Partnership Law (Business Organziation) Tutorial Question 4.16

923 words - 4 pages

Identify the area or areas of lawThe area of law concerns this case, which in connection with the relations of partners to one another, especially expulsion of partner and distribution of assets on dissolution of partnership.Explain the principles of lawEXPULSIONRegarding expulsion, the Partnership Act says that:"No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners."The power to expel any partner by a majority of the partners must be conferred by express agreement, for example for breach of the agreement or for bankruptcy. Without some specific clause in the partnership agreement to this effect, the only way to remove an objectionable partner is to dissolve the partnership or to include the partner to retire.Because expelling a partner involves that partner in losing property rights, the partners' power to expel must generally be exercised in good faith. An expelled partner may have a right to a fair hearing.A partnership may be terminated where a majority of partners expels one of their number pursuant to the terms of an agreement.Under s.35 of the Act two steps are necessary before this can occur.Firstly, a clause must be inserted in the partnership agreement permitting such an expulsion;Secondly, there must be a decision of the majority to expel the partner.In Bond v Hale (1969) 2 NSWR 251 the Court applied a restrictive interpretation to the provision where the partners were not permitted to expel two partners under the same notice. In other words, if the partnership agreement only provides for expulsion of a "partner", attempted expulsion of two partners by the other three for breach of the partnership agreement will be invalid as in breach of the partnership agreement.It should be noted that this provision of the Act cannot be overridden by a contrary clause in the partnership agreement. Moreover, partners when exercising their rights under the provision must do so in good faith. Generally speaking the partnership agreement will give partners the right to expel if a partner has breached the agreement, or has behaved in a manner not consistent with his position as a partner (breach of fiduciary duties).Distribution of assets on dissolution of partnershipWhere a partnership is insolvent or where there is some doubt, s.57 of the Act deals with the question of losses and their apportionment. The concept of unlimited liability is that any losses incurred by the partnership must be met by the partnership itself and then by the partners. The presumption is that the partners will share the losses in the same proportion to which they are entitled to profits. This can be set aside by an agreement to the contrary as happened in the Canny Gabriel case where the partnership agreement...

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