Two recent UK cases on issues arising on the transfer of the partnership business to a company set up for the purpose

Razaq v Baig [2019] EWHC 3490 (Ch)

The parties had been in partnership repairing tyres and servicing motor vehicles, Razaq carrying out the work and Baig contributing the use of his premises. They then formed a company which carried on the same business with the help of a third participant, until the company was dissolved in 2018.  Razaq wished to continue the business and entered into negotiations with Baig for a new lease of the premises, but negotiations  eventually broke down and Baig took possession of the property.

The court considered that there was no seriously arguable case that the partnership could continue beyond Razaq’s exclusion from the property, given that s32 of the Partnership Act 1890 allowed a partnership to be terminated by notice of intention to dissolve, and the exclusion implied the giving of such notice. However, this did not resolve the issue because, as established in Lie v Mohile [2014] EWHC 3709 (Ch), a partner who owned the premises from which the partnership business was carried out was taken, after a dissolution, to have granted a licence to the other partner to enter the premises for the purposes of the partnership business. Dissolution would not terminate the licence since the business itself was not thereby terminated but continued for the purpose of winding up. However, Lie did not mean that a former partner had the right to occupy the premises forever. The court therefore ordered that Razaq must be allowed a reasonable period to wind up the business and dispose of the assets.

 

Boyle v Burke and Cave [2019] EWHC 3364 (Ch)

Boyle was a retired partner entitled to a pension from the partnership. He claimed that the partnership had dissolved when the business was transferred to a company set up for the purpose, and that event triggered an entitlement under the partnership agreement to a lump sum to cover future pension benefits.  The defendant partners argued that the partnership had continued despite the transfer of the business.

The court noted that in NatWest v Jones [2001] BCLC 98, in which a partnership business was transferred to a company set up for the purpose, and the only possible ongoing business was the collection of rent under a farm tenancy granted by the partners to the company, it had been held that the mere fact that the partners ceased trading did not end the partnership. Similarly, in Chahal v Mahal [2005] BCLC 655 it had been held that although it could be inferred from the transfer of all the assets and operational activities of the partnership to a company, that the partners had actually agreed to end the partnership, such an inference would not always be possible.

The court emphasised that the definition of a partnership in s1 of the Partnership Act 1890 – two or more persons carrying on a business in common with a view of profit – need only be satisfied in order for the partnership to be formed; it was not a continuing requirement and a partnership could only end through dissolution, and not through failure to satisfy the requirements of s1. It therefore concluded that mere cessation of the partnership’s business here was insufficient to establish that the partnership had dissolved, and there was no evidence of any agreement by the defendants to dissolve it. The provisions of the partnership agreement as to the provision of a lump sum pension entitlement on dissolution therefore did not come into force.

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