May 2009

Part 5 Partnership procedures, fees, costs and expenses

36.76 Introduction (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, part 3 and Chapter 36A Part 7, and Chapter 36A Annex B.

36.77 Winding up procedures for partnership businesses

The IPO94 provides five routes via which a partnership business may be wound up:

• Winding up as an unregistered company without any petitions against the members or former members. The petitioner is either a creditor, liquidator, temporary administrator or a responsible Insolvency Practitioner or the Secretary of State, or any other person other than a member [Note 1 Insolvent Partnerships Order 1994 Schedule 3 Article 7].
• Winding up as an unregistered company with petitions against one or more of the members or former members. Petitioner is either a creditor, liquidator or temporary administrator [Note 2 Insolvent Partnerships Order 1994 Schedule 4 Article 8].
• Winding up as an unregistered company without any petitions against the members where the petitioner is a member of the partnership [Note 3 Insolvent Partnerships Order1994 Schedule 5 Article 9].
• Winding up as an unregistered company with petitions against all the members. Petitioner is a member [Note 4 Insolvent Partnerships Order 1994 Schedule  6 Article 10].
• Joint bankruptcy petition by the members without the winding up of the partnership as an unregistered company; although the order gives the trustee of the bankruptcy estates authority to wind up the affairs of the partnership [Note 5 Insolvent Partnerships Order 1994 Schedule 7 Article 11].

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

If a deposit is received for the winding up of a partnership with no concurrent petition against any member under either article 7 or 9 of the Insolvent Partnerships Order 1994 (IPO94), the case should be treated as if it were an unregistered company. It may also be the case that separate insolvency proceedings (i.e. not under the provisions of the IPO94) are commenced against a member or members of the partnership. In these circumstances, a separate estate account should be opened for the partnership and each partner and the petition deposits should be credited to the estate of the insolvent to which they relate.

36.79 Consolidation with partnership estate where separate bankruptcy order(s) made

In the circumstances described in paragraph 36.78, official receivers should consider whether the administration of the partnership and individual members’ estates could be more conveniently continued if the directions of the court are sought to consolidate proceedings under article 14 of the IPO94 (see Chapter 53 for information on partnerships generally).

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 6 insolvent Partnerships Order 1994 Article 11].

36.81Winding up of insolvent partnership and concurrent bankruptcy petitions [IPO 94 Article 8 and 10]

Where a petition is presented by virtue of article 8 (winding up of insolvent partnership as unregistered company on creditor’s petition where concurrent petitions presented against one or more members) or article 10 (winding up of insolvent partnership as unregistered company on member’s petition where concurrent petitions presented against all members), a deposit is only required in respect of the petition for winding up the partnership and it should be credited to the partnership (joint) estate. Where there are concurrent petitions presented against one or more members, these are entered on to LOIS by the Petitions and Deposits Team in EAS, but the link to the winding-up petition must be done by the relevant official receiver’s office as EAS does not have the facility to do this.

See also the table concerning insolvent partnerships at Annex D to this chapter.

36.82 Partnership administration fees

(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 joint estate with fee B1 (or, if the member itself is a company, fee W1) charged in each separate estate (see Annex D).In addition to the joint estate, there will be a separate estate for each member against whom an insolvency order is made (see Annex D) [Note 7 Insolvent partnerships Order 1994 Articles 8 and 10].

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.  Each of the estates against which an insolvency order has been made should have an official receiver’s administration fee charged to it (but not the partnership estate as this does not have an insolvency order made against it).

The administration fees for the individual members’ estates can only be charged against the remaining valid order, so the administration fees for each separate partner’s estate should be transferred to the separate estates within the consolidated case number, leaving the balance at zero on the accounts for the (later) case numbers with no valid order.

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 1985 apply to the winding up of an insolvent partnership as an unregistered company [Note 8]. 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.

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 IPO94 applies 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 9 Insolvent Partnerships Order 1994 Schedule 4 Article 8]. 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

The provisions of section 175(1) IA86 (as modified) apply in a case where article 8 of IPO94 applies, as regards priority of expenses incurred by a responsible insolvency practitioner, which includes the official receiver, of an insolvent partnership, 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 joint estate of the partnership are applied in payment of the joint 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 [Note 10 Sections 175 and 328 as modified by the Insolvent Partnerships Order 1994 Schedule 4,  Article 8, Part II, paragraph 23].

36.87 Payment of expenses from any estate, with the leave of the court or sanction of the creditors’ committee

Without prejudice to paragraph 36.86 (iii)-(vi), the responsible insolvency practitioner, with the sanction of the creditors’ committee or with the leave of court, may;

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 11 Insolvent Partnerships Order 1994 Schedule 4, Art 8, Part II, paragraph 23.175(7)].

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