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Hello,
attempting questions at the end of Chapter 11 on Partnerships, I stumbled upon Q3: “When a new partner joins the firm and the firm declares itself bankrupt shortly after, what is the extent of the new partner’s liability for the partnership debts”. The correct answer here is “for the entire debts and liabilities of the firm”. I got this one wrong, as I thought the partner was only liable for the debts incured after him becoming a partner of the firm.
When attempting Q 10.12 from BPP Practice & Revision kit, there is the following question:
“Which of the following debts will a new partner in a partnership be liable for?”
Existing partnership debts on the day they are admitted to the partnership – answer “Not liable”
All partnership debts incurred after their admission to membership – answer “Liable”
These two questions and answers seem to be contradictory to me. Please help me understand what I’m missing.This is a tricky area! There are various possible scenaria that could impact upon the liability of a new partner
Where a contract of novation has been signed, a retiring partner may be relieved of his / her liability and an incoming partner will assume that old partner’s liability. Where any creditor of the firm objects, that creditor has the right to have their debt settled before the change. In that way, a new partner becomes liable for the debts and liabilities that existed as at the date of accession
Where a new partner enters into the firm as a result of some misrepresentation about the firm and its prospects, and subsequently discovers the deceit / misrepresentation, that new partner may ask the Court for rescission of the contract and thus would avoid those existing debts and liabilities that existed as at the date of accession and any subsequent liabilities incurred post accession
However, given that there is no mention of either situation within the question, the correct answer should be that the new partner is liable only for those debts and liabilities incurred post accession
The test answer is therefore incorrect and, thank you, I shall get it amended
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