UiTM Puncak Perdana

Faculty of Accountancy
AC 110 4C LAW 346 Dissolution of Partnership

Prepared to: Pn. Nadia Omar

Prepared by: Ahmad Afiq bin Ahmad Noh (2009491336) Mohammad Redzwan bin Khairudin (2009893676) Mohd Faqih bin Shamshudin (2009204842)

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Bankruptcy or Charge Dissolution by Illegality Dissolution by Order of the Court Consequences of dissolution Conclusion References Page 3 3 4 5 6 7 11 13 14 2 .Table of Contents Contents Introduction Dissolution by Expiration Dissolution by Notice Dissolution by Death.

all the relations and the business of the firm comes to an end. the partnership will be dissolved once the period agreed in upon ends. stating the establishment of the partnership to be limited for a period. A certain activities may be continued in order to let the business wound up. 3 .34(a): Subject to any agreement between partners. hence stopping the firm or company progress.  According to S. if they agree to continue the partnership even after the agreed period. However. This section clearly explains that if there is a contract or agreement between the partners. a partnership is dissolved if entered into a fixed term by the expiration of the term. When any of the partners dies. then it is dissolution of partnership not the dissolution of firm. 1. Dissolution of partnership changes the mutual relations of the partners. There are a few ways to dissolve a partnership under the Partnership Act. DISSOLUTION BY EXPIRATION This type of dissolution is determined before a certain period preceeding the dissolution. But in case of dissolution of firm.INTRODUCTION Dissolution of partnership means the end of a partnership. the partnership is considered as a partnership at will. Dissolution of partnership is different from the dissolution of firm. retires or become insolvent but if the remaining partners still agree to continue the business of the partnership firm.

the parnership automatically ends when the season ends. a parnership is dissolved if entered into for a single adventure or undertaking. or if no date is mentioned. According to S. and directly related to S. by the termination of the adventure or undertaking. This means that a partner who want to dissolve his partnership has to give notice to the other partners. DISSOLUTION BY NOTICE A partnership can continue without any specific ending term.  In the last mentioned case. with notice.34(1)(c). or season such as selling lemangs during Hari Raya sAeason. as from the date of the communication of the notice. 4 . the partnership may be ended simply when a partner gives notice to the others as stated in S. the partnership is dissolved as from the date mentioned in the notice as the date of dissolution.28(1).34(1)(c) A partnership is dissolved If entered into for an undefined time. According to S. As mentioned earlier. This sub-section indicates that.  According to S. when partners establish partnership for a certain occasion. However. The notice does not need to be in writing. as long as the other partners are well informed. by any partner giving notice to the other or others of his intention to dissolve the partnership. partnership that is entered without a defined period is a partnership at will. 2.34(b): Subject to any agreement between partners.34(2) that states. the partnership can be brought to an end by any partner at any time.

that if a partnership of an undetermined period was established by writing. a Partnership may. He only know about the dissolution of the partnership on the date of sale of the firm on 6th April 1966.Case: Tham Kok Cheong and Ors v Low Pui Heng “A firm made up of four partners was dissolved with the sale of the firm to a limited company. at the option of the other partners. the intention to dissolve is considered as having been conveyed and takes effect from the date. BANKRUPTCY OR CHARGE ON PARTNER’S SHARE.28(2) states. Three of the partners negotiated for the sale of the firm without informing the fourth partner. 5 . the dissolution must also be in writing. The court held that 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 fourth partner alleged that he had not been given notice of the dissolution of the partnership. 3. As the fourth partner only knew of the sale on the 6th. Every partnership will be dissolved as regards to the death or bankruptcy of any partner. DISSOLUTION BY DEATH. Death. Bankruptcy or Charge (Section 35 Partnership Act 1961). When it comes to charge. be dissolved if any partner suffers his share of the Partnership property to be charged under this Act for his separate debt. S.” However.

he is giving a third party an interest in the partnership property. 4. (Section 36 Partnership Act 1961). Dissolution by illegality of partnership. DISSOLUTION BY SUPERVINING ILLEGALITY. However.” Supervening illegality is when there is sudden changes in circumstances. When a partner creates a charge on the partnership property. This amount to an act which is contrary to the partnership agreement which is entered into on a personal basis. 35 (2) then provides: “A partnership. if a partnership is involved in importing goods from a 6 . As an example.According to S. every partnership is dissolved as regards all the partners by death or bankruptcy of any other. S. the firm may still go on with the surviving partner or the personal representatives of the deceased partner. S. or status in that would make it unlawful for the business of the firm to be carried on or for the members of the firm to carry on in partnership. be dissolved if any partners suffers his shares of the partnership property to be charge under this Act for his separate debt. 35 (1): “Subject to any agreement between the partners. the partners can agree for the partnership to continue in spite of the death and bankruptcy. 36 states that: “A partnership is in every case dissolved by the happening of any event which made 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.” This section provides that either death or bankruptcy can automatically dissolved a partnership. may at the option of the other partners.” Here a partner is given the choice whether to continue with the partnership or not when one of the other partners charges his shares of the partnership property as security for his own personal debt. In other words. A partnership may be dissolved if there is an 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.

5. and he was charged with the offence of trading with the enemy contrary to the Trading with the enemy Act 1914. (e) when the business of the partnership can only be carried on at a loss. in the opinion of the court. other than the partner suing. if the partnership continued. wilfully or persistently commits a breach of the partnership agreement or otherwise so conducts himself 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. DISSOLUTION BY ORDER OF THE COURT S. then the partnership can be charged with crime of treason for trading with an enemy alien. the court may decree a dissolution of the partnership in any of the following cases: (a) when a partner is found lunatic or is shown. The defendant was a partner in a firm with his two brothers. 37 provide that: On application by a partner. other than the partner suing. to the satisfaction of the court. or next friend. other than the partner suing. has been guilty of such conduct as. to be of permanently unsound mind. (b) when a partner. The partnership business was carried out in Frankfurt and London. then suddenly that country declares war on our country. that the partnership was dissolved as soon as war was declared. becomes in any other way permanently incapable of performing his part of the partnership contract. War broke out on 4th August 1914. The Frankfurt branch placed an order with a Dutch company in Holland. is calculated to affect prejudicially the carrying on of the business.country. regard being had to the nature of the business. and payment was to be made by the defendant from the London office.B 321. or person having title to intervene as by any other partner. The defendant paid the Dutch company the amount due. One of the issues which arose was whether the partnership had been dissolved by the outbreak of the war. (c) when a partner. It was held by the court. This can be seen from the case of R v Kupfer [1915]2 K. (d) when a partner. in either of which cases the application may be made as well on behalf of that partner by his committee. and 7 .

A person is considered to suffer from mental disorder where he suffers from mental illness. the court has the power to order dissolution of the partnership under S. This provision covers a wider area than mental disorder. Mental Disorder Under S. 8 . Due to his mental disorder the person is considered incapable of managing his property and affairs. render it just and equitable that the partnership be dissolved. when a partner permanently incapable of performing his part of the partnership contract the court may order dissolution of the partnership. In fact under S. before deciding whether a partner is permanently incapacitated. b. arrested or incomplete disorder of the mind. psychopathic disorder or any other disorder or disability of the mind. 37 (a). A partner may apply to dissolve a partnership in cases of: (a) mental disorder. (e) the partnership being carried on at loss. 37. Permanent Incapacity Under S. a partner may apply to have a partnership dissolved based on the mental incapacity of the other partner. a partner or anyone who has the right to. a. (c) conduct prejudicial to the business. This court would all the existing circumstances when considering an application by a partner or all of the partners. can make application to have partnership dissolved.(f) whenever in any case circumstances have arisen which. 37 (b). 19 of the Mental Act 1952. In other words. (b) permanent incapacity. and (f) the dissolution being just and equitable. A judge would consider all the medical evidence before him exercising his powers. While the proceedings are going on in court for the dissolution of the partnership. (d) persistent breaches of the partnership agreement. in the opinion of the court. the court can grant an interlocutory injunction or temporary order to prevent who is actually incapable from interfering with the management of the partnership business.

other than the partner suing. In the case of Essel v Hawyard (1860) 30 Beav. Evans applied to have the partnership dissolved based on this. The court held that such behavior amounts to prejudicial behavior as it affects the credibility of the firm.c. If the conduct is simply bad behavior. regard being had to the nature of the business. 37 (c) the court may order dissolution: “when a partner. 37 (d) states that dissolution can be ordered by the court: “when a partner. generally can be considered as prejudicial conduct. A solicitor who was entrusted with the client‟s money had used the money for his own personal needs. Carmichael was convicted of travelling on a train without a ticket and with intent to defraud. then the court may not consider the application to dissolve the partnership. dishonesty. is calculated to affect prejudicially the carrying on of the business” Prejudicial conduct is conduct which is directly or indirectly related to the partnership business. 158. has been guilty of such conduct as. 486: Carmichael and Evans were partners. but is not directly or indirectly related to the partnership business. The conduct which is prejudicial would be what which is related to the financial position or would affect the bank credibility. The court held that as the conviction for the dishonesty. Persistent Breahes S. d. it was considered to be detrimental to the partnership business. wilfully or persistently commits a breach of the partnership agreement or otherwise so conducts himself 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” 9 . the court considered that the adulterous affair of a partner was now prejudicial to his banking business. in the opinion of the court. In the case of Snow v Milfrod (1868) 16 World Report 654. As honesty is an important element in a business relationship. Conduct Prejudicial to the Partnership Business According to S. In case of Carmichael v Evans (1904) 1 Ch. other than the partner suing.

a business would cause further losses then any of the partners can apply to the court to have the partnership dissolved.A partnership is based on the faith and confidence among the partners. This. E. M. and continuing the business would cause further losses. e. and also due to the fact that the plaintiff had been absent for the long time due to illness. In the case of Cheeseman v Price (1865) 35 Beav. In the case of J. In the case of Jennings and Baddeley (1856) 3K&J 78. They were of the opinion that if the proper attention was given. had been consistently absent from the office. 37 (e) if the business of the partnership can be only carried on at a loss. Lewis & ors W. it would possible for the business to recover and make profits. One of the grounds of the dissolution was that the defendant. He also had not entered the receipts in the accounts of the company. The court referred to the Advocates and Solicitors Ordinance 1947 and came to the conclusion that the defendand‟s behavior was not excessive. it was a said. Thus where it is impossible for a partnership business to make a profit. In the case of Handyside v Campbell (1901) 17 TLR 623. M. Behavior that can be considered as breaches. depends on the ethics of the profession involved. it affects the partnership so much so that it cannot it destroys the mutual confidence that is necessary to carry on a partnership business. The court held that such behavior can allow partnership to be dissolved. They pointed out that it was partly due poor management by the plaintiff. The plaintiff applied to the court to have the partnership dissolved on the ground that the business would continue making losses only. The court allowed the partnership to be dissolved as all the capital partners were obliged to contribute had been 10 . a partner of the legal firm. So when a partner persistently breaches the partnership agreement. Carrying on business at a loss The court may allow a petition to dissolved a partnership under S. Balasingam (supra). making it impossible for a partnership to carry on. made it impossible for the partnership to continue with him. The definition of the partnership stresses upon the fact that a partnership exist for the purpose of making profit. A partnership may not be dissolved just because of differences between partners. The other partner agreed that the firm had been suffering losses. 68 ER 1029. The court held as such it would not allow the firm to be dissolved. 142. A partner persistently made mistakes in book-keeping. The words „can only be carried on at a loss‟ must mean there must be practically impossible to make profit.

and may require the other partner or partners to concur for that purpose in all necessary or proper acts. f. The grounds applicable here are non-exhaustive. They only communicated through the secretary of the company. Ltd. 39: “On the dissolution of a partnership or retirement of a partner. which cannot be done without his or their concurrence. but there is possibility of the court turning the application of a partner who may be in the wrong. any partner may publicly notify the same. It can be any situation such as where the partnership has reached deadlock. Right of partner to notify dissolution According to S. Where both parties is fault.” CONSEQUENCES OF DISSOLUTION Even after firm has been dissolved there are certain consequences follow. Lord Cozens Hardy in this case had said “…circumstances which would justify the winding up of a partnership between these two action are circumstances which would induce the court to exercise jurisdiction under the just and equitable clause to wind up the company. the court may allow the application on just and equitable grounds.” 11 . This was seen in the case of Re Yenidje Tobacco Co. Just and Equitable Under S. or the complete breakdown of communications between partners. The principle in the company law case is applicable partnership because the same principle of what is “just and equitable” applies to partnership. The partner would have to show to the court that is no longer possible for the partners to have confidence in each other. The dissolution was ordered despite the possibility of profit being made in the future if more capital was injected into the mining business.exhausted. Mere differences between the partners would not be grounds to have partnership dissolved. Although the company‟s business was thriving. 37 (f) the courts have very wide discretion to dissolve partnership as the ground is not specified as in the earlier provisions. the relationship of the members had come to standstill. which they have the right to expect from each other. 426. Any partner may apply. if any. The court ordered dissolution of the company on just and equitable grounds. (1916) 2 Ch.

However. Bechkett v. gazette or by a circular letter. after the bankruptcy.” The partners are allowed to apply the partnership property for the payment of the firm debts and liabilities. as against the other partners in the firm and all persons claiming through them in respect of their interests as partners. and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively. Express notice such as a circular letter must be served on old customers and clients of the firm It means that a partner is entitled to notify the public to inform them that the partnership has been dissolved. every partner is entitled. 12 . an adverstisement in gazette alone is not sufficient notice: Re Hodgson. and to complete transactions begun but unfinished at the time of the dissolution. on the termination of the partnership. 41 states that: “On the dissolution of a partnership. apply to the court to wind up the business and affairs of the firm.Notice may be given by an advertisement in a local press. Ramsdale and Ham Hoy Trading v. and for that purpose any partner or his representatives may.” In other words. Continuing authority of partners for purposes of winding up According to S. represented himself or knowingly suffered himself to be represented as a partner of the bankrupt. Rights of partners as to application of partnership property S. and the other rights and obligations of the partners. the authority of each partner to bind the firm. for old customers and clients of the partnership. continue. but not otherwise: Provided that the firm is in no case bound by the acts of a partner who has become bankrupt. so far as may be necessary to wind up the affairs of the partnership. after deducting what may be due from them as partners to the firm. notwithstanding the dissolution. to have the property of the partnership applied in payment of the debts and liabilities of the firm. the authority of a partner still continue to a limited extent to enable them to wind up firm business. Hup Aik Tin Mining cases. but this provision does not affect the liability of any person who has. 40: “After the dissolution of a partnership.

Furthermore.” Where one partner has paid premium to enter into the partnership that has been prematurely dissolved. partners need to follow certain consequences even after dissolution before wind up business. CONCLUSION Dissolution could happen under some circumstances and order of court. having regard to the terms of the partnership contract and to the length of time during which the partnership has continued. wholly or chiefly due to the misconduct of the partner who paid the premium. or (b) the partnership has been dissolved by an agreement containing no provision for a return of any part of the premium. and the partnership is dissolved before the expiration of that term otherwise than by the death of a partner. or of such part thereof as it thinks just. 42: “Where one partner has paid a premium to another on entering into a partnership for a fixed term. 13 .Apportionment of premium where partnership prematurely dissolved According to S. unless: (a) the dissolution is. Partner also could apply to court using various grounds that provided by statue or discretion of court that is not specified as in the statutory. There are certain circumstances that would cause the partnership dissolve automatically. he would entitled to the repayment of the premium in whole or part if he is not fault. the court may order the repayment of the premium. in the judgment of the court.

Zaharah Elias. Bhd. M. General Principles of Malaysian Law. (2006). Partnership and Company Law.REFERENCES Lee Mei Pheng. Partnership Act 1961. Geoffrey. Shah Alam: Percetakan Printpack Sdn. (2004). Law of Malaysia. Institute Perkembangan Pendidikan. (2001). (2004). Blackstone Press Limited. 14 . Kuala Lumpur: Percetakan Nasional Malaysia Berhad. Partnership Law.

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