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Caput 4
insolvency
4.1 A partnership of juristic persons1

4.1.1 Introduction
New developments concerning the sequestration of the estate of a
partnership with incorporated members highlight the need to revisit the
contrasting judicial interpretations of section 13 of the Insolvency Act
24 of 1936. This is particularly important in view of the recent decision
of Commissioner, South African Revenue Services v Hawker Air Serv-
ices (Pty) Ltd; Commissioner, South African Revenue Service v Hawker
Aviation Partnership.2 In this judgment the Supreme Court of Appeal
overruled decisions such as P de V Reklame (Edms) Bpk v Gesament-
like Onderneming van SA Numismatiese Buro (Edms) Bpk en Vitaware
(Edms) Bpk3 and reinstated a considered body of jurisprudence.
Section 13 provides that if a court sequestrates the estate of a partner-
ship, it must simultaneously sequestrate the private estate of each part-
ner except an en commandite partner or a partner undertaking and se-
curing payment of the partnership debts. The conundrum discussed in
this contribution is whether section 13 finds application if there is a legal
bar to the sequestration of one or more or all the partners’ estates which
do not fall within the narrow ambit of the express statutory exclusions. At-
tention will also be given to the diverse judicial interpretations of section
13 dealing with the question whether a partnership having incorporated
companies or other bodies corporate as members is susceptible to a
statutory concursus creditorum if it is unable to meet its liabilities.4
In spite of doubts initially expressed in Pavie v The French Bakery Co.,
Ltd 5 there is now no doubt in South African law that an incorporated
company may enter into a partnership with either another company,
a natural person or an existing partnership.6 For this very reason
one of the common powers of a company stated in Schedule 2 to the
Companies Act 61 of 1973 is to enter into a partnership.7
1 Based on Henning “A partnership of companies under the Insolvency

Act: Historical and comparative perspectives on the resolution of a
South African conundrum.” 2009 Tydskrif vir Hedendaagse Romeins-
Hollandse Reg 351-374.
2 2006 4 SA 292 (SCA).
3 1985 4 SA 876 (K).
4 Henning and Delport The South African Law of Partnership (1984)
283-284.
5 1903 TH 5.
6 Henning and Delport 274-275.
7 Cilliers and Benade Company Law 4th ed (1982) 50; Cilliers et al Cor-
porate Law 3rd ed (2000) 33.
98
There are many situations in which it may be desirable for a company
to become a member of a partnership. These include where two com-
panies combine their resources to exploit an idea or property through
a joint venture, or the use of a corporate general partner of a partner-
ship en commandite in order to obtain the tax advantages of partner-
ship combined limited liability. A silent partnership may be used when
one or more partners cannot or does not want to appear officially as
such, or as an initial step prior to an open or public joint venture or
when the partners belong to the same group of companies.8
4.1.2 Historical perspectives
4.1.2.1 Roman Dutch Law
During the later Middle Ages the commercial partnership trading un-
der a firm name with a capital fund contributed by the partners be-
came common practice in Italy. The recognition of the concept of the
partnership as a group with its own assets, a collective name and
a common legally binding signature soon led to various distinctions
being drawn between the individual partners on the one hand and
the firm on the other by the lex mercatoria and this ultimately resulted
in the recognition of the firm as a separate entity. This mercantile no-
tion or entity theory of partnership became part of the general legal
theory and practice of France and most other Roman derivative sys-
tems on the Continent during the eighteenth century.9
Duynstee10 emphasised the influence of French writers on the Ro-
man-Dutch law of partnership. Relying on numerous eminent authori-
ties11 he concluded that as a general rule commercial partnerships
were indeed viewed as entities separate from the individual partners
in eighteenth century French law.12 After considering the relevant
sources in detail, Duynstee concluded that the position in this regard
8 Herzfeld Joint Ventures (1989) 17; Ellison and Wilson “UK Joint Ven-
tures” in Joint Ventures in Europe (1991) 229; Lindsey Corporate Joint
Ventures (1989) 19-24; Wachtershäuser Das Gesellschaftsrecht des
Internionalen Joint Ventures (1992) 28-31. See also Goodman “The
partnership of corporations” 1977 Estate and Trusts Quarterly 286.
9 Henning and Delport 279-280; Henning “Partnership” in Joubert (ed)
The Law of South Africa Vol. 19 (2nd ed 2006) 229-230; Goldschmidt
Universalgeschichte des Handelsrechts (1891) 288-289.
10 Duynstee Vraagstukken (1948) 38.
11 Such as the Rota Genua, Cujacius, Scaccia, Straccha, Savary, Pothier,
Henrys, Toubeau, Bornier, Bourjon, De Boutaric and Levy-Bruhl.
12 This conclusion is also supported by the following passage in Emerigon
Traité des Assurances et des Contrats à la grosse I (1783) 394: La so-
ciété est une personne civile qui a ses droit et ses tributs particuliers.
Les biens de la société considérés dans un certain rapport ne sont pas
les biens des associés considérés en leur particulier. Les créanciers
de l’associé ne sont pas créanciers de la société.
99
was similar in Roman-Dutch law.13 He is supported by a significant
number of modern authors,14 as well as to a greater or lesser extent
by various Roman-Dutch sources. Thus it was advised early in the
eighteenth century that a partnership may be described as an entity
in itself, separate from the partners as individuals.15
13 Duynstee 75.
14 Such as Huusen-De Groot Rechtspersonen in de negentiende eeuw
(1976) 129; Van Brakel De Hollandsche handelscompagnieën (1908)
174; Scholten “Over rechtspersonen” in Versamelde geschriften III (1951)
298; Holtius Voorlezingen over handels- en zeerecht (1870) 102; Die-
phuis Handboek voor Nederlandsch handelsrecht I (1865) 60; Van der
Heijden Naamloze vennootschap in Nederland voor de Codificie (1908)
28; Grooten Vennootschap onder firma (1929) 50; Slagter and Swemmer
“Vennootschap onder firma” in Personenassociaties I (1980) 1.
15 Barels Advysen over den Koophandel en Zeevaert (1781) 2 62 and 2
86 (242-249): “(D)e societeit van C. en A. is een corpus mysticum (een
verbeeld lichaem) en zulks dan ook voor een ander persoon moet worde
geconsidereerd, als A. particulier, zo dat gevolgelyk ‘t geen A. schuldig
zoude mogen zyn, niet gecontraponeerd, of ingehouden kan, of mag,
worden van of tegen het geene de Societeit moet hebben. Zynde dit een
zaeck zo klaer en zeker, beiden na rechten, en na style mercantil, dat het
zoude zyn een kaers op de middach te willen hebben aangestoken, in-
dien men deswegens nog meer adstructie zoude komen te requireeren.”
and that “Als zynde in Rechten en Practycque notoir dat eene Com-
pagnie is een corpus mysticum (een verbeeld lichaem), of een lichaem
op zich zelven, geheel en al verschillende van de Compagnons in hun
particulier, zo dat het geen de Compagnie te eischen heeft, niet gec-
ompenseerd, geretineerd, of belemmerd kan worden voor of uit zaecke,
van dat de Compagnons respectivelyk particulier verschuldigd mogen
zijn.” It was also stressed “Ja zelvs de goederen van de Compagniesc-
hap worden niet gezegd die van de Compagnons te zyn, alvoorens de
schulden van de Compagnieschap betaald zyn. Waerom de Crediteuren,
die met eenig Koopman op uitzicht tot zekeren Negotie gehandeld heb-
ben, zyn gepraefereerd op de goederen en koopmanschappen van die
Negotie, boven een iegelyk Crediteur, die buiten de massa van de Ne-
gotie gehandeld heft.” After a comprehensive analysis of Roman-Dutch
sources, Kohler “Niederlandisches Handelsrechts in der Blutezeit des
Freistaes” 1907 Zeitschrift für das gesammte Handelsrecht 293 empha-
sised: “Im Gesellschaftsrecht ringt sich der Gedanke der Selbständigkeit
des Gesellschaftsvermögens gegenüber dem Privverkehr des Gesell-
schafters siegreich zu Tage. (D)as Vereinigungsrecht geht dem Rechte
der Privgläubiger vor, so dass, wenn der eine Gesellschafter dem Gesell-
schaftsvermögen Geld schuldet, bei der Vereinigung zuerst dieses Pas-
sivum zu decken ist, bevor die Gläubiger des Gesellschafters etwas aus
seinem Anteil erlangen. Darum haben auch die Gesellschaftsgläubiger
ein Voraus in der Deckung ihrer Schulden as dem Gesellscahftsvermö-
gen vor der Privglaubigern des einzelnen Gesellschafters. Der Erwerb
aus dem Gesellscaftsvermögen fällt in die Gesellschaft, auch wenn nicht
ausdrücklich fur die Gesellschaft gehandelt wird.”
100
It is clear that to some extent the entity theory of the nature of part-
nership was adopted since it was considered to be a “corpus mysti-
cum” or “een lichaem op zich zelven” for particular purposes.16 For
instance a definite distinction was made between the rights of part-
nership creditors and those of the personal creditors of the individual
partners. Partnership creditors had preference over partnership as-
sets. Personal creditors of a partner could not lay claim to his share
in the partnership assets to the prejudice of partnership creditors;
they were not entitled to attach or seize partnership assets for the
private debts of a partner; and they were entitled only to the net
share of a partner. If a merchant carried on business at different
places and in different partnerships, the several partnerships could
not be held liable for the debts one of these or the assets of one part-
nership seized for the debts of another of his other partnerships.17
Accordingly, the partnership in Roman-Dutch could have been re-
garded as an entity, albeit a weak one.18
Despite this weight of authority to the contrary, in South Africa con-
ventional wisdom still has it that in Roman-Dutch law partnerships
were not regarded as separate legal entities to any extent.19 It is
a pity that authorities and perspectives such as the above found
little favour in South African legal precedent and were not utilised
as basis for developing a more modern perspective on the legal
16 The Rechte ende Costumen van Antwerpen which carried consider-

able weight in Holland and especially in Amsterdam, as early as 1582,
provided the following on partnerships: “[Z]oo wanneer cooplieden
hebben diversche compagnien van coopmanschappen in diversche
plaetsen, d’eene compaignie noch de goederen der zelver en syn niet
gehouden voor de schulden van d’ander compaignie. [W]ord oock de
Crediteuren van eender compaignie negiie, comptoor, oft winckele,
in de goeden ende crediten der zelver voor Crediteuren van d’ander
compaignie, negotiie, comptoor, oft winckel geprefereert. [M]ogen de
geoederen van eenighe Compaignie niet gearresteert, uitgewonnen,
noch geexecuteert worden voor de particulier schulden van eenen
van de compagnons.” Van der Keessel Praelectiones Iuris Hodierni
(1967) 102, writing the end of the eighteenth century, still considered
these provisions as authoritive and relevant as quod in causis ad mer-
curam spectantibus apud nos haud exiguae fuit auctoritis. See also
Gall Regsgeleerde decisien (2002) 253.
17 Henning and Delport 280.
18 Entity shielding refers to rules that protect a firm’s assets from the
personal creditors of the owners or partners. Weak entity shielding
grants firm creditors priority over personal creditors in the division of
firm assets, with the result that personal creditors may look to firm
assets but only after the firm creditors have been paid in full. Henning
“The origins and development of the dual priorities rule in partnership
insolvency” 2008 South African Mercantile Law Journal 243-267.
19 Henning “Partnership” 230.
101
nature of partnership in South African law. From an early date the
courts, with a few notable exceptions, and it would seem mainly with
reference to English law, have treated the partnership merely as an
association of individuals having in law no existence apart from its
members, thus in effect and in the main adhering firmly to the aggre-
gate theory of the nature of partnership.20 In addition some eminent
Roman-Dutch authorities often relied on by the courts have been
criticised for their failure to appreciate new developments, paricu-
larly in the sphere of mercantile law, as well as for their uncritical
reliance on Roman law concepts then already outmoded.21
Recently there seems to be a trend discernible in jurisprudence to
adhere even more faithfully to extreme applications of the aggregate
view and to deny any further development of the entity approach. A
case in point is that a trend to afford some recognition to the entity
view particularly as far as insolvency law is concerned and which
was expressly endorsed in 1977, was summarily rejected by the
same court less than a decade later.22 And, in the same vein, the
relevant perspectives on the recognition of the entity theory in Roman
Dutch law were not deemed worthy of serious consideration.23 Al-
though certain exceptions are acknowledged amounting to some
appreciation of the mercantile concept of the nature of partnership,24
recently the Supreme Court of Appeal has deemed it necessary to
stress that these exceptions do not have the effect that a partnership
is indeed a separate entity, but merely that it is treated as a separate
entity for certain limited purposes.25

22 Noordkaap Lewendehawe Koöperasie Bpk v Raath 1977 2 SA 815
(NK).
23 P de V Reklame (Edms) Bpk v Gesamentlike Onderneming van SA Nu-
mismatiese Buro (Edms) Bpk en Vitaware (Edms) Bpk 1985 4 SA 876
(K).
24 E.g. Spaeth v Schneider 1960 2 SA 629 (SWA) 631; Michalow v Premier
Milling Co Ltd 1960 2 SA 59 (W) 63; Muller v Pienaar 1968 3 SA 195
(A) 202-203; Standard Bank of SA Ltd v Lombard 1977 2 SA 808 (W)
813; Strydom v Protea Eiendomsagente 1979 2 SA 206 (T) 209-211;
De Wet and Van Wyk Die Suid-Afrikaanse Kontraktereg en Handelsreg
4th ed (1978) 391, 408, 525-526; Hahlo and Kahn The Union of South
Africa: Development of its Laws and Constitution (1960) 702; Klopper
“Die aanwending van die vennootskap en commandite as kapitaal-
voorsieningskema vir beslote korporasies” 1990 19 Transactions of the
Centre for Business Law Vol. 19 (1990) 15; Jorna “The Legal Nature of
Partnership” 1994 21 Transactions of the Centre for Business Law Vol.
21 (1994) 22; Snyman Die Regsaard van die Vennootskap in die Anglo-
Amerikaanse, Vastelandse en Suid-Afrikaanse Reg: ’n Regvergelyk-
ende studie (LL.M thesis University of the Free State 1995).
25 D F Scott (EP) (Pty) Ltd v Golden Valley Supermarket 2002 6 SA 297
102
4.1.2.2 Pre-Union Legislation
4.1.2.2.1 Cape
The Insolvency Ordinance of Amsterdam of the 17th of January 1777
has, in a large measure, been the basis of much of the subsequent
South African law of insolvency.26 The Provisionele Instructie voor de
Commisarissen van de Desolate Boedelkamer of 1804 was, for in
stance, to a very large extent founded on it. After 1806 several tem-
porary ordinances were passed in the Cape for the provisional regula-
tion of insolvent estates. At length Ordinance 64 of 1829 was passed
for the due collection, administration and distribution of insolvent es-
tates.27 Section 16 of the Ordinance of 1829 made provision for the
separate sequestration of the estate of a partnership.28 A creditor of a
partnership was, however, not prevented by this provision from insti-
tuting sequestration proceedings against the estate of any partner in
respect of debts due by the partnership.
Ordinance 64 of 1829 was repealed by the consolidating Ordinance
6 of 1843. It may be regarded as a landmark in insolvency law since
it formed the foundation for legislation in the other territories that be-
came the Union of South Africa in 1910.29 Section 9 of the Ordinance
1843 again provided for the sequestration of the separate estate of a
partnership. It stipulated that the separate estate of a partner could
not be sequestrated merely by virtue of the sequestration of the estate
of a partnership of which he is a member. Provision was, however,
made for including in the same order for sequestration the estate of
the partnership and the estates of the partners and for the consolida-
tion of these estates.
(SCA).
26 Burton Observations on the insolvent law of the colony (1829) 27; De
Villiers Die Ou-Hollanse insolvensiereg en die eerste vaste insolven-
siereg van de Kaap de Goede Hoop (1923) 9; Waters and Jooste The
law of insolvency in South Africa (1980) 3; Stander “Geskiedenis van
die insolvensiereg” 1996 TSAR 371-377.
27 Burton 30.
28 Although section 16 refers to a “company” it is clear that the reference
in context is to a partnership and not an incorpored company, see Bur-
ton 30-31. The section itself time and again refers to “partners” and,
in any event, the first company legislation in South Africa providing for
incorporation by way of a general enabling Act, the Cape Joint Stock
Companies Limited Liability Act, was only introduced in 1861. The un-
incorpored deed of settlement company was in general regulated by the
law of partnership, see Cilliers et al Corporate law (3rd ed 1982) 24.
29 Waters and Jooste 5.
103
4.1.2.2.2 Transvaal, Zuid-Afrikaansche Republiek, Oranjevrijstaat
and Natal
Similar provisions were contained in section 930 of the Transvaal Act
21 of 1880 “Voor het regelen van de behoorlijke Invordering, Bes-
tiering en Verdeeling van Insolvente Boedels binnen deze Provincie”,
sections 2, 17 and 18 of the Insolventiewet 13 of 1895 of the Zuid-
Afrikaansche Republiek,31 as well as in section 9 of “De Wet over
de Insolventie” comprising Hoofdstuk CIV of the Wetboek van den
Oranjevrijstaat.32 Although the terminology may not always be famil-
iar to modern company and insolvency lawyers, it is submitted that if
these particular provisions are viewed in context they were primarily
applicable to the sequestration of unincorporated associations regu-
lated by the law of partnership.33 In any event, separate and discrete
legislation usually regulated the winding-up of registered limited li-
ability companies.34
The Insolvency Law No 47 of 1887 of Natal put the matter beyond
a shadow of doubt. Section 11 provided that a creditor’s petition for
the sequestration of a debtor’s estate could be presented against
any partnership having an estate or effects in Natal. It expressly
excludes from its ambit a joint stock company registered under the
Natal Joint Stock Companies Limited Liability Law of 1864.
4.1.2.2.3 Pre-Union position
Hence the pre-Union position was that the estate of a partnership
could be placed under sequestration in consequence of an act of in-
solvency committed by one or more of the partners, or on any other
ground that the court may consider sufficient. Irrespective of such
30 Which makes reference to “de vennoten van eenige zodanige

maschappij”.
31 Which refers to the “boedel van eene vennootschap”.
32 Which makes reference to “de deelhebbers van eenige zodanige
maschappij”. As far as terminology is concerned it should be kept in
mind that De Wet over de Beperkte Verantwoordelijkheid van Naam-
loze Vennootschappen, Hoofdstuk C of the Wetboek van den Oranje
vrijstaat, provided for the incorporion of limited liability companies, while
the Wet voor het Liquideeren van Naamloze Vennootschappen no 2 of
1892 provided for the liquidation of such companies.
33 See In re Panmure Club 1886 5 EDC 170; In re Temel and Miad’s Insol-
vency 1892 13 NLR 255; Blumberg and Her v Shapiro and Ketz 1907
TH 65; Phillips and Phillips v Trustees of The Transportable Building
Company, Ltd 1904 TS 446; Bowstead The commercial laws (1908)
117. On terminology see further Josson Schets van het recht van de
ZAR (1897) 324; Henning and Delport 255-258.
34 See e.g. Cape Act 12 of 1868 “To make provision for the winding up
of Joint Stock Companies” as well as the Orange Free State Wet voor
het Liquideeren van Naamloze Vennootschappen 2 of 1892. See also
Fletcher The law of insolvency (1990) 9.
104
sequestration, the personal creditors of the individual partners could
proceed against the private estate of any such partner for the debts
due by that partner personally. It was competent for the court to pro-
vide in the same order for the sequestration of the estate of the part-
nership as well as the estates of any partner or partners.
Burton35 quite correctly points out that it could have happened that
only the estate of the partnership became insolvent while the indi-
vidual partners nevertheless remained solvent as to their separate
estates. In such a case the partnership estate alone was subject to
sequestration. But as each partner is liable to pay partnership debts,
a partnership creditor failing to obtain payment from the firm could
resort to an individual partner for payment and petition also for the
sequestration of his separate estate. Hence it could only rarely hap-
pen in practice that the separate estate of a partnership alone would
have been administered as insolvent.36
Small wonder that some courts were prepared to consider the estate
of a partnership as constituting an entirely seperate iuris persona
from the estates of the individual partners. Judgment could be given
against the estate of a dissolved partnership and such an estate, if
insolvent at the time of dissolution of the partnership, could subse-
quently be sequestrated.37
Hence it was held that the estate of a partnership could be perfectly
solvent though one of the private estates had been sequestrated. The
opposite was also true. A partner’s private estate could be solvent
even though the partnership estate had been sequestrated. Thus in
In re Feltham38 where a partnership estate had been sequestrated
on a creditor’s petition, and another creditor subsequently applied for
the sequestration of the estate of one of the partners, and no writ had
been taken out against the private estate, and there was no proof of
any act of insolvency committed by the partner in his private capacity,
the court dismissed the petition for the sequestration of the private es-
tate of the partner. It is clear that the court, when finally sequestrating
a partnership estate, had a discretion to sequestrate the private es-
tates of the partners. Before sequestrating a private estate the court
would carefully scan all the circumstances, and, if there was a reason
for believing that there were assets of the partnership which had not
35 Burton 85.
36 Burton 85.
37 Henning and Delport 283. See De Vries en Marais v Hollins 1882 1
SAR TS 25; Pretoria Hypothec Maatschappy v M and D Golombick
1906 TH 51; Blumberg and Her v Shapiro and Ketz (fn 33). But see
contra Mosenthal Bros Ltd v Mahomed Ebrahim and Co 1915 TPD 621.
38 1883 2 HCG 373. See also Kehrmann and Co v John, A.M. Bad &
H.M. Ahmed 1904 25 NLR 171; In re Benjamin 1875 5 Buch 117;
Bloch and Gerber v Pietersen and Alterman 1908 CTR 928.
105
been seized in execution, and which, if realised, would have satisfied
the creditor’s claim, the court would have stayed its hand.39
4.1.2.3 Insolvency Act 1916
The various pre-Union acts, laws and ordinances were repealed by the
Insolvency Act 32 of 1916. Excluded from its ambit was a body corpo-
rate or a company or other association of persons which may be placed
in liquidation under a law relating to the winding-up of companies.40
Section 4 provided that the surrender of a partnership estate may
be accepted by the court if a petition to this effect is presented by
the greater number of partners present of represented in the Union.
It should be obvious that the participation of all the partners in the
petition was not required.
Section 10 dealt with the sequestration of the estates of individuals
and partnerships. If a debtor committed an act of insolvency, or if the
court is of the opinion that the estate is insolvent and it would be to
the advantage of the creditors, the court could order the sequestra-
tion of a debtor’s estate.
The court had the competency to include in one and the same se-
questration order the estate of the partnership as well as the sepa-
rate estates of the partners. In addition, every fact which provided a
ground for the sequestration of the separate estate of a partnership
formed a ground for the sequestration of the estate of every partner.
If the court is satisfied that a partner is willing and able to satisfy the
debts of the partnership, the estate of that partner was not suscepti-
ble to sequestration by reason only of any fact forming a ground for
the sequestration of the estate of a partnership.41
The provisions of the Insolvency Act 1916 did not affect the rights
and liabilities “under Roman-Dutch Law” of partners en commandite
or anonymous or other partners who have not held themselves out
as ordinary or general partners, or the rights and liabilities of partners
under the Cape Special Partnerships Limited Liability Act of 1861 or
the Natal “Limited Partnership Act”42 of 1865.43
Irrespective of the exemptions concerning the partner willing an able
to pay as well as extraordinary partners, it is clear that the seques-
tration of the estates of all the partners was not a prerequisite for
the sequestration of the partnership estate, and that, if the court
39 Marais & Zoutendijk v Street 1913 CPD 207. See also Ex parte Milne
1915 TPD 367; Ex parte Tickle 1909 26 SC 190.
40 Section 2 definition of “debtor”.
41 Section 10(2).
42 In fact in terms of section 15 of Law 1 of 1865 (Nat) the short title is
“The Special Partnerships Limited Liability Act 1864”.
43 Both repealed by the Pre-Union Statute Law Revision Act 36 of 1976.
106
sequestrated the estate of the partnership, it was not compelled in
terms of section 10 to simultaneously sequestrate the estate of each
and every partner.44
It was even held that where the estate of a partnership was seques-
trated but not the private estates of any of the partners then, or at
any time, that an application for the rehabilitation of the partnership
may be granted.45
4.1.2.4 Companies Act 1926
In terms of chapter VII of the Companies Act 46 of 1926 a partner-
ship with more than seven members could be wound up as an un-
registered company under that Act.46 In such an event the winding-
up of the partnership did not necessarily involve the sequestration
of the estates of any of the partners.47 In any event winding-up of the
partnership was not limited to instances of insolvency, but the court
could wind up such a partnership if it was of the opinion that it is just
and equitable to do so.48
The precursor of these provisions was first introduced in Britain in
184949 and a similar provision is still to be found in its Insolvency Act
of 1986.50
At the behest of the Van Wyk De Vries Commission of Enquiry into the
Companies Act,51 these provisions of the Companies Act of 1926 were,
however, not taken over by the present Companies Act 61 of 1973.52
44 See In re Schneider and Joffe 1921 CPD 175; Ex parte Rossouw 1920
CPD 418; Ex parte Marais Bros 1922 CPD 191; In re Speirs Bros 1932
NLR 618; Cohen v Schneier and London Ltd 1925 TPD 378; Ex parte
Koopowitz 1923 EDL 103; Ex parte M. Braude & Co 1936 CPD 480; Ex
parte Prick and Rittenberg 1922 CPD 447.
45 Ex parte M. Braude & Co 1936 CPD 480. See also Ex parte Sparrow
& Williams 1942 EDL 251.
46 Sections 208-214.
47 Cf Fletcher 72.
48 Section 209(c)(iii).
49 Section 1 of the Joint-Stock Companies Winding-up Amendment Act
1849.
50 Sections 220-229 of the Insolvency Act 1986. See also sections 398-
405 of the Companies Act 1948 and sections 665-674 of the Companies
Act 1985; Pennington “The Insolvent Partnership Order 1986” 1987 The
Company Lawyer 195-205; Griffiths Insolvency of individuals and part-
nerships (1988) 145.
51 See Benade et al Entrepreneurial law (2008) 66-67.
52 See Henning “Onderstand en privilegie ingevolge die Moratoriumwet,
1963: ontwikkeling, toepassing en inkorting” Transactions of the Cen-
tre for Business Law Vol. 15 (1991) 138.
107
4.1.2.5 Result
It is clear that the end result of the provisions discussed above, before
the introduction of the Insolvency Act 1936, was that the estate of a
partnership with one or more or even all corporate partners, could in
suitable circumstances either be sequestrated under the Insolvency Act
or wound up under the Companies Act as an unincorporated company.
4.1.3 Insolvency Act 1936
4.1.3.1 General
Section 2 of the Insolvency Act 24 of 1936 defines a “debtor” as
a person or a partnership or the estate of a person or partnership
which is a debtor in the usual sense of the word, except a body cor-
porate or a company or other association of persons which may be
placed in liquidation under the law relating to companies.
Section 13(1) of the Insolvency Act provides that if the court seques-
trates the estate of a partnership it must simultaneously sequestrate
the estate of every member of that partnership. Section 13 states
three exemptions from this general requirement. The court that se-
questrates the estate of a partnership need not by reason only of the
sequestration of the estate of the partnership simultaneously seques-
trate the estate of a partner en commandite who has not held himself
out as an ordinary or general partner of the partnership in question; or
a special partner as defined in the Special Partnerships Limited Liabil-
ity Act 24 of 1861 of the Cape of Good Hope or in Law No. 1 of 1865 of
Natal53, who has not held himself out as an ordinary or general partner
of the partnership in question; or a partner that has undertaken to pay
the debts of the partnership within a period determined by the court and
has given security for such payment to the satisfaction of the registrar.
The question which arises is whether section 13 should be regarded
as peremptory and the list of exemptions as exhaustive. For instance,
does section 13 find application in the event where there is a legal bar
to the sequestration of the estate of a partner not falling within the list
of exemptions? A case in point is a corporate partner falling outside
the ambit of the definition of a “debtor” and hence not susceptible to
sequestration under the Insolvency Act, or a partner protected against
sequestration proceedings for the time being by a statutory morato-
rium, or a partner who has been sequestrated but has not acquired an
estate as against his trustee so as to allow a second sequestration.
4.1.3.2 High Court
4.1.3.2.1 The accommodating approach
Due to the interpretation of the provisions of Moratorium Acts pertain-
ing to the non-suspension of civil legal remedies against a partnership
53 Both repealed by the Pre-Union Statute Law Revision Act 36 of 1976,

but not retrospectively.
108
in the event where any partner was not entitled to civil relief, the courts
have held in a series of decisions that section 13(1) of the Insolvency
Act does not require the court when sequestrating the estate of the
partnership necessarily to sequestrate the private estate of a partner
entitled to a statutory respite.54 Thus, where only one partner was
entitled to civil relief under the Moratorium Act 29 of 1940, the court
sequestrated the estate of the partnership and the estate of the part-
ner not entitled to civil relief, but made no order in connection with
the estate of the partner entitled to a moratorium.55 This approach
followed a line of decisions holding that in the event where civil litiga-
tion is statutorily permitted against a partnership with one or some
members not entitled to civil relief, the partner entitled to a suspen-
sion of legal remedies is deprived of the benefits of the moratorium
only as far as his interest in the partnership is concerned, but that his
separate estate remains protected.56
In Partridge v Harrison & Harrison57 Greenberg JP did not confine him-
self to particular considerations pertaining to the specific provisions of
the Moratorium Act regulating civil relief, but carefully considered the
effect of section 13 of the Insolvency Act in general. Even though he ac-
cepted that the section is couched in the imperative, he was at pains to
emphasise that there are cases where the sequestration of the estates
of all partners could not be carried out. An example is where a partner
has been sequestrated but has not acquired an estate as against his
trustee so as to allow a second sequestration. In such an event the court
could do no more than to sequestrate the partnership estate and the
estates of the remaining partners. The same would be the case if one
of the partners was an incorporated company susceptible to liquidation
under the Companies Act and hence not susceptible to sequestration
under the Insolvency Act. Hence the imperative operation of section 13
must be limited at least to cases where the estates of the partners can
be sequestrated and does not apply where there is a lawful bar to such
sequestration. Moreover the proviso to the section itself shows that it
was contemplated that the sequestration of partners’ private estates
does not follow automatically and of necessity in all cases upon the
sequestration of a partnership estate.
54 See e.g. Partridge v Harrison and Harrison 1940 WLD 265; SA Mer-
cantile Co Ltd v Marlborough Boot and Shoe Manufacturing Co 1940
2 PH C79 (C); SA Mercantile Co Ltd v Labovitz and Another 1940
CPD 581; Dunlop (SA) Ltd v Olivier 1942 OPD 146; Mars The Law of
Insolvency in South Africa 8th ed (1988) 478.
55 See further Mars 478.
56 See further Henning “Vennootskap en Moratorium – die regsposisie
van die vennoot op militêre diens en sy vennote” 1978 Tydskrif vir
Hedendaagse Romeins-Hollandse Reg 1-29.
57 Partridge v Harrison and Harrison 1940 WLD 265 fn 64.
109
The civil relief decisions were in turn relied on in judgments such
as SA Incorporated Merchants’ Protection Agency v Kruger,58 SA
Leather Co (Pty) Ltd v Main Clothing Manufacturers (Pty) Ltd,59 and
Laymore (Pty) Ltd v Five Streams Wattle Estate60 holding that sec-
tion 13(1) of the Insolvency Act can be interpreted to allow the se-
questration of the estate of the partnership and the estate(s) of some
of the partner(s), in the event where the estate of one of the part-
ners was not susceptible to sequestration, because (for instance)
that partner was a publica mercatrix without a separate estate, or
a farmer entitled to civil relief under the Farmers’ Assistance Act, or
an incorporated company under judicial management. Accordingly,
Potgieter J had no difficulty in SA Leather Co (Pty) Ltd v Main Cloth-
ing Manufacturers (Pty) Ltd61 in coming to the conclusion that as
there was a lawful bar to the sequestration of the one partner, in the
event a company under judicial management, the Court was entitled
to sequestrate the partnership and only the estate of the remaining
partner, a natural person:
It is obvious however that a company cannot be sequestrated
in terms of the Insolvency Act but can only be liquidated pur-
suant to the provisions of the Companies Act. The question
then arises whether in view of the peremptory nature of sec.
13 the Court must refuse the application altogether or wheth-
er the application must be granted against the partnership
and the remaining partners. Clearly it could never have been
contemplated that whenever one partner is a company such
partnership estate can never be sequestrated. (A)s there is a
lawful bar to the sequestration of the one partner, especially
as this Company is under judicial management, the Court
has jurisdiction to sequestrate the partnership and only the
estate of the remaining partner.
Until 1985 these decisions were not called into question by the courts
or by commentators on either the law of partnership or the law of insol-
vency. The legal position was explicitly accepted as correct by many.62
4.1.3.2.2 The restrictive interpretation
The question arose whether section 13(1) of the Insolvency Act
finds application where all the partners are juristic persons or bodies
58 1947 3 SA 304 (T).

59 1958 2 SA 118 (O) 119.
60 1957 3 SA 671 (N).
61 1958 2 SA 118 (O).
62 Inter alia by De Villiers 147; Bamford The law of partnership and vol-
untary association in South Africa 3rd ed (1982) 79; Smith The Law of
Insolvency (1973) 65; De Wet and Van Wyk 523; Coaker et al Mercan-
tile Law of South Africa 18th ed (1984) 555; Gibson & Wille Principles
of South African Law 7th ed (1977) 476; Gibson South African Mercan-
tile and Company Law 5th ed (1983) 292; Waters and Jooste 466.
110
corporate which can only be placed in liquidation under the Compa-
nies Act 61 of 1973 and hence do not fall within the ambit of the defi-
nition of “debtor” in section 2 of the Insolvency Act. Stated more gen-
erally, may the court sequestrate the estate of a partnership even
where it is precluded by the provisions of the Insolvency Act itself
from sequestrating the estate of each and every partner therein?63
It was held in P de V Reklame (Edms) Bpk64 that the estate of a
partnership consisting only of two corporate members cannot be
sequestrated under section 13 of the Insolvency Act. The learned
judge found that the Insolvency Act was not designed for a situation
where there is not a single natural person who is a partner or who
can represent the partnership as such. A body corporate falls out-
side the ambit of the definition of a debtor in section 2 of the Insol-
vency Act and its estate cannot be sequestrated under the Act but it
can only be liquidated pursuant to the provisions of the Companies
Act. Although it is trite law that a partnership can exist between two
bodies corporate and although such a partnership is not expressly
excluded by the definition of “debtor” in section 2, it was considered
to be very clear from the provisions of the Insolvency Act that the Act
was not meant to be applicable to a partnership in the event where
not one of the partners is a natural person. In the event of only the
partnership estate being sequestrated, and none of the estates of
the partners, there would be nobody to attend the meetings of credi-
tors as the insolvent in terms of section 64 of the Act. Hence it was
held that a partnership estate cannot be sequestrated under the In-
solvency Act where all the partners are juristic persons.
Although similar sentiments have been expressed in subsequent
decisions,65 it remains ironic that though a partnership is expressly
defined as a “debtor” for purposes of the Insolvency Act, certain
partnership estates are not subject to sequestration, while a trust,
though not included in the definition of “debtor”, was held to be “a
debtor in the usual sense of the word” and ”accordingly susceptible
to sequestration”.66 It may indeed be asked whether a similar argu-
ment relating to the attendance of meetings of creditors “by the in-
63 Cf Meskin Insolvency law and its operation in winding-up (1990) par

2.26.
mismiatese Buro (Edms) Bpk en Vitaware (Edms) Bpk 1985 4 SA 876
(K).
65 See also Du Toit v Du Toit 1985 3 SA 1007 (T) 1008; Acar v Pierce and
other like applicions 1988 2 SA 827 (W) 832.
66 Magnum Financial Holdings (Pty) Ltd (In liquidation) v Summerly 1984
1 SA 160 (W) 163; Crest Enterprises (Pty) Ltd v Barnett and Schlos-
berg 1986 4 SA 19 (C) 20.
111
solvent” in terms of section 64 of the Insolvency Act and relied upon
in P de V Reklame may not also prove conclusive in this instance.
In the course the judgment in P de V Reklame (Edms) Bpk67 it was
considered appropriate to refer critically to Partridge v Harrison & Har-
rison68 and similar deciusions, and to state that in this way the courts
had created an intermediate situation that neither fell within the com-
mon law position nor complied with the prescriptive provisions of sec-
tion 13 of the Insolvency Act.69 Some detailed reservations as to the
correctness of these cases were expressed. The learned judge con-
sidered that section 13(1) is peremptory and contains its own closed
list of exemptions. If the estate of a partner is not susceptible to se-
questration due to a circumstance not falling within the exemptions
enumerated in section 13(1), then the estates of the partnership and
the other partners cannot be sequestrated under the Insolvency Act.
The choice is between a strict application of the provisions of section
13(1) or execution under the common law. There is no room for half-
way measures.70
This restrictive approach found favour in the Transvaal Provincial Di-
vision in Commissioner for SARS v Hawker Air Services (Pty) Ltd;
In Re Commissioner for SARS v Hawker Aviation Services Partner-
ship71 where it was held that the application for the sequestration of
a partnership composed of corporate members was fatally defective
on two grounds. First, subject to certain exceptions, a court which
sequestrates the estate of a partnership must sequestrate simultane-
ously the estate of each partner of the partnership and the applicant
had not applied for the sequestration of the estate of a private com-
pany having 0.1 percent interest in the partnership. Second, where
the partnership consists of only companies which are susceptible to
liquidation under the Companies Act, then a sequestration is inap-
propriate and impermissible under the Insolvency Act. The provisions
of section 13(1) of the Insolvency Act necessitate a joinder of all the
partners as respondents in the application.72
4.1.3.2.3 Consequences of the restrictive interpretation

(K).
68 Partridge v Harrison and Harrison 1940 WLD 265.
69 A “tussen-die-boom-en-die-bas-situasie wat nog binne die gemenere-
gtelike situasie val nog voldoen aan die gebiedende bepalings van
artikel 13 van die Insolvensiewet”.
70 881 C-E.
71 2005 1 All SA 715 (T). See also Commissioner, South African Revenue
Service v Hawker Aviation Services Partnership 2005 5 SA 283 (T).
72 740-741.
112
If South African legal precedent was going to base itself uncritically
on the ratio decidendi as well as the obiter dicta in P de V Reklame
and the TPD decision in Hawker Air, the resulting position would have
been that a partnership with corporate members only or a partner-
ship of individual and corporate members, is not susceptible to se-
questration under the Insolvency Act 24 of 1936, even if it is unable
to meet its liabilities. The same would hold true for a partnership of
which only one member’s estate is not amenable to sequestration,
for example a partnership consisting of nineteen individuals and one
close corporation or private company. Such a partnership could also
not be wound up as an unregistered company under the Companies
Act of 1973. A statutory concursus creditorum would be impossible.
Recourse to litigation in terms of civil procedure, aimed at what was
termed as “execution according to the common law”, would be the
only alternative.73
What does this civil procedure entail? Although the question wheth-
er partners were liable in solidum or pro parte for partnership debts
in Roman-Dutch law still forms the subject of often heated academic
debate,74 it is clear that partners were directly and personally liable
to partnership creditors for the payment of partnership debts, even
stante societate.75 In any event, the Supreme Court of Appeal76 has
accepted that at common law partners were liable singuli in soli-
dum for partnership debts. In contradistinction to the position under
Roman-Dutch law, it is an established rule of case law that civil pro-
ceedings against a partnership stante societate must as a general
rule be instituted against all the partners jointly, and that an individu-
al member may not be sued for payment of a partnership debt either
in whole or in part. The rules of court provide that a partnership
may also be sued in its own name. In a successful suit, judgment
is given against the partnership and not against any of the partners
individually. Execution in respect of such a judgment must first be
levied against the assets of the partnership. After these assets have
been excussed, execution for the residue of the judgment debt may
be levied against the private assets of any partner. If the partner is
unable to satisfy a warrant of execution for the residue of the judg-
ment debt, he would be liable to have his estate sequestrated (or
wound up, as the case may be). If the partner in the process pays
more than his pro rata share of the residue of the judgment debt, his
trustee would be entitled to sue the other partners for pro rata repay-
ments of the excess to the insolvent estate. Some of them may as a

(K).
74 Asser In solidum of pro parte? (1982) 126.
75 Henning and Delport 305-307.
76 Lee v Maraisdrif (Edms) Bpk 1976 2 SA 536 (A).
113
result become insolvent and the trustees in those estates would be
entitled to claim return of payments resulting in undue or voidable
preferences. The chain reaction and counter action of insolvency
and litigation would go on until all the creditors are paid in full or until
all the classes of creditors have found equitable dividend levels.
This process of liquidation and distribution could be so cumbersome
and costly that the legislature considered it meet to substitute for it the
practicable scheme embodied in the Insolvency Act more than half
a century ago – ironically the very same scheme that the restrictive
interpretation of section 13(1) makes impossible to implement.77
In any event, it seems illogical to make the availability of sequestra-
tion, a statutory concursus creditorum and the applicability of the
provisions and remedies of the Insolvency Act dependent on the
coincident composition of a particular partnership.
It has been submitted that the decision in P de V Reklame can lead
to peculiar results which can gravely prejudice the interests of credi-
tors.78 The resulting legal position of a partnership consisting only
of corporate partners and which is unable to pay its debts, indeed
seemed to be unsatisfactory and anomalous.79 The proposals for
reform by the South African Law Reform Commission80 give the im-
pression that it has been fairly generally realised that if the decision
in P de V Reklame was accepted the reform of the resulting legal
position merited serious consideration.81
4.1.3.2.3.1 Moratorium legislation
Mention is quite often made that a partnership estate will not be se-
questrated if all the partners are on “full time military duty”.82 For this
too broad statement reliance is more often than not placed on sec-
tion 2(2)(a) of the Moratorium Act 25 of 1963. However, ever since
the Moratorium Amendment Act 48 of 1978, this particular provision
regulates the situation where income received during military service
is not less than earnings immediately before its commencement.
The provision which is in pari materia is section 2(2)(c)(i) of the Mor-
atorium Act. It provides that the suspension of civil legal remedies is
not applicable to a civil action or other civil legal proceedings against
a partnership if any partner is not rendering qualifying service at the
time of the institution of the action or proceedings. The effect is,
77 Michalow v Premier Milling Co Ltd (fn 24) 61.

78 Delport “Commentary / Kommentaar” 1986 Bulletin of Bureau for Mer-
cantile Law 177.
79 Henning 1996 Journal for Juridical Science 68-96.
80 See infra.
81 See also Meskin par 2.1.6.
82 A direct translion of the Afrikaans “militêre diens”. Hence what is pro
bably intended is “military service”.
114
however that the private estate of the partner entitled to civil relief is
still protected. Hence if the estate of the partnership is sequestrated
the estates of the non-serving partners will be sequestrated as well,
but not the estate of the serving partner.83 The partnership provi-
sions of the Moratorium Acts of 1960, 1962 and 1963 were clearly
based on the supposition that the “intermediate position” effected
by the inclusive interpretation, attains a just and equitable balance
between the various competing interests.84 However, if the restric-
tive approach proposed in P de V Reklame denying the validity of
the “intermediate position” is accepted as correct without more ado,
it could have far-reaching negative consequences in this context. It
would of necessity imply that, notwithstanding the express provision
to the contrary made in section 2(2)(c)(i) for this very situation, a
partnership estate would not be sequestrated in the event that only
one of the partners is entitled to a suspension of civil legal remedies
under the Moratorium Act. With the greatest of respect: What price
then the presumption in the interpretation of statutes that no enact-
ment contains invalid or purposeless provisions?85
4.1.3.2.4 Academic reaction
Delport has submitted that the decision in P de V Reklame can lead to
peculiar results which can gravely prejudice the interests of creditors.86
In the third edition of her book, Smith87 maintained that when a “li
mited liability” company and a natural person are partners the court
will sequestrate the estates of the partnership and the natural per-
son, but not, “obviously”, of the company. She limited the scope of
application of P de V Reklame strictly to the situation where there is
not a single natural person who is a partner and further emphasised
that it remains to be seen whether the other divisions will follow this
decision. Indeed in a later contribution, Smith88 repeated her reser-
vations and preferred a view that where there is a lawful bar to the
sequestration of one or more or even all of the partners’ estates
then the court cannot grant an order sequestrating the partners’ es-
tates but should grant an order sequestrating the partnership estate.
However, it may be advisable for the legislature to reconsider the
particular provisions of the Insolvency Act.
83 For further discussion see Henning “Defence” in Joubert (ed) The Law
of South Africa Vol. 7 (1979) par 284.
84 Moratorium Act 57 of 1960, Moratorium Act 53 of 1962 and the Mora-
torium Act 25 of 1963.
85 Cf Du Plessis The interpretion of statutes (1986) 61; Bertelsmann et
al Mars. The law of insolvency in South Africa (9th ed 2008) 38.
86 Delport 1986 Bulletin of Bureau for Mercantile Law 177.
87 Smith The Law of Insolvency (1988) 70.
88 Smith “Problem areas in insolvency law” 1989 SA Mercantile Law
Journal 113.
115
The approach in the eighth edition of Mars The law of insolvency in
South Africa89 is similarly that if some members of a partnership are
entitled to civil relief under the Moratorium Act 25 of 1963, and hence
their estates cannot be placed under sequestration, the estate of the
partnership can nevertheless be compulsorily sequestrated.90 It con-
tinues to explain that section 13(1) of the Insolvency Act does not re-
quire the court to sequestrate the private estate of a partner “if there
is a lawful bar to its doing so”, for example if the partner is protected
by the Moratorium Act, or as a publica mercatrix has no estate which
can be sequestrated, or is protected under the Agricultural Credit
Act 28 of 1966, or is a “registered company”.91 Reliance is placed on
what was termed the “intermediate position” decisions. Hence in this
work the scope of application of P de V Reklame is also limited to the
instance where all the partners are juristic persons.92
A similar approach is ascertainable in the treatment of the subject
matter by Sharrock, De la Rey, Van der Linde and Smith93 as well
as Van Dorsten,94 Du Plessis and Boraine.95 They also refer to P de
V Reklame only in the context of a partnership composed entirely of
corporate members.96 Gibson97 remains committed to the viewpoint
that in the event of a partnership having a corporate partner not sus-
ceptible to sequestration, the partnership estate may nevertheless be
sequestrated. Sequestration terminates the partnership automatically
and therefore the corporate partner not susceptible to sequestration
may be proceeded against personally by creditors of the partnership.
Meskin,98 however, was of the opinion that on the language of section
13(1) of the Insolvency Act the legislature intended that the court may
not sequestrate the estate of a partnership without its sequestrating
simultaneously the estates of all the partners therein other than those
falling within the exceptional cases for which the section itself pro-
vides. Thus, where in a particular case the Court cannot sequestrate
the estate of an individual partner in a partnership (not falling within the
exceptional cases) it cannot sequestrate the estate of the partnership.
He regarded the resulting situation as clearly unsatisfactory, given the
89 Mars 20.
90 Mars 476.
91 Mars 478.
92 Mars 478.
93 Sharrock et al Hockly se Insolvensiereg (1996) 169. See also Shar-
rock et al Hockly’s Insolvency Law 6th ed (1996) 157.
94 Van Dorsten South African Business Entities (1993) 407.
95 Van Jaarsveld et al Suid-Afrikaanse Handelsreg (1988) 333; Nagel et
al Commercial Law (1995) 384.
96 Sharrock et al Hockly se Insolvensiereg 169. See also Sharrock et al
Hockly’s Insolvency Law 157.
97 Gibson 292.
98 Meskin para 2.1.6. 2-28-2-30.
116
policy of achieving a sequestration of the partnership’s estate as such
and suggested that appropriate amendment of the relevant statutory
provisions should be considered.
Clearly the criticism expressed in P de V Reklame on what the learned
judge termed the “intermediate approach” adopted in earlier decisions,
did not find favour with a bare majority.99
4.1.4 Law Reform Commission100
During 1996 the South African Law Reform Commission released its
Discussion Paper 66 entitled Review of the Law of Insolvency: Draft
Insolvency Bill and Explanatory Memorandum. It emphasised that
the Bill contains only preliminary proposals regarding the insolvency
of individuals and that the form of the Bill should not be regarded as
final. One consolidated Act is envisaged incorporating the winding
up provisions of companies and close corporations as well as other
legal entities. The English Insolvency Act 1986 is regarded as an
example which could serve as a useful model in this regard. One of
the other possibilities is to heed the example of the American Bank-
ruptcy Code in terms of which the same provisions apply to legal
entities and individuals with occasional rules for each.101
The Discussion Paper clearly regards the decision in P de V Reklame
as correct. Some of the objections raised against its detrimental
consequences are addressed by expressly providing that the com-
pulsory simultaneous sequestration of partners’ estates attendant
upon the sequestration of the partnership’s estate is not applicable
to “a partner whose liability is in terms of the partnership agreement
limited or a partner in respect of whom there is a lawful bar to the
liquidation of his or her estate.”102
Although it is debatable whether the ambit of first part of the excep-
tion in clause 5(1) of the Draft Bill is wide enough to include the si-
lent (“anonymous”) partner, the second part makes it very clear that
the court may sequestrate the estate of the partnership in the event
where sequestration of a partner’s estate is blocked on a ground per-
sonal to himself, for example under the Moratorium Act of 1963 or the
Agricultural Credit Act of 1966. Presumably this will also include the
estate of a corporate partner if the liquidation of its estate falls outside
99 See in particular Mars 478-479. See also Henning 1996 Journal for
Juridical Science 68-96.
100 The Judicial Matters Amendment Act 55 of 2002 amended the South
African Law Commission Act 19 of 1973 to change the Commission’s
name to the South African Law Reform Commission and the name of
the Act to the South African Law Reform Commission Act.
101 SA Law Reform Commission Discussion Paper 66: Review of the law
of insolvency (1996) 3-4.
102 SA Law Reform Commission 41-43.
117
the ambit of the Act containing this provision. However, if the vision
of one consolidated and unified Insolvency Act materialises, it should
not be too difficult to ensure that such a construction of the exception
is not necessary, for instance by merely providing that liquidation of
the estates of partners attendant on the liquidation of the estate of a
partnership is applicable to the estates of corporate partners as well.
The situation where there is a lawful bar to the liquidation of each
and every partner’s estate is clearly regarded as problematical. The
solution proposed in the Discussion Paper is to further neutralise the
effect of P de V Reklame by expressly providing that in such an event
the court may nevertheless liquidate the estate of the partnership.
The question as to who would attend the meetings in respect of the
insolvent partnership estate, deliver business records, lodge state-
ments and the like is addressed by proposing that
every director, officer or member of a juristic person that is a
partner of the partnership in question and every natural per-
son who is a partner but whose estate may not be liquidated,
will for the purpose of performing any statutory requirement in
respect of the partnership estate be deemed to be a person
whose estate is under liquidation.103
The Law Reform Commission released its Report on the Review of

the Law of Insolvency in two volumes during February 2000.104 In the
first volume the following is proposed in respect of partnerships with
corporate partners,105 showing the Commission’s continued unstint-
ing support of the decision in P de V Reklame. It is proposed that
express provision be made for the liquidation of a partnership where
there is no partner whose estate may be liquidated in terms of insol-
vency law. Clause 5(4) of the Draft Bill reads:
In the case where there is no partner whose estate may be
liquidated as contemplated in subsection (3), the court may
nevertheless liquidate the partnership estate and in such
103 The difference, if any, between the consequences of “actual” and

“deemed” liquidation is not elucidated.
104 South African Law Reform Commission Report on the Review of the
Law of Insolvency. Project 63. Vol 1. RP89/2000. 2000; South African
Law Reform Commission Report on the Review of the Law of Insol-
vency. Project 63. Vol. 2 Draft Bill. RP88/2000. 2000.
105 The following is recommended as well: When the estate of a part-
ner is liquidated without the estate of the partnership being liquidated,
partnership claims against a partner’s insolvent estate are regarded
as unliquidated until partnership debts have been settled in terms of
the dissolution of the partnership. When the estate of a partnership
and the estates of the partners are under liquidation simultaneously,
a shortfall of a partnership creditor’s claim against the partnership es-
tate ranks against the estates of the partners without formal proof of
the claim.
118
event every director of a juristic person or member of a close
corporation which juristic person or close corporation is a
partner of the partnership in question and every natural per-
son who is a partner but whose estate may not be liquidated,
shall for the purpose of performing any statutory requirement
in respect of the partnership estate be deemed to be a person
whose estate is under liquidation.
Thus the relevant recommendations of the Commission and the

provisions of the Draft Bill are primarily concerned with addressing
the detrimental effects of and the serious lacunae caused by the
decision in P de V Reklame. The Commission persisted with the ap-
proach that this decision was not to be called into question notwith-
standing the fact that it was criticised by academic writers and that
it went against a long line of decisions and a considered body of ju-
risprudence. As this decision was completely overturned in 2006,106
the particular proposals by the Commission and the attendant provi-
sions of the Draft Bill will of necessity have to be reconsidered.
4.1.5 Supreme Court of Appeal
In Commissioner, South African Revenue Services v Hawker Air
Services (Pty) Ltd; Commissioner, South African Revenue Service
v Hawker Aviation Partnership107 Cameron JA108 held that section
13(1) of Insolvency Act 24 of 1936 requires simultaneous sequestra-
tion only of estates of partners capable of being sequestrated. The
fact that one of partners is a company incapable of being seques-
trated is no impediment to sequestration of partnership.
The partnership sought to be sequestrated consisted of three com-
panies HAS, ManCo and Rand Merchant Bank, a partner en com-
mandite. The Commissioner applied for the sequestration of the
partnership, but not for the liquidation of one of the general partners,
ManCo. The question was whether, in these circumstances, the se-
questration of the partnership was competent. In other words, does
section 13, by requiring that the Court “shall simultaneously seques-
trate” the estates of all the partners, render impossible a partner-
ship sequestration where not all the members can be sequestrated?
In Partridge v Harrison and Harrison, Greenberg JP as mentioned
answered in the negative. There, the estate of one of the partners
could not be sequestrated because of a military service morato-
rium. Greenberg JP held that the partnership could nevertheless
be sequestrated. He found that section 13, though imperatively ex-
pressed, must be limited to cases where the estates of the partners
106 Commissioner, South African Revenue Services v Hawker Air Servic-

es (Pty) Ltd; Commissioner, South African Revenue Service v Hawker
Aviation Partnership 2006 4 SA 292 (SCA).
107 2006 4 SA 292 (SCA).
108 Howie P, Streicher JA, Nugent JA and Conradie JA concurred.
119
can be sequestrated, and that it does not apply where there is a
lawful bar to sequestration. He said that notwithstanding that the
section is couched in imperative language, there are cases where it
could not be carried out. For instance if a partner has been seques-
trated and has not acquired an estate as against his trustee so as
to allow a second sequestration, the Court could do no more than to
sequestrate the partnership estate and the estates of the remaining
partners. The same would probably be the case if one of the partners
was a limited company. It would appear therefore that the section
must at least be limited to cases where the estates of the partners
can be sequestrated and does not apply where there is a lawful bar
to such sequestration. Greenberg JP also stated that the proviso
to section 13 “shows that it was contemplated that sequestration of
the private estates does not follow automatically in all cases upon a
sequestration of the partnership estate”. Cameron JA held:
The reasoning of Greenberg JP was followed for nearly half a
century. The sequestration of partnerships was ordered where
one of the partners was married in community of property,
where one was the beneficiary of an agricultural moratorium,
and where one was a company under judicial management,
in each case rendering sequestration impossible. But in P de
V Reklame (Edms) Bpk v Gesamentlike Onderneming van
SA Numismatiese Buro (Edms) Bpk en Vitaware (Edms) Bpk,
these decisions were criticised as conceptually flawed, since
the statutorily created concursus creditorum presupposes the
simultaneous sequestration of all the members of the partner-
ship and cannot operate effectively without it. That the concur-
sus the statute envisages is incomplete, and that it would oper-
ate incompletely where a partnership sequestration excludes
the estate of one of the partners, is correct. Yet the criticism
is not persuasive. It proceeds on the premise that a complete
concursus is imperative, when the exceptions section 13 itself
creates show that this is not so. The interpretation favoured
by Greenberg JP and the decisions that followed him achieve
a pragmatic, if partial, result, which is compatible with the lan-
guage of section 13 when interpreted, as Greenberg JP did,
as requiring the sequestration of only those partners whose
estates are capable of sequestration. Even though this means
that, in such situations, the statutory concursus will be incom-
plete, it seems to me to offer a more practicable and coherent
approach to the difficulties that would result if section 13 were
interpreted to render sequestration of a partnership impossible
where one of the partners cannot be sequestrated.109
Cameron JA therefore concluded that the interpretation adopted in

the Partridge case was preferable and that, since ManCo was a com
109 Cameron JA in Commissioner, South African Revenue Services v

Hawker Air Services (Pty) Ltd; Commissioner, South African Revenue
Service v Hawker Aviation Partnership 2006 4 SA 292 (SCA) 305C-306B.
120
pany which was not capable of being sequestrated, section 13 did
not require its sequestration. It followed that the application for the
partnership’s sequestration was not defective.
Consequently it is now recognised once again that section 13 of the
Insolvency Act, by requiring that the court should sequestrate the
estates of all the partners simultaneously does not render a part-
nership sequestration impossible where all the members cannot be
sequestrated. This leads to a pragmatic, if partial, result which is
compatible with the language of section 13 when interpreted as re-
quiring the sequestration of only those partners whose estates are
capable of sequestration. Although this might result in situations where
the statutory concursus will be incomplete, it presents a more prac-
ticable and coherent approach than the interpretation favoured in
P de V Reklame (Edms) Bpk110 as well as by the South African Law
Reform Commission.
It is interesting to note that Meskin111 is now of the opinion that the
controversy as to whether the Court may sequestrate the estate of
a partnership without simultaneously sequestrating the estates of all
the partners therein other than those falling within the exceptional
cases, has been put to rest by the adoption of a practicable and
coherent approach requiring only the sequestration of the estates of
those partners whose estates are capable of sequestration. This ap-
proach avoids the difficulties which arise if section 13 is interpreted
so as to preclude the sequestration of a partnership if the estate of
one of the partners for any reason cannot be sequestrated.
The learned authors of the ninth edition of Mars The law of insolven-
cy in South Africa112 are now firmly convinced that a partnership may
be sequestrated even where all the partners are juristic persons.
4.1.6 Anglo-American Law
4.1.6.1 England
The Insolvency Act 1986 finally brought about the consolidation
of all the statutory provisions governing the insolvency and that of
companies within a single Act as recommended by the Report of the
Cork Advisory Committee.
The special complexities of partnership insolvency are acknowl-
edged in section 420 of the Insolvency Act which makes provision
for this area to become specially regulated by means of a statutory
instrument whereby the provisions of the Act would be made appli-
cable subject to prescribed modifications.113
110 1985 4 SA 876 (K).

111 Meskin par 2.1.7.
112 Bertelsmann et al 37-38.
113 Fletcher 72.
121
The Insolvent Partnerships Order 1986, issued under this enabling
provision, has introduced a significant recasting of this area of the
law.114 The Order seeks to adapt the provisions of the Act in order
to accommodate the procedures applicable on the winding-up of an
insolvent partnership, whether in conjunction with or independently of
the insolvency of one or more of the partners. It has been said that the
product of this piecemeal approach was an indigestible patchwork of
provisions, several of which were palpably ill suited to their task.115
The Order is concerned solely with insolvent partnerships. It has
no effect on the separate winding-up of a corporate partner; not
does it affect the law in regard to the separate bankruptcy of indi-
vidual partners. The Order envisages three possible situations: (a)
the winding-up of the partnership without individual partners being
made bankrupt or, in the case of corporate partners, put into liquida-
tion in the same proceedings; (b) the winding-up of the partnership
where two or more partners are insolvent and are additionally made
bankrupt or in the case of a corporate partner, put into compulsory
liquidation; and (c) the winding-up of the corporate partners and the
bankruptcy of individual partners of an insolvent partnership without
the compulsory winding-up of the partnership.116
The Insolvent Partnerships Order of 1994 came into effect of 1 Decem-
ber 1994 and extended the administration and voluntary arrangement
procedures introduced by the Act to partnerships. Both procedures
have been used with some success in corporate insolvencies. It made
small but significant reforms to the liquidation of partnerships. Firstly,
it set out in a more accessible form the mechanisms for winding-up
a partnership as an unregistered company. Secondly, the balance of
partnership debts can now be claimed against the separate estate of
each partner, ranking equally with the ordinary private creditors of the
individual partner.117
A minor amendment to the Insolvent Partnerships Order 1994 was
made by the Insolvent Partnerships (Amendment) Order 1996. The
more substantial amendments effected by the Insolvent Partner-
ships (Amendment) Order 2001 reflected the changes made to the
Company Directors Disqualification Act 1986 by the Insolvency Act
2000. Important changes to the voluntary arrangement procedure ef-
fected by the Insolvency Act 2000 were applied to partnerships by the
Insolvent Partnerships (Amendment) (No 2) Order 2002, while the
114 Fletcher 72; Pennington 195; Kane “The Insolvent Partnerships Order
1994” 1995 Wilde Sapte Law 4; Griffiths 145; Rajani Corporate Insol-
vency Handbook (1988) 122; Banks Lindley & Banks on Partnership
16th ed (1990) 673.
115 Banks 673.
116 Griffiths 145; Lindley and Banks on partnership (2002) 674.
117 Kane 4.
122
Insolvent Partnerships (Amendment) Order 2005 applied changes
to the administration procedure made in the Enterprise Act 2002 to
partnerships.118
The major change to partnership insolvency, introduced in 1986, re-
mains the same. The partnership itself (as distinct from the partners),
is, in general, to be wound up as an unregistered company under Part
V of the Insolvency Act 1986 by the Companies Court rather than by
reference to personal insolvency provisions.119
It is obvious that English law in this context has developed a pragmat-
ic approach to partnership insolvency that seems to be far advanced
compared to the dogged and often extreme application of the aggre-
gate theory of partnership in South Africa. Ironically this theory was
traditionally seen as so typical of English law that it was also known
as the common law theory of partnership.
4.1.6.2 United States of America
The draftsmen of the Uniform Partnership Act (UPA) of 1914 took
pains not to limit partners to human beings. They included the phrase
“of two or more persons” in the basic definition of partnership120 for
no other reason than as a cross reference to the broad definition of
“person”121 to include partnerships, corporations and other associa-
tions as well as individuals. This settles the matter so far as partner-
ship law is concerned. However particularly corporations may be gov-
erned by laws which affect or impinge on their ability to be partners.
Although partnership law accepts a corporation as a partner, the
matter has usually been viewed as one of corporation law, and the
courts have typically said that it is ultra vires for a corporation to be
a partner, unless expressly authorised by charter or statute. This is
a product of nineteenth century antipathy to corporate power and
diversification, which has survived no longer than most such restric-
tions. The rationale is primarily that the authority of partners to man-
age their joint affairs and bind each other is in compatible with the
statutory mandate that a corporation be managed by its board of
directors. In short, partnership entails excessive delegation perhaps
even abdication, of corporate management. On the one hand, the
rationale overlooks the extent to which corporations are managed
and bound by officers and other agents and employees. On the oth-
er hand, it ignores the limitations on a partner’s authority imposed by
the scope of the business and the power to terminate at any time.
118 Morse Partnership law (2006) 280.

119 Blackett-Ord Partnership (1997) 431. The converse applies in Scot-
land, see Morse 279.
120 UPA section 6(1).
121 UPA section 2.
123
American courts have gone as far as to distinguish joint ventures
from partnerships in this regard because of the traditionally narrower
purpose of a joint venture. The latter, by virtue of its traditionally nar-
rower purpose, is said to be within a corporation’s power. But there
is little if any significant difference between the two forms except
this particular result and careful draftsmen have written their agree-
ments in joint venture language.122
Legislation in the twentieth century has largely eliminated ultra vires
as a ground for invalidating a corporate act or transfer. Numerous
states expressly grant corporations power to enter into partnerships.
The Model Business Corporation Act empowers corporations “to pur-
chase … or otherwise acquire, own, … and otherwise use and deal
in and with, shares or other interests in … associations, partnerships
or individuals.”123
Currently there seems to be no sufficient reason why an ordinary busi-
ness corporation should not be a partner in an enterprise conforming
to its corporate purposes. In fact, section 3 of the Revised Model Busi-
ness Corporation Act provides that, unless its articles of incorporation
provides otherwise, the general powers of every corporation include
without limitation the power to be a promoter, partner, member, as-
sociate or manager of any partnership or other entity.124 Ultra vires is
delineated in section 3. This and similar provisions in other modern
statutes have also caused the underlying problem to fade away by
granting corporations legal powers almost coextensive with those of
natural persons and by allowing them to engage in any lawful line or
lines of business.125
Some confusion formerly existed in the bankruptcy administration of
partnerships centering around the notion that it was impossible to have
the firm in bankruptcy without having the partners in bankruptcy too.126
As in South African law, this avoidable difficulty, now laid to rest,
chiefly arose from doctrinaire generalisations about the inherent
122 For detailed discussion see Rowley “The corporate partner” 1930
Minnesota Law Review 771; Crane and Bromberg Law of Partnership
(1968) 52-54; Bromberg and Ribstein Partnership (1988) para 2:24-
2:25; Henn and Alexander Laws of corporations (1984) 476; Henn
Corporations (1986) 278-279.
123 Crane and Bromberg 53; Bromberg and Ribstein par 2:24-2:25.
124 The Revised Model Business Corporation Act was adopted by the
Committee on Corporate Laws of the Section of Corporation, Banking
and Business Law of the American Bar Association in Spring 1984.
125 Clarke Corporate Law (1986) 675; Greenfield The failure of corporate
law (2006) 79; Backer Comparative corporate law (2002) 665; Allen et
al Law of business organisation (2007) 99-101.
126 See Burdick The Law of Partnership Including Limited Partnerships
(1899) 296-297.
124
nature of a partnership as a mere aggregate of individuals. Paying
inadequate heed to the power of legislation to treat a partnership as
an entity, some conceptualists adhered to the idea that the aggre-
gate theory made it impossible to have the firm in bankruptcy and
the partners not, notwithstanding express statutory provisions to the
contrary. Remarks to this effect in the Supreme Court by Holmes, J,
in 1913 in Francis v Mc Neal127 unfortunately contributed to the con-
fusion. In 1928, the Supreme Court repudiated the Holmes position.
In Liberty National Bank of Roanoke v Bear, Trustee128 the Supreme
Court held that an adjudication of the partnership in bankruptcy did
not carry with it of necessity an adjudication of the partners. Under
the Bankruptcy Act,129 a partnership may be adjudicated bankrupt as
a separate entity. Stanford, J referring to arguments based on the
Holmes approach, held for the Supreme Court that:
This contention disregards entirely the principle established by
the Bankruptcy Act that a partnership may be adjudged a bank-
rupt as a separate entity without reference to the bankruptcy of
the partners as individuals. (A) partnership may be adjudged
bankrupt as a separate entity, under a voluntary or involuntary
petition, irrespective of any adjudication of bankruptcy against
the individual partners. (T)hus in some cases the partnership
was adjudged bankrupt, although the court refused to adjudge
bankruptcy of the individual partners … because being wage
earners or tillers of the soil, they were exempt from involuntary
bankruptcy, or because they were insane or minors.130
In 1938 the Chandler Act went so far as to provide expressly that the
discharge of a partnership shall not discharge the individual general
partners from the partnership debts.131 The reforms of the Chandler
Act were criticised as incomplete, and in 1962 draft legislation was
127 Francis v Mc Neal 228 US 695 701, 33 S Ct 701 702 (1913).

128 276 US 215 220, 48 S Ct 252 255 (1928).
129 11 USC s 5a.
130 See also Meek v Centre County Banking Co 268 US 426 431 (1925):
“There can be no doubt that a partnership may be adjudged a bank-
rupt as a distinct legal entity”; Myers v International Trust Co 273 US
380 (1930); Crane and Bromberg 542: “The entity theory pervades
the bankruptcy treatment of partnerships. The concept is central to the
separateness of petitions against and adjudications of partnerships and
partners.”
131 Adding section 5j to the Bankruptcy Act of 1898 (11 USCA s 24). See
MacLachlan “Aspects of the Chandler Bill to amend the Bankruptcy
Act” 1937 University of Chicago Law Review 369; MacLachlan Hand-
book on the law of bankruptcy (1956) 425-426; Skeel Debt’s Domin-
ion. A History of Bankruptcy Law in America (2001) 18-9; Deminy and
Stone “Unaccomplished Reforms in Partnership Bankruptcy under the
Chandler Act” 1940 Yale Law Journal 908-909.
125
proposed to rewrite the rules relating to partnership bankruptcy. How-
ever, this was not adopted.
The Bankruptcy Reform Act of 1978 (Bankruptcy Code)132, which
took effect on the 1st of October 1979, represents the most compre-
hensive revision of federal bankruptcy law since 1898.133 Previously
partnership bankruptcy was governed by at least a dozen statutory
provisions. The 1978 Act contains only three brief provisions specifi-
cally directed at partnership bankruptcy.
In partnership bankruptcies a principal concern has been whether
partners’ individual properties should be taken into account in deter-
mining partnership insolvency. Certain jurisdictions evolved the rule
that a court must consider also the assets of each individual partner,
if any, in excess of personal liabilities. Theoretical objections based
on the entity view were soon joined by more practical criticisms that
such an approach was both an undue burden and a trap for the
unwary. The administrative burden of identifying and evaluating the
assets and liabilities of every partner in a firm can be substantial and
even insurmountable, particularly when the assets of uncooperative
partners are located outside of this country.134
The National Bankruptcy Conference in 1961 condemned this rule of
partnership insolvency as an onerous burden on partnership credi-
tors, or a partner, seeking an adjudication. It proposed an amend-
ment to the law specifying that partnership insolvency should be de-
termined solely with reference to partnership assets and liabilities.
Ultimately, the proposal was shelved.135
The Bankruptcy Reform Act effectively addressed this concern. It
eliminated the requirement of proof of partnership insolvency prior to
the entry of an order for relief. The only prerequisite to such an order
is that the petitioning creditors show that the partnership “is gener-
ally not paying such debtor’s debts as such debts become due.” The
adoption of this equitable test eliminated the burden of locating and
evaluating partners’ assets and liabilities, the incongruous treatment
of exempt partner assets, and all uncertainties about pleading with
respect to partner solvency.136
132 USC 11. The Bankruptcy Code has been amended several times since
1978, most recently in 2005 through the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005.
133 Hanley “Partnership bankruptcy under the new Act” 1980 Hastings
Law Journal 149.
134 It was argued also that the rule that a partner’s exempt assets be con-
sidered in the aggregate analysis of partnership insolvency is illogical
because the bankruptcy court could not compel the contribution of
such assets to the partnership trustee.
135 Hanley 156.
136 Hanley 157: “This is consistent with realities of the credit marketplace.
126
The Revised Uniform Partnership Act (RUPA) was finalised by the
National Conference of Commissioners on Uniform State Laws in
1994.137 As far as the legal nature of a partnership is concerned, sec-
tion 201 of RUPA clearly and unambiguously stipulates that a part-
nership is an entity distinct from its partners, thus, in the main firmly
rejecting the aggregate theory of partnership. RUPA thus embraces
the entity theory of partnership. In the light of the UPA’s ambivalence
on the nature of partnerships, according to the Official Comment, the
explicit statement provided by section 201 is deemed appropriate as
an expression of the increased emphasis on the entity theory as the
dominant model.138 Under RUPA a “partnership” means an associa-
tion of two or more persons to carry on as co-owners a business for
profit formed under section 202 of RUPA, predecessor law, or com-
parable law of another jurisdiction.139 “Person” is defined as an indi-
vidual, corporation, business trust, estate, trust, partnership, associa-
tion, joint venture, government, governmental subdivision, agency, or
instrumentality, or any other legal or commercial entity.140 The intent is
clearly not only to expressly allow a corporation as a partner but also
to allow any legally cognisable party as a partner.141
4.1.7 In conclusion
It is interesting to note the resemblance between the South African
Insolvency Acts and the American Bankruptcy Act of 1898, espe-
cially as far as the question whether to treat the partnership as a
separate entity is concerned. Indeed in this respect there seems to
be a closer link between these statutes than between the South Afri-
can insolvency and English bankruptcy legislation of the time.
There are, interestingly enough, also clearly similarities to be drawn
between the two American decisions of Francis v McNeal142 (in 1913)
and Liberty National Bank of Roanoke v Bear, Trustee143 (in 1928), on
the one hand, and the two South African decisions of P de V Reklame
In the case of an asset-poor partnership which has been loaned funds

in reliance on partner assets, the creditors of the partnership justifiably
have cause for concern when the partner assets are not tendered di-
rectly or indirectly in satisfaction of partnership debts. Under the new
Act, however, the asset-poor partnership whose partners act respon-
sibly in light of their ultimate partnership liabilities is protected from
bankruptcy administration.”
137 Hillman et al The Revised Uniform Partnership Act (2004) 3.
138 Hillman et al The Revised Uniform Partnership Act 65; See also Hill-
man et al General and limited liability partnerships under the Revised
Uniform Partnership Act (1996) 48-52.
139 RUPA section 101(6),
140 RUPA section 101(11).
141 Hillman et al The Revised Uniform Partnership Act 26.
142 228 US 695 701, 33 S Ct 701 702 (1913).
143 276 US 215 220, 48 S Ct 252 255 (1928).
127
(Edms) Bpk144 (in 1985) and Hawker Air145 (in 2006), on the other.
In both Francis v McNeal and P de V Reklame the aggregate theory
of partnership were implicitly preferred, notwithstanding the practical
consequences. Both were summarily overturned by decisions prefer-
ring an approach based more on the entity view of partnership.
The consequences of the ratio decidendi and the uncertainty cre-
ated by the obiter dicta in P de V Reklame resulted in a lacuna in the
South African law of insolvency, namely a form of business associa-
tion — a partnership of companies or probably even a partnership
with just one corporate partner — that was beyond the reach of in-
solvency law. It could neither be sequestrated under the Insolvency
Act nor be liquidated under the Companies Act. Fortunately this la-
cuna has been effectively remedied by the Supreme Court of Appeal
in Hawker Air146 which re-instated the pragmatic previous interpreta-
tion of section 13(1) allowing a partial concursus creditorum.
In the necessary review and redrafting of the partnership provisions
of the proposed South African Bankruptcy Bill, the legal nature of
partnership, and hence the question whether to view a partnership
generally as a separate legal entity or merely as an aggregate of its
members, must be identified as one of the most important issues
on which finality first has to be reached. In line with modern legal
thinking, it is suggested that these provisions should give clear ex-
pression to the entity theory while retaining the aggregate approach
for very specific limited purposes. By embracing the entity theory
of partnership far greater simplicity can be achieved. By allowing
the sequestration of a partnership estate without the simultaneous
sequestration of the estates of the partners, the Supreme Court of
Appeal in Hawker Air147 has added significant weight to the view that
a partnership is to be treated as a separate entity in insolvency.
4.2 Dual priorities rule: Origins and development148
4.2.1 Introduction
The division of the proceeds of insolvent partnerships’ and partners’
estates has been strongly influenced by the so-called dual priorities
rule:149 “Partnership estate to partnership creditors, private estate to
private creditors, anything left over from either go to the other”150
144 1985 4 SA 876 (K).

145 2006 4 SA 292 (SCA).
146 2006 4 SA 292 (SCA). See also Carmel Trading Co Ltd v Commis-
sioner, South African Revenue Service 2008 2 SA 433 (SCA).
147 2006 4 SA 292 (SCA).
148 Based on Henning “The origins and development of the dual priorities rule
in partnership insolvency” 2008 SA Mercantile Law Journal 243-268.
149 Crane et al Law of Partnership (1968) 524.
150 Kennedy “Partnerships and Partners under the Bankruptcy Code:
128
The dual priorities rule, as its name signifies, basically embodies two
components. The first acknowledges the priority of partnership credi-
tors on partnership assets, hereafter referred to as “entity shielding”.151
The second component creates a priority of private creditors on the
assets in a particular partner’s private estate, hereafter referred to as
“owner shielding”.152
The dual priorities rule is often described as a “jingle rule” owing to
its popular appeal to resonance and superficial symmetry, rather
than the commercial need or legal principle.153 Especially the sec-
ond component of the rule has been heavily criticised and frequently
resisted as contrary to one of the basic tenets of partnership law,
namely the unlimited liability of ordinary or general partners for part-
nership debts and obligations.154 This criticism eventually resulted
in its relatively recent demise in several jurisdictions.155 However,
notwithstanding a similar recommendation by the South African Law
Reform Commission, the dual priorities rule is presently still firmly
ensconced in the Insolvency Act 24 of 1936.156
The purpose of this contribution is to provide an overview of the his-
torical roots and development of components of the dual priorities
rule, and thus also of the rule itself.
Claims and Distribution” 1983 Washington and Lee Law Review 55.
151 For a comprehensive and in-depth analysis of the concepts of “entity
shielding” and “owner shielding”, see Hansmann et al ‘Law and the Rise
of the Firm’ 2006 Harvard Law Review 1335. I gladly acknowledge my
indebtedness to the learned authors for the concepts and terminology.
152 Ibid.
153 This term is tributed to Professor James Barr Ames, Dean of the Har-
vard Law School. See Crane & Bromberg 524.
154 E.g. Story Commentaries on the Law of Partnership (1841) 519; Crane
Handbook on the Law of Partnership and Other Unincorpored Asso-
ciations (1952) 514; Baggett ‘Partnership Creditors v Creditors of the
Individual Partners’ (1972) Baylor LR 577; Hough ‘Some New Aspects
of Partnership Bankruptcy under the Act of 1898’ 1908 Columbia Law
Review 599; Hanley ‘Partnership Bankruptcy under the New Act’ 1979
Hastings Law Journal 149, 150-151.
Individual Partners’ (1972) 24(4) Baylor LR 577; Hough ‘Some New
Aspects of Partnership Bankruptcy under the Act of 1898’ (1908) 8(8)
Columbia Law Review 599; Hanley ‘Partnership Bankruptcy under the
New Act’ 1979 Hastings Law Journal 149, 150-151.
156 Section 49(1).
129
4.2.2 Entity shielding
4.2.2.1 Introduction
Entity shielding protects firm assets from the owners’ personal credi-
tors and reserves the firm’s assets for the firm’s creditors.157 The term
refers to rules that protect a firm’s assets from the personal credi-
tors of the owners or partners. Hansmann et al distinguish between
three forms of entity shielding in modern legal entities.158 Weak en-
tity shielding grants firm creditors priority over personal creditors in
the division of firm assets, with the result that personal creditors may
look to firm assets but only after the firm creditors have been paid
in full. Strong entity shielding adds liquidation protection, resulting in
the restriction of the ability of both the firm’s owners and their per-
sonal creditors to enforce a payout of an owner’s share of the firm’s
net assets. Complete entity shielding denies non-firm creditors, in-
cluding creditors of the firm’s owners or beneficial owners, any claim
to the firm assets. Consequently a distinction may be made between
weak entities, strong entities and complete entities based on the
degree of entity shielding provide by each.
In this context, the modern commercial partnership may be charac-
terised as a weak entity,159 and this historical overview is limited to
weak entity shielding.
4.2.2.2 Ius Commune
The roots of the preference of business creditors on firm assets may
be traced to Roman law. If one man carried on two separate trades,
Ulpianus was of the opinion that the creditors, who supplied goods
or credit for the use of either of the trades, had a privilege or right of
payment out of the property employed therein, in preference to the
creditors in the other businesses.160 This text is not mentioned by
Hansmann et al, who seem to find the origins of weak entity shield-
ing in the peculium, particularly the set of assets provided by a mas-
ter to his slave for use in a business venture.161
During the later Middle Ages the commercial partnership trading under
a firm name with a capital fund contributed by the partners became
common practice in Italy. The concept of the partnership as a group
with its own assets, a collective name and a common legally bind-
ing signature soon led to various distinctions between the individual
157 Hansmann et al 1335

158 Hansmann et al 1338.
159 Hansmann et al 1338; Hansmann et al ‘Toward Unlimited Shareholder
Liability for Corpore Torts’ 1991 Yale Law Journal 1879.
160 D 14.4.5.15: Ut puta, duas negotiones exerceb, (puta sagariam et lin-
tiariam) et seperos habuit creditores? Puto, sepertaim eos in tributum
vocari; unusquisque enim eorum merci magis, quam ipsi, credidit.
130
partners and the firm by the lex mercatoria and ultimately resulted in
the recognition of the firm as a separate entity. This mercantile no-
tion of partnership came into the general legal theory and practice of
France and most other Roman derivative systems on the Continent
during the eighteenth century.162 The Roman-Dutch law of partnership
was influenced to a very significant extent by the Italian and French
legal sources of the time.163 Commercial partnerships were consid-
ered to be entities separate from the individual partners in eighteenth
century French law.164 A considered body of opinion exists that the
position in this regard was not dissimilar in the Roman-Dutch law of
that period.165
Despite this weight of authority to the contrary, in South Africa con-
ventional wisdom still has it that in Roman-Dutch law partnerships
were not regarded as legal entities to any extent.166 Nevertheless, it
is clear that in Roman-Dutch law the entity view of the legal nature
of partnership as a corpus mysticum167 was adopted at least to the
extent that a definite distinction was made between the rights of re-
course of partnership creditors and of the private creditors of the indi-
vidual partners.168
In a comprehensive analysis of Roman-Dutch sources, Kohler showed
that the autonomy of partnership assets as well as the preference of
162 Henning and Delport The South African Law of Partnership (1984)
279-280; Joubert and Harms (Eds) ‘Partnership’ in The Law of South
Africa Vol. 19 (2nd ed) (2006) 229-230; Goldschmidt Universalgeschichte
des Handelsrechts (1891) 288-289
163 Henning “Felicius-Boxelius Tractus de Societate. ’n Miskende ven-
nootskapsregtelike kenbron uit die ius commune” 1992 Tydskrif vir
Hedendaagse Romeins-Hollandse Reg 447.
164 Emerigon Traité des Assurances et des Contrats à la grosse (1783)
394: “La société est une personne civile qui a ses droit et ses tributs
particuliers. Les biens de la société considérés dans un certain rap-
port ne sont pas les biens des associés considérés en leur particulier.
Les créanciers de l’associé ne sont pas créanciers de la société.”
165 See Goldschmidt 288-289; Barels Advysen over den koophandel en
zeevaart LXII Vol. 2 (1781) 242-249; Duynstee Vraagstukken (1948)
38; Huusen-De Groot Rechtspersonen in de negentiende eeuw (1976)
129; Van Brakel De Hollandsche handelscompagnieën (1908) 174;
Scholten ‘Over rechtspersonen’ in Versamelde geschriften III (1951)
298; Holtius Voorlezingen over handels- en zeerecht (1870) 102; Die-
phuis Handboek voor Nederlandsch handelsrecht I (1865) 60; Van
der Heijden Naamloze vennootschap in Nederland voor de Codificie
(1908) 28; Grooten Vennootschap onder firma (1929) 50; Slagter and
Swemmer ‘Vennootschap onder firma’ in Personenassociaties (1980)
I 1.
166 Joubert and Harms 230.
167 ‘Een lichaem op zich zelven’.
131
partnership creditors on partnership assets to the exclusion of private
creditors were well established in Roman-Dutch law.169 Thus partner-
ship creditors had preference on partnership assets. Private or individ-
ual creditors of a partner could not lay claim to his share in the partner-
ship assets in prejudice to partnership creditors. Private creditors were
not entitled to attach or seize partnership assets for the private debts of
a partner, although they were entitled to the net share of a partner, i.e.
that due to him out of that which remained after all the partnership debts
were subtracted. If a merchant carried on business at different places
with different partners, none of his several partnerships could be held
liable or the assets of one seized for the debts of his other firms.170
The preference of partnership creditors on the assets of a particular
partnership to the exclusion of other creditors was recognised in leg-
islation from early on.171 Thus Rechte ende Costumen van Antwerpen
of 1582 provided that whenever merchants have different commercial
partnerships in different places, one partnership and its assets are not
liable for the debts of the other partnership. Also creditors of one part-
nership, establishment or shop have prior claim on its assets over the
creditors of another partnership, establishment or shop. The assets of
a partnership may not be seized, executed upon, or subjected to liens
to satisfy the personal obligations of its individual members. But a per-
sonal creditor may lay claim to a merchant’s interest in a partnership
that remains after all the company’s debts are discharged.172
Van der Keessel,173 writing at the end of the eighteenth century, still
considered these provisions as authoritative in and relevant for Ro-
169 Kohler ‘Niederlandisches Handelsrechts in der Blutezeit des Frei

states’ 1907 Zeitschrift für das gesammte Handelsrecht 293.
170 Henning and Delport 280; Joubert and Harms 230.
171 Rechten ende Costumen van Antwerpen as referred to in Van der Keessel
Praelectiones Iuris Hodierni (1967) 102: ‘[Z]oo wanneer cooplieden heb-
ben diversche compaignien van coopmanschappen in diversche plaetsen,
d’eene compaignie noch de goederen der zelver en syn niet gehouden
voor de schulden van d’ander compaignie. [W]ord oock de Crediteuren
van eender compaignie negiie, comptoor, oft winckele, in de goeden ende
crediten der zelver voor Crediteuren van d’ander compaignie, negotiie,
comptoor, oft winckel geprefereert. [M]ogen de goederen van eenighe
Compaignie niet gearresteert, uitgewonnen, noch geexecuteert worden
voor de particulier schulden van eenen van de compagnons.’
172 Van der Keessel 102. See also Voet Commentarius ad Pandectas
(1689) 14.4.8; De Longe Coutumes du pays et Duche de Brabant. Vol.
2. (1871) 392. Hansmann et al 1375.
173 Van der Keessel 102. He describes the relevant provisions as fol-
lows: ut si mercores in diversis locis negotientur et in iis diversos ha-
beant socios, una societas aut eius bona pro debitis alterius societis
non sint obliga … ut creditores unius societis, negotiionis, tabernae in
eiusdem bonis et creditis praeferantur creditoribus alterius mercurae
132
man-Dutch law as quod in causis ad mercaturam spectantibus apus
nos haud exiguae fuit auctoritatis.
A Brabant statute of 1609, in relevant part, provided that if one of the
partners is indebted in his own name, even with regard to the dowry
of his wife of similar privileged debts, the assets of the partnership
are not liable, and may not be seized, paid out, or pawned, nor can
they be paid out as compensation. Similarly, when merchants have
different partnerships, establishments or shops in different locations,
each partnership, establishment or shop is not liable for the others’
debts. Partnerships, establishments, or shops may not compensate
or cross-subsidise one another. But when the creditors of a partner-
ship establishment or shop have been paid, if there is anything left
over, those who are owed debts by individual partners or by their
other partnerships, establishments, or shops, may make their claim,
whether this is by way of compensation or by the seizure and paying
out of the assets, and each is to be paid according to the occasion,
preference, or advantage of his debt.174
That the preference of partnership creditors on partnership assets was
acknowledged in daily legal practice is confirmed by several opinions
contained in Barels’ Advysen over den Koophandel en Zeevaert.175
Thus it was stressed in an opinion dated 15 November 1707:
Ja zelvs de goederen van de Compagnieschap worden niet
gezegd die van de Compagnons te zyn, alvoorens de schulden
van de Compagnieschap betaald zyn. Waerom de Crediteuren,
die met eenig Koopman op uitzicht tot zekeren Negotie gehan-
deld hebben, zyn gepraefereerd op de goederen en koopman-
schappen van die Negotie, boven een iegelyk Crediteur, die
buiten de massa van de Negotie gehandeld heeft.176
Straccha177 lays down the like doctrine in the case of insolvency of

a merchant engaged in two kinds of businesses. Emerigon178 holds
the same doctrine and regards the position of partnership creditors
as clearly settled. Partnership creditors had a preference of payment
out of the partnership effects, before the separate creditors of any
one partner, and the respective creditors of two different partnerships
have the like exclusive privilege and preference upon the partnership
effects of each partnership, even though the firms are composed of
the very same partners: unusquisque enim eorum merci magis, quam
ipsi, credidit.
vel tabernae … ut non possint merces societis arresto preacludi vel

pignori capi pro privis debitis unius ex sociis.
174 De Longe 182. Translation by Hansmann et al 1375.
175 Barels 242-249.
176 Barels 248.
177 Straccha De mercura et tractus varii (1669) 269 note 21.
178 Emerigon Traité des Assurances et des Contrats à la grosse (1783) 582.
133
The rights of partnership creditors in Roman-Dutch law were not
limited to the partnership assets. Partnership creditors could look to
the assets in the separate estates of the individual partners as well.
The question whether partners were liable in solidum or pro parte to
partnership creditors for partnership debts in Roman-Dutch law often
formed the subject of heated debate.179 However, it is clear that part-
ners were directly and personally liable to partnership creditors for the
payment of partnership debts, even stante societate.180 In any event,
the Supreme Court of Appeal181 has accepted that in Roman-Dutch
law partners were liable singuli in solidum to partnership creditors.182
In this context, the position of partnership and private creditors un-
der Roman-Dutch law may conveniently be summarised as follows:
Partnership creditors were preferred on partnership assets and were
concurrent creditors of each of the individual partners, singuli in soli-
dum. Private creditors of the partners had no preference as such on
the private assets of the individual partners but ranked concurrently
with the partnership creditors. As far as the partnership assets were
concerned, private creditors were only entitled to the net share, if any,
of the particular partner in the partnership, that is, to the share of the
partner in that which may remain after all the claims of partnership
creditors have been fully paid.
4.2.2.3 Anglo-American Law
According to Crane and Bromberg, it has “always” been the rule in
bankruptcy and in equity that partnership creditors are given prior-
ity in the distribution of the partnership estate.183 They maintain that
this rule can be rationalised quite readily under the theory that the
partnership treated as a legal person should apply its property to the
179 Asser In solidum of pro parte? (1982) 126.

180 Henning and Delport 305; Joubert and Harms 257.
181 Lee v Maraisdrif (Edms) Bpk 1976 2 SA 536 (A).
182 At present this is also the position in South African law after dissolu-
tion of the partnership. It should be kept in mind th a partnership is
dissolved by sequestration, see Cassim v The Master 1962 4 SA 601
(D) 606.
183 Crane and Bromberg Law of Partnership (1968) 530. See also Stark
Treatise on the law of partnership (1825) 234-235; Burdick The law of
partnership including limited partnerships (1899) 293, Crane Hand-
book on the law of partnership and other unincorpored associations
(1952) 531; Shumaker A treatise on the law of partnership (1901) 354-
355; Hardy Ivamy Underhill’s principles of the law of partnership (1986)
101; Mechem Elements of the law of partnership (1920) 376-377;
Sugarman Sugarman on partnership (1966) 296-298; Reuschlein and
Gregory The law of agency and partnership (1979) 388-392; Burgess
and Morse Partnership law and practice (1980) 237-239; Kennedy
“A new deal for partnership bankruptcy” 1960 Columbia Law Review
610. Story Commentaries on the law of partnership (1868) 585.
134
payment of its debts in priority to any distribution to its members or
persons claiming under them, or in their rights. The rule, however,
became settled long before the judicial recognition of the entity view
of partnership in some common law jurisdictions.
The rule appears to have been considered rather as an application
in equity of the legal principle that the separate creditor cannot reach
by execution anything more than his debtor’s interest as partner in
partnership property.184 This explanation was suggested by Lord
Loughborough in Ex parte Elton185:
I was led to consider another thing: Is it possible to admit a
separate creditor to take a dividend upon the joint estate rate-
ably with the joint creditors? No case has gone to that; and it
is impossible; for the separate creditor at law has no right to
attach the partnership property. He can only attach the inter-
est his debtor had in that property. If it stands as a rule of
law, we must consider, what I have always understood to be
settled by a vast variety of cases not only in bankruptcy but
upon general equity, that the joint estate is applicable to part-
nership debts, the separate estate to the separate debts.
The underlying reason for the rule of law is said to be the partnership
contract, and the nature of the rights of partners inter se in partner-
ship property. This exclusive liability of the partnership estate to the
joint creditors is founded on no equity peculiar to themselves, but
results from the nature of the contract of partnership, which requires
the joint debts to be paid before the equity can be settled between
the partners, each being individually liable until all is paid.186
4.2.3 Owner shielding
4.2.3.1 Introduction
Owner shielding refers to the rules protecting the personal assets of
the firm’s owners from the creditors of the firm. Weak owner shield-
ing grants priority to the personal creditors over firm creditors in the
division of assets in the owner’s personal estate. Complete owner
shielding denies firm creditors any claim to the personal assets of the
owners, restricting firm creditors to the assets of the firm itself.187 The
following overview is limited to the origins of weak owner shielding.
4.2.3.2 English Law
The origin of the second component of the dual priorities rule, weak
owner shielding granting superior rights to individual creditors in indi-
vidual assets, has been traced back to the English decision of 1682 in
184 Crane and Bromberg Law of Partnership (1968) 531.

185 30 ER 988 (1796).
186 US v Kaufman 267 US 408.
135
Craven v Knight188 where it was held that the estate of a ‘joint trade’189
was to be divided into ‘moieties’ to pay out the joint debts of that trade,
and any surplus to be applied to the ‘particular debts of each partner’.
Any agreement of the partners to apply their partnership assets firstly
to separate creditors could not bind the joint creditors.190
In Ex parte Crowder191 the rule of distribution in bankruptcy was stated
that as the partnership estate was in the first place to be applied to
pay the partnership debts, in like manner the separate estate should
be applied to pay all the separate debts. As separate creditors are not
to be let in upon the partnership estate, until all the partnership debts
are paid, so likewise the creditors to the partnership shall not come in
for any deficiency of the partnership estate, until the separate debts
are first paid.
The dual priorities rule was restated in classic form by Lord King in
Ex parte Cook192 in 1728:
(I)t is settled, and a resolution of convenience, that joint credi-
tors shall first be paid out of the partnership or joint estate,
and the separate creditors out of the separate estate of each
partner; and if there be a surplus of the joint estate, besides
what will pay the joint creditors, the same shall be applied to
pay separate creditors; and if there be, on the other hand, a
surplus of the separate estate beyond what will satisfy the
separate creditors, it shall go to supply any deficiency that
may remain as the joint creditors.
Lord Harwicke adopted the rule in 1741 in Ex parte Hunter.193 Lord

Thurlow in decisions dating from 1784,194 criticised the dual priorities
rule, and would have allowed partnership creditors not only to prove
in a separate commission but to rank in pari passu against a single
partner’s separate assets pooled with his proportionate share of the
jointly held partnership assets.
In Ex parte Marlin195 X contracted individual debts then joined Y in a
partnership in 1772 (“XY”); then X and Y joined with Z to form a sep-
arate second partnership (“XYZ”). Separate commissions of bank-
ruptcy were then issued against X, Y and Z. Lord Thurlow specifi-
cally ordered entirely separate accounting. The payment schedule
188 21 ER 870 (1682).

189 I.e. a partnership.
190 Getzler and Macnair The Firm as an Entity before the Companies Acts:
Asset Partitioning by Private Law (2007) 1. http://www.law.cam.ac.uk/
docs/view.php?doc=2365 (accessed on 10/12/07).
191 23 ER 1064 (1715).
192 (1728) 2 PW 500. Italics supplied.
193 26 ER 143 (1741). Italics supplied.
194 Ex parte Cobham 28 ER 1307 (1784); Ex parte Hodgson 29 ER 3 (1785).
195 29 ER 8 (1785).
136
was that first, X’s separate estate was to pay his separate creditors;
and same for Y and Z’s separate estates; next the joint estate of firm
XY was to pay out extant debts of that estate; and finally any surplus
from the above distributions was then and only then to go to credi-
tors of bankrupt firm XYZ.196
The marshalling system of convenience set out by Lord Thurlow in
Ex parte Marlin of separate account taking and application of sepa-
rate and joint debts to the respective separate and joint estates was
adopted in its entirety by Lord Loughborough through a General Order
of the Lord Chancellor in 1794. The dual priorities rule with its over-
lapping accounting mechanisms thus took effect as a general rule
of bankruptcy jurisdiction. The Order allowed separate creditors to
prove under a joint commission against two or more bankrupts, such
as partners, and also required distinct accounts of the separate and
joint estates, with separate and joint creditors having first call on those
respective classes of estate and second call on any surplus.197
In 1796 Lord Loughborough ensured the Order would be observed
by affirming the dual priorities rule in the case of Ex parte Elton:198
[T]his Court…is to make an equitable distribution among the
creditors, to admit all equitable claims upon the effects, and
to divide them rateably. It has been long settled, and it is not
possible to alter that, that each estate is to pay its own credi-
tors … But any other joint creditor is in exactly the case of a
person having two funds; and this Court will not allow him to
attach himself upon one fund to the prejudice of those, who
have no other and to neglect the other fund. He has the law
open to him: but if he comes to claim a distribution the first
consideration is, what is that fund, from which he seeks it. It
is the separate estate; which is particularly attached to the
separate creditors. Upon the supposition, that there is a joint
estate: the answer is ‘apply yourself to that: You have a right
to come upon it: the separate creditors have not: therefore do
not affect the fund attached to them, till you have obtained
what you can get from the joint fund.’ [If] it stands as a rule of
law, we must consider, what I have always understood to be
settled by a vast variety of cases not only in bankruptcy, but
upon general Equity, that the joint estate is applicable to part-
nership debts, the separate estate to the separate debts.
Asset Partitioning by Private Law http://www.law.cam.ac.uk/docs/
view.php?doc=2365 (acessed on 10/12/07).
Asset Partitioning by Private Law http://www.law.cam.ac.uk/docs/
view.php?doc=2365 (acessed on 10/12/07). This order was extended
to Ireland by an order of Lord Plunkett dated 25 November 1832. See
Twomey Partnership law (2000) 713.
198 Italics supplied.
137
The phrase in italics could conceivably be interpreted as signifying
that partnership creditors rank in full on the partnership estate, to the
exclusion of the private creditors, but may also rank on the separate
estates pari passu with the private creditors for any unpaid balance,
thus echoing the position in Scotland. In fact, in Ex parte Abell199
counsel argued again for the pari passu approach and against the
dual priorities rule in Ex parte Elton, especially where there was
no extant joint estate available. However, Lord Loughborough reaf-
firmed his commitment to the dual priorities rule, on policy grounds
and as binding authority.
In 1802, in Ex parte Clay,200 Lord Eldon followed Lord Loughborough
merely because he thought it better to apply the stare decisis doctrine
and to follow the rule that he found established ‘than to let it be con-
tinually changing, so no one can tell how it is’. In Gray v Chiswell,201
Lord Eldon stated that ‘it is extremely difficult to say upon what the
rule in bankruptcy is founded’. In 1810, in a review of the history of the
rule, Lord Eldon in Dutton v Morrison,202 took the opportunity to state
that he had often doubted whether the rule was the best in principle
and that it has often appeared to him, that both in bankruptcy and in
the administration of assets “the Court has done more upon principles
of convenience, than as standing upon legal reasoning.”
This notwitstanding, the dual priorities rule was thereafter adopted
in successive English Bankruptcy Acts, until the turn of the twentieth
century.203
4.2.3.3 Ius Commune
The priority treatment of private creditors and hence the owner shielding
component of the dual priorities rule finds no application in Continental
legal systems, such as Germany, France, Switzerland, and Austria.204
In Silbert & Co v Evans & Co205 Wessels J stated that “the first prin-
ciple that joint creditors must look to the joint estate, and creditors of
the individual partners to the separate estate, is clearly a principle
of the Civil Law as understood in Holland”. With great respect, this
statement cannot be supported. In Roman Dutch law, partnership
199 31 ER 434 (1799).

200 31 ER 1322 (1802).
201 32 ER 547 (1803).
202 34 ER 75 (1810). Italics supplied.
203 Section 40(3) of the Bankruptcy Act of 1825. See the other statutory
provisions discussed below.
204 Heenen Business and private organisions: ‘Partnership and other per-
sonal associations for profit’ in International Encyclopaedia of Com-
parative Law Vol. 13 (1984) 163-164; Kennedy ‘A New Deal for Part-
nership Bankruptcy’ 1960 Columbia Law Review 610 612.
205 1912 TPD 425-439. Italics supplied.
138
creditors were not limited to “looking to” the partnership estate only.
Neither were private creditors preferred on the partners’ separate
estates. As in the case of various other doctrines introduced under
the guise of ‘conformity’ with Roman-Dutch law into South African
law,206 and as pointed out above, the origins of the second part of
the Wessels J’s “principle of the Civil Law” is rooted in the notions of
convenience of English equity jurisprudence and the influence of its
common law stare decisis doctrine.207
The close historical connection between the law of partnership in
Scotland and in Roman-Dutch law has been frequently acknowl-
edged.208 It is, therefore, interesting to note that the dual priorities
rule never found any application in Scotland. In Scotland partner-
ship creditors rank in full on the partnership estate, to the exclusion
of the private creditors, and rank on the separate estates pari passu
with the private creditors for any unpaid balance.209 The Bankruptcy
(Scotland) Act 1985 provides that where a partnership creditor claims
against the estate of one of its partners, the creditor has to estimate
the value of the debt to the creditor from the firm’s estate (where its
estate has not been sequestrated) or the creditor’s claim against the
firm’s estate (where it has been sequestrated) and deduct that value
form his claim against the partner’s estate. The amount in respect
of which he is entitled to claim on the partner’s estate is the balance
remaining after the deduction has been made. Hence the separate
estates of partners are available to the firm’s creditors pari passu
with the individual’s creditors for any unpaid balance of their claim
against the firm. This is only for the net value of their claims after
exhausting the firm assets.210
It is clear that the concomitant of the curtailment by the dual priorities
rule of the rights of recourse of partnership creditors against private
estates is the extension of the common law rights of private credi-
tors of the individual partners. By prohibiting partnership creditors to
prove claims against the estates of the partners, individual creditors
are given priority rights of recourse against partners’ estates to the
detriment of partnership creditors.
206 For similar examples, see Cilliers et al Corporate Law (1992) 171-189.
207 Cf. the judgment of Bristowe J in Silbert & Co v Evans & Co 444-449.
208 Hemphill ‘Personality of the partnership in Scotland’ 1984 The Juridical
Review 214.
209 Bankruptcy (Scotland) Act 1985 Schedule 1 section 6; Review Com-
mittee (1982) 379. See also Scottish Law Commission Report on
bankruptcy and related aspects of insolvency and liquidation (1982)
78; Burgess and Morse Partnership law and practice (1980) 239.
210 Burgess and Morse 243; Shroder ‘Distribution of Assets of Bankrupt
Partnerships and Partners’ 1904 Harvard Law Review 495 504.
139
4.2.4 Statutory reception and implementation
4.2.4.1 England
4.2.4.1.1 Application
Notwitstanding judicial concerns about the legal basis and equitability
of the rule, the dual priorities rule with its peculiar priority of private
creditors and limitation on the rights of partnership creditors, was en-
shrined in section 40(3) of the Bankruptcy Act of 1825 and the English
Bankruptcy Acts of 1869, 1883 and 1914.211
The dual priorities rule prevailed in England under the Bankruptcy Act
of 1914, well into the last decade of the twentieth century.212
In administering the estate of a bankrupt firm, or of some or one only
of its members under the Bankruptcy Act of 1914, it was necessary
to distinguish, first, joint from separate estate; and, secondly, joint
from separate debts: for the leading principle of administration was
to pay the debts of the firm out of the assets of the firm, and the pri-
vate debts of each partner out of his own private property. Section
33(6) of the Bankruptcy Act 1914 enacted as follows:
In the case of partners the joint estate shall be applicable in
the first instance in payment of their debts, and the separate
estate of each partner shall be applicable in the first instance
in payment of his separate debts. If there is a surplus of the
separate estates, it shall be dealt with as part of the joint es-
tate. If there is a surplus of the joint estate, it shall be dealt
with as part of the respective separate estates in proportion
to the right and interest of each partner in the joint estate.213
In terms of section 63, where one partner of a firm is adjudged bank-

rupt, a creditor to whom the bankrupt is indebted jointly with the other
partners of the firm, or any of them, shall not receive any dividend out
of the separate property of the bankrupt until all the separate creditors
have received the full amount of their respective debts. Where joint
and separate properties are being administered, dividends of the joint
and separate properties shall; unless otherwise directed by the Board
of Trade on the application of any person interested, be declared to-
gether; and the expenses of and incidental to such dividends shall
be fairly apportioned by the trustee between the joint and separate
211 See section 40(3) of the Bankruptcy Act of 1825, section 76 framed
under the Bankruptcy Act of 1869; section 40(3) of the Bankruptcy Act
of 1883: sections 33(6) and 63(1) of the Bankruptcy Act of 1914.
212 Scamell and I’Anson Banks Lindley on the Law of Partnership (1984)
860-861.
213 Cf. Graham Hunter and Crystal The law and practice in bankruptcy
(1979) 216: ‘Subsection (6) embodies the rule as to the distribution of
joint and separe estates as laid down by Lord King in Ex p Cook.’
140
properties, regards being had to the work done for and the benefit
received by each property.214
Rule 1952 required distinct accounts to be kept of the joint and sep-
arate estates. Rule 371 stipulated that where a receiving order has
been made against partnership, distinct accounts shall be kept of
the joint estate and of the separate estate or estates. No transfer of
a surplus from a separate estate to the joint estate on the ground
that there are no creditors under such separate estate shall be made
until notice of the intention to make such transfer has been gazet-
ted. Rule 295 provided if any two or more of the members of a part-
nership constitute a separate and independent firm, the creditors of
such last-mentioned firm shall be deemed to be a separate set of
creditors, and subject to the same rules as the separate creditors
of any individual member of the partnership. Where any surplus re-
mains after the administration of the assets of the separate firm, the
surplus shall be carried over to the separate estates of the partners
in that firm according to their respective rights therein.215
4.2.4.1.2 Exceptions216
There are minor exceptions to the dual priorities rule whereby joint
creditors may proceed equally against the separate estates of the
partners.217
The dual priorities rule implies that the partnership’s estate may not
prove against the separate estate of a partner, e.g., for a loan. The
rule only applies to joint debts which, however, constitute the vast
majority of partnership obligations. If the claim of the partnership
creditor is joint and several, he can prove in both partnership and
separate estates. In English law, there are further exceptions to the
operation of the priority of personal creditors:
• Where the partnership has no assets, its creditors may prove
against the separate estate of an insolvent partner. This exception
only applies where all the partners are insolvent. This is illogical,
for it may result in creditors obtaining a larger dividend when the
firm has no assets than when it has some assets.
• Where a creditor has been defrauded by some partners under
such circumstances as to render the partnership liable, for
example, where a partnership of solicitors receives trust funds
for investment and they are misappropriated by one of the
214 See also Redmond Bankruptcy law (1981) 126-127: ‘The joint estate
is applicable in the first instance in payment of joint debts. The sepa-
rate estate of each partners, in the first instance, to be applied in pay-
ment of his separate debts’.
215 See Gower Pollock on the law of partrnership (1952) 142-144.
216 Overview based on Heenen 164-168
217 Burgess and Morse 240; Story 601.
141
partners who is also a trustee. However, in such cases, the
creditor must elect whether to prove against the partnership’s
estate or against the partner’s separate estate. This exception
seems to rest on the principle that the fraud is the fraud of
the individual partners who committed it and that their several
liability is not abridged because the partnership appears also to
be responsible. However, where both causes of action are for
breach of contract, the creditor may pursue them concurrently.
• Where a partner has fraudulently converted partnership property
to the enrichment of his separate estate, a claim may be made
against his separate estate for the value of that property, unless
his fellow partners ratified the appropriation or acquiesced in it
at a time when the partnership was solvent. In that case there
is no reason for the application of the rule, viz., the prevention
of pretended contracts made with a view to a fraud upon the
bankruptcy laws.
• A partner or his creditors cannot prove against the partnership’s
assets for any claim he had against it, until the partnership’s
creditors have been paid in full. If he is insolvent, to permit such a
proof would increase the dividend paid to the partner’s separate
creditors at the expense of the partnership’s creditors. Similarly
a partner is not permitted to prove against the separate estate of
another bankrupt partner for a private debt, because this would
reduce the surplus of that estate available to the partnership’s
creditors. Several exceptions have been recognised in English law.
• Where a partner carried on a separate business of his own and
the claim arose out of a transaction between that business and the
insolvent partnership, it may be proved in the partnership’s estate.
• Where the separate property of a partner has been fraudulently
converted to the use of the partnership, without the approval
of the partner, proof is allowed in respect of such property in
competition with the partnership’s creditors.
• Where a partner has paid the debts of the partnership, he can
prove for a private debt against the separate estate of another
partner and also for the other partner’s contribution toward the
partnership’s debts. The separate creditors are obviously benefited
by the rule quoted above which prevents one partner from proving
against the separate estate of his co-partner, but, it is not for their
sake that the rule has been established. Where the reason for the
rule ceases to exist, the rule itself ceases to be applicable.
• Where the separate estate of a partner is insufficient to pay his
separate debts in full, another partner may prove against it for a
private debt. Here again, the partnership’s creditors do not suffer,
for there would be no surplus to come to them in any case.
• Where the partner who seeks to prove against the partnership’s
assets was released from liability to the partnership’s creditors,
142
by their agreement or by his discharge in bankruptcy, before
his claim against the partnership or the other partners arose.
Here the former partner must be treated on the same footing as
any other outsider in respect of that claim.
4.2.4.1.3 Reform
Strong criticism of and pressure for the reform of the dual priorities
rule eventually resulted in the abrogation of its second component
by the Insolvent Partnerships Order 1994.
4.2.4.2 United States
The dual priorities rule was accepted by the great majority of United
States states at common law,218 adopted in American bankruptcy
legislation and the Uniform Partnership Act of 1914.219
The Bankruptcy Act of 1898, following on the Bankruptcy Acts of 1841
and 1867220 both of which contained almost identical provisions,221
continued the reign of the dual priorities rule by stipulating that the
assets of bankrupt partnerships and partners were to be distributed
as follows:
The net proceeds of partnership property shall be appropriated
to the partnership debts, and the net proceeds of the individual
estates 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 part-
nership 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 propor-
tion of their respective interest in the partnership.222
The importance of the Act of 1898 is that it departed from previous

bankruptcy legislation through a change in the view of the legal na-
ture of a partnership, from aggregate to entity.223 The Act of 1898
218 See Amsinck v Bean 89 US 395 (1874): per Mr Justice Clifford: ‘Doubt
upon the subject cannot be entertained’.
219 See section 5 of the Bankrupt Act of 1898 and section 40 of the Uni-
form Partnership Act of 1914. See also Brannan ‘The bankruptcy of
a partnership under the Bankrupt Act of 1898’ (1917) Harvard Law
Review 589; Kennedy 610. Crane and Bromberg 533.
220 See Hansen Bankruptcy law in the United States (2007) http://eh.net/
encyclopedia/article/hansen.bankruptcy.law.us (accessed on 11 De-
cember 2007).
221 Shroder op. cit. note 50 495.
222 Section 5g (11 USCA section 23). See Burdick 296-297.
223 Shroder 498; Hanley 149; Hough 599; Hendrix ‘Partnerships in Bank-
ruptcy’ (1953) 27(4) Journal of the National Association of Referees
in Bankruptcy 126; Burdick ‘Some Judicial Myths’ (1909) 22 Harvard
143
provided for the adjudication of a partnership as an entity separate
and distinct from its members. It stipulated that the term ‘persons’
include partnerships; a partnership may be adjudged a bankrupt; the
creditors of the partnership appoint the trustee, and the partnership
estate shall so far as possible be administered as other estates;
jurisdiction over one partner gives jurisdiction over the partnership;
the partnership may prove against the individual estates and the
individual estates against the partnership estate.224
Earlier bankruptcy legislation, for example section 14 of the Act of
1841 and section 36 of the Act of 1867, provided that ‘where two or
more persons who are partners in trade are adjudged bankrupt’ the
certificate of discharge shall be granted ‘to each partner as the same
would or ought to be if the proceedings had been against him alone’.
Under the old English practice it was necessary to take out simultane-
ously a joint commission against all the partners and also a separate
commission against each. In order to support a petition against a
firm, each of the partners must have been proved to have committed
an act of bankruptcy. Under the modern English practice a receiving
order made against a firm will operate as if it were a receiving order
against each partner. The adjudication is not against the firm in the
firm’s name, but against all the partners individually.225
These distinctions go to the essence of the nature of a partnership.
Under no previous act could the bankruptcy of a partnership be ad-
judged, or its estate, as such, be administered. Joint commissions
were essentially commissions against the individuals, operating upon
the estates of each of the partners, and not maintainable except where
separate commissions could be supported against each partner. Un-
der the Act of 1898, a firm, as a separate entity, may be bankrupt.226
It is interesting to note the similarities in this respect between the
South African Insolvency Act of 1936 and the American Bankruptcy
Act of 1898, especially as far a treating the partnership as a sepa-
rate entity is concerned. Indeed in this respect there seems to be a
closer link between these two statutes than between the South Afri-
can insolvency and English bankruptcy legislation of the time.
The Uniform Partnership Act of 1914 (“UPA”) reinforced the applica-
tion of the dual priorities rule. Section 31(5) provided that a partner-
ship is dissolved by the bankruptcy of any partner or the partner-
ship. In terms of section 40 after dissolution the liabilities of the
Law Review 393; Kennedy ‘Partnerships and partners under the

Bankruptcy Reform Act and the new (proposed) Bankruptcy Rules’
(1983) St Louis University Law Journal 507.
224 Hanley 150.
225 Shroder 498.
226 Shroder 498.
144
partnership ranked as follows in order of payment: those owing to
creditors other than partners; those owing to partners other than for
capital profits; those owing to partners in respect of capital those
owing to partners in respect of profits. Where a partner has become
insolvent claims against his estate rank in the following order: those
owing to separate creditors; those owing to partnership creditors;
those owing to partners by way of contribution.227
A few states initially refused to apply the dual priorities rule and permit-
ted partnership creditors to share in the individual estates pari passu
with individual creditors. Almost all reversed themselves by adopting
the UPA. For instance, in pre-UPA Texas partnership creditors were
allowed to share equally with separate creditors. This was consid-
ered to accurately represent accepted commercial standards and reli-
ance by partnership creditors, although it clashed with the equitable
principle of marshalling.228 In Kentucky separate creditors shared in
the separate estate until their rate of dividend equaled that received
by partnership creditors from the partnership estate, after which both
classes of creditors shared pari passu.229 In Georgia legislation al-
lowed separate creditors to have first claim on the partners’ assets to
the extent that partnership creditors could claim a priority on partner-
ship assets. After both creditors had prior satisfaction to the extent of
all partnership claims, then both classes of creditors shared equally in
all remaining assets.230
A considered body of opinion exists that the Bankruptcy Act of 1898
passed a golden opportunity to ignore this rule, for, when it treated the
partnership as a legal entity distinct from the partners, it emphasised
the separation of the individual partner’s creditors from the firm as-
sets. Since under the entity theory the partner is still liable upon the
firm debts, his position becomes like that of a surety. Indeed, he has
an equity of exoneration out of the firm assets, if they suffice, which
conforms to the surety-like nature of his obligation. The liabilities of a
surety are not and should not be deferred to his other liabilities.231
227 Crane and Bromberg 578-581.

228 Baggett 563: Marshalling of assets is a rule of equity which provides
that where one creditor is in a situation to have two or more distinct
securities of funds to rely on, the court will not allow him, while ne-
glecting his other funds, to attach himself to one of the funds to the
prejudice of those who have claim upon that fund and no other to
depend to, see Rogers v Meranda Ohio St 179 (1857).
229 Crane and Bromberg 534 n 33.
230 Georgia Code Annoted sections 75-311; Baggett 557.
231 Schall v Camors 251 US 239 254 (1920); Brannan op. cit. note 46 592;
MacLachlan op. cit. note 59 425; Shroder op. cit. note 50 495; McLaugh-
lin ‘Aspects of the Chandler Bill to Amend the Bankruptcy Act’ (1937)
4(3) University of Chicago Law Review 369.
145
The Chandler Act reforms of 1938 that ushered in the New Deal vision
of corporate bankruptcy, removed some of the conflicts of decision
as to the procedural treatment of firm and partners, but the seeds of
controversy remained. It did not address the issue of the dual priori-
ties rule.232
During the second half of the previous century, strong and ultimately
successful pressure was applied to abrogate the dual priorities rule
and permit partnership creditors parity against individual assets.233
4.2.4.3 South Africa
4.2.4.3.1 Pre-Union legislation
4.2.4.3.1.1 Cape
The Insolvency Ordinance of Amsterdam of the 17th of January 1777
has, in a large measure, been the basis of much of the subsequent
South African law of insolvency.234 The Provisionele Instructie voor
de Commisarissen van de Desolate Boedelkamer of 1804 was, for
instance, to a very large extent founded on it.
After 1806 several temporary ordinances were passed in the Cape
for the provisional regulation of insolvent estates. At length Ordinance
64 of 1829 was passed for the due collection, administration and dis-
tribution of insolvent estates.235 Section 16 of the Ordinance of 1829
made provision for the separate sequestration of the estate of a part-
nership.236 A creditor of a partnership was, however, not prevented
by this provision from instituting sequestration proceedings or any
other proceeding against any partner in respect of partnership debts:
“[N]othing herein contained shall extend or construed to prevent the
232 Skeel Debt’s dominion. A history of Bankruptcy law in America (2001)

18-19; Deminy and Stone ‘Unaccomplished Reforms in Partnership
Bankruptcy under the Chandler Act’ (1940) 49(5) Yale Law Journal
908-909; Hanley 149.
233 Kennedy 610.
234 Burton Observations on the Insolvent law of the Colony (1829) 27; De
Villiers Die Ou-Hollandse insolvensiereg en die eerste vaste insolven-
siereg van de Kaap de Goede Hoop (1923) 9; Wers and Jooste Mars.
The Law of Insolvency in South Africa (1980) 3; Stander ‘Geskiedenis
van die Insolvensiereg’ (1996) Tydskrif vir die Suid-Afrikaanse Reg 371.
235 Burton 30.
236 Although section 16 refers to a ‘company’ it is clear the reference in
context is to an unincorporated partnership and not an incorporated
company, see Burton op. cit. note 50 30-31. The section itself time
and again refers to ‘partners’ and, in any event, the first company
legislation in South Africa providing for incorporation by way of a ge
neral enabling Act, the Cape Joint Stock Companies Limited Liability
Act, was only introduced in 1861. The unincorporated deed of settle-
ment company was in general regulated by the law of partnership, see
Cilliers et al Company Law (1982) 24.
146
Creditor or Creditors of any Company from proceeding against any
Partner, or the separate estate of any Partner thereof, in respect of
Debts due by such Company …”237
One would have thought that the proviso to section 16 effectively
prevented the application of the dual priorities rule, since partner-
ship creditors were not precluded from proceeding against the part-
ners or their private estates to recover partnership debts. Burton
pointed out that it may happen that the partnership estate alone
would be subject to sequestration. However, since each individual
partner is also liable to pay the whole partnership debt, it would in
practice more often than not happen that the joint estate and the
separate estates are simultaneously administered as insolvent.238 In
this event the ‘the old rule adopted in England’ may find application
to determine “which proportion of the joint estate should be allot-
ted to the separate creditors and what proportion of the separate
estate to the joint creditors”.239 Having raised this possibility, Burton
proceeded immediately to point out that the dual priorities rule fre-
quently operates the greatest injustice.240 He pointed out that since
no rule of practice had yet been obtained in the Cape on this issue,
the court should not consider itself bound to apply the dual priorities
rule but rather to establish a suitable rule for the future which will do
equal justice between partnership and private creditors.241
Ordinance 64 of 1829 was repealed by the consolidating Ordinance
6 of 1843 in the Cape. It may be regarded as a landmark in the South
African law of insolvency since it formed the foundation for legislation in
the other territories in what later became the Union of South Africa.242
Section 9 of the Ordinance 1843 again provided for the sequestration
of the separate estate of a partnership. It stipulated that the separate
estate of a partner shall not be sequestrated merely by virtue of the
sequestration of the estate of a partnership of which he is a mem-
ber. Provision was, however, made for including in the same order
for sequestration the estate of the partnership and the estates of the
partners and for the consolidation of these estates. In such an event
237 Section 16 proviso.

238 Burton 85.
239 Ibid.
240 He illustrated the inequality of the rule with the following example:
‘[Consider] the case of five partners having each a separate estate of
£20, 000, and separate debts to the amount of £20, 000, and that the
joint debts amount to £100, 000. If there be £10 worth of joint property,
this must first be divided among the joint creditors; and therefore a
joint creditor of £20, 000, would not get a farthing in the pound, while
the separate creditors would receive £20, 000.’
241 Burton 86.
242 Mars 5.
147
the trustees of the sequestrated estates were nevertheless bound to
keep separate accounts for each consolidated estate as if each of the
consolidated estates were under separate administration.
Despite Burton’s fervent hope for the establishment of a suitable rule
which would do equal justice between partnership and private credi-
tors, section 34 of the Ordinance of 1843 introduced the dual priorities
rule into Cape insolvency law. It can be considered as the lupus in
fabula in context as it set the example which the other Southern Afri-
can regions followed. It stipulated in relevant part:
(I)n every case in which it shall happen that the estate of any
company, and the estate or estates of any one or more part-
ners of such company, shall be concurrently under adminis-
tration as insolvent, the creditors of said company shall prove
their debts against, and rank upon the estate of the company,
and the creditors of each partner, in respect of debts due by
such partner separately from the other partners, shall prove
their debts against, and rank upon the estate belonging to their
debtor separately from the other partners, and the estate of
the company, shall be first applied in satisfaction of the credi-
tors of the company and each separate estate shall be first
applied in satisfaction of the separate creditors of that estate.
And if the estate of the company shall prove insufficient to sat-
isfy the creditors of the company … then each creditor of the
company shall rank upon the surplus of each separate estate,
which may remain after satisfying the separate creditors of that
estate, either for the residue or entire of his debt, as the case
may be, but so, however, as not to receive, in all, more than
the whole of their debts respectively. And if the separate estate
of any partner shall prove insufficient to satisfy the separate
creditors who have claimed upon it, then the separate creditors
upon that separate estate shall rank upon the surplus, if any,
of the company’s estate which shall remain after satisfying the
creditors of that estate in proportion to the share in such sur-
plus belonging to, or claimable in right of, the particular partner
whose separate estate has as aforesaid proved deficient.
This arrangement was buttressed by section 36 which provided that

in any case not expressly provided for in the Ordinance, relating to
the ranking and priority of the joint creditors of any company in com-
petition with the separate creditors of any of the partners, or relating
to the reciprocal claims of any such insolvent estates in reference
to or in relief of each other, the rule for the time being in respect of
the like case in English bankruptcy law must first be resorted to, and
then the common law of the Colony.
4.2.4.3.1.2 Transvaal and Zuid-Afrikaansche Republiek
Section 9 of the Transvaal Act 21 of 1880 Voor het regelen van de behoor
lijke Invordering, Bestiering en Verdeeling van Insolvente Boedels bin-
nen deze Provincie, closely followed section 16 of the Cape Ordinance
148
of 1829 and thus also made no provision for the application of the dual
priorities rule. The dual priorities rule was eventually introduced in this
jurisdiction by section 67 of the Insolventiewet 13 of 1895 of the Zuid-
Afrikaansche Republiek.243 Which provided in relevant part:
Wanneer de boedel van eene vennootschap en de boedels
van een of meer der vennoten gelijktydig onder sekwestra-
sie zijn gesteld, zal de rangschikking van de vorderingen der
onderscheie krediteuren volgens de navaolgende regelen
plaats hebben: (a) De vorderingen van crediteuren der ven-
nootschap wordern gerangschikt in den boedel dier vennoot-
schap, en de vorderingen van de crediteuren van iederen
vennoot afzonderlijk in diens afzonderlijken boedel …
This application of the dual priorities rule was subject to the limita-
tion that the rights of creditors of the partnership against every part-
ner whose estate was not under sequestration were not affected in
any way. In contradistinction to section 36 of the Cape Ordinance of
1943 which prescribed that as far as the ranking and priority of the
creditors of a partnership, in competition with the separate creditors
of any of the partners, is concerned English bankruptcy law must
first be resorted to, section 69 of the Insolventiewet 13 of 1895, pro-
vided that “Voor zoover bij deze wet daarin niet is voorzien, zal ten
aansien van de onderelinge rangschikking van die crediteuren eener
vennootschap en van de afzonderlijken boedels van eenigen ven-
noot, gehandele worden volgens algemene rechtsbeginselen.”244
4.2.4.3.1.3 Orange Free State
In the Orange Free State section 34 of De Wet over de Insolventie
comprising Hoofdstuk CIV of the Wetboek van den Oranjevrijstaat.245
applied the dual priorities rule in an almost identical manner to sec-
tion 34 of the Cape Ordinance of 1843 by providing, inter alia, that:
243 Which refers to the ‘boedel van eene vennootschap’.

244 See also section 68: ‘De crediteuren van eene vennootschap, onverf-
schillig of de boedel daarvan gesequestreerd is of niet, kunne hunnen
schuldvorderingen bewijzen in den gesequestreerden afzonderlijke
boedel van een der vennooten, tren einde mede te stemmenbij de
verkiezing can curorne … (Z)ij zullen echet geen dividend ontvangen
uit dien afzonderlijken boedel alvorens crediteuren van dien boedel
ten volle betaald zijn, tenzij de order tot sequestarie van dien boedel
op hunb verzoek is verleend.’
245 Which makes reference to ‘de deelhebbers van eenige zodanige
maschappij’. As far as terminology is concerned it should be kept in
mind that De Wet over de Beperkte Verantwoordelijkheid van Naam-
loze Vennootschappen, Hoofdstuk C of the Wetboek van den Oranje
vrijstaat, provided for the incorporation of limited liability companies,
while the Wet voor het Liquideeren van Naamloze Vennootschappen
no 2 of 1892 provided for the liquidation of such companies.
149
(D)e boedel van de maatschappij zal eerst worden aangewend
tot het voldoen van de crediteuren van de maatshappij, en ie-
dere afzonderlike boedel zal eerts moeten worden aangewend
in voldoening van afzonderlike crediteuren van dien boedel.
In contradistinction to section 36 of the Cape Ordonnance of 1943

but similar to section 69 of the ZAR Insolventiewet 13 of 1895, sec-
tion 36 of ‘de Wet over de Insolventie’ stipulated that in any case
not expressly provided for in the Wet concerning the competition
between preferences of partnership and private creditors: “moet de
gemeene landswet van dezen Staat worden toegepast.”
4.2.4.3.1.4 Natal
Section 39 of the Insolvency Law No 47 of 1887 of Natal, the mirror
image of section 34 of the Cape Ordinance of 1843, similarly pro-
vided for the application of the dual priorities rule in the case where
the estate of any company and the estate or estates of one or more
partners of such company, were concurrently under administration
as insolvent.246 This was supported and confirmed by section 129,
which provided, inter alia, that:
In the case of partners the joint estate shall be applicable in the
first instance in the payment of their joint debts, and the sepa-
rate estate of a partner shall be applicable in the first instance
in payment of his separate debts.
Similar to section 36 of the Cape Ordinance of 1943 (but in contradis-

tinction to section 69 of the ZAR Insolventiewet 13 of 1895, and section
36 of the OFS ‘De Wet over de Insolventie’), section 41 of the Natal Law
of 1887 stipulated that in any case concerning the competition between
preferences of partnership and private creditors not expressly provided
for in the Law: “the rule for the time being … according to the law and
administration of bankruptcy in England … shall be resorted to”, and
failing any such rule, the common law of Natal must be applied.
Although the terminology may not always be familiar to modern com-
pany and insolvency lawyers, it is submitted that when these particu-
lar provisions are viewed in historical context they were primarily ap-
plicable to the sequestration of unincorporated associations regulated
246 See also section 40 regarding the rights of partnership creditors to prove
against the separate estates: ‘(a)nd such creditor shall not receive any
dividend out of the separate estate of the insolvent, until all the separate
creditors shall have received the full amount of their respective debts.’
150
by the law of partnership.247 In any event, separate and discrete legis-
lation usually regulated the winding-up of incorporated companies.248
It is clear that at the end of the nineteenth century the dual priorities
rule was applied in all the jurisdictions that would later become the
Union of South Africa. More scope for its application was created
by section 36 of the Cape Ordinance of 1843 and section 41 of the
Natal Law of 1887, than by section 69 of the Insolventiewet 13 of
1895 in the Zuid-Afrikaansche Republiek and section 36 of ‘de Wet
over de Insolventie’ in the Oranjevrijstaat. The insolvency legislation
of the two Republics in the case of any lacuna in the legislation pre-
ferred the application of its indigenous common law, that is, Roman-
Dutch law, to the application of rules developed under English law.
4.2.4.3.2 Insolvency Act of 1916
The various pre-Union acts, laws and ordinances were repealed by the
Insolvency Act 32 of 1916. Excluded from its ambit was a body corpo-
rate or a company or other association of persons which may be placed
in liquidation under a law relating to the winding-up of companies.249
Section 10 dealt with the sequestration of the estates of individuals
and partnerships. If a debtor committed an act of insolvency, or if
the court was of the opinion that the estate is insolvent and it would
be to the advantage of the creditors, the court could order the se-
questration of a debtor’s estate. The court had the competency to
include in one and the same sequestration order the estate of the
partnership as well as the separate estates of the partners. In addi-
tion, every fact which provided a ground for the sequestration of the
separate estate of a partnership formed a ground for the estate of
every partner. If the court is satisfied that a partner is willing and able
to satisfy the debts of the partnership, the estate of that partner was
247 See In re Panmure Club (1886) 5 EDC 170; In re Temel and Miad’s
Insolvency (1892) 13 NLR 255; Blumberg and Her v Shapiro and Ketz
1907 TH 65; Philips v Transportable Building Co’s Trustees 1904 TS
446; Bowstead The Commercial Laws (1908) 117. On terminology
see further Josson Schets van het recht van de ZAR (1897) 324; Hen-
ning and Delport op. cit. note 11 255-258. The Insolvency Law No 47
of 1887 of Nat put the matter beyond doubt. Section 11 provides that
a creditor’s petition for the sequestration of a debtor’s estate may be
presented against any partnership having an estate or effects in Natal.
It expressly excludes from its ambit a joint stock company registered
under the Natal Joint Stock Companies Limited Liability Law of 1864.
248 See e.g. Cape Act 12 of 1868 ‘To make provision for the winding up
of Joint Stock Companies’ as well as the Orange Free State Wet voor
het Liquideeren van Naamloze Vennootschappen 2 of 1892. See also
Fletcher The Law of Insolvency (1990) 9.
249 Section 2 definition of ‘debtor’.
151
not susceptible to sequestration by reason only of any fact forming a
ground for the sequestration of the estate of a partnership.250
Section 47 provided that when the estate of a partnership and the
estate of the a partner are under sequestration simultaneously, the
creditors of the partnership shall not be not entitled to prove claims
against the estate of the partner nor the creditors of a partner against
the estate of the partnership; but the trustee of the partnership shall
be entitled to any balance of a partner’s estate that may remain over
after satisfying the claims of the creditors of the partner’s estate in
so far the same is required to pay the partnership’s debts and the
trustee of the partner shall be entitled to any balance of the partner-
ship’s estate that may remain over after satisfying the claims of the
creditors of the partnership estate, so far as that partner would have
been entitled thereto, if he had not been insolvent.
If the estates of a partnership and its partners were under sequestration
simultaneously, separate accounts had to be framed in each estate.251
4.2.4.3.3 Insolvency Act of 1936
Section 2 of the Insolvency Act 24 of 1936 defines a ‘debtor’ as
a person or a partnership or the estate of a person or partnership
which is a debtor in the usual sense of the word.252 Section 13(1)
provides that if the court sequestrates the estate of a partnership it
shall simultaneously sequestrate the estate of every member of that
partnership. Section 92(5) provides that if the estate of a partnership
is under sequestration, separate trustees’ accounts shall be framed
in the estate of the partnership and in the estate of each member of
that partnership whose estate is under sequestration.
The dual priorities rule is presently firmly ensconced in section 49(1).
It stipulates that when the estate of a partnership and the estates of
the partners in the partnership are under sequestration simultane-
ously, the creditors of the partnership are not entitled to prove claims
against the estate of a partner and the creditors of a partner are not
entitled to prove claims against the estate of the partnership. The
trustee of the estate of the partnership is entitled to any balance of
a partner’s estate that may remain over after satisfying the claims
of the creditors of the partner’s estate in so far as that balance is
required to pay the partnership’s debts. The trustee of the estate of
a partner is entitled to any balance of the partnership’s estate that
may remain over after satisfying the claims of the creditors of the
partnership estate, so far as that partner would have been entitled
thereto, if his estate had not been sequestrated.
250 Section 10(2).

251 Section 92.
252 Except a body corporate or a company or other association of persons
which may be placed in liquidation under the law relating to companies.
152
In Michalow v Premier Milling Co Ltd253 this arrangement was de-
scribed as a ‘scheme’ which departs radically from the common law
position, inter alia since it treats a partnership as a separate entity
and it precludes partnership creditors from preferring their claims
against the individual estates. Initially at least partnership creditors
have to look for payment to the partnership estate only. The trus-
tee of the partnership estate is only entitled to the residue, if any,
of a partner’s estate after all the claims of the private creditors of
the partner have been paid in full, if that residue is required to pay
the partnership’s debts. In accordance with this arrangement sepa-
rate accounts must be framed in the estate of the partnership and
that of each individual partner. This is more than a mere theoreti-
cal modification of common law. It necessitates the hypothesis ‘that
third parties dealing with and granting credit to a partnership do so
in reliance only on the assets of the partnership and that through-
out their dealings with the partnership they have looked on it as a
separate entity’, since the moment a partnership is sequestrated the
partnership creditors are primarily confined to the partnership assets
and deprived of recourse against the partners individually.254 Marais
J further emphasised that it follows that the statutory rule against
the preferring of one creditor above another prior to sequestration
may assume for partnership creditors a greater importance than for
creditors in a company or a private estate.255
By precluding private creditors from proving concurrent claim against
the partnership estate the Insolvency Act merely gives effect to the
common law preference of partnership creditors. In this regard it
does not depart from Roman-Dutch law.
Where the Insolvency Act does depart from common law principles is
where it precludes partnership creditors from proving concurrent claims
against the individual estates of the partners. In this way partnership
creditors have in effect been relegated from concurrent to deferred
creditors of the individual partners’ estates at best. This amounts to a
severe curtailment of the common law rights of partnership creditors.
In Michalow v Premier Milling Co Ltd 256 Marais J stressed that at com-
mon law and in the absence of special rules of procedure, a creditor
of the partnership was be entitled to sue any individual partner for
253 At 63. See also P de V Reklame (Edms) Bpk v Gesamentlike Ondernem-

ing van SA Numismatiese Buro (Edms) Bpk en Vitaware (Edms) Bpk
157; Strydom v Protea Eiendomsagente 1979 2 SA 206 (T) 209; Noord-
kaap Lewende Koöperasie Bpk v Raath 1977 2 SA 815 (NC) 817; Coo-
per and Another NNO v Merchant Trade Finance Ltd 2000 3 SA 1009
(SCA).
254 Michalow v Premier Milling Co Ltd 63.
256 At 63.
153
payment of the whole debt and failing satisfaction sue the other part-
ners one by one. He used the following example to illustrate the pos-
sible extent of the limitation of the common law rights of partnership
creditors: A partnership having no assets and one or more creditors
is sequestrated. The partners are able to pay all their private creditors
in full, but nothing is left over to transfer to the partnership estate. At
common law the partnership creditors’ claims would rank concurrently
with the unsecured private creditors’ claims and would be provable in
the estates of all the partners. Under common law partnership credi-
tors would in the circumstances have been entitled to a substantial
dividend. Under the Insolvency Act the partnership creditors will, how-
ever, receive no dividend at all.
It is clear that the concomitant of the curtailment of the common law
rights of recourse of partnership creditors by the Insolvency Act, is
an extension of the common law rights of private creditors of the
individual partners. By prohibiting partnership creditors to prove
claims against the estates of the partners, individual creditors are
given rights of recourse against partners’ estates to the exclusion of
partnership creditors.
To justify such a drastic departure from legal principle “one would
have to adopt the hypothesis that those who deal with and grant credit
to a partnership, do so in reliance on the partnership assets only; they
must be taken to have looked, throughout their dealings with it, on the
partnership as a separate entity.” It is a fiction “which is indispensable
in justifying the provisions operating against partnership creditors.”257
The moment a partnership is sequestrated, the creditors of the part-
nership are, without their consent, automatically deprived of recourse
against the individual partners: they lose the additional security the
common law provides throughout the existence of the partnership. It
would, therefore, appear to be just that if a partnership creditor is on
insolvency to be confined to the partnership assets, he should not be
deprived of the right to insist that the partnership estate should be
treated for insolvency law purposes as a separate entity as soon and
as long as its liabilities exceed the value of its assets. In the opinion
of Marais J the Insolvency Act plainly intended to alter the course of
the common law and to treat a partnership as having a separate es-
tate and as being in the same position as any other debtor. To hold
otherwise would deprive partnership creditors of a safeguard against
preferences which is extended to all other types of creditors.
Similar views emphasising that the Insolvency Act departs fundamen-
tally from the common law position that the debts of the partnership
154
are the debts of the partners were expressed in Cassim v The Master
and Others,258 Ex parte Fernandez259 and Ex parte Cohen.260
In P de V Reklame (Edms) Bpk v Gesamentlike Onderneming van
SA Numismatiese Buro (Edms) Bpk en Vitaware (Edms) Bpk261 it was
held that section 13(1) is peremptory: if the estate of a partner is not
susceptible to sequestration due to a circumstance not falling within
the exemptions enumerated in the section,262 then the estates of the
partnership and the other partners cannot be sequestrated under the
Insolvency Act. This decision was overturned by the Supreme Court of
Appeal in Commissioner, South African Revenue Services v Hawker
Air Services (Pty) Ltd; Commissioner, South African Revenue Service
v Hawker Aviation Partnership and Others.263 Because section 49(1)
only applies where the estate of a partnership and the estates of the
partners in the partnership are under sequestration simultaneously, it
would seem that the dual priorities rule does not apply where one or
more of the partners’ estates are not sequestrated simultaneously,
for example in the case of a partnership with one or more corporate
partners whose estates are not susceptible to sequestration under the
Insolvency Act.264 Since section 49(1) does not apply where the estate
of a member of a partnership is sequestrated unless the partnership is
also sequestrated, it appears that partnership creditors would be en-
titled to prove claims against the estate of the insolvent partner. Sec-
tion 49 does not prevent claims being lodged in both the partnership
estate and the estate of a partner if the claims are based on different
causes of action. In Barclays Bank v The Master265 Grobler J held that
section 49 could not be construed to deprive partnership creditors,
who were also creditors of the partner, of the right to prove against the
258 Op. cit.

259 1965 3 SA 726 (O).
260 1974 4 SA 674 (W).
261 1985 4 SA 876 (C).
262 Section 13 states three exemptions: If the court sequestrates the es-
tate of a partnership it need not by reason only of the sequestration of
the estate of the partnership simultaneously sequestrate the estate of
a partner en commandite who has not held himself out as an ordinary
or general partner of the partnership in question; or a special partner
as defined in the Special Partnerships Limited Liability Act 24 of 1861
of the Cape of Good Hope or in Law No. 1 of 1865 of Natal, who has
not held himself out as an ordinary or general partner of the partner-
ship in question; or a partner that has undertaken to pay the debts of
the partnership within a period determined by the court and has given
security for such payment to the satisfaction of the registrar.
263 2006 4 SA 292 (SCA).
264 Cf Henning “The sequestration of unincorporated joint ventures with
corporate partners” 2001 International and Comparative Corporate
Law Journal 425.
265 1958 2 SA 119 (O) 121.
155
partner’s estate, where the claim against the partner was founded on
a cause of debt which was distinct and separate from that on which
the claim against the partnership was based.
Section 49(1) does not prevent the Commissioner for the South Af-
rican Revenue Service from proving a claim against the estate of an
insolvent partnership in respect of tax due and payable by a part-
ner as is referable to the taxable income derived by him from the
partnership. The amount so referable is deemed to be a sum which
bears to the total amount due by the partner as tax the same ratio
as his taxable income derived from the partnership bears to his total
taxable income from all sources within the Republic.266
It should be noted that Supreme Court Rule 14(2) and Magistrates’
Court Rule 54(1) permit a partnership to sue or be sued in the partner-
ship name. The effect of the somewhat differing Supreme Court Rules
14(5)(h) and 14(6) and Magistrates’ Court Rule 40(3) is that execution
must first be levied against the partnership assets. Only if these are
insufficient may the creditor turn to the individual partners’ estates.267
4.2.4.3.4 Reform
In its April 2002 Report on Review of the Law of Insolvency,268 the
South African Law Reform Commission269 proposed that the second
component of the dual priorities rule (that is the priority of private
creditors) should no longer find application in the South African law
of partnership insolvency.270
This recommendation has not been implemented to date.
4.2.5 In conclusion
This overview of the origins and history of the dual priorities rule ends
with the rule at its zenith and finding almost unqualified application in
England, the United States and South Africa. However in the last dec-
ades of the previous century this position has been subjected to dras-
tic change. As has been mentioned in passing, strong criticism was
expressed against the rule and ultimately successful pressure was
applied to abrogate the dual priorities rule in England and the United
States by permitting partnership creditors parity against individual as-
266 Section 49(2).

268 South African Law Reform Commission Project 63: Report on review
of the Law of Insolvency (2002) 1.
270 Clause 44 of the Commission’s Draft Bill.
156
sets. The same has been proposed but as yet not implemented in
South Africa.
These further developments and considerations conveniently form
the topic of the following rubic.
4.3 The jingle rule: a comparative perspective271

4.3.1 Introduction
For a very long time the division of the proceeds and the marshalling
of the assets of insolvent partnerships’ and partners’ estates have
been strongly influenced by the so-called jingle rule:272 “Partnership
estate to partnership creditors, private estate to private creditors,
anything left over from either go to the other.”273
The term “jingle rule” is a reflection of the rule’s popular appeal to
resonance and superficial symmetry, rather than commercial need
or legal principle.274
The jingle rule basically embodies two components. The first acknowl-
edges the common law priority of partnership creditors on partnership
assets,275 while the second component creates a priority of private
creditors on the assets in a particular partner’s private estate,276 to the
detriment of the common law rights of partnership creditors.
The first component gives effect to a priority that can be traced back
to Roman law, that has been acknowledged in the civil and common
law and is still current in modern Continental legal systems as a well
as in Anglo-American law.
The second component has a troubled history. It was conceived in di-
versity of opinion in the eighteenth century by English equity courts as
a rule of convenience. It was then enshrined by bankruptcy legislation
in England and thereafter also in the United States and South Africa. It
has been heavily criticised and frequently resisted as contrary to one of
the basic tenets of partnership law, namely the unlimited liability of or-
271 Based on Henning “Criticism, review and abrogation of the jingle rule
in partnership insolvency: A comparative perspective” 2008 (20.3) SA
Mercantile Law Journal 340-361.
272 Also known as the ‘dual priorities rule’. See Crane and Bromberg Law
of Partnership (1968) 524.
273 See Kennedy ‘Partnerships and Partners under the Bankruptcy Code:
Claims and Distribution’ (1983) 40(1) Washington and Lee Law Re-
view 55.
274 This term is tributed to Professor James Barr Ames, Dean of the Har-
vard Law School. See Crane and Bromberg op. cit. note 1 524.
275 See Hansmann et al ‘Law and the Rise of the Firm’ (2006) 119(5)
Harvard Law Review 1335.
276 Ibid.
157
dinary partners for partnership debts, obligations and liabilities.277 This
criticism eventually resulted in its relatively recent demise in England
and the United States. Notwithstanding a similar recommendation by
the South African Law Reform Commission, the jingle rule is presently
still firmly ensconced in the Insolvency Act 24 of 1936.278
The purpose of this contribution is to provide an overview of the criti-
cism, proposals for reform of the jingle rule in England, America and
South Africa and, where applicable, it’s eventual abrogation.
4.3.2 Criticism
4.3.2.1 England
According to Gower,279 the doyen of modern company law, the jingle
rule in partnership insolvency gives results altogether at variance with
the mercantile system of settling the accounts of the firm. This system
proceeds upon the mercantile conception of the firm as an entity dis-
tinct from its partners. On the mercantile system the debts of the part-
ners to the firm, as ascertained on the ordinary partnership accounts,
are payable on the same footing as the firm debts. If this approach
were followed by the courts, the firm estate might prove against the
separate estate of any partner in competition with the separate credi-
tors for the balance due from him to the firm. The creditors of the firm
would thus be in a far better position than they are at present. As it is,
the partners may have considerable separate property and be largely
indebted to the firm, and yet their separate creditors may be paid in
full while the creditors of the firm get hardly anything.
Burgess and Morse280 regard the rule as entirely arbitrary. In particular
it ignores the fact that the partners may have large separate estates
but heavily in debt to the firm. Yet firm creditors cannot prove against
the separate estates of the partners, even for partnership debts owed
by the partners themselves, until the separate creditors have been
satisfied. They consider it strange that neither all entity nor all ag-
gregate jurisdictions have managed to allow the firm’s creditors to
be paid first out of the firm’s assets and also to rank equally with the
individual creditors in individual estates for debts owed by that partner
to the firm at the date of bankruptcy, but to be postponed to such indi-
vidual creditors’ claims when seeking to enforce the unlimited liability
Individual Partners’ (1972) 24(4) Baylor Law Review 577; Hough ‘Some
New Aspects of Partnership Bankruptcy under the Act of 1898’ (1908)
8(8) Columbia Law Review 599; Hanley ‘Partnership Bankruptcy under
the New Act’ (1979) 31(1) Hastings Law Journal 149, 150-151.
278 Section 49(1).
279 Gower Pollock on the Law of Partnership (1952) 145.
280 Burgess and Morse Partnership Law and Practice (1980) 237-239.
158
for partnership debts against the partners to cover debts not satisfied
either by the firms assets or contributions by the partners under their
pre-bankruptcy obligations. They argue that this would be a commer-
cial solution, applicable whether or not the firm has separate identity
depending upon then accident of its geographical location.
Drake281 criticises the rule for producing results which are in vari-
ance with the doctrine of equality. Partners may as such incur huge
liabilities yet own little partnership property, whilst, at the same time,
they may own considerable personal estate, with the possible result
that their separate creditors are paid in full whereas their joint credi-
tors receive hardly anything.
Interestingly enough, none of these eminent writers mention that the
main objection to the rule is that its second component is in direct con-
flict with the basic principle of partnership law, namely the unlimited
liability of ordinary partners to partnership creditors for partnership ob-
ligations. In this way they fail to draw attention to the fact that the rule
clearly negates the consequential basic right of partnership creditors
to rank pari passu with private creditors on proceeds of the private es-
tates of partners for any unpaid balance, and that for the sake of mere
“convenience”. The rule nullifies the very security that partnership
creditors otherwise enjoy at a time when they need it most, namely to
look to the assets in the private estates of partners as well, and not to
be limited only to the insolvent partnership’s assets.
Their silence is even more remarkable in view of the abolishment of
the unjust rule in Kendall v Hamilton282 delimiting the joint liability of
partners, by section 3 of the Civil Liability (Contribution) Act of 1978.
The fact that the Partnership Act 1890283 still differentiates between
joint liability in contract and several liability in delict is no longer of
any consequence, as the difference laid down in Kendall v Hamilton
between joint and several liability of partners no longer exists.
The position in Scotland is also rarely, if ever, contrasted or referred
to, where the jingle rule, contrary to the position in England and
Wales, never found any application. In Scotland partnership credi-
tors rank in full on the partnership estate, to the exclusion of the pri-
vate creditors, and rank on the separate estates pari passu with the
private creditors for any unpaid balance.284 The Bankruptcy (Scot-
land) Act 1985 provides that where a partnership creditor claims
281 Drake Law of Partnership (1983) 285.

282 (1879) 4 App Cas 504 (HL).
283 Sections 9, 10, 11 and 12.
284 Bankruptcy (Scotland) Act 1985 Schedule 1 section 6; Review Commit-
tee 1982: 379. See also Scottish Law Commission Report on bank-
ruptcy and related aspects of insolvency and liquidation 1982:78; Bur-
gess and Morse 239.
159
against the estate of one of its partners, the creditor has to estimate
the value of the debt to the creditor from the firm’s estate (where its
estate has not been sequestrated) or the creditor’s claim against the
firm’s estate (where it has been sequestrated) and deduct that value
form his claim against the partner’s estate. The amount in respect
of which he is entitled to claim on the partner’s estate is the balance
remaining after the deduction has been made. Hence the separate
estates of partners are available to the firm’s creditors pari passu
with the individual’s creditors for any unpaid balance of their claim
against the firm. This is only for the nett value of their claims after
exhausting the firm assets.285
This rather unique approach to the rule by English writers is probably
attributable to the viewpoint maintained in all the editions of semi-
nal work of Lindley on the law of partnership, from its first edition
in 1860286 until its fifteenth edition in 1984287, namely that the jingle
rule often produced results strangely at variance with the doctrine of
equality, and with an accountant’s notions of right and wrong. Lind-
ley288 explained this viewpoint by quoting the following extract from
‘a work on partnership accounts’:
We will suppose A, a man worth £40,000 clear, well known in
London, and of extensive credit, to embark with an inventor, B,
to carry into effect some invention which requires apparently
more credit than actual capital; there being what may fairly be
considered a most excellent prospect of success, and of turn-
ing the concern, as the phrase is, within a short space of time,
i.e. receiving from the anticipated profits of the concern, within
the number of months in which the bills given by this partner-
ship become due, sufficient money to meet them or take them
up. Some accident intervenes, by which it becomes necessary
for A, who undertakes to find the money, to raise a sum to
meet the numerous bills which the firm has ventured to put
afloat, in expectation of their being taken up by the success
of the project. A raises upon his credit from several persons,
perhaps at a distance in the country and altogether ignorant of
his trading, what he himself considers only temporary loans,
to the amount of £39,000, and brings this money into the firm,
not as a loan but as capital. We will further suppose that this
is insufficient and that the firm, after a few more struggles,
stops payment for £50,000, owing to different individuals. A
general meeting of all the creditors is called, at which there
285 Burgess and Morse 243; Shroder ‘Distribution of Assets of Bankrupt

Partnerships and Partners’ (1904) 18(7) Harvard Law Review 504.
286 Lindley A Treatise on the Law of Partnership Including its Application
in Joint-stock and Other Companies (1860) 754-755.
287 Scamell and I’Anson Banks Lindley on the law of partnership (1984)
864-865.
288 Ibid.
160
is a desire to settle the matter, and realise the effects as fast
as possible, and for that purpose they put the matter into the
hands of an accountant. If the accountant knew anything of the
law of bankruptcy, he would see the difficulties; but if he simply
followed out the mercantile principles, he would first take the
account of the firm, and there find £50,000 debts, and we will
say £4,000 assets and consequently a balance due to the firm
from A and B to the amount of £46,000; of which A would be
indebted £23,000 and B £23,000, or in some other proportions
as the case may be; but as B is worth nothing at all, A would be
answerable for the whole. The accountant would then take A’s
accounts where he finds A’s estate worth £40,000, and that he
is liable to the firm for £46,000, and to other people for £39,000,
making the whole amount of his liabilities £85,000, upon which
he would declare a dividend of 9s. 4(1/2)d. He would, there-
fore, carry over to the firm, as a creditor for £46,000, the sum
of £21,647 1s. 3d., and to the private creditors £18,352 18s.
9d., which, distributed among the £39,000 would give them
a dividend of 9s. 41f2d. He would then proceed to distribute
the effects of the firm, amounting to £21,647 1s. 3d., recov-
ered from A, and the assets in hand, viz., £4,000, and this,
being altogether £25,647 1s. 3d., distributed among £50,000,
would give a dividend of 10s. 3d. Such would be the result of
the accountant’s operation. But some of the separate credi-
tors would probably be dissatisfied with this result, and strike a
docket, and have the accounts taken in bankruptcy. The Court
of Bankruptcy would immediately overthrow the accountant’s
labours, and take the accounts upon an entirely different plan.
It would direct that the separate estate should be distributed
amongst the separate creditors, and if there were any surplus,
that it should be paid over to the joint estate. Therefore, as
£40,000 would be distributed amongst £39,000, they would be
all paid in full, and £1,000 passed over to the joint estate, mak-
ing the assets of the joint estate £5,000, which, being distrib-
uted among the £50,000, would be exactly 2s. in the pound.
Thus the Court of Bankruptcy would give the separate creditor
20s. in the pound, and the joint creditor 2s.; while, according to
the mercantile principle, the separate creditors ought to have
had but 9s. 41f2d., and the joint creditors 10s. 3d. Such is the
difference between the practice of the two classes.
It seems that Lindley’s successors deemed it meet to delimitate their

criticism of the rule accordingly and not to break the mould merely
for the sake of originality or an approach based more on legal prin-
ciples that accountancy considerations. What was sufficient for the
Lindley was and is obviously also good enough for the many editors
of the various editions of his work as well as more recent authors.
161
American writers on the law of partnership have not shied away from
criticising the jingle rule form various perspectives. Thus Story,289
one of the earliest and most eminent writers on American partner-
ship law, stressed that the jingle rule has occasioned much diversity
of opinion at different times. It stands merely upon the maxim stare
decisis, and not upon the ground of any equitable reasoning.290
One of the clearest and most damning indictments of the rule is to be
found in Robinson v Security Company.291 Here partnership creditors
were allowed to share in the separate estates pari passu with sepa-
rate creditors, after making allowance for dividend received from the
partnership estate. Critically evaluating the jingle rule the court stated:
[T]he underlying trouble with the reasons for the rule and with
the rule itself … is that they entirely ignore the fundamental
principle defining the nature of partnership obligations and the
rights of partnership creditors. They forget the different posi-
tions which partnership creditors and the separate creditors of
a partnership occupy. A creditor of a partnership can look to
partnership property to satisfy his claim or he can at his op-
tion, enforce his judgment by direct levy upon the estate of
any partner with entire disregard of the partnership property. In
equity his claim is a joint and several one. A creditor of a part-
ner has no claim upon partnership property. The most he can
under any circumstances reach is the interest of the partner
which may be nothing at all, if the firm liabilities make it such.
A rule of distribution of assets in insolvency which overlook
these distinctions whether needlessly or in search of equity as
between two classes of creditors, disregard an important factor
in the situation.
According to Crane292 no better justification can be found for the jin-

gle rule than that, in its balanced symmetry, it impresses one as be-
ing prima facie equitable. However, it is logically indefensible, in that
it deprives a creditor of the insolvent partnership of his legal rights
against the separate property of the partners at the very time when
he needs to exercise them. In practical application, its hardship may
be avoided by the partnership creditor upon extending credit to the
firm, insisting on an additional separate obligation of the individual
partner which will enable him to make a double proof.
289 At 519.
290 Crane 514; Baggett 577: ‘This rule has encountered judicial and scho
larly criticism during most of its existence’. See also Hough 599; Hanley
149 who refers to the ‘heavily criticized and frequently resisted’ rule.
291 87 Conn 268, 87 A 879 Ann Cas 1915C 1170 (1913).
292 Crane 512-520.
162
Kennedy293 stresses that since partners are liable for partnership
obligations, the part of the jingle rule that precludes the distribution
of the proceeds of a partner’s property to partnership creditors un-
less and until the partner’s separate creditors have been paid in full,
should be criticised as artificial and undefensible. Viewed from a
different perspective, since a partner is entitled only to his share of
any surplus above firm debts, his personal creditors should rank no
higher. The first part of the jingle rule is thus clearly correct. There is
no corresponding justification for the second part of the rule. It may
be proper to apply a principle of marshalling to send firm creditors
first against firm assets which constitute a fund to which they alone
can resort, but that is no reason for deferring their claims against the
partners for any unsatisfied balance.294
In the view of Shumaker295 it is difficult if not impossible, to assign
any sound reason for the jingle rule. It really rest upon considera-
tions of convenience and the notion that, as firm creditors have a
priority in firm assets, it is no more than just that separate creditors
should have similar priority in separate asset. It should be noted,
however, the firm creditors’ priority rests upon the equity of the other
partners to have the firm assets applied to the firm debts and that
there is not a similar reason for the priority of separate creditors.
According to Parsons,296 the theories which have been suggested to
account for the jingle rule do not go to the source of the change and
explain the cause which brought about the change form the common
law system. The notion that, as the joint creditors relied upon firm
assets, the separate creditors looked to the separate estates for pay-
ment, is an assumption. It contradicts the experience which imputes
to every man a knowledge of the law. The credit will depend upon
then estate which then debtor had. The partners have joint and sev-
eral estates which are both subject to firm debts. The credit would,
of course, be given in reliance upon both estates. The partner has a
resulting interest in the firm after all its debts are paid, and his sepa-
rate estate which is also subject to the firm debts. His creditor could
expect nothing from the partner’s share until the firm creditors has
been satisfied, and he could only share in the separate estate with
them, unless insolvency supervened, which would give him a para-
mount title to the separate fund. The credit given to a debtor is not the
cause of his estate, but a consequence of his possessing the means
to pay the debt.
293 Kennedy 556.

294 MacLachlan Bankruptcy (1956) 424.
295 Shumaker A Treatise on the Law of Partnership (1901) 361-363.
296 Partnership 101 as referred to by Crane 514.
163
Ames, the eminent and well known proponent of the entity view of
the legal nature of partnership, stigmatised the dual priorities rule as
a ‘jingle rule’ owing to its popular appeal to resonance and superfi-
cial symmetry, rather that the commercial need or legal principle.297
The superficial symmetry of the wording of the rule carries more ap-
peal than any analysis of the rights of creditors of individual partners.
Aside from superficial symmetry and lyrical euphony, the priority of
separate creditors in the separate estate has no rational or practical
basis under either the aggregate or entity theory of the legal nature
of partnership. Perhaps a closer approach can be made to rationalis-
ing it under the aggregate theory, for, if there be no partnership apart
from its members, neither firm creditors nor individual creditors have
contracted with the partnership, and so the basis for preferring the
firm creditor’s claims against firm assets is nonexistent. Any creditor
of ordinary joint debtors other than partners can reach the property
of each of the debtors and, in case of insolvency, share pari passu
with the sole creditors of the co-tenants. In competition between firm
creditors and the creditors of individual partners, an unjustified advan-
tage given one group may be to some extent offset by an unjustified
advantage given the other group. As the aggregate theory was never
pressed to the point of denying the firm creditors’ priority in the firm
estate, this argument reduces to the equalisation of wholly unneces-
sary evils. Thus, recognition by the entity theory that there is such
a thing as a partnership apart from the partners not only makes the
priority of firm creditors in the firm estate possible, but fortifies it, be-
cause the creditors of the respective individual partners have had no
transactions with the firm, and so have no standing to compete with
the partnership creditors who have had exactly that.298
The aspect of the jingle rule requiring firm assets to be first applied
to firm debts and limiting individual creditors of any partner to their
debtor’s share of any surplus is not subject to fair challenge. But
the convenient counterpart, which postpones partnership creditors
from participation in the distribution of proceeds of the separate part-
ners’ property, involves a serious departure from the basic rule of
the common law of partnerships that the separate property of each
partner is as fully liable for the payment of partnership debts as for
his individual debts. In view of the lack of any legal right or independ-
ent equity in the individual creditor to support the priority given him in
the distribution of his debtor’s estate, it may be believed that it is the
aesthetically pleasing symmetry of the jingle rule that has sustained
it in its development as the prevailing rule in partnership liquida-
297 Brannan ‘The Separate Estates of Non-Bankrupt Partners in the Bank-

ruptcy of a Partnership under the Bankrupt Act of 1898’ 1907 Harvard
Law Review 592.
298 McLachlan ‘Partnership Bankruptcy’ 1960 Commercial Law Journal
253 256.
164
tions. It does bear a similarity to the equitable rule for marshalling
assets, when one creditor has two funds against which he may have
recourse and another may resort to only one of them. Under this
rule, however, the first creditor may compete on even terms with the
second with respect to the deficiency remaining after the fund exclu-
sively available to the first creditor has been exhausted. The jingle
rule brooks no competition between the partnership creditor and the
individual creditor; neither shares in the fund primarily allocated to
the other unless and until the other has been fully satisfied. A credi-
tor of either class can, in any event, thwart the intended operation
of the rule by obtaining the expressed obligations of the partnership
and of one or more of the individual partners.299
Hansmann and Kraakman300 argue that given the rise of the corpo-
rate form, the partnership form retains value only as an unlimited li-
ability alternative to the corporate form, which implies that the claims
of partnership creditors should be strengthened. They should have
the same claim on the assets of individual partners as do individual
creditors. They also claim that the elimination of the jingle rule will
fashion the partnership for dedicated use by owners who wished to
maximise firm creditworthiness by pledging their personal assets in
full to firm creditors.
Ribstein is of the opinion that this argument limits creditors to a
choice between two extremes. His own approach is not without con-
tradictions: On the one hand he states that ‘[o]ne of the most impor-
tant features of partnership is the partners’ personal liability for the
debts of the partnership301 while on the other hand he blandly states
that ‘general partnership law traditionally included a “jingle rule”’.302
However, as pointed out repeatedly, the jingle rule is not a partner-
ship rule but was spawned by and limited to the law of insolvency.
Shroder303 maintains that the fact that the jingle rule finds no sup-
port in principle even under the common law view, renders doubly
unfortunate the failure of the Bankruptcy Act to apply the principles
necessarily inherent in its entity view of the nature of a partnership.
These principles must be sought in the law of partnership. That the
interest of each partner in the partnership property is his proportion,
after the payment of the partnership debts, is a fundamental propo-
sition. It follows, since the right of the individual creditors of each
299 Kennedy ‘A New Deal for Partnership Bankruptcy’ (1960) 60(5) Columbia
Law Review 610, 630-631.
301 Ribstein ‘The Illogic and Limits of Partners’ Liability in Bankruptcy’
(1997) 32(1) Wake Forest Law Review 31-32.
302 Ribstein ‘The Important Role of Non-Organization Law’ (2005) 40(3)
Wake Forest Law Review 751-773.
303 Shroder 499-500.
165
partner is to look to the property of that partner, that the individual
creditors have no claim against the partnership assets, as such,
but are limited to the distributive share of their debtor. This share
does not become the separate property of the partner until the pay-
ment of the partnership debts. It becomes evident that it is because
of the nature of the partner’s interest that the individual creditors
are postponed to the partnership creditors in the distribution of the
partnership assets. The priority of the partnership creditor is a nec-
essary consequence, and his so-called subrogation to the right of
each partner to compel the application of the partnership assets to
the partnership debts, is as unnecessary in the explanation of this
priority as it is incorrect as a statement of sound legal theory. This
priority is conceded where the common law view of the nature of
a partnership prevails. It is also a necessary consequence of the
adoption of the ‘entity’ view, since the individual creditors manifestly
have no rights against the juristic person with whom they have had
no dealings. The partnership principle, upon which the right of the
partnership creditor to look to the estate of the individual partner
rests, is that each partner is liable for the whole of the partnership
debts. This liability is secondary. Where the common law view of
the nature of a partnership prevails, the liability of each partner in
solido is secondary to the joint liability of all. Under the theory of the
bankruptcy act, each partner occupies the position of surety for the
firm. On the default of a principal obligor, the liability of his surety
becomes absolute. A creditor is allowed to prove against the estate
of the surety on this absolute liability, regardless of the financial con-
dition of the principal. The decisions under the common law view of
the nature of a partnership, which make an arbitrary exception to the
arbitrary rule of distribution, in permitting the partnership creditors
to prove pari passu with the individual creditors in the absence of
solvent partner or partnership assets, though explained on a mis-
taken notion of the equity rule of marshalling, can be supported on
no other ground than that of the absolute liability of the partner on
the default of the partnership. Proof against the estate of the part-
nership, the principal obligor, should in no way prejudice the right of
the creditor to prove against the estate of the partner, the surety. To
prejudice this right is, in effect, to admit that the law, which gives to
the partnership creditor the security of the individual liability of the
partner, deprives him of that security in whole or in part, as soon
as its possession becomes of value. Of course, the creditor should
not be permitted to recover more than one hundred percent of his
claim, but such defense as the partner might have against such re-
covery, would go to the amount of the recovery, and not to the time
or amount of the proof. The Bankruptcy Act, in acknowledging the
entity of a partnership, must perforce acknowledge that the relation
of a partner to his firm’s liabilities is that of a surety. A method of
166
distribution which denies a firm creditor the same right against a
partner surety which it allows against a surety for the partnership,
who is not such by reason of being a member of the firm is to say
the least anomalous. The provision which postpone the partnership
creditor to the individual creditor in participating in the individual as-
sets are unsound in principle and not in harmony with the balance
of the Act.
Brannan304 is of the opinion that the jingle rule is totally at variance
with the mercantile view of partnership. But even upon the legal the-
ory it cannot be justified. To give the firm estate to the firm creditors
to the exclusion of the separate creditors is of itself a personifica-
tion of the firm, since otherwise the property would simply belong
to the members as joint tenants or tenants in common, and so be
subject to the claims of their individual creditors as fully as any other
property of the members and on the other hand, if the firm is but an
association of individuals, the creditors of the firm are creditors on
the joint obligations of those members, and as such have the same
rights against the property of each member, including therein prop-
erty held by them jointly with others, as have his individual creditors.
If the rule which throws the firm creditors first upon the firm estate is
put upon the ground that the firm is the principal and the members
are sureties, this too is a recognition of the firm as a different per-
son from the members. If the principle of marshalling be invoked to
justify the rule of distribution, it is to be observed that the application
of this principle is only conceivable on the assumption that the firm
creditors have a right to resort to a fund which the individual creditors
cannot reach — an assumption which involves a recognition of the
entity of the firm; and even if the assumption is made, the principle
is not consistently applied. It is true that the rule of marshalling could
oblige the firm creditors first to exhaust the estate against which the
separate creditors had no claim, but after the exhaustion of the firm
estate the rule of marshalling would permit the firm creditors to come
against the separate estates pari passu with the separate creditors.
Warren305 submits that, if the entity theory is adopted, no adequate
reason can be given for deferring the claim of the partnership credi-
tors by the jingle rule. If, on the other hand, the partnership liabilities
are regarded not as the liabilities of the partnership but as the liabili-
ties of the partners, the second part of the jingle rule becomes more
understandable. This second part is a balancing counterweight to
the first part. The partners are in bankruptcy. The separate creditors
and the joint creditors press for satisfaction. The court differentiates
between the joint assets of the partners, and the separate assets
of each. When the separate creditors try to reach the joint assets,
304 Brannan 593-594.

305 Warren Corporate Advantages without Incorporation (1929) 60-61.
167
the court stays them: priority is given to the joint creditors. But then,
as a consolation to the separate creditors, when the joint creditors
try to reach the separate assets, the court now stays them. Priority
is given to the separate creditors. The court divides the creditors
of the partners into two classes, the joint and the separate. But all
are creditors of one or more of the partners. It is because one class
of creditors (the separate creditors) has been postponed as to one
class of assets that there is any justification for postponing the other
class of creditors (the joint creditors) from the other class of assets.
Separate creditors and joint creditors clash twice. Once with respect
to joint assets and then again with respect to separate assets. The
equity courts have not felt comfortable about letting the first clash
result in a victory for the joint creditors, and then letting the second
clash result in a draw. The courts console the separate creditors for
their defeat in the first clash, by giving them victory in the second
clash. But if one assumes that the partnership is a legal unit, then,
on a bankruptcy, all the assets of the partnership go to its creditors.
There is nothing to argue about. There is no clash between two
classes of creditors. There is only one thinkable way for applying
the assets of the partnership. No adequate reason can be given for
deferring the claim of the partnership to other claims. There is no
basis for any consolation doctrine.
In contradistinction to Warren’s consolidation doctrine intended as
an apology for the jingle rule, Baggett306 emphasises that at com-
mon law partnership creditors had priority over individual creditors
in partnership assets and equal rights with them in individual assets,
while individual creditors were subordinated to partnership creditors
in partnership assets. The jingle rule is an entirely unjustifiable limi-
tation on these rights and logically repugnant.
4.3.2.3 South Africa
Even before the statutory introduction of the jingle rule in the Cape
by Ordinance 6 of 1843, Burton pointed out that the rule frequently
operates the greatest injustice. He illustrated the inequality of the
rule with the following example:
[Consider] the case of five partners having each a separate
estate of £20, 000, and separate debts to the amount of £20,
000, and that the joint debts amount to £100, 000. If there be
£10 worth of joint property, this must first be divided among the
joint creditors; and therefore a joint creditor of £20, 000, would
not get a farthing in the pound, while the separate creditors
would receive £20, 000.
306 Baggett 567.
168
In Michalow v Premier Milling Co Ltd307 the jingle rule as presently
ensconced in section 49(1) of the Insolvency Act of 1936 was de-
scribed as a ‘scheme’ which departs radically from the common law
position, inter alia since it treats a partnership as a separate entity
and it precludes partnership creditors from preferring their claims
against the individual estates. Initially at least partnership creditors
have to look for payment to the partnership estate only. The trus-
tee of the partnership estate is only entitled to the residue, if any,
of a partner’s estate after all the claims of the private creditors of
the partner have been paid in full, if that residue is required to pay
the partnership’s debts. In accordance with this arrangement sepa-
rate accounts must be framed in the estate of the partnership and
that of each individual partner. This is more than a mere theoreti-
cal modification of common law. It necessitates the hypothesis ‘that
third parties dealing with and granting credit to a partnership do so
in reliance only on the assets of the partnership and that through-
out their dealings with the partnership they have looked on it as a
separate entity’, since the moment a partnership is sequestrated the
partnership creditors are primarily confined to the partnership assets
and deprived of recourse against the partners individually.308 Marais
J further emphasised that it follows that the statutory rule against
the preferring of one creditor above another prior to sequestration
may assume for partnership creditors a greater importance than for
creditors in a company or a private estate.309
By precluding private creditors from proving concurrent claim against
the partnership estate the Insolvency Act merely gives effect to the
common law preference of partnership creditors. In this regard it
does not depart from Roman-Dutch law.
Where the Insolvency Act does depart from common law princi-
ples where it precludes partnership creditors from proving concur-
rent claims against the individual estates of the partners. In this way
partnership creditors have in effect been relegated from concurrent
to deferred creditors of the individual partners’ estates at best. This
amounts to a severe curtailment of the common law rights of partner-
ship creditors.
307 1960 2 SA 59 (W) 63. See also P de V Reklame (Edms) Bpk v Ge-
samentlike Onderneming van SA Numismatiese Buro (Edms) Bpk en
Vitaware (Edms) Bpk 1985 4 SA 876 (K); Strydom v Protea Eien-
domsagente 1979 2 SA 206 (T) 209; Noordkaap Lewende Koöperasie
Bpk v Raath 1977 2 SA 815 (NC) 817; Cooper and Another NNO v
Merchant Trade Finance Ltd 2000 3 SA 1009 (SCA).
169
In Michalow v Premier Milling Co Ltd310 Marais J stressed that at
common law and in the absence of special rules of procedure, a
creditor of the partnership was be entitled to sue any individual part-
ner for payment of the whole debt and failing satisfaction sue the
other partners one by one. He used the following example to illus-
trate the possible extent of the limitation of the common law rights
of partnership creditors: A partnership having no assets and one
or more creditors is sequestrated. The partners are able to pay all
their private creditors in full, but nothing is left over to transfer to the
partnership estate. At common law the partnership creditors’ claims
would rank concurrently with the unsecured private creditors’ claims
and would be provable in the estates of all the partners. Under com-
mon law partnership creditors would in the circumstances have
been entitled to a substantial dividend. Under the Insolvency Act the
partnership creditors will, however, receive no dividend at all.
It is clear that the concomitant of the curtailment of the common law
rights of recourse of partnership creditors by the Insolvency Act, is an
extension of the common law rights of private creditors of the individual
partners. By prohibiting partnership creditors to prove claims against the
estates of the partners, individual creditors are given rights of recourse
against partners’ estates to the exclusion of partnership creditors.
To justify such a drastic departure from legal principle ‘one would have
to adopt the hypothesis that those who deal with and grant credit to
a partnership, do so in reliance on the partnership assets only; they
must be taken to have looked, throughout their dealings with it, on the
partnership as a separate entity.’ It is a fiction ‘which is indispensable
in justifying the provisions operating against partnership creditors’.311
The moment a partnership is sequestrated, the creditors of the part-
nership are, without their consent, automatically deprived of recourse
against the individual partners: they lose the additional security the
common law provides throughout the existence of the partnership.
It would, therefore, appear to be just that if a partnership creditor is
on insolvency to be confined to the partnership assets, he should not
be deprived of the right to insist that the partnership estate should be
treated for insolvency law purposes as a separate entity as soon and
as long as its liabilities exceed the value of its assets. In the opinion
of Marais J the Insolvency Act plainly intended to alter the course of
the common law and to treat a partnership as having a separate es-
tate and as being in the same position as any other debtor. To hold
otherwise would deprive partnership creditors of a safeguard against
preferences which is extended to all other types of creditors.
310 At 63.
170
In Ex parte Fernandez,312 Hofmeyr J approved Michalow’s case, and
held that the separation between the private and partnership estates
is not a mere matter of convenience, and that the common law rules
had been radically affected by sections 13 and 49 of the Insolvency
Act. In Ex parte Cohen313 Margo J again emphasised that the Insol-
vency Act departs fundamentally from the common law position that
the debts of the partnership are the debts of the partners each of
whom is liable in solidum.
Because section 49(1) does not apply where the estate of a member
of a partnership is sequestrated unless the partnership is also se-
questrated, it appears that partnership creditors would be entitled to
prove claims against the estate of the insolvent partner.
Section 49 does not prevent claims being lodged in both the part-
nership estate and the estate of a partner if the claims are based on
different causes of action. In Barclays Bank v The Master,314 Grobler
J held that section 49 could not be construed to deprive partnership
creditors, who were also creditors of the partner, of the right to prove
against the partner’s estate, where the claim against the partner was
founded on a cause of debt which was distinct and separate from
that on which the claim against the partnership was based.
4.3.3 Review and abrogation: Anglo-American Law
4.3.3.1 England
The jingle rule prevailed in England under the Bankruptcy Act of 1914
well into the last decade of the twentieth century.315
In 1982, the jingle rule at long last received critical attention in the
Report of the Review Committee: Insolvency Law and Practice,316
also referred to as the Cork Report. The Committee took cognisance
of the fact that this rule does not apply in Scotland and has been
severely criticised by academic writers. It concluded that the rule is
neither logical nor fair and that it should be abrogated.317
The Committee emphasised that it is correct that the partnership
debts should be paid out of the partnership estate in the first instance,
and that the separate creditors should have no resort to it until the
partnership creditors have been paid in full. This is in accordance with
principle, for a partner is not entitled to receive any share of the part-
nership’s assets until the partnership’s debts have been paid, and his
312 1965 3 SA 726 (O).

313 1974 4 SA 674 (W).
314 1958 2 SA 119 (O) 121.
315 Section 33(6) of the Bankruptcy Act 1914; Scamell and Banks 860-861.
316 Review Committee (Cork Committee) Insolvency law and practice (1982)
HMSO London 379.
317 Ibid.
171
private creditors can be in no better position. If, however, the part-
nership estate is insufficient to pay the joint debts in full, each of the
partners remain liable to the partnership creditors, and there is no jus-
tification for postponing the claims of the partnership creditors against
the separate estates to those of the private creditors.318
The Committee recommended that, where the partnership estate is de-
ficient, the partnership creditors should rank in the separate estates for
the balance of their claims pari passu with the private creditors. This
would bring the English rule into line with that applicable in Scotland.319
The Insolvency Act of 1986 included some of the reforms proposed
in the Cork Report.320 The Act did not address insolvent partnerships
directly, but merely gave the Lord Chancellor power to make second-
ary legislation.321
The Insolvent Partnerships Order of 1986 made pursuant to the In-
solvency Act, came into force on 29 December 1986. It did not adopt
the Cork Report’s proposal to change the treatment of partnership and
private creditors. Instead the jingle rule was embodied in the Order.322
The Insolvent Partnerships Order of 1994 came into effect on 1 De-
cember 1994 and implemented the recommendation of the Cork Re-
port that the jingle rule should be abrogated. It reversed the prior-
ity rules relating to partnership and several estates. The balance of
partnership debts can now be claimed against the separate estate of
each partner, ranking equally with the ordinary private creditors of the
individual partner.323 Thus, it is now possible where the partnership
estate is insufficient, for the partnership debts (and interest thereon)
to be proved against then insolvent partners’ separate estates in com-
petition with their private creditors.324
Stated in more detail: If the assets of a partnership are insufficient to
pay all the preferential and ordinary partnership debts, then a claim for
the whole shortfall may be made against the separate estate of each
318 Ibid.
319 Ibid.
320 Davis et al Insolvent Partnerships (1996) 5-6.
321 Section 420.
322 Article 10 of the 1986 Order governing the priority of payment of debts
where both the partnership and some or all the partners are insolvent. See
Michael Griffiths Insolvency of Individuals and Partnerships (1988) 150-151.
323 Davis et al op. cit. note 51 7; Kane ‘The Insolvent Partnerships Order
1994’ (1995) Wilde Sapte Law 4; Morse Partnership law (2001) 233.
324 Section 175A of the Insolvency Act 1986 as inserted by Part II Sche
dule 4 to the Insolvent Partnerships Order 1994; I’Anson Banks Lind-
ley and Banks on partnership (2002) 800-801. Morse 237.
172
partner, and it ranks not after his separate creditors, but equally with
his separate creditors of the same type.325
However, old traditions die hard.326 This is evidenced by the rather
bland statement of Banks327 that the jingle rule has been ‘largely pre-
served’ by the Insolvent Partnerships Order of 1994, notwithstand-
ing the rather obvious fact that an essential part of the rule, namely
the priority of separate creditors on separate estates to the exclu-
sion of partnership creditors, has fallen away.
The major change effected by the Insolvent Partnerships Order of
1994, the importance of which should not be minimised, is that if the
partnership creditors remain unpaid in full out of the partnership es-
tate, their claims for the unpaid balance will be apportioned amongst
the several estates and they will then rank equally in respect of such
claims with the ordinary separate creditors against those estates.328
The Bankruptcy Act of 1898329 continued the reign of the jingle rule
in the United States, while the Uniform Partnership Act of 1914 rein-
forced its application.330
In 1973, the Commission on Bankruptcy Laws, following a recom-
mendation of the National Bankruptcy Conference, proposed the
explicit and unambiguous abolition of the jingle rule insofar as it
postponed participation by partnership creditors in the distribution of
a separate partner’s estate until his creditors had been fully paid.331
325 Blackett-Ord Partnership (1997) 487; Morse Partnership law (2006) 282.
326 For instance, the jingle rule is still contained in section 34 of the Bank-
ruptcy Act 1988 in Ireland. See Twomey Partnership Law (2000) 713.
327 Banks 801.
328 See Morse 282-3.
329 By stipulating the assets of bankrupt partnerships and partners were
to be distributed as follows: ‘The net proceeds of partnership property
shall be appropried to the partnership debts, and the net proceeds of
the individual estates 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 partner-
ship 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 interest in
the partnership.’ Section 5g (11 USCA s 23). See Burdick The Law of
Partnership Including Limited Partnerships (1899) 296-297.
330 Section 31(5).
331 MacLachlan 256; Neely ‘Partnerships and Partners and Limited Li-
ability Companies and Members in Bankruptcy: Proposals for Reform’
(1997) 71(3) American Bankruptcy Law Journal 271; Kennedy op. cit.
note 29 610.
173
The legislative reports accompanying the bill that became the Bank-
ruptcy Reform Act of 1978 (the ‘Bankruptcy Code’), stated that sec-
tion 723332 repeals the jingle rule, which for ease of administration,
denied partnership creditors their rights against general partners
by permitting general partners’ individual creditors to share in their
estates first to the exclusion of partnership creditors.333
The result under this section more closely tracks generally applicable
partnership law, without a significant administrative burden.334
332 Section 723 of the Bankruptcy Code (11 USC section 723.(01/02/2006)
provides ‘(a) If there is a deficiency of property of the estate to pay in
full all claims which are allowed in a case under this chapter concerning
a partnership and with respect to which a general partner of the part-
nership is personally liable, the trustee shall have a claim against such
general partner to the extent that under applicable non-bankruptcy law
such general partner is personally liable for such deficiency. (b) To the
extent practicable, the trustee shall first seek recovery of such deficiency
from any general partner in such partnership that is not a debtor in a case
under this title. Pending determination of such deficiency, the court may
order any such partner to provide the estate with indemnity for, or assur-
ance of payment of, any deficiency recoverable from such partner, or not
to dispose of property. (c) Notwithstanding section 728(c) of this title, the
trustee has a claim against the estate of each general partner in such
partnership that is a debtor in a case under this title for the full amount of
all claims of creditors allowed in the case concerning such partnership.
Notwithstanding section 502 of this title, there shall not be allowed in such
partner’s case a claim against such partner on which both such partner
and such partnership are liable, except to any extent that such claim is
secured only by property of such partner and not by property of such
partnership. The claim of the trustee under this subsection is entitled to
distribution in such partner’s case under section 726(a) of this title the
same as any other claim of a kind specified in such section. (d) If the
aggregate that the trustee recovers from the estates of general partners
under subs (c) of this section is greater than any deficiency not recovered
under subs (b) of this section, the court, after notice and a hearing, shall
determine an equitable distribution of the surplus so recovered, and the
trustee shall distribute such surplus to the estates of the general partners
in such partnership according to such determination.’
333 See also In re El Paso Refining Inc 192 B.R. 144 (Bankr WD Tex 1996);
Ribstein 37: ‘This changes the long standing “dual priorities rule” under
state laws and the rule applicable in bankruptcy since the 1898 Act.’;
Waters and Melton ‘Partnerships’ (1997) 50(4) SMU Law Review 1393
1402. Hanley op. cit. note 7 149; Kennedy ‘Partnerships and Partners
under the Bankruptcy Reform Act and the New (proposed) Bankrupt-
cy Rules’ (1983) St Louis University Law Journal 507, 545; Fortgang
and King ‘The 1978 Bankruptcy Code: Some Wrong Policy Decisions’
(1981) 56(5-6) New York University Law Review 1148.
334 Amendments: 1994: Subsection (a). Pub. L. 103-394 substituted ‘to the
extent that under applicable nonbankruptcy law such general partner
174
Subsection (a) specifies that each general partner in a partnership
debtor is liable to the partnership’s trustee for any deficiency of part-
nership property to pay in full all administrative expenses and all
claims against the partnership.335 This provision more closely tracks
partnership law holding each partner jointly and severally liable for
the debts of the partnership by specifying that each partner is liable
to pay in full any deficiency in the claims of partnership creditors and
in the bankruptcy administrative expenses.336
Subsection (b) requires the trustee to seek recovery of the deficien-
cy first from any general partner that is not a debtor in a bankruptcy
case. The court is empowered to order that partner to indemnify the
estate or not to dispose of property pending a determination of the
deficiency. The language of the subsection is directed to cases un-
der the bankruptcy code. However, if, during the early stages of the
transition period, a partner in a partnership is proceeding under the
Bankruptcy Act [former title 11] while the partnership is proceeding
under the bankruptcy code, the trustee should not first seek recovery
against the Bankruptcy Act partner. Rather, the Bankruptcy Act part-
ner should be deemed for the purposes of this section and the rights
of the trustee to be proceeding under title 11.
Subsection (c) requires the partnership trustee to seek recovery of the
full amount of the deficiency from the estate of each general partner
that is a debtor in a bankruptcy case. The trustee will share equally
with the partners’ individual creditors in the assets of the partners’ es-
tates. Claims of partnership creditors who may have filed against the
partner will be disallowed to avoid double counting.
Subsection (d) provides for the case where the total recovery from
all of the bankrupt general partners is greater than the deficiency of
which the trustee sought recovery. This case would most likely oc-
cur for a partnership with a large number of general partners. If the
is personally liable for such deficiency’ for ‘for the full amount of the
deficiency’. 1984: Subsection (a). Pub. L. 98-353, Sec. 476, substituted
provisions that the trustee shall have a claim for the full amount of the
deficiency against a general partner who is personally liable with re-
spect to claims concerning partnerships which are allowed in a case un-
der this chapter, for provisions that each general partner in the partner-
ship would be liable to the trustee for the full amount of such deficiency.
Subsection (c). Pub. L. 98-353, Sec. 476(b), substituted ‘such partner’s
case’ for ‘such case’ in two places, ‘by property of such partnership’ for
‘be property of such partnership’, and ‘a kind specified in such section’
for ‘the kind specified in such section’.
335 See Anzivino Partner and partnership bankruptcy (1987) 57-59; Han-
ley 164-165.
336 Eibl ‘Strategies for Partners under the Bankruptcy Code when the
Partnership is Insolvent’ (1987) 61(1) American Bankruptcy Law Journal
37 43.
175
situation arises, the court is required to determine an equitable re-
distribution of the surplus to the estate of the general partners. The
determination will be based on factors such as the relative liability of
each of the general partners under the partnership agreement and
the relative rights of each of the general partners in the profits of the
enterprise under the partnership agreement.
The jingle rule is not totally abrogated by the Bankruptcy Code. Sec-
tion 723 nevertheless negates the operation of the jingle rule insofar
as the rule would protect the separate creditors of a partner from com-
petition for the proceeds of the partner’s estate by partnership credi-
tors, whenever the partnership is a debtor under Chapter 7.337 There
thus may be some risk that the rule in view of its long acceptance
may be deemed to have survived to the extent that it is not inconsist-
ent with the provisions or the Bankruptcy Code.338 Kennedy339 has
argued for applying the same abrogating rule to bankruptcies under
all chapters and at least one court has accepted this reasoning.340 Un-
fortunately, other courts have refused to grant relief to a partnership
or its creditors when sought in a Chapter 11 case.341
The Revised Uniform Partnership Act (RUPA) promulgated in 1994342
replaced the Uniform Partnership Act of 1914.343 RUPA establishes a
partnership as a separate legal entity, and not merely as an aggregate
of partners. RUPA provides for joint and several liability of partners for
partnership debts, but adds that a creditor who has a claim solely
against the partnership may not levy execution against a partner’s
337 Kennedy 60; Kennedy ‘Partnership and Partners’ Estates under the
Bankruptcy Code’ (1983) Arizona State Law Journal 219.
338 Kennedy 57.
339 Kennedy 57; Kennedy ‘The Discharge of Partnerships and Partners
under the Bankruptcy Code’ (1985) 38(4) Vanderbilt Law Review 857;
Rosenberg ‘Partnership Reorganization under the Bankruptcy Reform
Act: Filling in the Interstices’ (1981) 56 (5-6) New York University Law
Review 1173.
340 In re Safren 65 B.R. 566, 574-75 (Bankr. C. D. Cal. 1986).
341 See e.g. Andrew v Coopersmith (In re Downtown Inv Club III) 89 B.R.
59, 65 (Bankr 9th Cir 1988); Macey and Kennedy ‘Partnership bank-
ruptcy and reorganisation: Proposals for reform’ (1994) The Business
Lawyer 879; Eibl 37.
342 Adopted by Connecticut; West Virginia; Wyoming; Alabama; Alaska;
Arizona; Arkansas; California; Colorado; Delaware; District of Colum-
bia; Florida; Hawaii; Idaho; Illinois; Iowa; Kansas; Kentucky; Maine;
Maryland; Minnesota; Mississippi; Montana; Nebraska; Nevada; New
Jersey; New Mexico; North Dakota; Oklahoma; Oregon; Puerto Rico;
South Dakota; Tennessee; Texas; U.S. Virgin Islands; Vermont; Virginia;
Washington.
343 See http://www.nccusl.org/Upde/uniformact_factsheets/uniformacts-
fs-upa9497.asp (accessed on 10 December 2007).
176
assets except under certain circumstances, including when a part-
nership is a debtor in bankruptcy. Hence a partnership’s bankruptcy
immediately exposes its partners to direct claims to recover partner-
ship liabilities.344 According to the Official Comments on section 807 of
RUPA345 this section in effect abolishes the jingle rule contained in of
section 40(h) and (i) of the Uniform Partnership Act of 1914.346 Under
RUPA partnership creditors share pro rata with the partners’ individual
creditors in the assets of partners’ estates.347
The United States Congress created a nine-member National Bank-
ruptcy Review Commission in 1994 that eventually proved ‘enor-
mously controversial’.348 On October 20, 1997, it filed its Report with
Congress. The Report includes 172 separate recommendations.349
In addressing the partnership as debtor and the partner as debtor
respectively as subjects for amendment to and supplementation of
the Bankruptcy Code, the National Bankruptcy Review Commission
has sought to provide a measure of order and certainty to areas of
the law now largely unaddressed in the Code and, therefore, char-
acterized by inconsistent holdings and judicial improvisation.350 The
Commission stated that
[s]ince the 1978 Bankruptcy Code, the use of partnerships as
well as the partnership form has changed substantially and
the Bankruptcy Code does not adequately address the com-
plex issues that can arise when a bankruptcy petition is filed
by or against a partnership.351
One of the anomalous aspects of the Bankruptcy Code’s treatment

of partnerships is the absence of any provision in Chapter 11 of 12
recognising the appropriateness of relief for a partnership. Although s
723 of the Code authorises the trustee of a partnership in a Chapter
344 RUPA section 307(d); Ribstein 37.

345 Section 807.
346 Hillman et al General and limited liability partnerships under the Re-
vised Uniform Partnership Act (1996) 1-4; Hillman et al The Revised
Uniform Partnership Act (2004) 334; Ribstein 37; Bromberg and Rib-
stein Limited Liability Partnerships the Revised Uniform Partnership Act
and the Uniform Limited Partnership Act (2001) (2004) 143; Bromberg
and Ribstein Bromberg and Ribstein on Partnership (2001) 1:46-1:47.
347 Hillman et al 1-4. See also Ribstein 762.
348 Skeel Debt’s Dominion. A History of Bankruptcy Law in America (2001) 187.
349 See http://library.findlaw.com/1997/Nov/1/130505.html.
350 Cherkis ‘Recommendations of the National Bankruptcy Review Com-
mission: Partnership as Debtor, Partner as Debtor’ (1997) American
Bankruptcy Institute Law Review 381.
351 National Bankruptcy Review Commission Report of the National Bank-
ruptcy Review Commission October 20, 1997 http://govinfo.library.
unt.edu/nbrc/reporttitlepg.html.
177
7 case to claim and collect a deficiency of the partnership estate from
a general partner, there is no comparable authority for a partnership
as a debtor-in-possession or a partnership trustee in a Chapter 11 of
Chapter 12 case to proceed against the partners.352
The Commission made nineteen recommendations as additions or
amendments to the Code dealing with the partnership as debtor. Pos-
sibly the most significant are those addressing the liabilities of general
partners to partnership creditors in partnership cases under chapters
11 and 12 as well as under chapter 7. The Commission recommends
that the bankruptcy court in a partnership case be granted core juris-
diction to adjudicate the liability of general partners for the debts of the
partnership and the rights and liabilities among the general partners
with respect thereto. In the event of a deficiency in the assets of a
partnership estate to pay in full the claims of partnership creditors,
the recommendations provide that the partners estate is to have a
claim enforceable in the bankruptcy court against each partner, to
the extent provided under non-bankruptcy law, without reduction for
rights of contribution or indemnity among general partners. The Rec-
ommendations further provide for the estimation of such claims if de-
termination would unduly delay the administration of the partnership
case.353
The Commission further recommended that the existing section
723(c) should be amended to provide that estates of debtor partners
are liable for partnership debts to the same extent as provided un-
der applicable non-bankruptcy law. Section 723(a) of the Code pro-
vides that the trustee of a partnership in a chapter 7 case has a claim
against each personally liable general partner for a deficiency in es-
tate assets to the extent provided under applicable non-bankruptcy
law. Section 723(c) of the Code provides that the trustee of a partner-
ship in a chapter 7 case has a claim against the estate of each gen-
eral partner that is a debtor under the Code for the full amount of all
claims of creditors allowed in the case concerning such partnership.
Unlike section 723(a), section 723(c) does not refer to applicable non-
bankruptcy law when providing for the claims of a trustee against the
assets of constituent partners. The Commission’s recommendations
would resolve the current discrepancy in language between sections
723(a) and 723(c) and would also extend the provisions thereof to
partnership cases under all chapters.354
The Commission also recommended the complete abrogation of the
jingle rule. Although, under section 723(c) of the Code, the claim of
a debtor partnership’s trustee is given equal status with any other
352 Macey & Kennedy 879.

353 Cherkis 382.
354 Cherkis 382.
178
general claimant in a chapter 7 case of a partner of the partnership,
this provision is applicable only in chapter 7 cases and only when
both a partnership and one of its general partners is a chapter 7
debtor. The Commission’s proposal would provide equal priority to
claims of partnership creditors against a debtor general partner vis-
à-vis non-partnership creditors of such partner, both when the part-
nership is and is not a Bankruptcy Code debtor, and would apply to
cases under all chapters of the Code. This recommendation will en-
hance recoveries in partnership cases under the Code by providing
to such partnerships and their creditors a claim equal in priority to
those of the competing claims against a debtor general partner.355
4.3.4 Review: South African Law
4.3.4.1 Proposals for reform
It has been submitted repeatedly by South African writers that the
curtailment of the common law rights of partnership creditors is un-
warranted and that the provisions of section 49(1) of the Insolvency
Act of 1936 should be amended as soon as possible.356
During 1996 the South African Law Reform Commission357 (the ‘Com-
mission’) released its Discussion Paper 66 entitled Review of the Law
of Insolvency: Draft Insolvency Bill and Explanatory Memorandum.358
It emphasised that the Bill contains only preliminary proposals regard-
ing the insolvency of individuals and that the form of the Bill should not
be regarded as final. One consolidated Act was envisaged incorporat-
ing the winding-up provisions of companies and close corporations
as well as other legal entities.359 A further draft Bill was published for
comment in 1999 as Discussion Paper 86.360 It incorporated changes
355 For detailed further discussion of the recommendations, see Cherkis

382.
356 See e.g. Delport Gedingvoering tussen vennote (1977) 187; Henning
and Delport The South African Law of Partnership (1984) 283; Jorna
‘The legal nature of partnership’ (1994) Transactions of the Centre for
Business Law 22 50.
358 See in general, Evans et al ‘Aspects of the Draft Insolvency Bill’ (1999)
SA Mercantile Law Journal 210.
359 South African Law Reform Commission Project 63 Discussion Paper
66 Review of the Law of Insolvency: Draft Insolvency Bill and Explana-
tory Memorandum (1996) 3-4. See Henning ‘The Limited Rights of
Recourse of Partnership Creditors under the Insolvency Act’ (1999)
Journal for Juridical Science 103.
360 South African Law Reform Commission Project 63 Discussion Paper
86 Project 63 Review of the Law of Insolvency (1999) see http://www.
doj.gov.za/salrc/dpapers/dp86_prj63/dp86_prj63_insv1_1999.pdf
179
to the earlier draft Bill to take account of comments on the Bill, further
research and subsequent developments. In April 2002 the Commis-
sion released its Report on Review of the Law of Insolvency361 (the
‘Report’) consisting of an Explanatory Memorandum (the ‘Memoran-
dum’) and a Draft Insolvency Bill (the ‘Draft Bill’). According to the
web page of the Commission an ‘Insolvency and Business Recovery
Bill’ has been approved by Cabinet and is receiving the attention of
the State Law Advisers.362 It seems that it has since been decided
that business recovery will rather be dealt with in a new Companies
Act, with the result that the provision of the Draft Bill will only ap-
ply to business entities other than incorporated companies, such as
partnerships.363
The significant part of the recommendations and draft provisions on
partnerships of the Commission are concerned with addressing the
effects of and the lacuna caused by the decision of a single judge in P
de V Reklame v Gesamentlike Onderneming van SA Numismatiese
Buro en Vitaware364 that section 13(1) of the Insolvency Act is per-
emptory. The Commission persisted with its approach that this deci-
sion was not to be called into question notwithstanding the fact it went
against a long line of judgments and a considered body of jurispru-
dence.365 As this decision was summarily overturned by the Supreme
Court of Appeal in Commissioner, South African Revenue Services
v Hawker Air Services (Pty) Ltd; Commissioner, South African Rev-
enue Service v Hawker Aviation Partnership and Others366 these draft
provisions will of necessity have to be reconsidered in toto. This topic
need not be further canvassed in this contribution.367
Insolvency of one or more of the members of a partnership dissolves
the firm, but it does not cause the partnership estate to be seques-
trated. A consequence of the dissolution is the winding-up or liquida-
tion of the partnership. After dissolution each partner becomes liable
for the whole of the debts of the partnership, singuli in solidum. Each
partner may be sued for the whole of such debts without the neces-
(accessed on 17 December 2007).

361 South African Law Reform Commission Project 63: Report on review of
the Law of Insolvency (2002) see http://www.doj.gov.za/salrc/reports/
r_prj63a_insolv_2000apr.pdf (accessed 17 December 2007).
362 See http://www.doj.gov.za/salrc/docs_gen/AnnexureG%20All%20
InvestigationsJul07.pdf (accessed on 17 December 2007).
363 Cf. SOCPOL Circular no 25/07 dated 21 February 2007.
364 At 38.
365 Henning 1997 Journal for Juridical Science 68.
366 2006 4 SA 292 (SCA).
367 See Henning 96.
180
sity of the creditors taking any action against the other members or
assets of the partnership.368
According to the Commission the present statutory provisions enshrin-
ing the jingle rule was ‘apparently adopted from English insolvency
law’.369 The Commission states that section 49(1) of the Insolvency
Act departs from the common law because ‘the creditors of the indi-
viduals are ... precluded from proving claims against the partnership
estate’.370 This statement cannot be supported. It has been shown
that the preference of partnership creditors on partnership assets to
the exclusion of private creditors was applicable in Roman-Dutch law.
The Insolvency Act thus merely gives effect to the common law.371
However, the Commission correctly considers that section 49(1)
of the Insolvency Act departs from our common law by precluding
partnership creditors from proving their claims against the individual
estates, that this is an encroachment upon the rights of partnership
creditors and that there appears to be no justification to tolerate an
exception to our common law principles inspired by English law.372
The Commission proposes that where the partnership estate is de-
ficient, the partnership creditors should rank in the separate estates
of the individual partners for the balance of their claims, and thus
that the jingle rule in its present form should no longer find applica-
tion in the South African law of partnership insolvency.
Clause 44 of the Draft Bill373 reads that when the estate of a partner-
ship and the estates of the partners in that partnership are under
liquidation simultaneously any claim in respect of a partnership debt
shall be proved against the partnership estate, irrespective of the
fact that a partner might be personally liable for such debt. In so far
as the partnership estate is insufficient to meet such debt a creditor
who has proved his claim against the partnership estate shall for
the balance of his claim have a claim against the separate estates
of the partners without formal proof of his claim in respect of such
balance. The liquidator of the estate of a partner shall be entitled to
368 Lee en ’n Ander v Maraisdrif (Edms) Bpk 1976 2 SA 536 (A).

369 South African Law Reform Commission Discussion Paper 66 (1996)
143-144; South African Law Reform Commission Report: Explanatory
Memorandum (2000) 126.
371 See Henning 91.
Memorandum (2000) 127. This was also the prior conclusion and rec-
ommendation of Henning.
373 Now clause 60 of the draft Bill submitted to the State Law Advisors.
181
any balance of the partnership’s estate that may remain over after
satisfying the claims of the creditors of the partnership estate, so far
as that partner would have been entitled thereto if his estate had not
been liquidated.374
It has been submitted that clause 44 would be difficult to implement be-
cause the finalisation of partners’ estates will be delayed until the part-
nership estate has been finalised. The Commission considers that this
consequence follows logically because partners are liable for partner-
ship debts. It the position is regulated fairly and logically the partner’s
estate cannot be finalised before the partner’s liability for partnership
debts have been determined. This cannot be done before the partner-
ship estate has been finalised. It may be possible to make provision
for a ‘worst case scenario’ as far as these debts are concerned and
pay and interim dividend to the creditors of the partner’s estates, if the
finalisation of the partnership estate is unduly delayed.375
374 Note the following additional recommendions: Section 13(2) of the In-
solvency Act provides that where the individual estate of a partner is
unable fully to meet the costs of sequestration, the balance shall be
paid out of the assets of the estate of the partnership. However, the
converse is not provided for. Consequently any shortfall in the partner-
ship estate has to be recovered by way of contribution. Clause 5(5) of
the Draft Bill provides a remedy for the position: Where the separate
estate of a partner is unable to meet fully the costs of the liquidation
of that estate, the balance shall be paid out of the partnership estate
and where the partnership estate is unable to meet fully the costs of
liquidation the balance shall be paid out of the estates of the partners.
It has been decided that it is competent to sequestrate the estate of a
dissolved partnership on the basis that for the purpose of the Insolvency
Act a partnership must be regarded as a persona distinct from the part-
ners and that it continues to exist until its creditors have been satisfied.
There are certain obvious legal difficulties attendant upon sequestrating
a partnership which, because of prior dissolution, is no longer in exis-
tence. It appears that most of the authorities that criticise the practice
of sequestrating the estate of a partnership which has been dissolved,
admit that there are practical considerations that necessitate this state
of affairs. If a consequence of a dissolution of a partnership is that the
partnership continues for the purpose of completing pending transac-
tions, winding-up the business and adjusting the rights of the partners,
it is submitted that there is no convincing reason why the estate of a
partnership which has been dissolved but not yet liquidated, cannot be
sequestrated. Clause 5(6) of the Draft Bill provides for the liquidation of
the estate of a dissolved partnership. See South African Law Reform
Commission Report: Explanatory Memorandum (2000) 56.
182
Section 49 of the Insolvency Act does not prevent claims being lodged
in both the partnership estate and the estate of a partner if the claims
are based on different causes of action. In Barclays Bank v The Mas-
ter376 it was held that section 49 could not be construed to deprive
partnership creditors, who were also creditors of the partner, of the
right to prove against the partner’s estate, where the claim against
the partner was founded on a cause of debt which was distinct and
separate from that on which the claim against the partnership was
based. At first sight it may appear as if a partnership creditor is given
preference over other creditors: the partnership creditor can in princi-
ple prove a claim in respect of a partnership debt against the partner-
ship’s estate and against the partner’s estate. The first part of clause
44 of the Draft Bill makes it clear that only if the partnership estate is
deficient, can the partnership creditor prove a claim against the part-
ner based on the latter’s personal obligation in respect of a partner-
ship debt.377
Because section 49(1) of the Insolvency Act378 does not apply where
the estate of a member of a partnership is sequestrated unless the
partnership is also sequestrated, it appears that creditors of the dis-
solved partnership would be entitled to prove claims against the es-
tate of the insolvent partner. The trustee of the insolvent partner’s
estate has no control over the process of liquidation of the dissolved
partnership. It is cumbersome and disruptive for the trustee to claim
against other partners with a view to settling all the partnership ac-
counts. It appeared to the Commission to be desirable that in the
case of insolvency of a partner, the rule as set out in clause 44,379
that partnership debts must in the first place be claimed from the
partnership, should be applied. This is effected by clause 43 of the
Draft Bill.380 This clause provides that when the estate of a partner in
a partnership is liquidated and the partnership is as a result thereof
dissolved without the partnership being placed under liquidation,
any claim that a creditor of the partnership might have against the
estate of the insolvent partner shall be regarded as an unliquidated
claim until the debts of the partnership have been settled in terms of
the dissolution of the partnership.381
376 At 21.
Memorandum (2000) 127-128.
378 Re-enacted in clause 45.
379 See above.
380 Now clause 59 of the draft Bill submitted to the State Law Advisors.
381 SA Law Reform Commission Discussion Paper 66 (1996) 143-144; SA
Law Reform Commission Report: Explanatory Memorandum (2000)
125.
183
4.3.5 Conclusion
If and when the recommendation of the South African Law Reform
Commission for the abrogation of the jingle rule eventually lingers
its way into legislation, it will at long last effect the overdue demise
of an unequitable rule conceived, devised and developed in acri-
mony in seventeenth century English equity jurisprudence. This is
heavily underlined by the fact that the component of this rule deny-
ing partnership creditors parity against individual assets, has been
discredited and discarded even in its country of origin and at that,
more than a decade ago.
In fact, the continued survival of this contentious provision of the In-
solvency Act in the South Africa of the third millennium is conclusive
evidence of how the lack of vital law reform can have the unfortunate
effect of legislatively enshrining an outdated and discredited rule, re-
peatedly characterised as arbitrary and unjust and that encroaches
on the most basic tenets of partnership law, both in the ius commune
and the common law.
184

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Caput 4

4.1 A partnership of juristic persons1

1 Based on Henning “A partnership of companies under the Insolvency

16 The Rechte ende Costumen van Antwerpen which carried consider-

20 Henning “Partnership” 233.

30 Which makes reference to “de vennoten van eenige zodanige

53 Both repealed by the Pre-Union Statute Law Revision Act 36 of 1976,

58 1947 3 SA 304 (T).

63 Cf Meskin Insolvency law and its operation in winding-up (1990) par

67 P de V Reklame (Edms) Bpk v Gesamentlike Onderneming van SA Nu-

73 P de V Reklame (Edms) Bpk v Gesamentlike Onderneming van SA Nu-

77 Michalow v Premier Milling Co Ltd (fn 24) 61.

The Law Reform Commission released its Report on the Review of

103 The difference, if any, between the consequences of “actual” and

Thus the relevant recommendations of the Commission and the

106 Commissioner, South African Revenue Services v Hawker Air Servic-

Cameron JA therefore concluded that the interpretation adopted in

109 Cameron JA in Commissioner, South African Revenue Services v

110 1985 4 SA 876 (K).

118 Morse Partnership law (2006) 280.

127 Francis v Mc Neal 228 US 695 701, 33 S Ct 701 702 (1913).

In the case of an asset-poor partnership which has been loaned funds

144 1985 4 SA 876 (K).

157 Hansmann et al 1335

169 Kohler ‘Niederlandisches Handelsrechts in der Blutezeit des Frei­

Straccha177 lays down the like doctrine in the case of insolvency of

vel ta­bernae … ut non possint merces societis arresto preacludi vel

179 Asser In solidum of pro parte? (1982) 126.

184 Crane and Bromberg Law of Partnership (1968) 531.

Lord Harwicke adopted the rule in 1741 in Ex parte Hunter.193 Lord

188 21 ER 870 (1682).

199 31 ER 434 (1799).

In terms of section 63, where one partner of a firm is adjudged bank-

The importance of the Act of 1898 is that it departed from previous

Law Review 393; Kennedy ‘Partnerships and partners under the

227 Crane and Bromberg 578-581.

232 Skeel Debt’s dominion. A history of Bankruptcy law in America (2001)

237 Section 16 proviso.

This arrangement was buttressed by section 36 which provided that

243 Which refers to the ‘boedel van eene vennootschap’.

In contradistinction to section 36 of the Cape Ordonnance of 1943

Similar to section 36 of the Cape Ordinance of 1943 (but in contradis-

250 Section 10(2).

253 At 63. See also P de V Reklame (Edms) Bpk v Gesamentlike Ondernem-

257 Michalow v Premier Milling Co Ltd 63.

258 Op. cit.

266 Section 49(2).

4.3 The jingle rule: a comparative perspective271

281 Drake Law of Partnership (1983) 285.

285 Burgess and Morse 243; Shroder ‘Distribution of Assets of Bankrupt

It seems that Lindley’s successors deemed it meet to delimitate their

According to Crane292 no better justification can be found for the jin-

293 Kennedy 556.

297 Brannan ‘The Separate Estates of Non-Bankrupt Partners in the Bank-

304 Brannan 593-594.

306 Baggett 567.

312 1965 3 SA 726 (O).

One of the anomalous aspects of the Bankruptcy Code’s treatment

344 RUPA section 307(d); Ribstein 37.

352 Macey & Kennedy 879.

355 For detailed further discussion of the recommendations, see Cherkis

(accessed on 17 December 2007).

368 Lee en ’n Ander v Maraisdrif (Edms) Bpk 1976 2 SA 536 (A).

169 Kohler ‘Niederlandisches Handelsrechts in der Blutezeit des Frei

vel tabernae … ut non possint merces societis arresto preacludi vel