The Insolvent Partnerships Order 1994 came into force on 1 December 1994.

Subject to transitional provisions, it revokes and replaces the Insolvent Partnerships Order 1986, which had earned a justified reputation for complexity and obscurity.

Like its predecessor, the 1994 order applies the provisions of the Insolvency Act 1986 with modifications, but practitioners will welcome the fact that the 1994 order sets out the modified provisions in full in schedules, rather than simply specifying textual amendments.An English partnership does not have a separate legal personality, but insolvency law treats it to some extent as if it did.

A partnership can be wound up as an unregistered company without necessarily involving any concurrent insolvency proceedings in respect of any of its members.

Depending on whether the partners are corporate or individual partners, there are a range of possible permutations.

Although the application of bankruptcy and liquidation law to insolvent partnerships is amended by the 1994 order, the law remains clearly identifiable as a more developed version of that introduced in 1986.One point particularly deserving mention concerns the implementation of a recommendation in the Cork report concerning joint and separate estates which was not originally taken up.

The rules are complicated but, in summary, where the joint estate is not sufficient for the payment of joint debts, the trustee or liquidator aggregates the balance of unsatisfied claims and can prove for that sum against the partners' separate estates.

Any unsatisfied claims of preferential creditors in the joint estate are not treated preferentially in the separate estates but rank equally with other unsecured creditors.

However, if a dividend is received in the joint estate from a separate estate, then the usual rules on priority of distribution in the joint estate apply.The most radical changes brought about by the 1994 order concern the extension of corporate voluntary arrangements and administration orders to insolvent partnerships.

The intention is to enable partnerships in financial difficulty to avoid bankruptcy or liquidation.

However, the 1994 order fails to make specific provision for an arrangement encompassing both the partnership and the affairs of the members of the partnership.

If such an arrangement is required, it must be achieved by interlocking voluntary arrangements.An administration order in respect of an insolvent partnership operates in substantially the same way as an administration order for a company.

One unusual feature is that the 1994 order equates the position of a secured creditor with the power to appoint a receiver under an agricultural charge created pursuant to the Agricultural Credits Act 1928, with the position of a debenture holder having the power to appoint an administrative receiver in corporate administration.

The holder of the agricultural charge can block administration by appointing a receiver.The reason for this approach is that an agricultural charge under the 1928 Act can combine fixed and floating charge security but the analogy with administrative receivership is far from complete.

An agricultural charge may only be taken in respect of certain specified classes of asset which might constitute only a minor part of the partnership property.

There is no requirement in the 1994 order for the receivership appointment to relate to the whole or substantially the whole of the partnership property.

In much the same way that lightweight floating charges became a routine feature of secured lending after the introduction of corporate administration, agricultural charges will now assume a much greater commercial significance and any bank which is in a position to take such security from its customers should consider doing so.Finally, on the subject of administration of insolvent partnerships, it should be noted that, although the administrator is deemed to act as the agent of the members of the partnership, a partner is not personally liable for the debts and obligations of the partnership incurred during the administration unless he or she consents.Voluntary arrangementsThe decision in Re Cranley Mansions Ltd [1994] BCC 576 has caused widespread concern about the usefulness of voluntary arrangements.

The case concerned a corporate voluntary arrangement but the relevant rules are equally applicable to individual voluntary arrangements.

Under the legislation, a creditor may not vote in respect of an unliquidated claim 'except where the chairman agrees to put upon the debt an estimated minimum value for the purposes of entitlement to vote'.

In Cranley Mansions it was held that agreement required some element of bilateral concurrence between the chairman of the meeting and the creditor in question.

Where there is no entitlement to vote, the creditor is not bound and the decision appeared to give creditors with unliquidated or unascertained claims a choice as to whether or not they wished to be bound.This question arose again in Re A debtor No.162 of 1993; Doorbar v Alltime Securities Ltd (unreported, 3 November 1994).

A landlord voted in respect of accrued rent at a creditors' meeting convened to consider a proposal for an individual voluntary arrangement.

The dispute concerned whether the arrangement covered future rent and whether the landlord was bound by the arrangement in respect of its claims for future rent.

The original proposal had not dealt with liability for future rent.

However, at the meeting, the nominee (who was, as is usual, the chairman of the meeting ) and the landlord's representative had both understood that it was proposed that future rent payments under the lease should be within the arrangement.In the circumstances, Knox J concluded that, although the inclusion of the future payments of rent under the lease constituted a modification within the meaning of s.436 of the Insolvency Act 1986 and was not included under the formal written modifications set out in the nominee's report, nevertheless it did form part of the arrangement which was agreed to at the meeting.Knox J refused to accept that any form of contractual agreement between the debtor and the dissenting creditor was either relevant or requisite to enable a modification not reduced to writing but understood by all those present at, or represented at, a meeting which approved an arrangement to be validly incorporated within it.

He thought that there had to be power to remedy accidental omissions in preparing the documentation.

Knox J also rejected a further submission that future rent under a lease was, as a matter of law, incapable of being included in a voluntary arrangement.The next issue was whether the landlord was bound in respect of its claim for future rent where it had not agreed a minimum value for the purposes of the voting rules.

It was held that the only agreement required by the rules is an expressed willingness by the chairman of the meeting to put an estimated minimum value on the debt in question.

On the facts, the chairman had been willing to put a value of one year's rent upon the claim for future rent and the fact that that was not acceptable to the landlord's representative did not detract from the effect of that willingness for the purposes of the rules.

The debtor's appeal against the declaration that the voluntary arrangement did not affect future rent and did not affect his liability for the same, was allowed.Knox J carefully added that he was not suggesting that Cranley Mansions was wrongly decided.

His decision was based on a submission not made in Cranley Mansions which, in any event, he distinguished on its facts.

It remains the case that the concept of the chairman's expressed willingness to put an estimated minimum value on a debt is in marked contrast to the requirement for some bilateral concurrence between the chairman and the creditor in question.Mortgagee dutiesStar v Silvia (No.1) [1994] 12 ACLC 600 is an interesting decision of the Supreme Court of New South Wales on mortgagee's duties which provided an opportunity for comment on the decision of the Privy Council in Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295.

The court contrasted English and Australian law on mortgagee duties.In New South Wales (except where statute applies) the standard has been that the mortgagee is not to sacrifice the interests of the mortgagor.

The mortgagee must take into account that the mortgagor has an interest in seeing that the property is preserved for him or her after the legitimate interests of the mortgagee are met.

In the ordinary case of sale, guidelines have been laid down that mortgagees are not to sell to themselves or only to think of a figure sufficient to pay out the mortgage debt.

Concrete factors could be considered such as the sufficiency of advertising and whether the available market had been properly canvassed.The court held that, in principle, the obligation on the mortgagee to consider the interests of the mortgagor proportionately increased depending on the probability or possibility of a surplus being left for the mortgagor after a proper sa le by the mortgagee.

Where there is only a possibility (rather than a probability) of a surplus, the equitable duty to consider the mortgagor's interests is not as strong as that where the debt is relatively small and the mortgaged property very valuable.This seems a questionable approach having regard for the possibility of the secured creditor's deficiency competing with the claims of other unsecured creditors in an insolvent estate.

It should be borne in mind that the Privy Council in Downsview explicitly affirmed the decision of the Court of Appeal in Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 that a mortgagee must take reasonable care to obtain a proper price.Defrauding creditorsIn Royscott Spa Leasing Ltd v Lovett [1994] NPC 146 the plaintiffs brought proceedings in which they sought a declaration under s.423 of the Insolvency Act 1986 (transactions defrauding creditors).

This note concerns a decision by the Court of Appeal on an appeal by the first defendant against an order for discovery in respect of various documents which would ordinarily have been protected by legal professional privilege.It was held that a claim for legal professional privilege may be lost if the evidence before the court reveals a prima facie case that the documents in question came into existence either for the purpose of advising and assisting the party claiming privilege in preparation for contemplated fraudulent conduct, or in the course of such conduct itself.

Mere suspicion is not sufficient.In this case it was common ground that the plaintiffs had to satisfy the court that a prima facie case had been established that the transaction in question was effected for one or other of the purposes specified in s.423(3), ie putting assets beyond the reach of a creditor or otherwise prejudicing a creditor's interests.It was held that it was not necessary to establish that the s.423(3) purpose was the sole purpose.

The court assumed, but did not decide, that the relevant purpose which had to be established under s.423(3) was a 'substantial' purpose rather than the stricter test of a 'dominant' purpose.

It was held that it was not open to the plaintiffs to argue that the very fact that a transfer was made for no consideration itself established an s.423(3) purpose.

The actual purpose of the transferor has to be investigated: the test is not solely an objective one.

The court held that no prima facie had been established.Although the result of the transfer had been to put assets beyond the reach of the plaintiffs and otherwise prejudice their interests, result could not be equated with purpose.

The appeal against the order for discovery succeeded.This is a very important decision because it highlights the difficulties which will often face the victim of a transaction in seeking to prove the necessary purpose in order to obtain a remedy under s.423.

Such difficulties should be contrasted with the position of insolvency practitioners whose rights in respect of books, documents and records, and whose powers of examination, may make it a great deal easier for them to establish the necessary purpose behind transactions, and enable them to avoid any questions of legal professional privilege.