The Insolvent Partnerships Order 1994

Section 328: Priority of expenses and debts

21.  Section 328 is modified so as to read as follows—

“Priority of expenses

328.— (1) The provisions of this section shall apply in a case where article 11 of the Insolvent Partnerships Order 1994 applies, as regards priority of expenses incurred by a person acting as trustee of the estates of the members of an insolvent partnership and as trustee of that partnership.

(2) The joint estate of the partnership shall be applicable in the first instance in payment of the joint expenses and the separate estate of each insolvent member shall be applicable in the first instance in payment of the separate expenses relating to that member.

(3) Where the joint estate is insufficient for the payment in full of the joint expenses, the unpaid balance shall be apportioned equally between the separate estates of the insolvent members against whom insolvency orders have been made and shall form part of the expenses to be paid out of those estates.

(4) Where any separate estate of an insolvent member is insufficient for the payment in full of the separate expenses to be paid out of that estate, the unpaid balance shall form part of the expenses to be paid out of the joint estate.

(5) Where after the transfer of any unpaid balance in accordance with subsection (3) or (4) any estate is insufficient for the payment in full of the expenses to be paid out of that estate, the balance then remaining unpaid shall be apportioned equally between the other estates.

(6) Where after an apportionment under subsection (5) one or more estates are insufficient for the payment in full of the expenses to be paid out of those estates, the total of the unpaid balances of the expenses to be paid out of those estates shall continue to be apportioned equally between the other estates until provision is made for the payment in full of the expenses or there is no estate available for the payment of the balance finally remaining unpaid, in which case it abates in equal proportions between all the estates.

(7) Without prejudice to subsections (3) to (6) above, the trustee may, with the sanction of any creditors' committee established under section 301 or with the leave of the court obtained on application—

(a) pay out of the joint estate as part of the expenses to be paid out of that estate any expenses incurred for any separate estate of an insolvent member; or

(b) pay out of any separate estate of an insolvent member any part of the expenses incurred for the joint estate which affects that separate estate.

Priority of debts in joint estate

328A.— (1) The provisions of this section and the next (which are subject to the provisions of section 9 of the Partnership Act 1890(1) as respects the liability of the estate of a deceased member) shall apply as regards priority of debts in a case where article 11 of the Insolvent Partnerships Order 1994 applies.

(2) After payment of expenses in accordance with section 328 and subject to section 328 (2), the joint debts of the partnership shall be paid out of its joint estate in the following order of priority—

(a) the preferential debts;

(b) the debts which are neither preferential debts nor postponed debts;

(c) interest under section 328D on the joint debts (other than postponed debts);

(d) the postponed debts;

(e) interest under section 328D on the postponed debts.

(3) The responsible insolvency practitioner shall adjust the rights among themselves of the members of the partnership as contributories and shall distribute any surplus to the members or, where applicable, to the separate estates of the members, according to their respective rights and interests in it.

(4) The debts referred to in each of paragraphs (a) and (b) of subsection (2) rank equally between themselves, and in each case if the joint estate is insufficient for meeting them, they abate in equal proportions between themselves.

(5) Where the joint estate is not sufficient for the payment of the joint debts in accordance with paragraphs (a) and (b) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which—

(a) shall be a debt provable by the responsible insolvency practitioner in each such estate, and

(b) shall rank equally with the debts of the member referred to in section 328B(1)(b) below.

(6) Where the joint estate is sufficient for the payment of the joint debts in accordance with paragraphs (a) and (b) of subsection (2) but not for the payment of interest under paragraph (c) of that subsection, the responsible insolvency practitioner shall aggregate the value of that interest to the extent that it has not been satisfied or is not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which—

(a) shall be a debt provable by the responsible insolvency practitioner in each such estate, and

(b) shall rank equally with the interest on the separate debts referred to in section 328B(1)(c) below.

(7) Where the joint estate is not sufficient for the payment of the postponed joint debts in accordance with paragraph (d) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which—

(a) shall be a debt provable by the responsible insolvency practitioner in each such estate, and

(b) shall rank equally with the postponed debts of the member referred to in sectio 328B(1)(d) below.

(8) Where the joint estate is sufficient for the payment of the postponed joint debts in accordance with paragraph (d) of subsection (2) but not for the payment of interest under paragraph (e) of that subsection, the responsible insolvency practitioner shall aggregate the value of that interest to the extent that it has not been satisfied or is not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which—

(a) shall be a debt provable by the responsible insolvency practitioner in each such estate, and

(b) shall rank equally with the interest on the postponed debts referred to in section 328B(1)(e) below.

(9) Where the responsible insolvency practitioner receives any distribution from the separate estate of a member in respect of a debt referred to in paragraph (a) of subsection (5), (6), (7) or (8) above, that distribution shall become part of the joint estate and shall be distributed in accordance with the order of priority set out in subsection (2) above.

Priority of debts in separate estate

328B.— (1) The separate estate of each member of the partnership against whom an insolvency order has been made shall be applicable, after payment of expenses in accordance with section 328 and subject to section 328C(2) below, in payment of the separate debts of that member in the following order of priority—

(a) the preferential debts;

(b) the debts which are neither preferential debts nor postponed debts (including any debt referred to in section 328A(5)(a));

(c) interest under section 328D on the separate debts and under section 328A(6);

(d) the postponed debts of the member (including any debt referred to in section 328A(7)(a));

(e) interest under section 328D on the postponed debts of the member and under section 328A(8).

(2) The debts referred to in each of paragraphs (a) and (b) of subsection (1) rank qually between themselves, and in each case if the separate estate is insufficient for meeting them, they abate in equal proportions between themselves.

(3) Where the responsible insolvency practitioner receives any distribution from the joint estate or from the separate estate of another member of the partnership against whom an insolvency order has been made, that distribution shall become part of the separate estate and shall be distribute in accordance with the order of priority set out in subsection (1) of this section.

Provisions generally applicable in distribution of joint and separate estates

328C.— (1) Distinct accounts shall be kept of the joint estate of the partnership and of the separate estate of each member of that partnership against whom an insolvency order is made.

(2) No member of the partnership shall prove for a joint or separate debt in competition with the joint creditors, unless the debt has arisen—

(a) as a result of fraud, or

(b) in the ordinary course of a business carried on separately from the partnership business.

(3) For the purpose of establishing the value of any debt referred to in section 32 A(5)(a) or (7)(a), that value may be estimated by the responsible insolvency practitioner in accordance with section 322.

(4) Interest under section 328D on preferential debts ranks equally with interest of debts which are neither preferential debts nor postponed debts.

(5) Sections 328A and 328B are without prejudice to any provision of this Act or of any other enactment concerning the ranking between themselves of postponed debts and interest thereon, but in the absence of any such provision postponed debts and interest thereon rank equally between themselves.

(6) If any two or more members of an insolvent partnership constitute a separate partnership, the creditors of such separate partnership shall be deemed to be a separate set of creditors and subject to the same statutory provisions as the separate creditors of any member of the insolvent partnership.

(7) Where any surplus remains after the administration of the estate of a separate partnership, the surplus shall be distributed to the members or, where applicable, to the separate estates of the members of that partnership according to their respective rights and interests in it.

(8) Neither the official receiver, the Secretary of State nor a responsible insolvency practitioner shall be entitled to remuneration or fees under the Insolvency Rules 1986(2), the Insolvency Regulations 1986(3) or the Insolvency Fees Order 1986(4) for his services in connection with—

(a) the transfer of a surplus from the joint estate to a separate estate under section 28A(3),

(b) a distribution from a separate estate to the joint estate in respect of a claim referred to in section 328A(5), (6), (7) or (8), or

(c) a distribution from the estate of a separate partnership to the separate estates of the members of that partnership under subsection (7) above.”.

(1)

1890 c. 39.

(2)

S.I. 1986/1925, amended by S.I. 1987/1919, S.I. 1989/397, S.I. 1991/495 and S.I. 1993/602.

(3)

S.I. 1986/1994, amended by S.I. 1987/1959, S.I. 1988/1739 and S.I. 1991/380.

(4)

S.I. 1986/2030, amended by S.I. 1988/95, S.I. 1990/560, S.I. 1991/496 and S.I. 1992/34.