11 U.S.C. § 723

Rights of partnership trustee against general partners

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(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 partnership is personally liable, the trustee shall have a claim against such general partner to the extent that under applicable nonbankruptcy 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 assurance of payment of, any deficiency recoverable from such partner, or not to dispose of property.(c) 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 subsection (c) of this section is greater than any deficiency not recovered under subsection (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.(Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2606; Pub. L. 98–353, title III, § 476, July 10, 1984, 98 Stat. 381; Pub. L. 103–394, title II, § 212, Oct. 22, 1994, 108 Stat. 4125; Pub. L. 111–327, § 2(a)(26), Dec. 22, 2010, 124 Stat. 3560.)Historical and Revision Noteslegislative statements

Section 723(c) of the House amendment is a compromise between similar provisions contained in the House bill and Senate amendment. The section makes clear that the trustee of a partnership has a claim against each general partner for the full amount of all claims of creditors allowed in the case concerning the partnership. By restricting the trustee’s rights to claims of “creditors,” the trustee of the partnership will not have a claim against the general partners for administrative expenses or claims allowed in the case concerning the partnership. As under present law, sections of the Bankruptcy Act [former title 11] applying to codebtors and sureties apply to the relationship of a partner with respect to a partnership debtor. See sections 501(b), 502(e), 506(d)(2), 509, 524(d), and 1301 of title 11.

senate report no. 95–989

This section is a significant departure from present law. It 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. The result under this section more closely tracks generally applicable partnership law, without a significant administrative burden.

Subsection (a) specifies that each general partner in a partnership debtor is liable to the partnership’s trustee for any deficiency of partnership property to pay in full all administrative expenses and all claims against the partnership.

Subsection (b) requires the trustee to seek recovery of the deficiency 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 under 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 partner 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’ estates. 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 occur for a partnership with a large number of general partners. If the situation arises, the court is required to determine an equitable redistribution 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.

Editorial NotesAmendments

2010—Subsec. (c). Pub. L. 111–327 substituted “The trustee has” for “Notwithstanding section 728(c) of this title, the trustee has”.

1994—Subsec. (a). Pub. L. 103–394 substituted “to the extent that under applicable nonbankruptcy law such general partner is personally liable for such deficiency” for “for the full amount of the deficiency”.

1984—Subsec. (a). Pub. L. 98–353, § 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 respect to claims concerning partnerships which are allowed in a case under this chapter, for provisions that each general partner in the partnership would be liable to the trustee for the full amount of such deficiency.

Subsec. (c). Pub. L. 98–353, § 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”.

Statutory Notes and Related SubsidiariesEffective Date of 1994 Amendment

Amendment by Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title.

Effective Date of 1984 Amendment

Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title.

Notes of Decisions

Cited in 113 cases (3 in the last 5 years), 1940–2024 · leading case: Black & White Cattle Co. v. Shamrock Farms Co. (In Re Black & White Cattle Co.), 30 B.R. 508 (9th Cir. BAP 1983).

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Black & White Cattle Co. v. Shamrock Farms Co. (In Re Black & White Cattle Co.), 30 B.R. 508 (9th Cir. BAP 1983). · cites it 11× “11 U.S.C. § 723 is consistent in this regard by retaining the rule that general partners are primarily liable to the trustee in the event of a deficiency.”

Matter of Elsub Corp., 66 B.R. 172 (Bankr. D.N.J. 1986). · cites it 6× “Notwithstanding this restriction, this court is of the opinion that an examination of 11 U.S.C. § 723 is relevant to determine the congressional intent regarding the relation between partners’ individual creditors and partnership creditors under the Bankruptcy Code.”

In Re RL Kelly & Sons, Millers, 125 B.R. 945 (Bankr. D. Md. 1991). · cites it 14× “Resolution of the objections is dictated by 11 U.S.C. § 723 . This section provides: § 723.”

In Re Union Meeting Partners, 165 B.R. 553 (Bankr. E.D. Pa. 1994). · cites it 3× “§ 1129 (a)(7) with respect to the rejecting unsecured creditors with recourse against the General Partners because Lincoln’s Plan only pays these creditors thirty (30%) percent of their allowed claims, whereas, in a Chapter 7 liquidation, these creditors would receive their pro…”

In Re 222 Liberty Assocs., 108 B.R. 971 (Bankr. E.D. Pa. 1990). · cites it 2× “This provision is designed to assist the implementation of a provision of the Code which makes the general partners liable to the trustee in the event the assets of the partnership are insufficient to pay partnership debts.”

In Re Aztec Co., 107 B.R. 585 (Bankr. M.D. Tenn. 1989). · cites it 2× “See 11 U.S.C. § 723 . Before the petition, EBR managed the apartments for the debtor and received a management fee.”

In Re Monetary Grp., 55 B.R. 297 (Bankr. M.D. Fla. 1985). · cites it 5× “ORDER DENYING TRUSTEE’S MOTION TO COMPEL INDEMNIFICATION UNDER 11 U.S.C. § 723 BUT GRANTING MOTION DIRECTING EACH GENERAL PARTNER TO FILE A STATEMENT OF PERSONAL ASSETS AND LIABILITIES PURSUANT TO BANKRUPTCY RULE 1007(g) GEORGE L.”

In Re Massetti, 95 B.R. 360 (Bankr. E.D. Pa. 1989). · cites it 3× “In essence, the respective positions are these: the applicants assert an administrative expense claim; the trustee challenges the existence of any claim; alternatively, the trustee maintains that he has a claim against the applicants pursuant to 11 U.S.C. § 723 which should be…”

In Re Heron, Burchette, Ruckert & Rothwell, 148 B.R. 660 (D.D.C. 1992). · cites it 2× “Ayres derived the figure for proceeds from liquidation of partners by determining what a chapter 7 trustee would receive if he proceeded against each partner under 11 U.S.C. § 723 . In performing this exercise, Ayres assumed that each partner would file an individual chapter 7.”

Miller v. Spitz (In Re CS Assocs.), 160 B.R. 899 (Bankr. E.D. Pa. 1993). · cites it 3× “Miller (“the Trustee”), pursuant 11 U.S.C. §§ 723 (a), (b), seeking a deficiency of over $10 million against Raymond Silk, M.”

In Re Pine Lake Vill. Apt. Co., 19 B.R. 819 (Bankr. S.D.N.Y. 1982). “” Similarly, a general partner’s equity interest in an estate under the Code is regarded as junior to the rights of partnership creditors, as illustrated in a Chapter 7 case, where 11 U.S.C. § 723 (a) provides that each general partner in a partnership is liable for full amount…”

Goldman v. Haverstraw Assocs. (In Re R.H.N. Realty Corp.), 84 B.R. 356 (Bankr. S.D.N.Y. 1988). · cites it 2× “§ 544 against nondebtor partners because under 11 U.S.C. § 723 (a) a partnership trustee merely has a right to be a holder of a claim against each general partner for deficiency claims against the partnership.”

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— 11 U.S.C. § 723(a) — 1 case

In Re Tennol Energy Co., 127 B.R. 820 (Bankr. E.D. Tenn. 1991).

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