Business partner becomes bankrupt
What happens to a partnership and assets when a partner becomes bankrupt, responsibility for debts and the distribution of profits
If a business partner is subject to a bankruptcy order, they will have to hand over control of their assets to the official receiver.
Partnership profits and assets
This will probably mean that the official receiver - or an insolvency practitioner if one is later appointed - will dispose of the partner's share of partnership property and use the money to pay the fees, costs and expenses of the bankruptcy and then the partner's creditors. See more on bankruptcy.
The partners in the old partnership will be able to split what remains - if anything - between themselves in accordance with the partnership agreement.
Any future profits will be split among the remaining partners.
What happens to the partnership if a partner becomes bankrupt?
If there are only two partners in the partnership the partnership will be automatically dissolved and the remaining partner must re-register for Self Assessment as a sole trader.
If there are more than two partners the partnership will be dissolved unless the partnership has agreed otherwise.
It is advisable to tell your solicitor and your accountant of any changes to a partnership, and the partnership's bank should be informed if there are any guarantees provided by the partners.
Reporting changes to limited partnerships
For limited partnerships and limited liability partnerships, you need to inform Companies House when a member joins or leaves - see running a company or partnership and reporting changes to Companies House.