The Insolvent Partnerships Order 1994

Explanatory Note

(This note is not part of the Order)

This Order revokes and replaces the Insolvent Partnerships Order 1986 (S.I. 1986/2142) (“the 1986 Order”). Like the 1986 Order it provides a code for the winding up of insolvent partnerships, but it also introduces two new procedures— voluntary arrangements and administrations— for insolvent partnerships.

The Order differs in form from the 1986 Order in that, rather than making textual amendments to the provisions of the Insolvency Act 1986 (c. 45) (“the Act”) applied by the Order with modifications, it sets the modified provisions out in full in the Schedules to the Order. In so doing, many of the provisions applying to partnerships, individual members and corporate members (as defined in article 2) have been amalgamated.

The following are the main provisions of the Order, and the main changes made to the 1986 Order:—

1.  Article 4 and Schedule 1 apply Part I of the Act (company voluntary arrangements) to insolvent partnerships for the first time, with appropriate modifications.

2.  Article 6 and Schedule 2 apply Part II of the Act (administration orders) to insolvent partnerships for the first time, with appropriate modifications.

3.  Where an insolvent partnership is wound up under Part V of the Act as an unregistered company without involving the concurrent insolvency of any of its members, separate provision is now made depending on whether the winding up is on the petition of a creditor, a responsible insolvency practitioner or the Secretary of State (article 7 and Schedule 3) or a member’s petition (article 9 and Schedule 5). A main change from the corresponding provisions in the 1986 Order is that the jurisdictional requirements of the 1986 Order have been modified so far as creditors' petitions are concerned. Under the 1986 Order the courts in England and Wales only had jurisdiction if the partnership had a principal place of business in England and Wales. Under the Order, whilst that remains the case on a member’s petition, the court also has jurisdiction on a creditor’s petition if the insolvent partnership has a place of business in England and Wales (which in the case of the county court must be in the relevant insolvency district) at which business is carried on in the course of which the petition debt arose (Schedule 3 paragraphs 3 and 6; Schedule 5, paragraphs 1 and 2). Special rules apply for partnerships which also have a principal place of business in Scotland or Northern Ireland.

4.  Where the winding up of an insolvent partnership involves the concurrent insolvency of its members, separate provision is now made depending on whether the appropriate petitions are presented by a creditor (article 8 and Schedule 4) or a member (article 10 and Schedules 4 and 6). Other main changes from the 1986 Order are:—

(a) on a creditor’s petition, a minimum of one member (rather than two as previously) needs to be made insolvent concurrently with the partnership (article 8(1));

(b) the jurisdictional requirements are as set out in paragraph 3 of this Note (Schedule 4, paragraphs 3 and 5; Schedule 6, paragraphs 1 and 4);

(c) the Order makes further modifications to section 271 of the Act which was the subject of a decision of the Court of Appeal in In Re Marr (A Bankrupt) (1990 2 WLR 1264) (Schedule 4 paragraph 9; Schedule 6, paragraph 3);

(d) on the making of a bankruptcy order against an individual member the official receiver no longer becomes receiver and manager pending the appointment of a trustee, but becomes trustee unless and until another responsible insolvency practitioner (as defined in article 2) is appointed in his place (Schedule 4, paragraph 12);

(e) the Order removes the mandatory requirement under section 136 of the Act as modified by the 1986 Order for the official receiver to summon a meeting of creditors to choose a person to be responsible insolvency practitioner in his place and replaces it with a discretion to do so, as is the case in section 136 in unmodified form. The official receiver is however under a duty to consider the exercise of that discretion under section 136A (Schedule 4, paragraph 12); and

(f) Schedule 4, paragraphs 23 and 24 contain modified provisions on the order of priority of payment of expenses and debts out of the joint and separate estates. In particular, where the joint estate is not sufficient for the payment of the joint debts, it provides for the responsible insolvency practitioner to lodge a claim representing the aggregate value of the outstanding amount of those debts in the separate estate of each member against whom an insolvency order has been made.

5.  Provision for the individual members of an insolvent partnership to present petitions for their bankruptcy (provided there are no corporate or limited partners) is now made by article 11 and Schedule 7. Main changes from the 1986 Order are:—

(a) the court may issue a certificate of summary administration of the estate of any qualifying member (Schedule 7, paragraph 6); and

(b) Schedule 7, paragraph 21 contains modified provisions on the order of priority of payment of expenses and debts out of the joint and separate estates. In particular it makes provisions similar to those referred to in paragraph 4(f) above.

6.  Article 16 and Schedule 8 apply specified provisions of the Company Directors Disqualification Act 1986 (c. 46) where an insolvent partnership is wound up as an unregistered company under Part V of the Act.

7.  The relevant forms for use in proceedings under the Order are contained in Schedule 9 (article 17).

8.  Article 18 and Schedule 10 specify the subordinate legislation which is to apply for the purposes of giving effect to the provisions of the Act and of the Company Directors Disqualification Act 1986 applied by the Order.

9.  Article 19 of the Order contains supplemental and transitional provisions.

10.  A Compliance Cost Assessment is available, copies of which have been placed in the libraries of both Houses of Parliament. Copies are also available from The Insolvency Service of the Department of Trade and Industry, PO Box 203, Room 5.1, 21 Bloomsbury Street, London WC1B 3QW.