Dissolution of the Partnership Flashcards
What are the categories of the dissolution of a partnership?
There are a number of ways by which a partnership might be dissolved. There are two broad categories:
1) dissolution other than by court and
2) dissolution requiring judicial intervention.
What are the ways in which a partnership can be dissolved other than by court?
1) Dissolution other than by court
A) Rescission of partnership agreement
⁃ In the event of a breach by another partner then an innocent party may be able to rescind the partnership agreement (s 41 of the Act)
- Ferguson v Wilson (1904) 6 F 779.
B) Dissolution by notice
⁃ This reflects the fact it is very easy to terminate a partnership - it can be done simply by giving notice. It doesn’t have to be reasonable notice or written notice. Simply notice. [NB the written partnership agreement may make the process more complex but these are the default rules]
- Section 32 of the Act
C) Dissolution by expiry of term
⁃ If the partnership was to last for 3 years then after the expiry of this term, the partnership will end.
- s32 of the act
D) Dissolution by death or bankruptcy
⁃ The default rule is that partnerships end on the death or bankruptcy of any partner (s 33(1) of the Act) - but this would normally be changed by the partnership agreement.
E) Dissolution by illegality
⁃ Hugh Stevenson & Sons v AG für Cartonnagen-Industrie [1918]
Hill v Wylie (1865) 3 M 541.
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W S Gordon & Co. Ltd. v Thomson Partnership 1985 SLT 122.
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Hugh Stevenson & Sons v AG für Cartonnagen-Industrie [1918]
Partners on different sides of countries at war - this meant that the partnership was illegal for the duration of the war. Once the illegality was removed after the war the parties could sue again easily. Look up if confused
- Section 34 of the Act
What are the ways a partnership can be dissolved which require judicial intervention?
(i) s35(a) – permanently unsound mind
(ii). s 35(b): - permanent incapacity.
⁃ Eadie v MacBean’s Curator Bonis (1885) 12 R 660.
(iii). s 35(c): prejudicial conduct.
⁃ Carmichael v Evans [1904]
(iv). s 35(d): breach of contract.
⁃ Thomson Petitioner (1893) 1 SLT 59.
(v). s 35(e): loss.
(vi). s 35(f): - just and equitable.
⁃ This is a sort of catchall ground which can be used by the court.
⁃ Sutherland v Barnes (unreported), 8 October 1997 (CA).
Eadie v MacBean’s Curator Bonis (1885) 12 R 660.
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Carmichael v Evans [1904]
(prejudicial conduct) Held that a partner who had travelled on a train without a ticket had committed prejudicial conduct that meant the partnership could be dissolved (probably wouldn’t amount to prejudicial conduct nowadays)
What are the consequences of dissolution?
s 38 states that after dissolution the authority of the partners can continue but only with regard to winding up the affairs of the partnership and to complete transactions.
Duncan v The MFV Marigold PD145 & ors 2006
Lord Reid: “As a general rule partners are not able to …certain new contracts are required to wind up the partnership..entering into of new transactions.” Where the limits are of s.38 are not entirely clear.
Boghani v Nathoo [2011]
The complaint and defendant had carried on hotel development as partners. The partnership was then dissolved. At the date of dissolution assets of the partnership included two substantial but uncompleted hotel developments.
- Disputes arose between the parties as to how the hotels should be disposed of in the winding up of the partnership.
- It was the complaints position that there needed to be an immediate order for the sale of the developments. The defender contended that section 38 of the Act said that the development should be completed and then sold.
- The court had to consider whether the hotel developments fell under s. 38 AND whether it was necessary to complete them in terms of that section.
- The court held: in relation to transactions …section 38 applied only if and to the extent that the completion of such transactions were necessary to wind up the affairs of the partnership
This is relevant as there may be many transactions which have been begun but unfinished at the time of dissolution. In the courts judgement: it depends whether it is necessary to wind up the transactions for the purpose of winding up the partnership.
The court said: although these were unfinished, the work ongoing was not necessary to be finished to finish the partnership. It was not necessary to complete the developments before they could be sold. Bringing together section 38 (those begun and unfinished AND those necessary to wind up partnership).
http://www.ecclblog.law.ed.ac.uk/2011/08/05/dissolution-of-partnerships-scottish-and-english-differences/
s 39 of the Act
Partnership property can only be dealt with for the purposes of the partnership - s 39 of the Act.
On dissolution every partner is entitled to receive payment on the …of the firm.
To have the surplus assets in payment of what may be due ..after deducting what is due from the partners to the firm. [Look this up]***
In cases where partnership is … Liabilities have to be paid and assets have to be given to the partners to allow them to go their separate ways.
How is a partnership wound up and its assets distributed?
Re Bourne [1906] 2 Ch.427 at pages431-432 per Romer LJ:
"When a partner dies and the partnership comes to an end, it is not only the right, but the duty, of the surviving partner to realize the assets for the purpose of winding up the partnership affairs, including the payment of the partnership debts".
So where you have entered a partnership and carried out business, this is dissolved, winding up
pulls apart the parts of the partnership after the liabilities of the partnership have been paid.
There can be problems in calculating what is owed by the partners in terms of assets. There can be
particular problems in how you value capital assets of the firm. This is because the value assets set
out the terms of the companies accounts. Any surplus is divided up among the parties.
**Noble v Noble 1965 SLT 415 AND Thom’s Executrix v Russel and Aitken 1983
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Duncan v The MFV Marigold PD145 & ors 2006 CSOH 128, 2006 SLT 975
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