Partnerships which are breaking up face a series of urgent problems – particularly where the business itself is becoming insolvent. These difficulties can be amplified by failing relationships between the partners (who have to work together to wind up the business) and the potential need to realise assets rapidly to stave off the appointment of liquidators.
In such cases the court has powers to intervene to force the sale of assets, break through disagreements between the partners and make decisions to allow the partnership to pay its creditors. A recent example is DINESH KOTAK v JAGDISH KOTAK (2014) which provides a reminder that on the winding up of a partnership the Court has, and is prepared to exercise, its inherent jurisdiction (under CPR 40) and wide ranging powers to order the sale of land and the terms of any such sale. Although the Court recognised it would be “draconian and unusual” to do so, if appropriate the Court could allow a particular sale, even a sale to one of the partners. to occur immediately.
This case concerned an informal partnership between two brothers, generally known as 'Don' (Dinesh) and 'Jack' (Jagdish) respectively. The partnership had assets, two freehold properties in Leicester, known as Chartwell Drive (valued at just over £3.7 million if marketed over 12 months) and St John's (valued at about £3.5 million). However, the partnership owed £11 million to a bank and was essentially insolvent. Having fallen out “in a major way” with his brother, and with a total breakdown in trust between the two, Don brought proceedings against Jack for an order for sale of the partnership's freehold properties. Both Don and Jack accepted that both Chartwell Drive and St John’s had to be sold as soon as possible at open market value. The key outstanding issue between them was Don's application for a 'pre-emptive order' for the sale of Chartwell Drive for £3.4 million to Thurney, a company in which Don owned 70% of the shares, with the remaining 30% held by Don’s son James. Don argued that the pre-emptive order for sale to Thurney was necessary given the partnership's financial position.
The Court confirmed that it had the power to make the order but, given the unusual and draconian nature of the order sought, would need to act extremely carefully if it did so. On that basis, to allow time for the market to be assessed and independent estate agents and solicitors to be appointed, the Court in this case adjourned the hearing. In fact, just before the judgment was handed down, Thurney increased its offer to £3.7 million. The Court recognised that as an extremely good offer and was minded to sanction the sale to Thurney at the adjourned hearing.
In summary, when a partnership with assets is dissolving, the Court does have a wide ranging power to intervene and applications can be made to allow this to happen.
Our Partnership Disputes team advise partnerships and partners on all aspects of partnership work, including issues connected with termination and dissolution of businesses and disposal of assets.