Although partners are personally liable for debts and obligations that are incurred by other partners in connection with the business of the firm, a distinction is drawn between the separate property of a partner and the joint property of the partnership and between the separate debts of a partner and the joint debts of the partnership. If all the partners are bankrupt, the distribution of the joint estate is kept separate from the distribution of the separate estates of the partners.186The joint property of the partnership is distributed first towards payment of the partnership debts. Once these are paid in full, the surplus is paid towards the separate debts of a partner. The separate property of a partner is distributed first towards payment of the separate debts of the partner. Once these are paid in full, any surplus is paid towards the joint debts of the partnership. If both joint and separate properties are administered, the dividends can be declared together and the trustee can apportion the expenses between the two estates.187If there is no joint property of the partnership, these rules do not apply and the joint creditor ranks pari passu with the separate creditors.188The anomalous feature of this rule is that any joint estate, regardless of how small, will postpone the claims of the joint creditors to those of the separate creditors in the bankruptcy of an individual partner.189
A creditor may be owed two separate obligations under distinct contracts: one owed personally by the individual and one owed jointly by the partners. The common law rule was that the creditor had to elect to prove either as a creditor of the separate property of the partner or as a creditor of the joint property of the partnership, and could not lodge a proof of claim in both bankrupt estates.190This rule has been abrogated by statute. A creditor can now prove a claim in both estates if both the individual and the partnership have incurred distinct obligations.191
ANAND, A., "Should Shareholders Rank with Unsecured Creditors in Bankruptcy?" (2008) 24 B.F.L.R. 169
BAIRD, D., & R. DAVIS, "Labour Issues" in S. Ben-Ishai & A Duggan, eds., Canadian Bankruptcy and Insolvency Law: Bill C-55, Statute c. 47 and Beyond (Markham, ON: LEXISNEXIS Canada, 2007) c. 4
BOMHOF, s., "Case Comment: Ontario New Home Warranty Program v. Jiordan Homes Ltd." (1999) 10 C.B.R. (4th) 5
GOODE, r., Legal Problems of Credit and Security, 3d ed...