Dissolution Notes PDF

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Dissolution 1. Automatic Dissolution 1) Upon the expiration of time or event -Sec 34(1)(a) & (b): A partnership entered into for a fixed term/a particular event is automatically dissolved upon the expiration of that term/termination of that event. -After the expiration of the term/te...

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Dissolution 1. Automatic Dissolution

1) Upon the expiration of time or event -Sec 34(1)(a) & (b): A partnership entered into for a fixed term/a particular event is automatically dissolved upon the expiration of that term/termination of that event. -After the expiration of the term/termination of the event, the partnership may still continue, but it will be considered as a partnership at will. -If it continues, it will be governed under Sec 34(1)(c) [undefined time]. -A partnership at will may be dissolved at any time through a notice given by a partner to the other partners of his intention to dissolve the partnership (Dissolution by notice) -Where a fixed term has not expired, a partner may apply to the court to dissolve the partnership provided that the situation falls under any of the grounds of Sec 37. 2) Upon the death, bankruptcy, or charge on partner’s share -Sec 35(1): Every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner. -However, partners may agree for the partnership to continue in spite of the death or bankruptcy of a partner (the business may still carry on with the surviving partners or the personal representatives of the deceased partner). -Sec 35(2): A partnership may be dissolved if any partner suffers his share of the partnership property to be charged under the Act for his separate debt. -This provision provides a partner with the choice to continue with the partnership or not when the other partner charges his share of the partnership property as security for his own personal debt. -This amounts to putting the partnership property at the risk of the possibility of allowing a third party to take over the partner’s portion of the partnership property in the event that he is not able to pay off his loan. 3) Upon the supervening illegality -Sec. 36: A partnership is dissolved by the occurrence of any event which 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. -A change in circumstances or status in law could make it unlawful for the business of a firm to be carried on or for the members of the firm to carry on in partnership. -R v Kupfer: The defendant was a partner in a firm with his two brothers who carried out business in Frankfurt and London. Payment was to be made by the defendant for an order from the London office to a Dutch company in Holland. War broke out on 4 th August 1914. The defendant paid the Dutch company when the payment was due, but was then charged with the offence of trading with the enemy. One of the issues was whether the partnership has been dissolved by the outbreak of war. Held: The partnership was dissolves as soon a war was declared.

2. By Notice

1) Wong Peng Yuen v Senanayake: Mutual confidence reposed by each other is one of the main elements in the partnership agreement. Loss of confidence may induce a partner’s intention to dissolve the partnership. 2) Sec 34(1)(c): A partnership entered into for an indefinite amount of time may be dissolved by any partner giving notice of the other partner(s) of his intention to dissolve the partnership. 3) A partnership entered into for an undefined time is called a partnership at will. i) Sec 28(1): Where no fixed term has been agreed upon for the duration of the partnership, any partner may determine the partnership at any time on giving notice of his intention (either to dissolve the partnership or determine a fixed period) to do so to all the other partners. ii) Sec 28(2): Where a partnership for an indefinite period was created by a written document, it is necessary for the notice of dissolution to also be in writing and signed by the partner giving notice. -The notice does not need any reason on why a partner intends to dissolve the partnership. -It does not require the consent of the other partners -Once given, it cannot be withdrawn except agreed by all partners

4) Sec. 34(2): The partnership is dissolved from the date mentioned in the notice, or if no date is mentioned, as from the date of communication of the notice. 5) If the notice is not written: -The intention to dissolve the partnership must be inferred from the conduct of the partner(s) -Tham Kok Cheong & Ors v Low Pui Heng: The conduct of the other three partners in selling the firm to the limited company must be considered as showing their intention to dissolve the partnership. The date that the fourth partner knew of the sale is the date when the dissolution takes effect. 6) Subramaniam Chettiar v Kader Mastan: The notice of a partner’s intention must be communicated to the other partners. The act of simply leaving the firm or being inactive cannot be considered as a notice of intention to retire. The giving of notice must be made known to the party to whom the notice is intended. 3. By Court

-Sec 37: Upon an application made by a partner, the court may order the dissolution of the partnership on any one of the grounds. 1) Mental disorder -Sec 37(a): When the court is satisfied that a partner is a lunatic or of permanently unsound mind. -A partner or anyone who has the right can make an application to have the partnership dissolved (for the mental incapacity of a partner) under Sec. 19 of the Mental Health Act 1952. While proceedings are pending in court for the dissolution of the partnership, the court can grant an interlocutory injunction to restrain a partner who is mentally incapable from interfering with the conduct of the partnership business. -Jones v Noy: A person would be considered incapable of managing his property and affairs where he suffers from a medical disorder such as a mental illness, arrested or incomplete disorder of the mind, psychopathic disorder and any other disorder or disability of the mind. 2) Permanent incapacity -Sec 37(b): When a partner becomes permanently incapable of performing his part of the partnership contract. -A medical report is needed alongside the application. The partner’s current state and the possibility of his recovery, no matter how remote, must be considered. -Whitwell v Arthur: The partners of a firm of pharmacists applied to the court to dissolve the partnership on the grounds of permanent incapacity of their partner who had suffered a stroke that had left him paralyzed, leaving him unable to perform his duties in the business. Held: Dissolution was not allowed at the time the application was made as there was evidence that the sick partner’s condition was improving. 3) Prejudicial conduct -Sec 37(c): When a partner has been guilty of such conduct which affects prejudicially the carrying on of the business. -Such conduct may directly or indirectly affect the business. -Snow v Milford: An adulterous affair of a partner in a banking business was not considered as conduct prejudicial to the business as mere bad behavior unrelated to the partnership business would not cause the application to be considered. (XX) -Essel v Hayward: A solicitor who was entrusted with a client’s money had used the money for his personal needs. Held: Such behavior amounts to prejudicial behavior as it affects the credibility of the firm. (//) -Carmichael v Evans: Carmichael and Evans were partners. Carmichael was convicted of travelling on a train without a ticket with the intention to defraud and so Evans applied to have the partnership dissolved based on this. Held: As honesty was an important element in a business, Carmichael’s conviction for dishonesty was considered to be detrimental to the partnership business. (//)

4) Persistent breaches -Sec 37(d): When a partner persistently commits a breach of the partnership agreement and causes it to be unreasonably practicable for the other partners to carry on the partnership business with him. -Persistent breaches affect the faith and confidence among the partners, and as such the partnership cannot continue to exist. The court must be satisfied that the acts of a partner are such that it destroys the mutual confidence that is necessary to carry on a partnership business. -Cheeseman v Price: A partner persistently made mistakes in book keeping and did not keep a regular record of the money he had received from their customers. Held: Such behavior can allow the partnership to be dissolved. (//) -J.M.M. Lewis & Ors v W.E. Balasingam: Consistent absence from the office does not constitute an excessive behavior of a partner that would enable the partnership to be dissolved. (XX) 5) Carrying on business at a loss -Sec 37(e): When the business of the partnership can only be carried on at a loss. -A partnership exists with a view of making profit If it is impossible for profit to be obtained, it defeats the purpose of creating a partnership at the first place, thus, enabling it to be dissolved. However, it must be proven that there is practicable impossibility of making profit. -Handyside v Campbell: The plaintiff applied to the court to have the partnership dissolved on the ground that the business would only continue making losses. The other partners admitted that the firm had been suffering losses, but if it was not due to the poor management by the plaintiff, and his absence for a long time due to illness, there is possibility for the business to recover and make profits. Held: The application to dissolve the partnership was not allowed. 6) Just and equitable grounds -Sec 37(f): In any circumstances, the court may in its opinion dissolve the partnership on just and equitable grounds. -Any partner may apply, but the court may refuse to consider the application of a partner who may be at fault. Where both parties are at fault, the court may allow the application on just and equitable grounds. -The grounds are non-exhaustive and it can be of any situation. (e.g. complete breakdown of communications between partners, or when the partnership has reached a deadlock) -Mere differences between partners would not be a ground to have a partnership dissolved. -Re Yenidje Tobacco Co. Ltd: Although the partnership’s business was thriving, the relationship of the partners had come to a standstill. They only communicated through the secretary of the firm. Held: The dissolution of the firm was ordered on just and equitable grounds. 4. Effect of dissolution

1) A partner is entitled to notify the public to inform them that the partnership has been dissolved. i) Personal notice must be given to existing third parties who have been dealing with the firm. ii) Notice by way of advertisement must be given to notify any future third parties 2) The authority of partners still continues to a limited extent to enable them to wind up the firm’s business. 3) The partners are allowed to apply the partnership property towards the payment of the firm’s debts and liabilities. 4) Where one partner has paid a premium to enter into a partnership that has been prematurely dissolved (before expiration of term), he would be entitled to the repayment of the premium in whole or in part of he is not at fault. 5) Regardless of the mode of dissolution, if former partners wish to resume the partnership, new agreement must be entered into and the partnership must be registered....