Following the voluntary dissolution of a general commercial partnership firm operating in Nigeria, the appointed liquidator must realize the firm's assets and settle all liabilities pursuant to statutory commercial law (Partnership Act provisions). In what correct statutory sequence must the liquidator prioritize the disbursement of realized funds and asset distribution?
- 1Payment of costs, legal fees, and realization expenses incurred during the winding-up process
- 2Settlement of debts and liabilities owed to external third-party creditors
- 3Rateable repayment of advances and loans extended to the firm by individual partners beyond their agreed capital contributions
- 4Refund of original capital contributions made by partners to the business entity
- 5Distribution of the remaining surplus assets among partners in accordance with their agreed profit-sharing ratio
Answer
The correct statutory sequence for distributing partnership assets upon dissolution is: First, pay winding-up and realization expenses; Second, discharge external third-party debts; Third, repay partner loans and advances rateably; Fourth, refund partner capital contributions; Fifth, divide any remaining surplus among partners according to their agreed profit-sharing ratio.
Under Section 44 of the statutory Partnership Act governing Nigerian commercial law, upon dissolution, the realized assets of a firm must be applied in a strict priority sequence: realization costs take ultimate priority to fund the liquidation, followed by external liabilities to outside creditors. Internal liabilities are then settled by first repaying partner loans/advances rateably, followed by partner capital refunds. Finally, any remaining residual surplus is shared among partners according to their agreed profit-sharing ratio.
Step-by-Step Solution
Key Concept
Partnership Dissolution Asset Distribution Hierarchy