5: Dissolution of Partnerships Flashcards
(40 cards)
What is dissolution?
A procedure by which a partnership is brought to an end.
How can a partnership be dissolved?
- By mutual agreement
- By expiry or notice
- By express clause in the agreement
- By death or bankruptcy
- By illegality
- By the court
- By s96 Mental Health Act 1983
What is dissolution by mutual agreement?
A partnership can be dissolved at any time if all parties agree to do so - it is a contractual relationship.
What form must the agreement to dissolve the partnership take if by mutual agreement?
It doesn’t matter what form the agreement takes, so even if a partnership formed by deed can be terminated by an oral agreement between the partners.
Which section of PA 1890 talks about dissolution by expiry or notice?
ss32 and 26 (about partnership at wills for s32(c))
What are the three parts of s32 PA 1890?
s32
a) at the end of fixed term
b) at the end of a single venture or undertaking
c) if for an undefined time, by any partner giving notice to dissolve the partnership
When will the dissolution take place according to s32(c) depending on whether the notice has a date on it or not?
If it has a date: on that date
If it doesn’t have a date: from the date of the communication of the notice
How must the notice in s32(c) be communicated?
It can be oral unless the partnership is created by deed (when it then must be in writing).
What is dissolution by an express clause in the agreement? Give 2 examples.
For example, if a partner becomes mentally unsound or acts dishonestly, the express clause may allow for dissolution?
Which section allows for dissolution by death or bankruptcy?
s33 states that the partnership automatically dissolves on the death or bankruptcy of any partner.
Which section allows for dissolution by illegality?
s34 states that a partnership is dissolved automatically if anything happens which makes it unlawful to carry on the firm’s business or to carry on in the partnership, even if it wasn’t illegal when it started.
Can s33 and s34 be excluded in the partnership agreement?
s33: death or bankruptcy is often excluded
s34: illegality cannot be excluded
What are the 5 situations outlined in s35 PA 1890 where the court can dissolve a partnership?
(a has been replaced by the Mental Health Act 1983)
b) Permanent incapacity (other than mental disorder)
c) Prejudicial conduct
d) Persistent or wilful breach of the partnership agreement
e) Carrying on at a loss
f) Where it is just and equitable that the partnership be dissolved
What must be present for s35(c) Prejudicial conduct to apply?
Some damage to the firm’s business or reputation.
What would count as persistent or wilful breach of the partnership agreement, s35(d)?
When the partner conducts themselves in such a way that they lose the confidence of their other partners and they feel that it is impossible to carry on the business. E.g. inaccurate accounts, refuses inspection of dealings, mutual confidence is destroyed.
When would carrying on at a loss, s35(e), apply?
When it is impossible for the firm to ever make a profit. It doesn’t have to be actually insolvent.
What situations would s35(f) be used, where it is just and equitable that the partnership be dissolved?
Continuing hostility between partners, refusal to hold meetings.
Assigning share to an outsider and resulting in an intolerable situation for other partners.
Can the partner who has been the main cause of the breakdown of the partnership be allowed to petition for dissolution to the courts?
The court may refuse to allow a petition from that partner.
Which section of the Mental Health Act gives the court the power to dissolve a partnership of which a mental health patient is a member?
s96 Mental Health Act 1983
Are the partners of a dissolved partnership still liable on contracts entered into with outsiders before the dissolution?
Yes, according to s36 they are still liable for contract with outsiders who thinks they are dealing with the partnership until they are given notice of dissolution.
What must the partners make sure to do after dissolution?
Give notice of dissolution to avoid continuing liability to clients. They must give notice to everyone else via the London Gazette.
What does s37 allow partners to do?
s37 allows any partner to give the necessary notices under s36.
What is winding up?
The process of selling the assets and using them to pay the creditors and partners.
How long do a partner’s authority and their rights and duties continue after disslution?
According to s38, a partner’s authority etc continues so far as is necessary to wind up the affairs or the partnership and complete unfinished transactions.
