The correct answer is: C. In the ratio of their capitals arrived at after the adjustment of accumulated profit & loss on realisation but before profit and loss on realisation
The Garner v Murray decision is a landmark case in English law that established the principle that, in the case of dissolution of a partnership, the deficiency of the insolvent partner’s capital is borne by the solvent partners in the ratio of their capitals arrived at after the adjustment of accumulated profit & loss on realisation but before profit and loss on realisation.
This means that the solvent partners are only liable to contribute to the extent of their capitals, after taking into account any profits or losses that have been realised up to the point of dissolution. This is in contrast to the previous law, which held that the solvent partners were liable to contribute to the full extent of the insolvent partner’s deficiency.
The Garner v Murray decision has been widely adopted in other common law jurisdictions, and it is considered to be a fair and equitable way of apportioning the losses of a dissolved partnership.
Here is a brief explanation of each option:
- Option A: In their profit-sharing ratio. This option is incorrect because the solvent partners are not liable to contribute to the full extent of the insolvent partner’s deficiency. They are only liable to contribute to the extent of their capitals, after taking into account any profits or losses that have been realised up to the point of dissolution.
- Option B: In the ratio of their capitals as they stood before the commencement of dissolution. This option is incorrect because the capitals of the partners may have changed since the commencement of dissolution. The solvent partners are only liable to contribute to the extent of their capitals as they stood at the point of dissolution.
- Option C: In the ratio of their capitals arrived at after the adjustment of accumulated profit & loss on realisation but before profit and loss on realisation. This option is correct because it is the ratio in which the solvent partners are liable to contribute to the deficiency of the insolvent partner’s capital.
- Option D: In the ratio of their capitals arrived at after the adjustment of accumulated profit & loss and profit & loss on realisation. This option is incorrect because the solvent partners are only liable to contribute to the extent of their capitals, after taking into account any profits or losses that have been realised up to the point of dissolution. The profit and loss on realisation is not taken into account when calculating the solvent partners’ liability.