dissolution of a limited partnership (“LP”) may be necessary for a number of different reasons, including re-structuring, the life of the LP has come to an end or if the LP is insolvent. However, in Guernsey, windingup a LP is not always a well-known or straightforward process. Depending on the circumstances in question, there are a number of different approaches that the limited partners, general partner (“GP”) or creditors of the LP can take. The summary steps for dissolving a LP in these different circumstances are set out below:
Step 1: The trigger event
Under the Limited Partnerships (Guernsey) Law, 1995 (as amended) (the “LP Law”), the dissolution of a LP will be initiated if one of the following trigger events occurs:
- An event occurs which is specified in the limited partnership agreement (“Partnership Agreement”);
- The expiration of a fixed term of the LP (specified in the Partnership Agreement), unless the Greffier (whose role is now fulfilled by the Guernsey Registrar of Companies) is notified of its continuance;
- If there is no fixed term in the Partnership Agreement, upon the expiration of thirty years from the date of the LP’s registration;
- Upon the written agreement of all the partners that the LP shall be dissolved;
- Upon the death, legal incapacity, retirement, resignation, removal, bankruptcy or dissolution of the GP (unless, if the Partnership Agreement permits, another GP is validly appointed or within 90 days of the event all remaining partners agree in writing to the continuation of the LP); or
- Upon the making by the Guernsey Royal Court of an order directing the deletion from the Limited Partnerships Register of the particulars of registration of the LP or an order for the dissolution of the LP (“Court Ordered Dissolution”).
Subject to the provisions of the Partnership Agreement, a LP cannot be dissolved by any change in the limited partners or the bankruptcy, death, retirement, removal, resignation, legal incapacity or dissolution of any limited partner and a limited partner may not dissolve the LP by notice.
A Court Ordered Dissolution may be applied for by any partner or creditor of the LP, on the application of the Guernsey Financial Services Commission (“GFSC”) or by the Registrar of Companies, and may be granted if the Royal Court is of the opinion that:
- The LP cannot reasonably carry on its business in conformity with the Partnership Agreement;
- The LP is insolvent;
- The LP is indebted to a creditor for a sum exceeding £750 or such other sum as is prescribed, that creditor has served a signification by Her Majesty’s Sergeant on the LP demanding payment of the debt and the LP has not within 21 days paid the debt or given security;
- There has been a failure to comply with an order of the Royal Court to change the name of the LP;
- The business of the LP is being conducted in a manner which is oppressive or prejudicial to the limited partners or is calculated to prejudicially affect the carrying on of the LP’s business;
- The limited partners are not being given all information relating to the affairs of the LP which they might reasonably expect;
- The affairs of the LP are being conducted in a way to defraud creditors or in an unlawful manner;
- There has been persistent default by the LP or GP in complying with the LP Law or any regulation made under that law or the Control of Borrowing (Bailiwick of Guernsey) Ordinance, 1959 (as amended);
- Persons connected with the formation or management of the LP have been guilty of fraud, misfeasance, breach of fiduciary duty or other misconduct in connection with the LP; or
- It is just and equitable to do so. The Royal Court can make such orders in relation to the dissolution as it thinks fit including appointing liquidators to wind up the LP’s affairs and distribute its assets.
Step 2: Dissolution of the LP
The dissolution of the LP is deemed to take place on the earlier of the date of the occurrence of a trigger event (as listed above) or the date on which the Royal Court orders its dissolution in the case of a Court Ordered Dissolution.
If no liquidator has been appointed by the Royal Court, the GP (or the liquidator of the GP if it is in liquidation itself) shall wind up the LP.
Notice of the dissolution must be filed with the Guernsey Registrar of Companies and published in La Gazette Officielle within seven days of the date of dissolution (failure to do so constitutes an offence on the part of the GP, which will continue to incur liability as if the LP had not been dissolved).
The Registrar of Companies will, as soon as possible, delete the LP from the Register of Limited Partnerships and the LP’s certificate of registration will cease to be valid. Whilst the LP is removed from the register, its affairs can be continued in order to complete the winding up.
Upon the dissolution of the LP no limited partner may, except where the LP is solvent or in accordance with the distribution of the LP’s assets (as set out below), withdraw any part of his contribution or otherwise claim as a creditor of the LP. Further, the LP must cease to carry on business except where it is beneficial for the winding up.
The Royal Court may on the application of any partner or creditor make such orders in relation to the dissolution as it thinks fit, including appointing a liquidator. If a liquidator is appointed, all powers of the GP cease.
All expenses of the dissolution, including the liquidator’s fees, are payable from the LP’s assets in priority to all other debts.
The persons winding up the LP have the following powers and duties:
- They may prosecute, defend or settle any civil or criminal action on behalf of the LP;
- They must dispose of the LP’s property and realise its assets; and
- They must discharge the LP’s debts and distribute any remaining assets to the partners, without prejudice to the personal liability of the partners.
Step 3: Distribution of assets
Upon dissolution, the LP’s assets must be distributed in the following order:
- To creditors, other than the partners, in satisfaction of the LP’s debts;
- To limited partners who are creditors, but not the GP, in satisfaction of the LP’s debts; and
- Subject to the Partnership Agreement, to the partners as follows:
- Firstly to the limited partners for return of their contributions or for the release of their obligations to make contributions;
- Secondly to the limited partners for their share of the profits on contributions;
- Thirdly to the GP, other than for capital and profits;
- Fourthly to the GP in respect of capital; and
- Finally to the GP in respect of profits.
As soon as the LP is fully wound up, the persons conducting the dissolution must prepare an account of the winding up giving details of the conduct thereof and the disposal of the LP's property, and stating whether or not any state of affairs in respect of the LP’s insolvency, uncertainty as to the LP’s assets and/or any issue that has impeded the winding up of the LP, has been brought to their attention. Copies of this account must be provided to all the partners.