Summary

Mr and Mrs Hollens traded in partnership which carried on business as a retail fast food business operating from a mobile van which was owned by the partnership. Mr and Mrs Hollens and the partnership were each insolvent. Mr and Mrs Hollens petitioned for his/her own bankruptcy. Acting on advice from a debt relief agency, and in the hope that the van would in consequence be treated as exempt property, Mr and Mrs Hollens chose not to present the petitions in their capacity as members of the partnership. Bankruptcy orders were duly made on each petition. The making of the bankruptcy orders brought about the dissolution of the partnership pursuant to s. 33(1) of the Partnership Act 1890. It also resulted in each of the debtors ceasing to have power to bind the partnership (s. 38 of the Partnership Act 1890). Having been made bankrupt, neither Mr nor Mrs Hollens had any right or authority to wind up the partnership’s affairs. Nor did the Official Receiver, as trustee in bankruptcy of each of the estates of Mr and Mrs Hollens, have any such automatic right. In short, the practical effect of the making of individual bankruptcy orders was to leave the assets of the dissolved partnership in limbo. That analysis notwithstanding, the Hollens continued to trade from the van after the orders had been made.

With a view to ensuring that the partnership affairs were wound up, the Official Receiver thereafter made an application in each of the bankruptcies, pursuant to section 303(2A)-(2C) of the Insolvency Act 1986 for directions that the partnership conducted by the bankrupts be administered as if the individual members had presented a joint bankruptcy petition pursuant to s. 264 of the Insolvency Act 1986 as amended by Article 11 and Schedule 7 to the Insolvent Partnerships Order 1994.

The application was heard and refused in the Preston County Court. District Judge Ashton observed that if the van had been owned by either of the partnerships individually, then it would have been treated as exempt property pursuant to s. 283(2)(a) of the Insolvency Act 1986, and opined that the non-application of s. 283(2)(a) to partnership property was “a lacuna in the law” in consequence of which “the law is wrong”.

Facts

The availability of the procedure saves costs and provides a quick and cheap method of securing that an insolvent partnership’s assets are applied in payment of debts and liabilities of the partnership and (subject thereto) in payment of the debts in the individual bankruptcies of the members of the partnership.

The Insolvent Partnerships Order 1994 was (once again) the subject of adverse judicial comment. Blackburne J described the interrelationship of the Order and the Insolvency Act 1986 as “very far from straightforward even for those familiar with insolvent law and practice”. He went on to say that “Understanding how the scheme words is not assisted by its mode of presentation”, and that the process of understanding “is made more difficult by the fact that some of the articles provide for modifications to the 1986 Act by reference to modifications introduced by other articles so that it requires much cross-referencing and, at a practical level, much thumbing through the pages of the IPO to establish just what the schedule of modifications is which is to apply to the particular insolvency proceedings”.

Held

Article 14(2) of the Insolvent Partnerships Order 1994 (and thus section 303(2A) to (2C) of the Insolvency Act 1986, which was introduced by article 14(2)) is not confined in its scope to empowering the consolidation of existing proceedings relating to a partnership and one or more of its individual partners. The pre-conditions to its application are (1) that there is evidence that the partnership is insolvent, and (2) that the court must be satisfied that the order which it is being asked to make is one that it could have made if the individual members had in fact presented a joint bankruptcy petition (i.e. it is necessary to show that the partnership is unable to pay its debts).

The District Judge’s refusal, motivated by what he saw as the injustice of the position, to make the directions sought by the Official Receiver was an incorrect approach to have adopted in dealing with the application and the District Judge’s decision was therefore set aside. The appropriate course was to give directions so that the partnership could be administered as if the debtors had presented a joint bankruptcy petition. The extreme simplicity of the estates and their very close identity made this a paradigm case for the exercise of the powers contained in s. 303(2A)-(2C).