DISSOLUTION OF PARTNERSHIPS
Can a partner dissolve a partnership by serving notice on the other partner? And when would the court step in to appoint a liquidator / receiver for a partnership? These issues are addressed in Tan Huah Sun v Tan Huah Tai & Anor [2022] SGHC 29.
Agreement needed? To start, s. 32 of the Partnership Act 1890 (“PA”) sets out how a partnership may be dissolved. In particular, s. 32(1)(c) PA provides as follows:
“32.—(1) Subject to any agreement between the partners, a partnership is dissolved —
…
(c) if entered into for an undefined time, by any partner giving notice to the other or others of his intention to dissolve the partnership.”
One of the defences pleaded by the defendants was that the plaintiff was not entitled to dissolve the partnership by notice in the absence of agreement between the partners ([4(a)]).
This was rejected by the General Division of the High Court (the “High Court”).
This is because the default position is that consent is not needed under s. 32(1)(c) PA: a partnership has a right to dissolve a partnership by notice ([5]).
However, the parties may remove or curtail such a right by agreement ([5]). But as no such agreement was alleged in the case, the defendants cannot rely on this.
Appointment of liquidator or receiver. In the case itself, the plaintiff had previously applied for summary judgment and obtained the following orders (among others) by consent of the parties (the “Consent Orders”) ([6]):
“(a) The Partnership has been dissolved with effect from 31 July 2020.
(b) The second defendant is:
(i) responsible for taking the necessary steps to wind up the business of the Partnership;
(ii) to render an account of the financial affairs of the Partnership from 13 April 2012 to 31 July 2020; and
(iii) to deliver to the plaintiff copies of all partnership books for the same period.
(c) The property of the Partnership is to be applied in accordance with s 39 of the PA and any surplus assets of the Partnership are to be distributed to the partners.”
However, the second defendant did not render an account or provide the plaintiff with copies of the partnership’s books and instead proceeded to file a summons (“SUM 5435”) seeking to appoint M/s JK Medora & Co LLP as liquidator and a stay of all further proceedings until dissolution of the partnership and distribution of surplus assets has concluded. SUM 5435 was taken up some 11 months after the Consent Orders were made ([7]) and in the defendants’ submissions, they sought for the appointment of a liquidator or a receiver under O 30 r 1 of the Rules of Court ([8]).
The High Court proceeded to deal with both the issue of appointment of a liquidator and the appointment of a receiver as the plaintiff had no objection to the defendants’ application proceeding on this basis, though the plaintiff objected to the application itself ([8]).
Cannot appointment liquidator under s. 39 PA. The High Court first rejected the defendants’ submission that the court may appointment a liquidator under s. 39 PA ([9]).
The High Court observed that while a partnership may be wound up on an application under s. 124(1) read with s. 246(1) of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) and that a partner can apply to wind up a partnership under the IRDA pursuant to s. 124(1)(d) read with s. 247(1)(a), such an application is more likely to be made by a creditor since only partners can apply to dissolve the partnership under s. 35 PA ([10] – [11]).
Further, the High Court held that since the court may only appoint liquidators in winding up proceedings under the IRDA, and no such winding up proceedings were commenced, there was no basis for the appointment of a liquidator ([12]).
Additionally, the High Court observed that on the facts of the case, winding up under s. 246(1) IRDA “seemed quite unnecessary” as, among others, pursuant to the Consent Orders, the second defendant “was to take the necessary steps to wind up the business of the Partnership. There was no evidence that she was unable to do so... Any dispute over the accounts can be determined on the taking of the partnership accounts.” ([13]).
No sufficient basis for appointment of receiver. The High Court also held that there was no sufficient reason for the appointment of a receiver ([14]), stating that “[t]here must be some reason why justice requires an independent third party to be appointed to take over the affairs and assets of a partnership” ([18]).
On the facts of the case:
The High Court found that there was no evidence that “… the plaintiff was delaying or obstructing the defendants from completing the dissolution of the partnership” ([19] – [20]). Had there been such an obstruction, the decision may be different as. See, e.g., the case of Hwang Ju-in v Huang Han Chao [1977-1978] SLR(R) 194, which the High Court characterized as a decision where receiver was appointed to take over because there was no co-operation between the parties ([18]).
The High Court also rejected the submission that “the receiver could assist [the defendants] in winding up the affairs of the Partnership, including investigating the Partnership’s accounts … the receiver would be expected to investigate the plaintiff’s claims in this action.” This is because “… [t]he receiver’s function is not to wind up a partnership but merely to preserve the assets and pay partnership debts while the court takes the usual partnership accounts and supervises the dissolution…” and the second defendants had full control of the partnership’s business, books and records and the issues in dispute between the parties would be determined by the court ([21] – [23]).
Additionally, the High Court observed that the reasons given by the defendants merely showed that they wished to have M/s JK Medora & Co LLP assist them: but there was nothing to stop the defendants from engaging M/s JK Medora & Co LLP to assist them, and such a reason is insufficient to appoint M/s JK Medora & Co LLP as a receiver ([24]).
Lastly, the High Court noted that it appeared that a key reason for the defendants’ application was to stay further proceedings in order to avoid having the plaintiff’s claims being determined in a trial ([25]). The High Court held that it would be an abuse of process for the defendants to apply for the appointment of a liquidator / receiver for this reason.
Conclusion. Tan Huah Sun v Tan Huah Tai & Anor [2022] SGHC 29 is an interesting decision because reported decisions concerning the dissolution of partnerships are not common. It reminds us that when a partnership is dissolved by the partners, the courts will not readily intervene in the process by appointing a receiver / liquidator.
Cogent reasons are necessary for such an appointment. This can include, for example, situations where one of the former partners is delaying the winding-up and realisation of the affairs and assets of the business by refusing to co-operate. On the other hand, if the reason for seeking the appointment of a receiver is merely, for example, to have the receiver assist in preparing the accounts of the partnership for the dissolution, then such an application is unlikely to succeed.
Further, this decision also reminds us that the default position under s. 32(1)(c) PA is that partnerships can be dissolved by notice, though the parties may, by agreement, remove or curtail this right. Hence, when dealing with how a partnership is to be dissolved, it is always important to ask whether the parties had made any agreement(s) on this issue.
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