1. Dissolution of Partnership. By; Muhammad Izzat &
Muhammad Izuan.
2. Definition of Dissolution. Business terms Act of dissolving;
winding up; termination. Domestic relation Ending of a marriage
through divorce. Millenium Medicare Services v Nagadevan a/l
Mahalingam [2013] 9 MLJ 873 The literal meaning of the phrase
dissolution of partnership was the official ending of a partnership
The word dissolution as defined in Collins Cobuild English
Dictionary to mean: the act of officially ending a formal
agreement, for example a marriage or a business arrangement. The
literal meaning of 'dissolution of partnership' clearly means that
the official ending of a partnership.
3. What is Dissolution of Partnership? The dissolution of a
partnership is the process during which the affairs of the
partnership are wound up (where the ongoing nature of the
partnership relation terminates). The initial process where the
partnership or the firm becomes dissolve.
4. How to Dissolve a Partnership? Dissolution Court
intervention Without Courts intervention
5. When is the Dissolution? By expiration of a fixed term.
Termination of a single adventure or undertaking. Dissolution by
notice from a partner. Bankruptcy. Death. A charge of partnership
property for a partner's separate debt.
6. Contd. Illegality of the partnership. An order by
Court.
7. Reception of Common Law in Dissolution of Partnership. Tan
Mooi Liang v Lim Soon Seng & Ors [1974] 2 MLJ 60. (per Suffian
CJ, at 62). [H]- '[b]ecause of the many provisions relating to
partnership in the Contracts (Malay States) Ordinance, 1950, which
... constitute "other provisions relating to partnership" within
the meaning of ... subsection (1) of section 5 of the Civil Law
Ordinance, 1956, the English law of partnership does not
apply.
8. Dissolution. Without Courts intervention. Courts
intervention. Section 34. Fixed term. Single Notice. adventure .
Section 35. Death. Bankrupt. Charge. Section 36. Illegality.
Section 37. Lunatic. Permanentl y incapable. Guilty. Breach of
partnership . Loss. Just and equitable.
9. Statutory Provisions. Section 27 of Partnership Act 1961.
Section 34 of Partnership Act 1961. Section 35 of Partnership Act
1961. Section 36 of Partnership Act 1961. Section 37 of Partnership
Act 1961. Section 38 of Partnership Act 1961. Section 39 of
Partnership Act 1961. Section 40 of Partnership Act 1961.
10. Contd. Section 41 of Partnership Act 1961. Section 42 of
Partnership Act 1961. Section 43 of Partnership Act 1961. Section
44 of Partnership Act 1961. Section 45 of Partnership Act 1961.
Section 46 of Partnership Act 1961. Section 47 of Partnership Act
1961.
11. Section 27 PA 1961. Section 27; expulsion of partner. No
majority of partners unless express agreement Expulsion must be
made by all partners in consensus. Majority votes are insufficient.
Majority votes are only made applicable by an express agreement.
The agreement must be made in writing (proof).
12. Section 34 PA 1961. Section 34; dissolution by expiration
or notice. (1) Subject to any agreement a partnership is dissolved
(a) fixed term, by expiration of that term; (b) single adventure or
undertaking, termination of that adventure or undertaking (c)
undefined time, any partner giving notice intention to dissolve the
partnership. (2) last-mentioned case, partnership is dissolved date
mentioned in the notice date of the communication of the
notice.
13. Contd. 1. Subject to any agreement. Refers to relevant
clause[s] in a partnership agreement. Syarikat Wing Heong Meat
Product Sdn Bhd v Wing Heong Food Industries Sdn Bhd & Ors
[2010] 7 MLJ 504. [I]- Whether the person managing the partnership
business had actual or ostensible authority to sell the
partnership's business, goodwill and intellectual property
assets.
14. Contd. [H]- There was actual authority accorded for the
sale. 2. Expiration of a fixed term. Where the partners have
decided that the partnership arrangement would have a limited or
fixed term, it follows that the partnership would dissolve once
that term has expired subject to any agreement to the
contrary.
15. Contd. Lee Lay Lay v Wong Yiik Tai (unreported, 24 May
2007; Originating Summons No 24-433-2005-I), [2007] MLJU 585. [F]-
The defendant claimed her act of dissolving the partnership was
valid since it was entered into for a fixed term. [H]- Applying the
provisions of the Partnership Act 1961 S.34 to the facts, the Court
found that there was no evidence that the partnership was entered
into for a fixed term.
16. Contd. 3. Termination of a single adventure or undertaking.
A partnership may have been formed solely for purposes of carrying
out a single transaction, adventure or undertaking. In such an
event, the partnership would naturally dissolve by operation of law
once the transaction, adventure or undertaking has been completed
subject to any agreement to the contrary. A joint venture may or
may not be a partnership. In deciding whether or not a partnership
exists, the court must have regard to s 4 ante and the intention of
the parties as appearing from the whole facts of
17. Contd. Whether or not the parties can be regarded as
partners could only be determined if the joint venture between them
constituted a partnership 'for a single adventure or undertaking'
subsumable under this section. Sinnathamby Klondakoundan & Ors
v Brijkishore Shuparshad [1998] 1 MLJ 31, CA.
18. Contd. Lee Lay Lay v Wong Yiik Tai (unreported, 24 May
2007; Originating Summons No 24-433-2005-I), [2007] MLJU 585. [F]-
The defendant claimed her act of dissolving the partnership was
valid since it was entered into for a single adventure or
undertaking. [H]- there was no evidence that the partnership
business was entered into for a single adventure or
undertaking.
19. Contd. 4. Dissolution by notice. Where a partnership has
been formed for an indefinite period of time, the partnership can
be dissolved by a partner simply giving notice of his intention to
do so to the other partners. The partnership will then be dissolved
as from the date mentioned in the notice as the date of dissolution
or, if no date is mentioned, as from the date of the communication
of the notice.
20. Contd. Teoh Swee Hee v Tio Hock Thye & Ors (unreported,
26 November 1996; Civil Suit No 22225 of 1991), [1996] MLJU 409.
[H]- The court found that the plaintiff's notice to retire vide the
newspaper advertisement was effective and the partnership being a
partnership at will, it was therefore determined upon its service
on the defendants, under s 34(2). The court held that since the
defendants in that case had failed to render the true accounts of
the partnership assets, the plaintiff was right in taking the
further step to dissolve the partnership under s 34(1)(c).
21. Contd. Arif v Yeo & Anor [1990] 1 MLJ 218. [H]- The
partnership was a partnership at will; as such the partnership was
dissolve on the date of the service of the writ on the first
defendant. The court referred to Unsworth v Jordan [1896] WN 2,
Harris v Burgess & Thorne [1937] 4 DLR 219 and Phillips v
Melville [1921]NZLR 571. Any partner giving notice to the other:
Sukhinderjit Singh Muker v Arumugam Deva Rajah [1998] 2 MLJ 117.
[H]- A legal firm was held to be dissolved by the giving of notice
of dissolution by one partner to another.
22. Contd. [H]- If a partner gives notice to determine on a
given date and dies before that day, the partnership is dissolved
by death. Date of communication of notice: Arif v Yeo & Anor
[1990] 1 MLJ 218. [H]- The effective date of dissolution is the
date of service of the notice. McLeod v Dowling (1927) 43 TLR 655.
[H]- If a partner dies before receipt of notice signed by him, the
partnership is dissolved by death.
23. Section 35 PA 1961. Section 35; dissolution by bankruptcy,
death or charge. (1) Subject to any agreement partnership is
dissolved death or bankruptcy of any partner. (2) at the option of
other partners any partner suffers his share charger under the Act
for his separate debt. Unless otherwise agreed between the
partners, every partnership is dissolved as regards all the
partners by the death or bankruptcy of any partner.
24. Contd. 1. Subject to any agreement. If an agreement to the
contrary is made, such agreement must have been made prior to the
death of the partner. otherwise, the agreement is not binding on
the deceased partner and the partnership must be dissolved
accordingly. Pembinaan Thin Chai Sdn Bhd v Citra Muda Sdn Bhd &
Anor [2002] 3 MLJ 107.
25. Contd. The agreement between the partners not to dissolve
the partnership either by death or bankruptcy of a partner may be
oral or inferred from the conduct of the surviving partners and the
heirs of the deceased partner. Khoo Yoke Wah & Ors v Lee Choo
Yam Holdings Sdn Bhd & Ors [1991] 1 MLJ 414 at 415, SC.
26. Contd. [H]- (per Gunn Chit Tuan SCJ): While partners have a
duty to render accounts to the legal representatives of deceased
partners, the converse does not apply. The Partnership Act 1961
S.30 does not provide that the personal representative of a
deceased partner is bound to render accounts.
27. Contd. 2. Partner's share in the partnership is charged for
his separate debt. Where a partner's share in the partnership is
charged for his separate debt, the other partners may, at their
option, decide to dissolve the partnership. Section 25(2).
28. Section 36 PA 1961. Section 36; dissolution by illegality
of partnership. partnership dissolved happening of any event which
makes it unlawful If the business of the partnership becomes
illegal for whatever reason, the partnership may be dissolved by
the happening of any event which makes it unlawful for the business
of the firm to be carried on or for the members of the firm to
carry it on in partnership.
29. Contd. It is immaterial whether the partners knew of the
illegality or not. Hudgell Yeates & Co v Watson [1978] QB 451,
[1978] 2 All ER 363, CA (Eng). * [F]- One of the members of the
firm carrying on business as solicitors allowed his practising
certificate required under the relevant English legislation to
lapse. [H]- This event brought about the dissolution of the
partnership regardless whether the partners knew of the lapse of
the certificate or not.
30. Section 37 PA 1961. Section 37; dissolution by the court.
court may decree a dissolution : (a) lunatic of permanently unsound
mind ; (b) permanently incapable ; (c) guilty of such conduct
affect prejudicially business; (d) breach of the partnership ; (e)
business carried out at loss; and (f) just and equitable that the
partnership be dissolved. A partnership may be dissolved by the
court on the application of a partner.
31. Contd. Thein Hong Teck & Ors v Mohd Afrizan bin Husain
and another appeal [2012] 2 MLJ 299. [H]- Part V of the Partnership
Act 1961 deals with the dissolution of partnership. The court may
decree a dissolution of a partnership under s 37 of the Partnership
Act 1961. However, it must be noted that the application can be
made only by a partner of a partnership. A creditor such as the
respondents in the instant case cannot make an application under
that s 37 to dissolve a partnership.
32. Contd. Grounds for dissolution of a partnership have
included refusal to meet on matters of business, continued
quarrelling and such a state of animosity as precludes all
reasonable hope of reconciliation and friendly co-operation. In
practice, the fact that such an application is made and the other
partners' response to it, may lead, directly or indirectly, to an
inference that there is no longer mutual trust and confidence
between the partners. Appointment of interim receiver: Where a
partnership is still subsisting, a receiver will only be
appointed
33. Contd. 1. Lunacy or unsoundness of mind. Court may decree a
dissolution. Applicant must satisfy the court regarding the mental
state of the partner in question. Permanently unsound mind. The
application to the court may be made by a committee on behalf of
the partner found to be lunatic, his next friend or a person having
title to intervene as by any other partner.
34. Contd. 2. Permanent incapacity. Partner is permanently
incapable (other than being lunatic) of performing his part under
the partnership contract. Partner making the application (ie the
partner suing) must be a partner other than the partner who is
found to be permanently incapacitated with regard to his duties
under the partnership contract.
35. Contd. It should be noted that the emphasis in this
provision is 'permanent incapacity' and as such, an application to
dissolve the partnership can only be made where it can be shown
that the partner in question has been rendered permanently
incapable of carrying out his duties under the partnership
contract. In the event of a temporary incapacity, such temporary
incapacity will not form a sufficient ground for his co-partners to
apply to the court for a decree dissolving the partnership.
36. Contd. 3. Conduct prejudicially affecting the partnership
business. Misconduct by one or more partners. The carrying on of
the partnership business is affected prejudicially. The court will
also have regard to the nature of the partnership business in
determining whether such conduct, in the opinion of the court, is
calculated to affect prejudicially the operations of the
business.
37. Contd. The conduct in question must be conduct which is
prejudiced as against the partnership business, and not of a
personal nature. Snow v Milford (1868) 18 LT 142. [F]- One of the
partners committed an adultery towards another partner. [H]- The
adultery of a partner was conduct insufficient to warrant expelling
that partner or dissolving the partnership.
38. Contd. Dishonesty could be construed as conduct
prejudicially affecting the carrying on of a partnership business
which would then entitle the other partners to apply to the court
for a decree of dissolution. Carmichael v Evans [1904] 1 Ch 486.
[F]- A partner in a drapery business was served with a notice of
expulsion in consequence of his conviction for travelling on a
railway without paying his fare and 'with intent to avoid payment
thereof. [H]- Of first instance inclined strongly to the view that
the notice was valid.
39. Contd. 4. Willful breach. Where a partner willfully or
persistently commits a breach of the partnership contract or
otherwise conducts himself in matters relating to the partnership
business such that it is not reasonably practicable for the other
partner or partners to carry on the partnership business with him,
the other partner(s) would be entitled to apply to the court for a
decree of dissolution of the partnership.
40. Contd. Breach concerned must be willfully made or
persistently done such that the continued relationship as between
the partners is sufficiently jeopardized.
41. Contd. 5. Carrying on the partnership business at a loss.
When the business of the partnership can only be carried on at a
loss, the court may, on an application by the partners, decree a
dissolution of the partnership. This provision reflects the basic
definition of a partnership whereby the partners are in business
with a common view to profit.
42. Contd. The court will decree a dissolution under this
provision where there is a practical impossibility of making a
profit and this impossibility must be proven. Handyside v Campbell
(1901) 17 TLR 623. [F]- The plaintiff applied to the court for a
decree of dissolution on grounds that the partnership could only be
carried on at a loss. The other partners admitted that there was a
loss at that time but alleged that it was owing in part to past
mismanagement by the plaintiff and in part to his long absence from
business due to illness and that his absence still continued.
43. Contd. [H]- The evidence did not amount to a practical
impossibility of profit and refused to grant a decree of
dissolution.
44. Contd. 6. Just and equitable grounds. The court will grant
a decree of dissolution where circumstances have arisen which, in
the opinion of the court, render it just and equitable that the
partnership be dissolved. In deciding whether a partnership ought
to be dissolved on just and equitable grounds the court will
scrutinize wholly. Lee Lay Lay v Wong Yiik Tai (unreported, 24 May
2007 Originating Summons No 24-433-2005-I), [2007] MLJU 585.
45. Contd. [H]- Where the application to dissolve the
partnership is made on 'just and equitable' grounds which are
seriously disputed, it would be wrong or inappropriate for the
court to decide the issue purely on affidavit evidence. The court
has taken an approach similar to considering whether a company
incorporated under companies legislation should be wound up on just
and equitable principles.
46. Contd. Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426at 430, CA
(Eng). [H]- the circumstances which would justify the winding-up of
a partnership are circumstances which should induce the court to
exercise its jurisdiction under the just and equitable clause and
to wind-up the company.
47. Section 38 PA 1961. S.38(1); Right of person dealing with
firm against apparent member. .person deals with a firm after a
change in its constitution entitled to treat all apparent members
of the old firm as still being members firm. until he has notice of
the change. Michael Sim Hang Chuang v Syarikat Sri Puspa & Ors
[2000] 6 MLJ 189. [H]-Defendant was entitled to treat the plaintiff
as still being member of the first defendant because there was no
proper notice of the change in the first defendant's
constitution.
48. Contd. S.38(2) ; Right of person dealing with firm against
apparent member. For persons who have had no dealings with the firm
before the date of the dissolution or change, an advertisement (the
Federal Gazette , Sabah Gazette & Sarawak Gazette ). Will
constitute sufficient notice of any change in the constitution of
the firm. Ang Lay Sim v Choo Lay Poh [2004] 8 CLJ 7. [F]- The
appellant failed to show that she had given any notice to the
respondent of the dissolution of the partnership, whether in the
form of special
49. Contd. [H]- Mere notice to the Registry of Businesses was
held to be insufficient that the appellant must continue to be
treated as a partner and was liable for the firm's debts by reason
of s 11.
50. Contd. S.38(3) ; Right of person dealing with firm against
apparent member. a partner who dies or who becomes bankrupt, or of
a partner who, not having been known to the person dealing with the
firm to be a partner, retires from the firm he ceases to be liable
for further debts contracted by the firm with that person before
the retirement of a partner, that partner will not cease to be
liable for such debts or liabilities
51. Contd. S.39 ; Right of partner to notify dissolution.
entitled to notify the public regarding the dissolution of the
partnership or his own retirement or the retirement of a partner.
to protect the retiring partner from any debts or liabilities of
the firm following his retirement. Chop Yew Seong, ex p Sri Sundari
Palayakat Co [1958] MLJ 239. [H]- When a known partner retires, or
a partnership is dissolved, notice of that fact must be given to
the world at large by advertisement, and to old or existing
customers by specific notice.
52. Contd. S.40 ; Continuing authority of partners for purpose
of winding-up. the authority of each partner to bind the firm and
the other rights and obligations of the partners will continue to
wind-up the affairs of the partnership and to complete transactions
begun but NOT finished at the time of dissolution.. partners are
not authorised to enter into any other sort of arrangement after
the dissolution of the partnership. The Chartered Bank v Yong Chan
[1974] 1 MLJ 157. [H]- existing relationship of banker and the
partners would continue but only for the purpose of completing
transactions begun but unfinished at the time of dissolution.
53. Contd. S.41 ; Rights of partners as to application of
partnership property. .property of the partnership applied in
payment of the debts and liabilities of the firm. surplus assets
applied in payment of what may be due to the partners
respectively
54. Contd. Mohamed Ismail Mohamed Shariff v Zain Azahari Zainal
Abidin & Ors [2010] 5 CLJ 153, CA. [F]- Upon a partner's
retirement from the partnership, his entire share in the firm must
be dealt with, irrespective of whether it is an 'absolute share' or
not, in the absence of any unequivocal agreement to the contrary
which is not illegal or against public policy.
55. Section 42 PA 1961. S.42; Apportionment of premium where
partnership prematurely dissolved. ..the court may order the
repayment of the premium or of such part regard to the terms and to
the length of time during which the partnership has continued. The
court will NOT order the repayment of the premium : the dissolution
wholly or chiefly due to the misconduct partnership agreement
containing no provision for a return of any part of the
premium
56. Section 43 PA 1961. S.43; Rights where partnership
dissolved for fraud or misrepresentation. partnership contract is
rescinded on the ground of the fraud or misrepresentation of one of
the parties thereto . entitled to rescind is, without prejudice to
any other right.. 1. 2. 3. to a lien on, or right of retention of,
the surplus of the partnership assets to stand in the place of the
creditors of the firm for any payments made by him in respect of
the partnership liabilities to be indemnified by the person guilty
of fraud or making the representation against all the debts and
liabilities of the firm
57. Section 44 PA 1961. S.44; Rights of outgoing partner in
certain cases to share profits made after dissolution. Where a
partner dies or otherwise ceases to be a partner.. the surviving or
continuing partners carry on the partnership business with its
capital or assets without any final settlement .. the rate of 8 per
cent per annum on the amount of his share of the partnership assets
subject to there being no agreement to the contrary between the
outgoing partner or his estate and the firm.
58. Section 45 PA 1961. S.45; Retiring or deceased partner's
share to be a debt. any amounts due to an outgoing partner or
representatives of a deceased partner.. such amount will be
construed as a debt owing as at the date of dissolution or death of
the partner.. This position may be varied upon mutual agreement of
the parties
59. Section 46 PA 1961. S.46; Rules for distribution of assets
on final settlement of accounts. In settling accounts between
partners after dissolution of the partnership, the following rules
are to be observed:1) all losses must be paid first out of profits,
next out of capital, and lastly, if necessary, by the partners
individually in the proportion in which they were entitled to share
profits 2) the assets of the partnership (including the sums, if
any, contributed by the partners to make up losses or deficiencies
of capital) must be applied in the following manner and order: a)
payment of the debts and liabilities of the firm owing to persons
who are not partners, b) payment to each partner rateably what is
due from the firm to him for advances as distinguished from
capital,
60. Contd c) payment to each partner rateably what is due from
the firm to him in respect of capital;4 and d) the ultimate residue
if any, to be divided among the partners in the proportion in which
the profits are divisible partnership is dissolved and after the
debts to third parties have been paid and advances made by partners
have been repaid the assets are insufficient to repay each partner
his capital in full, any deficiency must be borne by the partners
in the same proportion as the profits would have been divided
Garner v Murray [1904] 1 Ch 57. [H] each partner was liable to
contribute one-third of the deficiency because this was the
proportion in which the profits were divisible.