money for the house

The winter nights are drawing in and we have all heralded the return of Downton Abbey to our screens as a Sunday evening treat.  Humour, wit and nostalgia aside, one of the clear themes of this series is the ongoing dispute over the estate’s management and the struggle to pay death duties following the death of the (much missed) Matthew Crawley, seemingly without him having prepared a will.

Whilst latest statistics suggest that less people pass away intestate year on year, recent experience in the distressed legal sector suggests that business owners seem to be ill-prepared for the possible terminal decline of their business.

Whilst it may not be a surprise that legal services providers are seeking to consolidate in the current climate, a significant proportion of these providers remain unincorporated as ‘old style partnerships’ under the Partnership Act 1890. What’s more, former partners often fail to fully document and communicate the terms of their retirement.

It is common knowledge that partners of these ‘old style’ partnerships are personally liable for all the debts of the partnership.  It is therefore essential that retiring partners seek to protect themselves comprehensively given that, much like a limited company, the partnership can enter into insolvency processes under the Insolvency Act 1986 (as modified by the Insolvent Partnerships Order 1994) and potentially be liable for all the debts of that insolvent estate.

In several recent insolvent law firm cases, whilst there were original partnership agreements in existence, the retirement records were far from complete.  The risk of such former partners remaining personally liable in these circumstances are clearly substantial, and it is more than likely that the sums involved will be life changing for such partners.

I didn’t know he had left?!

Clearly, unpicking the liability of former partners is by its very nature bespoke – depending upon the exact circumstances surrounding a partner’s exit.  Where the retiring partner has entered into a retirement deed – this issue should have been provided for.

Communication of a partner’s retirement is best made to all and everyone.  There is often uncertainty as to:

  1. when the partner thought he had left;
  2. when he actually left; and
  3. when he communicated his departure to creditors of the partnership.

Establishing these key dates forms the crux of investigations into the potential and actual liability of that partner to his fellow members and also creditors of the partnership, in each case past, present and future.


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.