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Bankruptcy: partners


Many difficult problems arise when apartner is responsible for the debts of his firm. Distinction must be made between joint creditors and separate creditors: joint creditors arc creditors of the partnership firm, separate creditors are creditors of the individual partners. The made bankrupt separately. Where the firm is made bankrupt on the petition of a joint creditor, a receiving order re the firm applies to all partners, but each partner must be adjudicated separately. Generally speaking the bankruptcy of a firm does not necessarily involve the insolvency of all partners. However, if a firm is made bankrupt, all partners are fully liable for all debts and as this is so, the separate creditors may also wish to prove lest one partner be called uf>on to pay the debts of the others. In fact, the bankruptcy of a firm will normally involve the bankruptcy of all partners though the bankruptcy of a partner would not necessarily involve the bankruptcy of the firm. Where the firm is made bankrupt problems arise with reference to the priority to be given to joint or separate creditors.

There will be a number of separate bankruptcics, separately administered: the bankruptcy of the firm and the separate bankruptcy of each partner. Generally speaking the Bankruptcy Act 1914 provides that in these circumstances the trustee should apply the joint estate first to satisfy joint creditors, and that separate estates shall be applied primarily to the settlement of claims of separate creditors. This means that the joint creditors have first pick of the assets of the firm "but that separate creditors have first pick of the assets of each separate partner. There are certain cxceptions: (1) where joint creditors pay off all trust is involved on the part of a partner (in this case the creditor may prove his debts in yp (3) where there is no joint estate and no solvent partner (if the creditor petitioning against a separate partner is also a joint creditor he can prove in the separate bankruptcy for both debts). Joint and separate dividends are usually declared simultancously. There will be one trustee for all bankruptcies but various committees of inspection. Where the bankruptcy is a seperate bankruptcy and not a joint one, the creditors of the firm may prove for their debts but only after separate creditors have been paid in full. These bankruptcies normally dissolve the partnership.


Reference: The Penguin Business Dictionary, 3rd edt.