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Ash
Ash, Solicitor
Category: Law
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Experience:  Solicitor with 5+ years experience
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My brother bought into a business partnership about 10 years

Customer Question

My brother bought into a business partnership about 10 years ago. The business has recently been struggling, both partners have each put in more of their own money to provide working capital. Both partners are jointly liable. The debt to HMRC finally forced the partnership to seek the help of an Insolvency practitioner. The IP helped stall action from HMRC allowing time for the partners to sell the business as a going concern. This cleared the major creditors (HMRC).

However the combined debts of the partners remain at around £800k, the bulk of which is made up of the loans each partner took out.

My brother is about to sell his house (sale agreed) and this will provide enough capital to pay off the 2 loans, plus penalties and the majority of the remainder of the creditors. The other partner has not sold his house and shows little inclination to do so.

Being jointly liable I am very fearful that my brother, if he proceeds with the sale of his house, will have no lever with which to force his partner to repay 50% of the debt.

Is there any way that a legal agreement (enforceable) can be drawn up between the 2 partners that resolves to dissolve the partnership and lays an obligation on my brothers partner to sell his house or raise the necessary funds by a certain date, so that my brother can be repaid what will be owed to him?
Submitted: 3 years ago.
Category: Law
Expert:  Ash replied 3 years ago.

AlexWatts2013 : Hello my name is Alex and I will help you with this. Please note that I am a working Solicitor and may be on and offline as I have to attend Court and meet with clients, even at weekends. As such you may not get an instant response when you reply as this is not an ‘on demand’ live service, but rest assured I will be giving your question my immediate attention upon return.
AlexWatts2013 : Is there any form of partnership agreement please?
JACUSTOMER-yfyw8139- :

yes I believe there is a partnership agreement however I have not had sight of it. Essentially the nub of the problem is that if my brother pays off the debts of the partnership he cannot sure that his partner will repay his share when his partner sells his house.

AlexWatts2013 : Yes I underatand. It's bad news I am afraid. He is jointly and severally liable for all debts of the business. This means he is liable for 100% jointly with his partner. So even if he pays 50% he is still liable for the other half unless there is a partnership agreement that states he is only liable for half.
AlexWatts2013 : That is not to say if he discharges more than 50% he could take his ex partner to court for that share. But as it stands each partner is liable jointly for the whole sum and not just half.
AlexWatts2013 : Any creditor is likely to go after the person with the biggest pot of assets or money. Therefore your brother should think very carefully before selling property if it does not guarantee he would be free.
AlexWatts2013 : I realise this may not be the answer you want, nor the one I want to give you but I have a duty to be honest.
AlexWatts2013 : Can I clarify anything about this for you today please? Alex
JACUSTOMER-yfyw8139- :

Yes I understand about the joint liability..... and this is not the point. the 2 big creditors Lloyds and Santander are getting upset and wanting paid. Their penalties are building up, increasing the debt further. My brother has a buyer for his house he owns, he can pay of the Lloyds loan and Santander mortgage both are (for the purposes of this discussion) the same size @ around £320k each. His business partner is planning to put his house on the market, but if he does not, he will be left with his house and my brother, having paid the debt in full, left with nothing.he could have a fight on his hands top get any m

JACUSTOMER-yfyw8139- :

Sorry - stupid system did not let me do carriage return....... as I was saying, my brothers business partner is planning to put his house on the market, but if he does not, he will be left with his house and my brother, having paid the debt in full, left with nothing. My sister in law has drawn up a schedule and what I'm looking to try and do is to ensure that the 2 partners are going to draw up a properly signed and witnessed legal agreement that
resolves to wind up the partnership and resolve the financial matters as laid
out in the repayment schedule within the specified / agreed period of time. Is this a realistic course of action? What form should the agreement take?

AlexWatts2013 : Yes but then the creditors are likely to go after the partner because he has an asset. You can get an agreement but it should be clear that the other partner once 50% had been paid by your brother indemifies and holds harmless your brother for any other liability, penalty, fee or otherwise as a result of the business.
AlexWatts2013 : That means if creditors pursue your brother in court he can counter sue his ex partner.
AlexWatts2013 : But an Indemity clause is what you need. It will not stop your brother being pursued but if the matter goes to court he can counter sue his ex.
Expert:  Ash replied 3 years ago.
If this answers your question, please take a moment before you leave and rate my service, it only takes a second and is an important part of the process. Otherwise if you need more information or help then please click reply. Alex

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