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Partnership Law Act 2019

Nature of partnership - Determining whether partnership exists

16: What happens if borrower or buyer is insolvent

You could also call this:

“What happens when someone who borrowed money or bought a business can't pay their debts”

If you borrow money or buy a business and agree to pay with a share of the profits, but then you can’t pay your debts, this is what happens:

This rule applies if you go bankrupt, make a deal to pay your creditors less than what you owe them, or die without enough money to pay your debts.

If you borrowed money, the person who lent it to you can’t get their money back until all your other creditors have been paid.

If you bought a business and agreed to pay with a share of the profits, the person who sold it to you can’t get their share until all your other creditors have been paid.

Creditors are people or businesses you owe money to, who gave you something valuable in exchange.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS205999.

Topics:
Money and consumer rights > Banking and loans Business > Industry rules
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"Getting money from a business doesn't always make you a partner"

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"Partners can speak and act for their business and each other"

Part 2 Nature of partnership
Determining whether partnership exists

16What happens if borrower or buyer is insolvent

  1. This section applies if a borrower under a contract referred to in section 15(3), or a buyer of goodwill in consideration of a share of the profits of a business,—

  2. is adjudged bankrupt; or
    1. enters into an arrangement to pay the borrower’s or buyer’s creditors less than the full amount that is owed to those creditors; or
      1. dies in insolvent circumstances.

        1. The lender under the contract referred to in section 15(3) is not entitled to recover anything in respect of the loan until the claims of the borrower’s other creditors have been satisfied.

        2. The seller of the goodwill is not entitled to recover anything in respect of the share of profits contracted for until the claims of the buyer’s other creditors have been satisfied.

        3. In this section, creditors means creditors for valuable consideration in money or money’s worth.

        Compare
        • 1908 No 139 s 6