DISSOLUTION OF PARTNERSHIP

INTRODUCTION TO PARTNERSHIP AND COMPANY LAW (LAW346)

Presented by : Dalila binti Amir
UiTM Pahang
Learning outcomes :-

 Students shall be able to state and describe the method

of dissolution with or without an order of the court.
 Students shall be able to apply the method of dissolution
in solving real life problems.
Discussion

Method of dissolution :
1. Dissolution by agreement
2. Dissolution by expiration or notice / Dissolution
by operation of law
3. Dissolution by bankruptcy, death or charge
4. Dissolution by illegality of partnership
5. Dissolution by the court
Dissolution by agreement

 Partnership is dissolved by mutual consent of the partners.

 If partners agreed in the partnership agreement that the dissolution of their
partnership business can be done upon the occurrence of certain
specified event, then when the specified event occurred, their partnership
business will be terminated.
Dissolution by expiration or notice /
Dissolution by operation of law
 Section 34 : unless otherwise agreed between partners, a partnership is
dissolved :
 Section 34(1)(a) : if the partnership is for a fixed term, by expiration of that term.
 Section 34(1)(b) : if the partnership is for a single venture or undertaking, by the
termination of that venture or undertaking.
 Section 34(1)(c) : if the partnership is for an undefined time, by any partner
giving notice to the other of his intention.
 Section 34 to be read together with section 28.
 Section 28(1) : where no fixed term has been agreed upon for the duration of
partnership, any partner may determine the partnership at any time on giving
notice of his intention to do so.
 Section 28(2) : if the partnership is formed by a written agreement, the notice of
termination is sufficient if it is written and signed by the person giving it.
 Moss V Elphick
 Facts : The partnership agreement did not specify a particular length of time
for the partnership duration. However, there is clause which stated that it
could be terminated “by mutual arrangement only”. One of the partners
gave notice to the other partner to terminate the partnership.
 Held : Although this was a non-fixed term partnership, S 26(1) PA (Malaysia
S28(1) PA) would have no effect as the provision could only apply where
there was no agreement to the contrary, and in this case the said clause
amounted to that agreement.

Wee Wat Neo V Chop Khoo Aik Seng & Co.

 Held : If the partnership is entered into for undefined time, the dissolution will
take place as from the date mentioned in the notice as the date of dissolution
OR if no date is mentioned as from the date of communication of the notice,
as provided under S.34(2) PA.
Dissolution by bankruptcy, death or charge

 On the death of partner in the partnership, the partnership is dissolved.

 However, this would be subject to any agreement to the contrary between
the partners.
 S.35(1) : ‘subject to any agreement between the partners every
partnership is dissolved by the death of partner’.
 The death of partner in the eye of law leads to the total dissolution of the
partnership unless the partners have expressly provided to the contrary in
their agreement.
 The operation of this section shall be subject to any contrary agreement,
therefore the partners may agree that any bankruptcy or death will not
dissolve the partnership. Such agreement is effective as between the
partners.
 Lee Choon Yam Holdings S/B V Khoo Yoke Wah & Ors
 Facts : P and D were partners in jewelry business. The business started in
1958 with 18 partners. Some partners had died and new partner were
taken in. The last registration filed in 1985 showed that there were 15
partners. Since then 2 more partners died. P applied for a declaration that
the partnership was dissolved by the death of a partner.
 Held : upon the true construction of s.35(1) PA, in the absence of a
contract to the contrary, on the death of any partner, a partnership would
stand dissolved. There was no evidence either written or oral to be referred
from the evidence of the surviving partners and the heirs of the deceased
partners to justify a conclusion that there was an agreement between the
existing partners that the partnership should continue notwithstanding the
death of a partner. The declaration to dissolve the partnership was
granted.
 Dissolution by illegality of partnership

 Section 36 : ‘A partnership is 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’
 This provision deals with partnership which was formed for a lawful purpose
but which subsequently became illegal.
 It cannot be modified by the partners, partners may not provide that the
partnership will continue despite the illegality.
 R V Kupfer
 Facts : Section 1 of the Trading with the Enemy Act 1914 provides that any
person, who during the war trade within the meaning of the Act is guilty of
misdemeanor. A war broke out, and the Df paid the dutch company for
some amount due.
 Held : the declaration of war had the effect of dissolving the partnership

Hudgell Yeates & Co. V WATSON

 Facts : The practising certificate of a partner of a legal firm had lapsed.
 Held : the p/ship is dissolved from the date of the expiration of the
practising certificate. Knowledge of the illegality is immaterial.
Dissolution by the court

 There are certain instances laid down in S.37 PA in which the court may
dissolve a partnership on application by a partner.
1. Section 37(a) – insanity of a partner
 the court may dissolve a partnership when a partner is found or to be
permanently unsound mind.
 The application may be made either by a partner, next friend or any other
person who is legally entitled to intervene.
Jones V Noy
 Held : the insanity must be of permanent nature, if there is a hope of
recovery, there will be no ground for dissolution.
2. Section 37(b) – Incapacity
 ‘when a partner, other than the partner suing, becomes in any other way
permanently incapable of performing his part of the p/ship the court may
dissolve may dissolve the p/ship’
 The incapacity should be permanent, otherwise there will be no ground for
dissolution.
Whitwell V Arthur
 Facts : An action brought for the dissolution of the firm by the court on the
ground that a paralytic partner was unable to perform his part of the
partnership agreement. However, the paralysis was only temporary.
 Held : The court refused to dissolve the partnership
3. Section 37(c) – misconduct
 ‘the court may dissolve the partnership when a partner other than a partner
suing is found guilty of any misconduct that is considered by the court as
affecting prejudicially the carrying on of the business
 What conduct which is prejudicial might differ according to the nature of the
business of the partnership.
 Thus the court is required to take into account the nature of the partnership
business before it decides whether certain conduct is harmful or not.
 Example of misconduct include misappropriation of partnership property or
funds or making false allegations to the other partner.

Clifford V Timms
 Facts : Appellant & Respondent were both dentist registered under the Dentist
Act. They were partners. The Appellant Was a director of a company & he was
involved in a self-puffing advertisement. Due to that he has been removed
from the registration. The Resp. gave notice to the App. to dissolve the
partnership
 Held : The Appellant conduct was prejudicial to the business, therefore the
partnership could be dissolved.
4. Section 37(d) – willful breach of p/ship agreement
 ‘when a partner, other than the partners suing, willfully or persistently
commits a breach of the p/ship agreement…or conduct himself in matters
relating to the p/ship business that is not reasonably practicable for the
other partner..’
 Under this provision, the court will grant an order for dissolution of the
p/ship if there is a complete & permanent state of animosity which destroy
the basis of mutual confidence among the partner.
5. Section 37(e) – the continuance of partnership will render a loss

Handyside V. Campbell
 Facts : A partner’s unattendance to the business due to illness caused a
loss to the firm.
 Held : the court refused to dissolve the partnership on the ground that,
there was nothing to show that it was practically impossible for the p/ship
to make profits in the future.
J.M.M Lewis
 In the absence of a specific claim, the court may not order the dissolution
of a p/ship on the ground that it can only be carried on at loss.
6. Section 37(f) – When it is just and equitable

 The provision of this section had given the court a wide discretion in
ordering for a dissolution of partnership.

Re Yenidje Tobacco Co. Ltd

 The company was dissolved even though they were making profits. This
was because the two person in the company who were the only directors
and shareholders of the company had reach deadlock and only
communicated through their secretary.
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