Suppose the business has total assets worth Rs. 450,000/- and total liabilities of Rs. 800,000/-.
Mr. Ali has the personal property of Rs. 200,000/- and Mr. Yasir has the personal property of
Rs. 125,000/-. In case the business is liquidated and declared as bankrupt, up to what extent
Mr. Ali & Mr. Yasir will pay from their personal property to satisfy the creditors’ claim? You
are also required to discuss the possible treatments if any of them is unable to pay from
personal property.
In partnership, each partner is personally liable to pay 100% of the partnership debts, means if there are not enough business assets to pay those debts then partners’ personal assets shall be sold off to pay business debts not just according to their profit/loss sharing ratio. According to partnership act if one partner is unable to pay his total liability share, then other partner shall be responsible for paying of remaining business debts. So in this case as business would fell short of 350000 rupees (800000-450000) Mr. Ali’s and Mr. Yasir’s personal assets will be sold off to pay remaining liabilities. According to profit/loss sharing ratio both partners' are liable to pay Rs. 400000 worth of liabilities. Mr. Ali will able to pay Rs. 400000 as his capital would be 225000 (450000/2), and his personal property worth Rs.200000 where as remaining liability was Rs.175000 ( 400000-225000), but if business is liquidated at this time then Mr. Yasir will be unable to pay his liabilities i.e. Rs. 400000 ( 800000 / 2), ( 400000-225000 = 175000) Rs. 175000 should be paid off from Mr. Yasir's personal property whereas his personal property worth only Rupees 125000. So Mr. Ali will have to pay off remaining liabilities of rupees 50000( 175000-125000) from his personal assets. But in this case Mr.Ali is only having Rs.25000 after paying off his liabilities so business will not able to pay remaining of its liabilities of rupees 25000.
So in total Mr. Ali will pay rupees 425000( 225000 from his capital and 200000 worth of property) and Mr. Yasir will pay 350000( 225000 from his capital and 125000 worth of property)
In total only Rs. 775000 worth of liabilities will be paid off remaining liabilities will never be paid off as their personal assets are felt short.
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To calculate the extent to which Mr. Ali and Mr. Yasir will pay from their personal property to satisfy the creditors' claim, we need to first determine the total amount of liabilities that need to be paid.
Total liabilities = Rs. 800,000/-
Now, let's calculate the total assets available for the creditors:
Total assets = Rs. 450,000/-
In case of liquidation and bankruptcy, the assets are used to pay off the liabilities. If the assets are insufficient to cover the liabilities, the personal property of the owners may also be used.
To determine the amount each owner will pay from their personal property, we need to compare the assets and liabilities with each owner's personal property.
Mr. Ali's personal property = Rs. 200,000/-
Mr. Yasir's personal property = Rs. 125,000/-
Assuming the liabilities exceed the total assets, we need to calculate the shortfall:
Shortfall = Total liabilities - Total assets
= Rs. 800,000 - Rs. 450,000
= Rs. 350,000/-
Now, we need to calculate the proportionate liability for each owner based on their personal property:
Mr. Ali's proportionate liability = (Mr. Ali's personal property / Total personal property) * Shortfall
= (Rs. 200,000 / (Rs. 200,000 + Rs. 125,000)) * Rs. 350,000
= (200,000 / 325,000) * 350,000
= 215,384.62
Mr. Yasir's proportionate liability = (Mr. Yasir's personal property / Total personal property) * Shortfall
= (Rs. 125,000 / (Rs. 200,000 + Rs. 125,000)) * Rs. 350,000
= (125,000 / 325,000) * 350,000
= 134,615.38
Therefore, Mr. Ali will pay Rs. 215,384.62 and Mr. Yasir will pay Rs. 134,615.38 from their personal property to satisfy the creditors' claim.
If either of them is unable to pay their share, there are a few possible treatments:
1. Negotiation: The creditors may negotiate with Mr. Ali and Mr. Yasir to come to a mutual agreement on a reduced payment amount or extended payment terms.
2. Seizure of Assets: The creditors may seek legal action to seize and sell off the personal properties of Mr. Ali and Mr. Yasir to satisfy the outstanding liabilities.
3. Bankruptcy Proceedings: If both owners are unable to pay their share, they may have to file for bankruptcy. In this case, a bankruptcy court will determine the allocation of assets and liabilities.
It is important to consult a legal professional familiar with bankruptcy and debt laws in your jurisdiction for accurate advice and guidance in such matters.