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Alex J.
Alex J., Solicitor
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Experience:  Solicitors 2 years plus PQE
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Re partnerships - i.e. self employed If a partner is disassociated

Customer Question

Re partnerships - i.e. self employed

If a partner is disassociated by another partner in writing are they still liable for the debts of the partnership
Submitted: 2 years ago.
Category: Law
Expert:  Alex J. replied 2 years ago.
Hi,

Thank you for your question and welcome.

The partner will only be liable for the debts incurred before the date they ceased being a partner.

If there are only two partners and one "disassociates" the other then technically the partnership should be dissolved an the assets should be sold and divided between the partners after the debts are repaid. If there are more than two partners then the exiting partner should at least be given their share of the capital.

Can I be of any further assistance?

Kind regards

AJ
Customer: replied 2 years ago.

Hi Alex


 


Thank you for your answer. The business is still trading at this moment in time but not for much longer.


 


Even though the partner (there only being two partners) , was advised that she was disassociated her solicitor came back with the answer


 


'We contend that as it is in fact your client who is in breach of the partnership agreement and therefore it is he who Clause 38 applies to (i.e. disassociated) and furthermore believe our client cannot be held to account on such an unreasonable clause which we believe any court will strike out if challenged'


 


Therefore, the question begs - is she really disassociated? And if not, again is she still liable for the existing debts?


 


Thanks

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

What is the wording of clause 38?

Kind regards

AJ
Customer: replied 2 years ago.

Hi


 


Clause 38 Duty of Loyalty. No partner will engage in any business, venture or transaction, whether directly or indirectly, that might be competitive with the business of the partnership or that would in direct conflict of interest to the partnership. Any potential conflicts of interest will be deemed an involuntary withdrawal of the offending partner and may be treated accordingly by the remaining partner. A withdrawing partner will not carry on a similar business to the business of the partnership within any established or contemplated market regions of the partnership for a period of at least 5 years after the date of withdrawal.


 


Her solicitors also state that 'they do not believe that their client has breached the partnership agreement in anyway whatsoever.'


 


By her solicitors saying the above, does that mean that she is not disassociated as they are saying that she has not breached the partnership agreement? Thanks.


 


 

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

I would tend to agree that the above clause is perhaps not enforceable. It is too restrictive and too long.

She may not be disassociated but if you have said you do not wish to be in partnership with her any longer then the partnership may have dissolved.

If it has not dissolved and the above clause is not enforceable then she will continue to be a partner and liable for the debts.

Is there a notice mechanism for removing a partner?

Kind regards

AJ
Customer: replied 2 years ago.

Hi


 


The business is still continuing but, because of the other partner's actions, we will have to cease trading shortly.


 


Could you simplify 'notice mechanism' ?


 


What I am really trying to get at is to try and make her joint and severally liable for the business's debts on ceasing to trade as she has contributed by her actions in its demise.


 


Thanks

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

By the very nature of the partnership she will be jointly and severally liable. If the debts are in the name of the partnership and you have nothing in writing to say otherwise she is jointly and severally liable.

The notice mechanism would be giving her notice that she is either disassociated or the partnership is dissolved.

If it is dissolved, then you should stop trading sell the assets and repay the creditors. If she refuses and you have joint and severally liability you have the right to sue her for a contribution under Civil Liability (Contribution) Act 1978.

Kind regards

AJ
Customer: replied 2 years ago.

Hi


 


The debts are in the name of the partnership. She was given notice that she was disassociated. Does that make a difference to her joint and several liability to the business?


 


She walked out last March 2013 and has done everything in her power to destroy the business and has succeeded. When she went, it was worth something, now it is not. Why she would not accept her monetary entitlement is beyond me. Why would anyone set out to destroy their own business!!!


 


Thanks


 


 

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

She is jointly and severally liable for all the debts incurred while she was a partner. She is still liable for those debts after she ceases to be a partner. Once she ceases to be a partner she cannot incur new debts.

I am sorry to hear about this, but sometimes it is best not to focus on why people choose malevolence, focus you energy into the freedom of being able to start a new venture.

Kind regards

AJ
Customer: replied 2 years ago.

Hi Alex


 


So in a nutshell, even though she has been disassociated, she is still a partner and, therefore, still liable for the debts even after she was disassociated, i.e. not just the debts before she was disassociated before March 2013.


 


Thanks

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

If she has been disassociated (or terminated) even after she ceases to be a partner she is still liable for those debts incurred while she was a partner. She cannot incur new debts as a partner.

Kind regards

AJ
Customer: replied 2 years ago.

Sorry Alex - so what you are saying is that she is only liable for the debts before the disassociation?


 


 

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

Yes she is only liable for debts incurred before she ceased being a partner.

Once she ceases being a partner, any further debts that are incurred by what is left of the partnership she is no longer liable for. However she remains liable for the debts incurred while she was a partner.

Kind regards

AJ

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