Legal Question in Business Law in United Kingdom

partnership dispute

two partners with 50% shares each, have had major fallout & one wants to buy other out. one partner was running business without the other & debts acrued through this. can one partner clear debts & obtain total legal control whilst making the other still liable for 50% of the loan ammount borrowed to start business. can they do this? surely if one has total control legally by transferring lease, bank accounts etc then they accept full liability of loan also. no money is exchanging hands for outgoing partner, just return of property, which the remaining partner wants to use as collateral. property was used as collateral to obtain business by one of the investors but they have since been told that fact ( property) is irrelevant. in short they want to use the property in exchange for paying off debts. is this legal?


Asked on 2/12/07, 2:47 pm

1 Answer from Attorneys
Richard Howard Richard Howard & CO

Re: partnership dispute

Until a Dissolution Settlement deed is agreed or the partnership is wound up by the court all property and debts remain in the partnership.

Section 38 of the Partnership Act authorises partners to carry on the business of the partnership after dissolution so far as this may be necessary for the beneficial winding up of the partnership and for the completion of unfinished transactions, but not otherwise. A continuing partner who carries on the business after dissolution otherwise than for this limited purpose without the consent of the outgoing partner does so without the authority of the partnership and accordingly he carries on the business on his own account and he may be held liable to account to the outgoing partner.

On dissolution the debts of the partnership are rquired to be settled out of the Partnership assets.

Where any member of a firm has ceased to be a partner, and continuing partner carries on the business of the firm with its capital or assets without any final settlement of accounts with the outgoing partner the outgoing partner to such share of the profits made since the dissolution as the Court may find to be attributable to the use of his share of the partnership assets, or to interest as the rate of five per cent per annum on the amount of his share of the partnership assets.

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Answered on 2/13/07, 6:12 am


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