Dinushka and Devang wanted to establish an ethical clothing business, but to get the business started they needed $70, 000 capital. Because of their personal financial history and the economic climate, they couldn't find a financial institution that was prepared to make them the necessary loan. However, Arjuna, a friend of Dinushka's, was prepared to put up the capital if the loan agreement expressly stated that there was expressly no intention to create a partnership agreement between them. The loan agreement further stated that Arjuna was to have a share of the profits and losses, access to the partnership financial records, and that the loan was not to be repayable until after the dissolution of the partnership.

Owing to a lack of business acumen, Dinushka and Devang were eventually declared bankrupt. Arjuna, as a friend, had tried to help them stabilise the business in the five months before declaring bankruptcy by stepping into a management role. Arjuna then made a claim as a creditor, which was rejected by the trustee in bankruptcy on the basis that Arjuna was a partner.

Required:

In your opinion, was the trustee in bankruptcy correct? Give reasons.