The Insolvent Partnerships Order 1994
53.23 Introduction
The law relating to the winding up of insolvent partnerships and the winding up/bankruptcy of their members is found in The Insolvent Partnerships Order 1994 ("IPO"), which adapts the provisions of the Insolvency Act 1986 to suit the special circumstances of partnership cases. The IPO completely replaces the Insolvent Partnerships Order 1986 (see paragraph 53.57 for transitional provisions). In this part of the chapter, references to article and Schedule numbers and the Order are to the IPO and references to section numbers and the Act are to that Act unless otherwise indicated.
Notes: [article 20]
The Order provides five routes by which a partnership may be wound up, as follows:
a.winding it up as an unregistered company without any petitions against the members or former members, where the petitioner is either a creditor, a ‘responsible insolvency practitioner’, the Secretary of State or any other person other than a member;
b.winding it up as an unregistered company with petitions against one or more members or former members, where the petitioner is a creditor;
c. winding it up as an unregistered company without any petitions against the members, where the petitioner is a member;
d. winding it up as an unregistered company with petitions against all the members, where the petitioner is a member;
e. joint bankruptcy petition by the members without the winding up of the partnership as an unregistered company.
Proceedings under each of these articles modify the provisions of the Act to the varying degrees necessary. The sections of the Act which are altered are listed within the articles themselves and in associated Schedules to the Order.
Note that a number of key definitions are contained in article 2 of the Order.
Note: [article 7 IPO][article 8 IPO][article 9 IPO][article 10 IPO][article 11 IPO]
53.25 Introduction
Where a creditor, etc brings proceedings under article 7 against a partnership alone, the partnership is wound up as an unregistered company under Part V of the Act with relatively few modifications. Those modifications that are necessary are given in Schedule 3 to the Order, of which those most relevant to official receivers are outlined below.
Note: [article 7(1) IPO]
53.26 Grounds for petition
The modified section 221(7) states that the partnership can be wound up as an unregistered company if:
a. it is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;
b. it is unable to pay its debts, or;
c. the court believes that it is just and equitable that it be wound up.
To be wound up the partnership must satisfy the jurisdictional requirements of s221.
Notes: [Sch. 3 Part I Para 3 IPO]
53.27 Identity of petitioner
Schedule 3 also inserts a new section 221A into the Act for proceedings under article 7. Subsection (1) of this section (as amended by section 2 of the Insolvent Partnerships (Amendment) Order 1996) provides that the petitioner in these circumstances may, apart from a creditor of the partnership, the Secretary of State or of any other person other than a member, be:
a. the liquidator or administrator of a corporate member or former corporate member of the partnership, or
b. the administrator of the partnership, or
c. the trustee of an individual member’s, or of a former individual member’s, estate, or
d. the supervisor of a voluntary arrangement approved under Part I of the Act in relation to a corporate member or the partnership, or under Part VIII of the Act in relation to an individual member.
Clearly the official receiver might qualify to be the ‘petitioning insolvency practitioner’ under (a) or (c) above, but should seek to be replaced by an insolvency practitioner rather than become involved in such proceedings. If exceptionally the official receiver believes that he should bring a petition under article 7, the prior agreement of Technical Section at HQ London should be obtained before any action is taken.
The amendment contained in The Insolvent Partnerships (Amendment) Order 1996 restores the rights of the Bank of England or the Securities and Investments Board to present a petition against an insolvent partnership under section 92 of the Banking Act 1987 and section 72 of the Financial Services Act 1986 respectively, which had been unintentionally removed by the IPO.
Notes: [Sch. 3 Part I, Para 3, IPO] [form HQ (L)][Insolvent Partnerships(Amendment) Order 1996(S.I.1996/1308)]
53.28 Court appointment of provisional liquidator or liquidator
Where the petitioner under article 7 is an insolvency practitioner under section 221A(1), subsection (4) gives the court power to appoint him as provisional liquidator (see chapter 2) of the partnership. In similar vein, where a winding-up order is made on such a petition, subsection (5) provides that the court may appoint him as liquidator of the partnership. Where the court does so appoint a liquidator, section 140(3) applies, and the official receiver is under no duty to decide whether to summon creditors’ or contributories’ meetings of the partnership but remains under a duty to investigate the partnership’s affairs.
Note: [Sch.3 Part I Para 3 IPO]
53.29 Proceedings after winding-up order made
As indicated above, proceedings on an order made under article 7 involve few changes to the general provisions for winding up an unregistered company set out in Part V of the Act. Schedule 3 does, however, provide the following:
a. a modified section 131 dealing with the liability of partners and others to submit a statement of affairs (see chapter 12);
b. a modified section 133 concerning public examinations (see chapter 14). This makes no provision for contributories (ie partners) to requisition or take part in the questioning at a public examination
c. a modified section 234 relating to getting in the partnership property. Subsection (2) of this provides that " Any person who is or has been an officer of the partnership, or who is an executor or administrator of the estate of a deceased officer of the partnership, shall deliver up to the office-holder... possession of any partnership property which he holds for the purposes of the partnership";
d. a modified Schedule 4 to the Act (Powers of liquidator in a winding up) which among other things, clarifies the rights of the liquidator to deal with partnership property. Paragraphs 6 and 7 of the modified Schedule 4 specify that the liquidator has the right to sell partnership property. There will thus be no need for the liquidator to obtain a vesting order under s145 of the Act to satisfy a purchaser as to his title to the property being sold
Notes: [Para 10 IPO]
53.30 Introduction
Where a creditor presents a winding-up petition against an insolvent partnership and also presents insolvency petitions against one or more members or former members of the partnership, rather more complex amendments to the standard provisions of the Act are required. The partnership is again wound up as an unregistered company under Part V of the Act, with amendments laid out in Schedule 4 to the Order. Any corporate member or former corporate member of the partnership against which proceedings are brought is dealt with under the general winding-up provisions of the Act, also with adjustments specified in Schedule 4. Any individual member or former member of the partnership against whom a petition is presented is dealt with according to the bankruptcy provisions of the Act, once more with certain modifications laid out in Schedule 4. The most important change in the latter case is that the official receiver, where appointed on the making of a bankruptcy order against an individual partner under article 8, is appointed as trustee in bankruptcy of his estate, not as receiver and manager (see below).
Notes: [article 8(1) IPO][article 8(4) IPO][article 8(6) IPO]
53.31 Grounds for petition
A modified section 221(8) states that the only ground upon which a petition may be presented under article 8 for the winding up of a partnership is that it is unable to pay its debts. The ground for petitioning against a corporate member or an individual member is also inability to pay debts and the amended section 267 in relation to an individual member expressly states that the petition must be in respect of one or more joint debts owed by the partnership.
Notes: [Sch. 4 Part I Para 3 IPO] [Sch.4 Part IIPara 6 IPO]
53.32 Petitions to be dealt with together
The revised section 124 (which incorporates section 264) provides that each petition must be presented to the same court and, unless the court permits or directs otherwise, on the same day. With the leave of the court, however, petitions against other current or former members of the partnership may be added at a later date and, again with the permission of the court, a petition may be withdrawn if continuance of it would delay the progress of the other petitions.
Notes: [Sch.4 Part II Para 8 IPO]
The new section 125A makes provision for cases where an insolvency order is made on one or more petitions but not on the others. Subsection (4) states that, where a winding-up order is made against the partnership but no insolvency order is made against any member within 28 days of that order, the partnership is to be dealt with as if it had been wound up under article 7 of the Order (see above). The court has power under subsection (6) to dismiss a petition against a member where a change in circumstances takes place after the making of a winding-up order against a partnership. Similarly, if the petition against the partnership is dismissed but an insolvency order is made against a member, subsection (5) provides that those proceedings will be conducted within the framework of the Act without modification by the Order. A limited partner (see paragraph 53.4) can have a petition against him dismissed if he satisfies the court that he has met his liability to the partnership or if he lodges sufficient money or security in court to meet it, subsection (7).
Notes: to petitions [Sch.4 Part II Para 9 IPO]
53.34 Appointment of responsible insolvency practitioner
Where insolvency orders are made under article 8, the modified section 140 provides that where this happens upon the discharge of an administration order or where there was a voluntary arrangement in relation to the partnership, the court can appoint the administrator or the supervisor of the voluntary arrangement to be the "responsible insolvency practitioner" in respect of the article 8 orders. The "responsible insolvency practitioner" means the liquidator of the insolvent partnership or corporate member(s) and the trustee in bankruptcy of the individual member(s) against whom the article 8 orders were made. Where an insolvency practitioner is appointed under the amended section 140, the official receiver does not have a duty to decide whether to summon creditors’ meetings but remains under a duty to investigate the partnership’s and the members’ affairs.
Notes: [Sch. 4 Part II Para 15 IPO] [article 2 IPO]
53.35 Appointment of official receiver as responsible insolvency practitioner
Where an insolvency practitioner is not appointed under the modified section 140, the official receiver becomes the "responsible insolvency practitioner" as defined above under an amended section 136. He will therefore be the trustee in bankruptcy, rather than the receiver and manager, of any individual member of the partnership from the date of the article 8 insolvency order.
Note: [Sch. 4 Part II Para 12 IPO]
53.36 Proceedings on order
Once insolvency orders have been made under article 8, the proceedings continue under the appropriate provisions of the Act, subject to certain necessary further modifications made under Schedule 4 to the Order. These include an amended section 131 dealing with statements of affairs, and an amended section 133 regarding public examinations. In the latter case, it should be noted that the modified section 221(7) states that a member of a partnership against whom an insolvency order has been made under article 8 is not to be treated as a contributory for the purposes of the Act unless the contrary intention appears. The consequences of this include that a partner will not be able to requisition a public examination or take part in the questioning where an examination is held. The public examination of a person is possible in each of the proceedings in which he is involved ie the partnership and his own bankruptcy but questions asked in each examination must be limited to the relevant proceedings. However, it is possible for a combined examination to be held if the court so directs, s133(5), as modified.
Notes: [Sch. 4 Part IIParas 10, 11 and Part IPara 3 IPO]
53.37 Realising partnership property
Certain other sections relevant to obtaining and realising partnership property are also amended for article 8 cases. These include:
a modified section 234 of similar effect to that prescribed for article 7 cases (see paragraph 53.29) requiring the delivery of partnership property;
an amended section 283(2) which lays down that partnership property cannot be exempt property, and;
a. a revised section 284 which applies restrictions on dispositions of property between the presentation of the petition and the appointment of a trustee to individual members of partnerships and to dispositions of partnership property made by them;
b. Schedule 4 to the Act (Powers of liquidator in a winding up) is also amended and among other things clarifies the rights of the liquidator to deal with partnership property (see paragraph 53.29(d)).
Note: [Sch.4 Part II Para 27 IPO] [Sch. 4 Part II Para 28 IPO][Sch. 4 Part II Para 29 IPO][Sch. 4 Part II Para 30 IPO]
53.38 Combined creditors’ meeting
Where the official receiver is appointed as the responsible insolvency practitioner under section 136, a new section 136A imposes a duty on him to decide whether to call a meeting of creditors. The decision is to be made within 12 weeks from the day on which the insolvency order was made against the partnership. Such a meeting is to be held on a combined basis, as the modified section 136(4) states, with the creditors of the partnership and of the insolvent member(s) being treated as a single set of creditors, as required by the amended section 139(4). A member of the partnership may not prove for a joint or separate debt in competition with the joint creditors (see section 175C(2)) unless the debt arose from fraud or in the ordinary course of a business carried on separately from the partnership business. Any insolvency practitioner appointed at that meeting will be the responsible insolvency practitioner for the partnership and such of the members against whom article 8 insolvency orders have been made. Should an insolvency order then be made under article 8 against a further member of the partnership after the responsible insolvency practitioner has been chosen at the meeting, section 136A(5) provides that the insolvency practitioner automatically becomes the responsible insolvency practitioner in respect of that member without the official receiver having to summon another meeting of creditors to appoint him.
Notes: [Sch. 4 Part IIPara 12 IPO][Sch. 4 Part IIPara 14 IPO][Sch. 4 Part II Para 23 IPO][article 2 IPO][Sch. 4 Part II Para 12 IPO]
53.39 Secretary of State appointments
Provision is made in a modified section 137 for the official receiver to apply to the Secretary of State for the appointment of an insolvency practitioner in article 8 cases, such application to be on the basis of the practitioner becoming the responsible insolvency practitioner for all the estates. Again, should an article 8 order subsequently be made against a further member of the partnership, section 137A(3) provides that the practitioner will automatically become the responsible insolvency practitioner of that member.
Note: [Sch. 4 Part II Para 13 IPO]
53.40 Applications for directions
Where the responsible insolvency practitioner, which includes the official receiver, wishes to seek the directions of the court in any matter arising from article 8 proceedings, an amended section 168(4) gives authority for this to be done. Without prejudice to this, section 230A(1) provides a specific opportunity for the responsible insolvency practitioner to apply for directions where there is a conflict of interest between his functions as liquidator of the partnership and as liquidator or trustee of an insolvent member, or between his functions as liquidator or trustee of two or more insolvent members.
Notes: [Sch. 4 Part IIPara 20 IPO][Sch. 4 Part IIPara 26 IPO]
53.41 General
A member of a partnership with eight or more members, or, with the leave of the court, a member of any partnership, can apply to the court for the partnership to be wound up. In the latter case the ground of the petition can only be that the partnership has failed to repay the member a sum of £750 or more which he paid on its behalf and that it is therefore unable to pay its debts. Where the partnership has eight or more members, in addition to the grounds that it is unable to pay its debts, it can also be wound up if it is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs, or if the court is persuaded that it would be just and equitable for the partnership to be wound up. Schedule 5 to the Order prescribes an amended section 221 and new 221A to set this out, but otherwise the partnership is wound up as an unregistered company under Part V of the Act, with the same modifications made for cases under article 7 by Part II of Schedule 3 to the Order, (see paragraph 53.29).
Notes: [Sch. 5 Para 2]
53.42EA General
Where a member of a partnership presents a winding-up petition against the partnership and also brings petitions against the member’s, this is dealt with under article 10. This procedure must be distinguished from the more common form of members’ petition by means of a joint bankruptcy petition under Article 11 (see paragraphs 53.44-53.51). Schedule 6 to the Order contains special modifications to the Act to cater for such petitions (see below), but once the petitions have been dealt with, the proceedings follow a similar course to those under article 8, so that the modifications in Part II of Schedule 4 to the Order apply. The official receiver will therefore be trustee of any individual members of the partnership on the making of bankruptcy orders against them, unless an insolvency practitioner previously acting as administrator or supervisor of a voluntary arrangement in respect of the partnership is appointed their trustee instead.
53.43 Petitions
Schedule 6 to the Order amends sections 124(2) and 221(8) of the Act to provide that an article 10 petition can only be presented by a member on the ground that the partnership is unable to pay its debts and if:
a. petitions are at the same time presented for insolvency orders to be made against every member of the partnership, including the petitioner, and;
b. each member is willing to have an insolvency order made against him or it and the petitions contain statements to this effect.
However, the modified section 124(3) states that if the court is satisfied that it would be impracticable to present petitions against the partnership and all its members, it may direct that petitions be presented against the partnership and such members as the court specifies. Further, the amended section 124(10) states that, if satisfied that due to difficulties with service or otherwise, the continuance of a petition against a member would be likely to prejudice or delay the other petitions, the court may direct that the other petitions may be progressed without that petition. When such petitions as survive are heard, section 125A provides for several contingencies to be dealt with in the same manner as in that section in Schedule 4 for article 8 cases (see paragraph 53.33).
Notes: [Sch. 6 Para 3 IPO][Sch. 6 Paras 2 and 4 IPO]
53.44 Introduction
If all the members of an insolvent partnership are individuals, then provided there are no limited partners (see paragraph 53.4) and the partnership is not and has not been an authorised institution within the meaning of the Banking Act 1987, they can jointly present a petition for each of them to be declared bankrupt and for the partnership business to be wound up and its property administered, without also having to apply for the partnership to be wound up as an unregistered company. Where partners follow this course of action, the bankruptcy provisions of the Act are modified by Schedule 7 to the Order. Article 11 proceedings are likely to be the most common form of "members" proceedings because there is no need to advertise a winding-up petition which would delay matters for the partners.
53.45 Grounds for petition
Schedule 7 provides that the only ground for presenting a petition under article 11 is that the partnership is unable to pay its debts (the modified section 272) and as with an ordinary debtor’s petition, an article 11 petition must be accompanied by a statement of affairs, which in this case means a statement of each member’s affairs and a statement of affairs for the partnership. Although it is intended that the petition should be presented by all the members of the partnership, a revised section 266 provides that the court can direct that the petition be presented by such member(s) as it thinks fit if it is satisfied that it would be impracticable for it to be presented by all the members. For example where the whereabouts of one partner is not known.
Notes: [Sch. 7 Para 5 IPO][Sch. 7 Para 4 IPO]
53.46EA Summary administration
The Enterprise Act 2002 section 269, Schedule 23 Paragraph 2 states that section 255 (bankruptcy summary administration) shall cease to have effect. As a consequence paragraph53.46 has been deleted
Notes: [Sch. 7 Para 6 IPO]
53.47 Official receiver as trustee
On the making of bankruptcy orders on a joint petition the official receiver becomes trustee of the estates of the members and trustee of the partnership under the amended section 293, the provisions of section 287 (official receiver as receiver and manager) being disapplied and section 297 (special cases for appointment of trustee) being substantially modified. However, see paragraph 53.49 where a partner is adjudged bankrupt after an article 11 order has already been made against the partnership and other partners.
Notes: [Sch. 7 Para 11 IPO][article 11(2) IPO]
53.48 Partnership property
In relation to partnership property, further provisions of the Act are modified by the Order. The amended section 283(2) provides that partnership property cannot be exempt property. A revised section 284(6) extends the restrictions on dispositions of property after the presentation of the petition to partnership property held on trust for the partnership by a member. In addition, section 312 is amended to require present and former officers of the partnership and executors and administrators of the estate of deceased officers to deliver up partnership property to the trustee. A public examination of a member can be held to obtain information or co-operation (see chapter 14).
Notes: [Sch. 7 Para 7 IPO][Sch. 7 Para 8 IPO][Sch.7 Para 20 IPO][Sch. 7 Para 9 IPO]
53.49 Appointment of insolvency practitioner as trustee
Once appointed, the official receiver is under his customary duty to decide whether to hold a creditors’ meeting under the modified section 293. This meeting is to be held on a combined basis, with the creditors of the members and of the partnership treated as a single set of creditors, as the revised section 297 requires. Members of the partnership are not permitted to prove for a joint or separate debt in competition with the joint creditors, unless the debt arose from fraud or from the ordinary course of a business carried on separately from the partnership business (section 328C(2)). Any insolvency practitioner appointed will be the trustee of all the bankrupt members and the partnership. If a bankruptcy order under article 11 is later made against a further member, the amended section 293(8) provides that the insolvency practitioner automatically becomes his trustee without the need for a further creditors’ meeting.
Notes: [Sch. 7 Para 11 IPO] [Sch.7 Para 14 IPO] [Sch. 7 Para 21 IPO] [Sch.7 Para 11 IPO]
53.50 Secretary of State appointments
The official receiver may apply to the Secretary of State under the revised sections 295, 296 or 300 for the appointment of an insolvency practitioner as both trustee of the members’ estates and trustee of the partnership. Where an appointment of a trustee has been made under section 296 and a bankruptcy order is subsequently made against a further insolvent member under article 11 the amended section 296(4) provides that the insolvency practitioner automatically becomes that member’s trustee.
Note: [Sch. 7 Paras 10, 12, 13 and 17 IPO]
53.51 Applications for directions
Where the trustee wishes to obtain the directions of the court in relation to any matter arising from article 11 proceedings, the general provision made in section 303 (2) of the Act is available, as amended by the Order (see paragraph 53.52). Without prejudice to this, a specific provision is made in the Order in new section 292A for the trustee to apply for directions where he believes that there is a conflict of interest either between his functions as trustee of the members’ estates and trustee of the partnership or between his functions as trustee of the estates of two or more members.
Notes: [article 14 IPO][Sch. 7Para 10 IPO]
53.52 Proceedings against persons found to be members of insolvent partnerships
The Order includes amendments to sections 168 and 303 of the Act which give the court powers to make orders regarding the future conduct of insolvency proceedings where it is discovered that an insolvent is a member of an insolvent partnership. These powers include in particular:
a. the power to order that any provision of the Order will apply to a particular insolvency, with any modifications that may be necessary;
b. directions as to the administration of the joint estate of a partnership, and in particular how it and the separate estate of any member of the partnership are to be administered, and;
c. where bankruptcy petitions have been presented against more than one individual partner, directions for the consolidation of some or all of the proceedings.
The court may exercise such powers at any time after a bankruptcy or winding-up petition has been presented and may do so irrespective of whether or not the petition was presented under the provisions of the Order. An order or direction under these provisions may be made on the application of the official receiver, any responsible insolvency practitioner, the trustee of the partnership or any other interested person.
Notes: [article 14 IPO][s168(5B) or 303 (2C)] [s303(2B)] [s168(5A) or 303 (2A)][s168(5B) or 303 (2C)]
53.53 Other insolvency proceedings
The Order also specifies that the company voluntary arrangement provisions contained in Part I of the Act shall apply to insolvent partnerships (with modifications set out in Schedule 1 to the Order). Corporate members of any such partnership may already make use of this procedure. Individual members of a partnership may make use of the individual voluntary arrangement procedure laid out in Part VIII of the Act. Guidance on the official receiver’s role in voluntary arrangements is given in chapter 20. An administration order under Part II of the Act may also be made in respect of an insolvent partnership, with modifications set out in Schedule 2 to the Order.
Notes: [article 4 IPO] [article 5 IPO] [article 6 IPO]
Where an insolvent partnership is wound up as an unregistered company under Part V of the Act, the provisions of sections 6 to 10, 15, 19(c) and 20 of, and Schedule 1 to, the Company Directors Disqualification Act 1986 apply, with modifications laid out in Schedule 8 to the Order. Official receivers should observe the reporting and other requirements under the provisions of the Company Directors Disqualification Act 1986 as set out in Volume 2 of the Technical Manual. The partners should be treated as directors for reporting purposes.
53.55 Statutory forms
The statutory forms are set out in Schedule 9 to the IPO. They are applicable to all proceedings whether brought in the High Court or county courts. The forms may be varied if circumstances dictate, however the basic format should be adhered to.
Notes: [article 17]
53.56 Subordinate legislation
Various subordinate legislation as detailed in Schedule 10 to the IPO subject to the provisions of the Act and the Company Directors Disqualification Act 1986 is applied by the IPO. In the event of any conflict between the provision of the subordinate legislation and that of the IPO, the provision of the latter will prevail.
Notes: [article 18]
The Insolvent Partnerships Order 1986 will continue to apply to all cases where a winding up order has been made against a partnership or a bankruptcy order has been made against a partner prior to 1 December 1994. Where proceedings are pending at 1 December 1994, ie a statutory or written demand has been served or a petition has been presented, the proceedings will be continued in accordance with the IPO 1994. The court does however have the right to intervene and direct that the proceedings be conducted under the Insolvent Partnerships Order 1986.
Notes: [article 19]
53.58 Creditor - ability to take proceedings against member(s)
The enactment of the IPO does not prevent a creditor who is owed money by an insolvent partnership taking proceedings under the Act against a member or members of the partnership who are liable for the debt. The creditor is not required to include all members of the partnership in the proceedings or to petition for the winding up of the partnership as an unregistered company.
Notes: [article 19]
53.59 Petitions under other legislation
It should be noted that in addition to proceedings being brought under the IPO petitions may be presented against insolvent partnerships under the provisions of:-
a. section 53 or 54 of the Insurance Companies Act 1982 (winding up: insurance companies),
b. section 72(2) (d) of the Financial Services Act 1986 (winding up: investment business),
c. section 92 of the Banking Act 1987 (winding up: authorised institutions), or
d. any other enactment.
Notes: [article 19]
53.60 Consolidation of bankruptcy proceedings
Bankruptcy proceedings may be consolidated irrespective of whether they were commenced under the Bankruptcy Act 1914, the Act or by virtue of the Insolvent Partnerships Order 1986 or this Order. Where such proceedings are consolidated the court shall make provision for the manner in which the consolidated proceedings are to be conducted.
Notes: [article 19article 14 (2)]
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