New article on quasi-partnerships in the UK by Professor David Milman

Those of you who attended the Partnership Forum Conference earlier this year will recall David's excellent analysis of so-called 'quasi-partnerships'. He has now published an article based on this research:

David Milman,‘Legal characterisation of commercial relationships in the UK: the quasi-partnership example' (2019) 40(10) Company Lawyer 312

Summary of UK partnership vehicles

For anyone not already familiar with basic UK partnership structures, this article - another in the Lexology series summarising different types of partnerships in a particular countries - will be useful.

The article is entitled 'Partnerships in United Kingdom' and is authored by lawyers at one of the UK's leading law firms specialising in partnership law. 

It is at https://www.lexology.com/library/detail.aspx?g=1779a658-7b9e-45c2-ac6d-b8fbee394eb5&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2019-10-25&utm_term=

(if you need to subscribe to Lexology to access it, it is free do do so - see further https://www.lexology.com/account/rss)

Useful summary of French partnership law

There is a useful article on Lexology by the French law firm Philippe Derouin summarising different types of partnerships in France.

The article is creatively entitled 'Partnerships in France'  and is at https://www.lexology.com/library/detail.aspx?g=08668a5f-d0a9-4507-bd8f-63f5f357d89d&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2019-10-18&utm_term=

(if you need to subscribe to Lexology to access it, it is free do do so - see further https://www.lexology.com/account/rss)

Summary of Greek partnership law

There is a useful article on Lexology by Cocalis & Partners summarising different types of partnerships and other business vehicles in Greece.

The article is titled  ‘Commercial corporate entities: a brief outline’ and is at https://www.lexology.com/library/detail.aspx?g=a6e27739-9321-47fa-bfa7-bfcac22f843d&l=8JG74F4

(if you need to subscribe to Lexology to access it, it is free do do so - see further https://www.lexology.com/account/rss)

Recent article on Chinese partnership law

See:

Lin Lin, 'Private Equity Investor Protection: Conceptualizing Duties of General Partners In China' (2018) 15(1) Berkeley Business Law Journal 43-91

Proposed legislative changes to the Irish Investment Limited Partnership

Update on proposed legislative changes to the Irish Investment Limited Partnership by the Investment Limited Partnerships (Amendment) Bill 2019 available at: https://www.williamfry.com/newsandinsights/publications-article/2019/06/26/upgrade-of-irish-investment-limited-partnership-product

The text of the Bill itself, and a summary of its legislative progress, is available at: https://www.oireachtas.ie/en/bills/bill/2019/42/

New UK case on LLP member's duties

Riley v Reddish LLP, 7 June 2019, unreported

The appellant had been a member of an LLP which had acquired shares in a company.  He was sued by the seller of the shares for the purchase price of £1.3 million. The court held that the LLP was liable for the purchase price, but it went into liquidation and was unable to pay.  The LLP then sued and obtained judgment against the appellant for the purchase price. The appellant’s claim to have his judgment set aside on the grounds that he had refused service of the claim form and the particulars of claim was rejected.

On appeal, the court held that although the LLP had alleged that the appellant was a director who had breached his duties under the Companies Act 2006, LLPs did not owe fiduciary duties under that Act, and directors’ duties could not be transposed on to LLP members. Whether an LLP member owed duties depended on his role in the LLP affairs (see further F&C Alternative Investments v Barthelemy [2011] EWHC 1731 (Ch)). Here there was no evidence of any agreement about his role, and it was therefore not possible to establish that he was in breach of duty.  Since there was a reasonable prospect that he would be able to defend the claim, the court exercised its discretion under the Civil Procedure Rules (CPR) r.13.3 to allow the appeal and set aside the judgment against him.  The court noted that refusing the appeal would have meant imposing a substantial liability on the appellant as punishment for refusing to accept service of documents, which would be disproportionate.

The impact of the Italian insolvency law reform (by means of D.LGS. 12 January 2019, N. 14)

The amendments to Article 2257 of the Italian Civil Code

Article 377 of D. Lgs. 12th January 2019, n. 14 (Insolvency Law) has amended article 2257 of the Italian Civil Code regarding the administration of the partnership. The regulation previously in effect assigned the management of the partnerships to the partners. The current formulation instead specifies that the management of the partnership shall be under the exclusive responsibility of the managers, who have to carry out the operations functional to the fulfillment of partnership’s scope.
Such a provision entails significant interpretative problems. Firstly, it is unclear whether it permits the assignment of the management of a partnership to managers who are not also partners. Secondly, the provision causes a considerable confusion with regard to the relationships between partners who are managers, and partners who are not.

Article 377 is already in force.


The impact on the insolvency regulation

The new regulation retains the provision according to which the insolvency of the partnership automatically results in the insolvency of its general partners. The Italian legislator has therefore decided not to adopt the solutions proposed in other legal systems, such as in Germany or Spain, in which the problem concerning the protection of creditor is resolved by means of the partners’ civil liability and not by means of the automatic extension of the insolvency of the partnership to the partners.
Nevertheless, the provisions have been significantly amended.

Firstly, the new regulation (Article 256, paragraph 4) provides for the increase of the number of persons entitled to ask for a declaration of the bankruptcy against the hidden partners (or the hidden partnership): under the new Insolvency law, the public prosecutor and the creditors of the partners can now apply for such a declaration, in addition to the official receiver, the creditors of the partnership and another bankrupt partner.

Secondly, the reform (Article 256, paragraph 5) has confirmed the case law regarding the so-called super-società di fatto. The courts can declare the insolvency of a private company and its shareholders considered as a whole to be a ‘hidden partnership’ between them and the company. However, the lawmaker has not taken into account the criticisms raised by scholars (such as Guerrera, ‘Considerazioni sistematiche sulla c.d. supersocietà di fatto’, in Rivista di diritto societario, 2017, 975 and following), according to whom the proper instrument would have been the civil and criminal liability of the directors and shareholders (and not the insolvency regulation).

These provisions will be applicable from August 2020.


The impact on the over-indebtedness procedures

Article 65 of the new Insolvency Law expressly states where a partnership cannot be declared bankrupt because it does not meet the subjective and objective requirements provided by law, it is subject to another kind of insolvency procedure, the so called over-indebtedness procedure, which also applies to its general partners. These include debt relief and the possibility of a fresh start (i.e. a new start after debt discharging) for the general partners and the partnership itself. The reform has further taken into account the case of a partner of a partnership who also has the status of consumer; for such cases, the reform has provided for the possibility for a partner who is a consumer to apply for a personal debt-restructuring plan in all cases in which the situation of over-indebtedness derives from his personal debts (and not from partnership’s ones), even if the partnership is already subject to another kind of insolvency procedure.

These provisions will be applicable from August 2020.

Useful summary of Belgian partnership law

In the context of reforms to Belgian company law, the law firm Sirius Legal has provided a brief summary of Belgian partnership law, available at https://siriuslegaladvocaten.be/en/new-company-law-is-it-useful-to-convert-your-partnership-vof-or-gcv-to-a-private-limited-company/.

New UK case involving partnership with assets in the UK and India and judgments in both jurisdictions

Tarloch Singh Badyal v Malkat Singh Badyal and Santokh Singh Badyal [2019] EWHC 467 (Ch)

This judgment was given in the course of ongoing proceedings between three brothers who were partners.  In earlier proceedings, the English court had ordered the partnership to be wound up, and accounts and inquiries to be conducted, and declared two UK properties, four Indian companies and an Indian property development to be either partnership assets or held by the claimant on trust for all three partners in equal shares, and that the claimant must account to the defendants for his dealings with these assets as a fiduciary. The court had also declared that a further property was a partnership asset or held by the second defendant on trust for all of them. Subsequently, an Indian court ruled that the three partners should not seek enforcement of the English judgment, insofar as it related to Indian assets, without leave of the Indian court.

In this judgment, the English High Court ruled that although it should avoid making an order requiring any of the defendants to act in breach of the Indian Order, that Order did not prohibit the enforcement of orders for disclosure or the taking of accounts and inquiries, or of in personam orders against the claimant so long as those orders did not require him to dispose of, or alter rights in, Indian property or company shares. However, the Indian Order did not relate to one of the two companies in respect of which the defendants sought an order for the transfer of shares and, in the absence of anything in that company’s articles permitting it to refuse to register the share transfer already ordered by the English court, this transfer should be made. In relation to the other company, the court gave the defendants liberty to apply for a further order if the Indian court, before which proceedings were still ongoing, revoked or varied the Indian Order.

The court noted that since sales were taking place of the Indian property development, there was a clear risk of dissipation of assets in which the defendants owned equal shares with the claimant. The claimant had failed to give prior notification of sales to the defendants, as previously ordered by the English court, and therefore the court ordered the scheme which the claimant himself had previously proposed, whereby a court order would be required to authorise a sale if the partners could not agree on a valuation. Although this might result in delays in the sales, it was required in order to reasonably protect the defendants, and as it only operated as an order in personam against the claimant, it did not breach the Indian Order.

Since the claimant had failed to provide adequate information and disclosure, the court made the more specific and targeted order sought by the defendants as to what information and disclosure was required.

The court declined to order the sale of the property registered in the name of the second defendant, pending further information about the values of all the UK and Indian assets, and decisions as to which properties should be sold and which distributed in specie, and how the proceeds of sale were to be distributed.

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Second Annual Conference of the Partnership, LLP and LLC Law Forum 10 January 2019

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