Partnership Disputes

Commercial partnership disputes can arise for a variety of reasons. Knowing your rights and responsibilities is important when resolving a dispute and can help to keep the business asset.

Regardless of whether you have a written partnership agreement in place, the law defines a business partnership as

A business partnership is the relationship which exists between two or more people carrying on a business in common with a view of profit.

When a dispute arises between partners, getting around the table and working it out may sound easier than it is.

As the partners are all jointly and severally liable in partnerships, it is important that disputes and issues are sorted out quickly.

Some types of disputes that our partnership lawyers regularly advise on are:

• Conflicting interests – Partners may have different visions for the business or conflicting ideas as to how the business should operate moving forward.
• Departure of a partner – This may arise from a change of mind, irreconcilable differences, illness or a desire to retire. When there is no partnership agreement or a poorly drafted agreement that doesn’t cater for these events, disputes often arise. Questions as to the value of the equity and timing for exit can be live and disruptive issues. There can be many more reasons and examples.
• Breach of fiduciary duties – A partnership relationship imposes fiduciary obligations on partners. A fiduciary duty is a ‘special’ duty owed by people to whom a high degree of trust has been given. It is similar to a doctor/patient relationship in that the doctor has a higher standard in their obligations to a patient than, say, a salesperson to their customer. Thus, each partner has a duty to act in the best interests of the business and not in a way which breaches that high standard of trust. Doing something deceitful to a business partner will often be a breach of fiduciary duty. Deceitful acts may include:
  • A partner making secret profits.
  • A partner engaging in an undisclosed activity which is for their own benefit or the benefit of a third party.
• Misappropriation of business assets – A partner may be using the business assets and business funds for personal benefit. This is a surprisingly common occurrence.
• Non-performance or underperformance of a partner.
• Management or personality conflicts – Partners may not see eye-to-eye.
• Distribution of profits – This often arises when one party has “taken” money out of the bank account instead of in the proper course but can be as simple as two directors not being able to work out what funds need to remain in the company (to keep it solvent, for example). There can be disagreements or wrongful distributions that can be clawed back.
• Capital Contributions – Partners can be in dispute as to who has contributed what and how contributions should be treated.
• Regulatory Issues relating to legal, taxation or accounting matters.
• Death of a partner – Which usually means the Estate of the deceased needs to deal with the situation and/or that the deceased partner’s share needs to be bought out by the others’ partner/s.

No matter the reason, partnership disputes can become messy and stressful. Left unresolved, they can be disruptive to your personal life and have a significant impact on the business. An unresolved dispute can devalue or even a destroy a business.

To mitigate any damage, it is critical to seek legal advice sooner rather than later.

At PCL Lawyers, our partnership lawyers are skilled in the litigation processes and have commercial understanding. As such, we look at the matter globally and consider your objectives carefully.

We can then aim for a rapid resolution that is aligned to your desired goals.

We can help resolve your partnership dispute by:

• Advising you of your rights and obligations in the partnership/under your partnership agreement.
• Drafting documentation and settlement deeds.
• Representing you in negotiations and Mediations or Arbitration.
• Appearing for you in court proceedings, including urgent applications where, for instance, there has been oppressive conduct by a shareholder (where there is a corporate structure).
• Effecting and managing the exit of a partner from the partnership or the dissolution of the partnership.
• Identifying potential problem areas in your business with our business check-ups to avoid future issues and disputes.
• Carefully drafting a partnership agreement to avoid future partnership disputes.

In some cases, it may be a simple letter to help resolve the issue. In other cases, firm negotiation may be required. Where a more significant breach has occurred, serious action can be taken against the defaulting partner.

Whether you are starting a business partnership or looking at dissolving a business partnership, legal advice should be sought.

Often people will look at the short-term rather than considering the long-term consequences. It is important to think long-term. Without proper legal advice, you may make decisions that can cost you revenue and missed opportunities.

How are Disputes Sorted Out?

If there is a partnership agreement in place, we can assist by advising on the agreement. Usually, the partnership agreement will contain a dispute resolution clause, which will provide some guidance as to the process.

Normally, a dispute resolution clause would outline the various methods to be used such as arbitration or mediation. In other cases, court action is possible and more effective.

If there is no partnership agreement on foot, the relevant legislation applies in each State. For example, in Victoria it is the Partnership Act 1958. We can also provide advice on jurisdictions outside of Victoria.

Our dispute lawyers will work with you to go through the facts and events that lead to the dispute. We will work out a plan and advise you of the options available to you.

Often, disputes can be resolved through negotiation between lawyers and mediation – which is when the parties meet together in a formal setting, which is not Court and does not include a judge. Instead, mediation is a meeting where the parties are still legally represented but guided by the mediator, who assists in bringing the parties to a settlement. This can be very effective, when done right.

If there is no settlement at mediation, court is the only way to resolve the matter. Sometimes, parties need the reality of a court room to focus their minds on being serious about settlement. If the parties are too far apart, and there is enough at stake, the determination of a court is the best option. However, before a matter gets to trial there are many opportunities to resolve the matter through settlement discussions.

Sometimes quick action will need to be taken to protect the business or prevent loss.

What happens if there is no Partership Agreement in place?

If no partnership agreement is in place, then the law governing the jurisdiction where the partnership trades will dictate how the partnership dispute is to be resolved. Not having a partnership agreement in place is a common issue.

A litigation lawyer who is skilled in handling and resolving disputes will be able to advise you of the most practical path to take to have your issue sorted out quickly and correctly.

Finalising a Partnership

If you want to dissolve a partnership. It is necessary to make sure that the terms of settlement are very carefully considered. How the partnership assets are to be divided is important. Equally important are the provisions relating to restraint of trade. This restricts future business activities in the same type of business and is particularly important if one party is staying in the business.

Other considerations include who pays who (and how much and when), what happens to the past and future liability of the partnership and what happens to existing debts, including tax liability, of the partnership. These are just a few issues that an experienced partnership lawyer will consider and pre-empt.

We Can Assist

Obtaining the right advice can be the difference between a broken relationship and an amicable solution to your partnership dispute.

We take the time to understand your personal and commercial needs and the requirements of the partnership business. Our experienced team can assist in mending the partnership where possible and desirable; if required, we can make sure that the partnership is severed and generally concluded in the most effective way possible.

Contact one of our Melbourne lawyers to get advice and know where you stand in your dispute.

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