Dissolution of Partnership

The Partnership Act 1958 (Vic) provides for the dissolution of a partnership by expiration or notice, by death or bankruptcy or charge, and by the court.  It also deals with the right of partners to give public notice of a dissolution, the apportionment of premium where a partnership is prematurely dissolved, the outgoing partner’s share of profits made after dissolution.  These provisions are replicated or outlined below.

 

Dissolution by expiration or notice

 

Subject to any agreement between the partners a partnership is dissolved—

 

  • if entered into for an undefined time by any partner giving notice to the other or others of his or her intention to dissolve the partnership (and in this case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or if no date is so mentioned as from the date of the communication of the notice);

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  • if entered into for a fixed term by the expiration of that term;

 

  • if entered into for a single adventure or undertaking by the termination of that adventure or undertaking.

 

Dissolution by death or bankruptcy or charge

 

Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner.

 

A partnership may at the option of the other partners be dissolved if any partner suffers his or her share of the partnership property to be charged under the Act for his or her separate debt (e.g. given as security for a Bank loan to the partner).

          

Dissolution by the court

 

A partner can apply to court to dissolve the partnership in any of the following cases—

 

  • when a partner other than the partner applying:

 

  • is found to be mentally ill;

 

  • becomes in any other way permanently incapable of performing his or her part of the partnership contract;

 

  • has been guilty of conduct which in the opinion of the court is calculated to prejudicially affect the carrying on of the business;

 

  • wilfully or persistently commits a breach of the partnership agreement or otherwise so conducts himself or herself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him;

 

  • when the business of the partnership can only be carried on at a loss;

 

  • whenever in any case circumstances have arisen which in the opinion of the court render it just and equitable that the partnership be dissolved.

Right of partners to notify dissolution

 

On the dissolution of a partnership or retirement of a partner, any partner may but one of such partners must, give notice of the dissolution in the Government Gazette and in at least one newspaper circulating in each district in which the partnership carries on business.  The partner giving notice may require the other partner or partners to concur for that purpose in all necessary or proper acts (if any) which cannot be done without his or her or their concurrence.

 

Apportionment of premium where partnership prematurely dissolved

 

Where one partner has paid a premium to another on entering into a partnership for a fixed term and the partnership is dissolved before the expiration of that term otherwise than by the death of a partner, the court may order the repayment of the premium or of such part thereof as it thinks just having regard to the terms of the partnership contract and to the length of time during which the partnership has continued; unless—

 

  • the dissolution is in the judgment of the court wholly or chiefly due to the misconduct of the partner who paid the premium; or

  • the partnership has been dissolved by an agreement containing no provision for a return of any part of the premium.

 

Share of profits made after dissolution

 

Where (a) any member of a partnership has died or otherwise ceased to be a partner and (b) the surviving or continuing partners carry on the business of the partnership with its capital or assets (c) without any final settlement of accounts as between the partnership and (d) the outgoing partner or his or her estate, - then in the absence of any agreement to the contrary, the outgoing partner or his or her estate is entitled at his or her option (or at the option of his or her representatives) to:

  • such share of the profits made since the dissolution as the court may find to be attributable to the use of his or her share of the partnership assets; or

  • interest at the rate of seven per centum per annum on the amount of his or her share of the partnership assets:

 

Provided that where by the partnership contract an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner and that option is duly exercised, the estate of the deceased partner or the outgoing partner, or his or her estate as the case may be, is not entitled to any further or other share of profits, but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms of the option, he or she is liable to account to the other partners as provided in the Act.

For more information on the effect of the Partnership Act 1958 (Vic) and on the importance of partnership agreements, see:

See also our articles on structuring and other aspects of business relationships.

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Contact

If you would like to discuss any aspect of this article with us, or share your own experiences, please contact Rod Stumbles at +613 8692 7255 or here.

 

DISCLAIMER

 

This article provides general information only and is not intended to constitute legal advice.  No lawyer-client, solicitor-client or attorney-client relationship has been created between us.  You must not rely on the contents of this article, whether as an alternative to legal advice from a lawyer or other professional legal services provider or otherwise.  You should not take, discontinue or refrain from taking any action because of your understanding of the contents of this article, including without limitation delay seeking legal advice or disregard legal advice.  If you have any specific questions about any matter, you should engage us or other lawyers or other professional legal services providers to provide you with the necessary advice.  Keep in mind that you may be facing important deadlines so you should not delay in engaging someone to provide you with the advice.