Partnerships - dissolution

Question 1

reasons for partnership dissolution

Answer 1

• Expiry of a fixed term (s32(a) PA)
• notice (s32(c) and s26 PA)
• death or bankruptcy of one of the partners (s33 PA)
• illegality (s34 PA)
• court order (s35 PA)

Question 2

Expiry of a fixed term

Answer 2

• If a partnership is for a fixed term, the expiry of that term will end the partnership unless the partnership agreement provides otherwise
• where there is agreement for partnership to continue, it will continue on the same terms but as a “partnership at will” (s27)) > indefinitely, but can be terminated by any one of the partners giving notice (s26)

Question 3

notice

Answer 3

s32(c) PA

• If the partnership was entered into for an undefined time i.e., it is a partnership at will, it may be terminated at any time by one partner giving notice to all of the others.
• They do not have to give a reason.
• The giving of notice has immediate effect.
• The notice need not be in writing unless the partnership agreement was made by deed (s26(2)).

Question 4

Death or bankruptcy of one of the partners

Answer 4

automatically terminates the partnership (s33)

other partners have option to dissolve if a partner has any partnership property that charged under s23 for payment of that partner’s private debt (s33(2))

Question 5

illegality

Answer 5

automatic termination if something occurs that makes it unlawful for:
- The business of the firm to be carried on; or
- For the members of the firm to carry it on in partnership”.

e.g. if the business loses a license required to carry on its business, partner in a law firm is struck off

this term can’t be excluded by written agreement

Question 6

court order

Answer 6

Court can order dissolution on the following grounds:
- incapability
- conduct that prejudicially affected the carrying on of the business
- breach of the partnership agreement
- when the partnership can only carry on at a loss
- where the court considers it just and equitable to do so

Question 7

when the partnership ends

Answer 7

• need to wind up the partnership business and assets (value all the partnership assets, pay off the partnership debts, and distribute surplus to former partners)
• any partner may apply to the court for the appointment of a receiver to deal with the assets.

Question 8

distribution of assets

Answer 8

assets need to be distributed in the following order (s44 PA):
1. creditors
2. partners who have loaned the firm money
3. partners’ capital entitlement
4. surplus will be paid in accordance with partnership agreement