INSOLVENCY OF PARTNERSHIPS & CORPORATIONS

Category: Obligations and Contracts

INSOLVENCY OF PARTNERSHIPS & CORPORATIONS

WHEN PARTNERSHIP MAY BE DECLARED INSOLVENT

     A  partnership  may  be  adjudged  insolvent  during  the continuation  of  the  partnership   business   or   after  its dissolution but before the final settlement thereof
 

WHO MAY PETITION FOR DECLARATION OF INSOLVENCY IN PARTNERSHIP

1.   In case  of voluntary  insolvency—the  petition may be filed by all the partners, or any one of them
2.   In  case  of  involuntary  insolvency—the  petition  is  filed  by one  or  more  of  the  partners  or  three  or  more  of  the creditors of the partnership.  
a.    If the petition be filed by less than all the partners of  the  partnership,  those  partners  who  don’t  join the  petition  shall  be  ordered  to  show  cause  why should not be adjudged to be insolvent in the same manner  as  other  creditors  are  required  to  show cause upon a creditor’s petition
 

PROPERTIES INCLUDED IN THE INSOLVENCY PROCEEDINGS

1.   All the properties of the partnership

2.   All the separate property of each of the partners, except
a.    Separate properties of limited partners
b.   Properties which are exempt by law
 

EFFECT OF FILING OF PETITION

1.   When insolvency proceedings have been instituted against or  by  a  partnership,  the  proceedings  are  deemed  to commence against the partners at the same time even if a partner  is  not  ordered  included  in  the  proceedings  until sometime later
2.   Upon order of the court, all the property of the partnership and also all the separate property of each partner, if they are liable, shall be taken
3.   All  creditors of the  partnership and the separate  creditors of each  partner  shall be allowed to prove their respective claims 
4.   The  assignee  shall  be  chosen  by  the  creditors  of  the partnership
5.   Pending   insolvency   proceedings   by   or   against   any partnership, no statute of limitations shall run upon a claim of or against the estate of the debtor
 

EFFECT   OF   INSOLVENCY   OF   PARTNERSHIP   OR   ANY PARTNER

1.   A  partnership  may  be  declared  insolvent  notwithstanding the solvency of the partners constituting the same 

2.   A partnership isn’t necessarily insolvent because one of its members is insolvent
3.   A   partnership   is   automatically   dissolved   upon   the insolvency of one of the partners or of the partnership
 

DISTRIBUTION OF PROCEEDS

1.   The  net  proceeds  of  the  partnership  property  shall  be appropriated to the payment of partnership debts
2.   The  net  proceeds  of  the  individual  estate  of  each  partner shall be applied to the payment of his individual debts
3.   Should   any   surplus   remain,   so   much   thereof   as corresponds  to  him  as  his  share  in  the  subsidiary  liability for  partnership  debts  shall  be  added  to  the  partnership assets and be applied to the payment of such debts
4.   Should  any  surplus  remain  of  the  partnership  property, such assets shall be added to the assets  of the individual partners  in  the  proportion  of  their  respective  interests  in the partnership
 

WHO MAY PETITION FOR DECLARATION OF INSOLVENCY OF A CORPORATION

1.   In case  of voluntary  insolvency—the  petition may be filed by any officer duly authorized by the vote of the board of directors or trustees at a meeting especially called for that purpose,  or  by  the  assent  in  writing  of  a  majority  of directors, or trustees, as the case may be

2.   In case of involuntary insolvency—
a.    First  view—upon  a  creditor’s  petition  made  and presented in the manner provided for in respect to
debtors
b.   Second view—the petition must be filed by at least 3    creditors    of    the    corporation    under    the circumstances mentioned by law
 

EFFECT WHEN CORPORATION DECLARED INSOLVENT

1.   Property and assets shall be distributed to the creditors
2.   No discharge shall be granted 

PARTNERSHIPS & CORPORATIONS - Insolvency Law

SECTION  51.     Partnerships.  —  A  partnership,  during  the continuation   of   the   partnership   business,   or   after   its dissolution and before the final settlement thereof, may be adjudged insolvent, either on the petition of the partners or any  one  of  them,  or  on  the  petition  of  three  or  more creditors of the partnership, qualified as provided in section
twenty  of this Act, in either  of  which cases the court  shall issue  an  order  in  the  manner  provided  by  this  Act,  upon which  all  the  property  of  the  partnership,  and  also  all  the
separate property of each of the partners, if they are liable, shall  be  taken,  excepting  such  parts  thereof  as  may  be exempt by law; and all creditors of the partnership, and the
separate  creditors  of  each  partner,  shall  be  allowed  to prove  their  respective  claims;  and  the  assignee  shall  be chosen  by  the  creditors  of  the  partnership,  and  shall  also
keep separate accounts of the property of the partnership, and  of  the  separate  estate  of  each  member  thereof.  The expenses   of   the   proceedings   shall   be   paid   from   the
partnership  property  and  the  individual  property  of  the partners  in  such  proportions  as  the  court  shall  determine. The  net  proceeds  of  the  partnership  property  shall  be
appropriated  to  the  payment  of  the  partnership  debts  and the net proceeds of the individual estate of each partner to the  payment  of  his  individual  debts.  Should  any  surplus
remain  of  the  property  of  any  partner  after  paying  his individual   debts,   such   surplus   shall   be   added   to   the partnership  assets  and  be  applied  to  the  payment  of  the
partnership  debts.  Should  any  surplus  of  the  partnership property  remain  after  paying  the  partnership  debts,  such surplus  shall  be  added  to  the  assets  of  the  individual
partners  in  the  proportion  of  their  respective  interests  in the partnership. Certificate of discharge shall be granted or refused to each partner as the same would or ought to be if
the  proceedings  had  been  by  or  against  him  alone  under this Act; and in all other respects the proceedings as to the partners  shall  be  conducted  in  like  manner  as  if  they  had
been commenced and prosecuted by or against one person alone.  If  such  partners  reside  in  different  provinces,  the court in which the petition is first filed shall retain exclusive
jurisdiction over the case. If the petition to be filed by less than all the partners of a partnership those partners who do not join in the petition shall be ordered to show cause why they,  as  individuals,  and  said  partnership,  should  not  be adjudged  to  be  insolvent,  in  the  same  manner  as  other debtors  are  required  to  show  cause  upon  a  creditor's petition,   as   in   this   Act   provided;   and   no   order   of djudication  shall  be  made  in  said  proceedings  until  after the      hearing      of      said      order      to      show      cause.

SECTION   52.      Corporations   and   sociedades   anonimas; Banking.   —   The   provisions   of   this   Act   shall   apply   to corporations   and   sociedades   anonimas,   and   upon   the
petition  of  any  officer  of  any  corporation  or  sociedad anonima,  duly  authorized  by  the  vote  of  the  board  of irectors  or trustees, at a  meeting specially called for that purpose,  or  by  the  assent  in  writing  of  a  majority  of  the directors  or  trustees  as  the  case  may  be,  or  upon  a creditor's  petition  made  and  presented  in   the  manner provided in respect to debtors, of the like proceedings shall be  had  and  taken  as  are  provided  in  the  case  of  debtors:

Provided, That in case the articles of association or by-laws of  any  corporation  the  or  sociedad  anonima  provide  a method   for   such   proceedings,   such   method   shall   be
followed.  All  the  provisions  of  this  Act  which  apply  to  the debtor, or set forth his duties, examination, and liabilities, or prescribe penalties, or relate to fraudulent conveyances, payments, and assignments, apply to each and every officer of  any  corporation  or  sociedad  anonima  in  relation  to  the same  matters  concerning  the  corporation.  Whenever  any corporation  is  declared  insolvent,  its  property  and  assets shall be distributed to the creditors; due at but no discharge shall  be  granted  to  any  corporation.  The  provisions  of  this Act  shall  not  apply  to  corporations  engaged  principally  in the banking business, 26 or to any other corporation as to which there is any special provision of law for its liquidation in case of insolvency.