Part 5 Partnership procedures, fees, costs and expenses
(Amended May 2010)
This part deals with the administration of partnership cases, including fees, costs, expenses and assets. The provisions in this regard are provided under the IA86 with modifications under the Insolvent Partnerships Order 1994 (IPO94). Further information on the payment of expenses and distribution of assets in partnership cases is also given in Chapter 53 and Chapter 36A Part 7, and Chapter 36A Annex B.
36.77 Winding up procedures for partnership businesses
(Amended February 2012)
The IPO94 provides five routes via which a partnership business may be wound up:
(a) “Ordinary” partnerships:
(b) Article 11 partnerships:
See Annex D to this chapter for details of the different accounting conventions for the deposit and administration fee applied to “Ordinary” and “Article 11” partnerships.
36.78 Deposit received in partnership winding up proceedings (Article 7 or 9 of the IPO94)
(Amended February 2012)
If a deposit is received for the winding up of a partnership under Articles 7 or 9 of the Insolvent Partnerships Order 1994 (IPO94) (where there is no concurrent petition against any member), the case should be treated as if it were an unregistered company and the deposit credited to the partnership’s estate account.
36.78A Deposit received in partnership winding up proceedings (Articles 8 or 10 of the IPO94)
(Inserted February 2012)
If a deposit is received for the winding up of a partnership (as an unregistered company) and also concurrent petitions are presented against one or more members of the partnership (under Article 8 or 10 of the IPO94), one deposit is paid and credited to the partnership estate account. Proof of payment of this deposit is sufficient to enable a petition to be presented against any member, but the deposit is only credited to the partnership estate account [Note 11].
(Inserted February 2012, formerly paragraph 36.65)
Where a petition is presented against a partnership business and an individual partner under Article 8 of the IPO94, and the winding-up petition against the partnership is subsequently dismissed, the petitioner cannot claim expenses related to the winding up of the partnership from the partner’s bankruptcy estate. If the winding-up petition is withdrawn (i.e. as a consequence of the petition debt being paid) or dismissed, it is open to the petitioning creditor to seek an order for costs in those proceedings. Without an order of costs in the winding-up proceedings, the petitioning creditor must bear his/her own costs.
36.79 Consolidation with partnership estate where separate bankruptcy order(s) made
(Amended February 2012)The previous contents of this paragraph have now been deleted. With the implementation of ISCIS the accounting requirement to seek consolidation of insolvency orders where partners are subject to separate insolvency orders is removed. See Chapter 53, paragraph 53.124
36.80 Joint bankruptcy petition under Article 11 of the IPO94
If a joint bankruptcy petition is presented under Article 11 (Insolvency proceedings not involving the winding up of the insolvent partnership as an unregistered company where individual members present joint bankruptcy petition), then only one deposit will be received. In such cases only one joint bankruptcy order is drawn up showing each description separately and appointing the trustee of the bankrupts' estates to be trustee of the partnership estate and to wind up the affairs of the partnership and administer the partnership property. An estate account should be opened for the partnership and separate estate accounts for each partner. The petition deposit should only be apportioned equally between the separate estates and not the joint estate[Note 9].
(deleted February 2012)
(a) Joint bankruptcy petition (Article 11)
Where the members of an insolvent partnership jointly present a petition to the court for bankruptcy orders to be made against each of them in his/her capacity as a member of the partnership, and the winding up of the partnership business and administration of its property without the partnership being wound up as an unregistered company, the bankruptcy provisions of the IA86 Part IX (except sections 273, 274 and 287) and Parts X to XIX apply. Each individual partner’s estate will attract an administration fee (fee B1) but no administration fee is charged against the joint estate (see Annex D).
(b) Winding-up order against partnership plus concurrent insolvency orders against member(s)
Where a winding-up order is made against a partnership and there are concurrent insolvency orders against some, or all, members, the partnership itself is treated as an unregistered company and fee W1 charged to the partnership estate, with fee B1 (or, if the individual member of the partnership itself is a company, fee W1) charged in each individual member’s estate (see Annex D). In addition to the partnership estate, there will be a separate estate for each member against whom an insolvency order is made (see Annex D) [Note 3][Note 7].
36.83 Consolidation of partnerships – dealing with administration fee
Where two or more bankrupts in partnership jointly declare themselves bankrupt on a debtors’ petition, this should be completed under an Article 11 IPO94 partnership application. The court will make individual insolvency orders against each individual member, and the official receiver will be authorised to wind up the affairs of the partnership under one court number, but without the making of a winding-up order against the partnership. Each member’s estate will have an administration fee charged against it, but an administration fee will not be charged against the partnership estate.
Occasionally, where individual partners have filed separate applications for bankruptcy, the court makes separately numbered bankruptcy orders against the individual members (instead of filing the orders under Article 11 under one court number). Subsequently the official receiver can apply to court under Article 14 of the IPO94 to have the orders consolidated under the earliest court number and for the relevant provisions to apply to the insolvency costs. Each of the estates against which an insolvency order has been made should have an administration fee charged to it (but not the partnership estate as this does not have an insolvency order made against it).
36.84 Winding up of insolvent partnership as unregistered company on petition of creditor etc., or member, where no concurrent petition presented against member
(Amended May 2010)
The provisions of the Insolvency Act 1986 and the Companies Act 2006 apply to the winding up of an insolvent partnership as an unregistered company [Note 12]. This means the usual rules regarding the administration and application of assets in winding up proceedings (see Chapter 36A Part 5) are applied where an insolvent partnership is wound up as an unregistered company and there is no concurrent petition presented against any member of the partnership. See also Chapter 53.
36.85 Winding up of insolvent partnership as an unregistered company on creditor’s petition where concurrent petitions presented against one or more members
Article 8 and Schedule 4 of the IPO94 apply the provisions of Part V IA86 (winding up of unregistered companies, (other than sections 223 and 224), as modified, to the winding up of an insolvent partnership as an unregistered company on a creditor’s petition where concurrent petitions are presented against one or more members [Note 3][Note 4]. In the case of the winding up of a corporate member or former corporate member of an insolvent partnership being wound up under this regime, Parts IV, VI, VII and XII to XIX IA86 apply and, in the case of the bankruptcy of an individual or former individual member of an insolvent partnership, Part IX (other than sections 269, 270, 287 and 297) and parts X to XIX IA86 apply. Modifications to IA86 are contained in Schedule 4 IPO94. The principal modifications having a bearing on the distribution of partnership assets relate to sections 175 and 328 IA86 which deal with the priority of expenses and debts.
36.86 Priority of expenses
Sections 175 [Note 13]and 328 [Note 14] as modified by the Insolvent Partnerships Order 1994 Schedule 4(23) [Note 15] apply in a case where Article 8 or Article 10 of IPO94 apply, as regards priority of expenses incurred by a responsible insolvency practitioner of an insolvent partnership (which includes the official receiver), and of any insolvent member of that partnership against whom an insolvency order has been made.
The priority of expenses is as follows:
i. Firstly the assets of the partnership estate are applied in payment of the partnership estate expenses.
ii. Also the assets of the separate estate of each insolvent member are first applied to the payment of the separate expenses relating to that member’s estate.
iii. Where insufficient funds are available in the joint estate to pay the joint expenses in full, any unpaid balance is apportioned equally between the separate estates of insolvent members (against whom insolvency orders have been made) and shall form part of the expenses to be paid out of those estates.
iv. If any separate estate of an insolvent member has insufficient funds to pay in full the separate expenses relating to that estate, then the unpaid balance shall form part of the expenses to be paid out of the joint estate.
v. If once an unpaid balance has either been apportioned between the separate estates or transferred to the joint estate, as the case may be, the balance remaining unpaid shall be apportioned equally between the other estates.
vi. If there are still insufficient funds to pay in full, then the unpaid balance will be apportioned equally between the other estates. After this, where one or more estate is carrying a debit balance, the total of the unpaid expenses to be paid out of those estates shall continue to be apportioned equally between the other estates until the expenses are paid in full or there are no funds available to meet the unpaid expenses, in which case the unpaid balance is apportioned equally between all estates. See also Chapter 53 Part 7 and Chapter 36A Annex B.
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 the separate estate [Note 17]. Where an insolvency case is being dealt with where the order was pre 1 December 1994 and therefore subject to the Insolvent Partnerships Order 1986, official receivers should refer to EAIPS for guidance on the correct accounting regime to follow.