Insolvency of a Partner :

In dissolution, if the capital account of a partner shows a debit balance, he will have to pay the amount to the firm. But if he is insolvent, he will not be able to do so; he will not be able to pay the full amount of such a debit balance. The sum which becomes irrecoverable from a partner due to his insolvency is a loss to be borne by other partners. Before the decision in Garner v. Murray case was made, such loss used to be treated as an ordinary loss and transferred to the capital accounts of the solvent partners in their relative profit sharing ratio. But decision in Garner v. Murray changed the position.