A moral/legal question about partnerships

I would go for the partners at the time of the date of leaving of the member of staff who was causing the issue. Anything else is as you mention unfair to partners who weren't covered by the agreement at that time.

I suppose when the new partners signed up to your scheme they also accepted any current or future liabilities but if not I stand by my statement in the above post.

If I joined a partnership then I wouldn't expect to be liable for past events.

Morally, what to do is largely a question for the current partners and no-one else.

Legally, there is no way anyone actually qualified to give this sort of advice could do so based upon the information you have provided. 

That was how it looked to me at first glance....but

The current partners benefit from past decisions taken before they joined, such as investments in the business or premises that may deliver unexpected bonuses after they buy in. Should they not also share the unexpected 'losses'? The retired partners don't benefit from such widfalls, should they not be protected from liabilities after leaving?

We are not talking much money here, it is just interesting to get my head around the issues.

Yes I considered that. But wouldn't the new partners have bought out the retiring partners? They are buying part of an established business which would have been worth less if the settlement had been included in the valuation.

True. However surely not all liabilities (or windfalls) are predictable and can therefore be valued.

I'm playing devil's advocate a bit.

Bruce

Warranty period

Bonuses deffered. Or something.

Was the potential liability known (or suspected) at the time of the new partners joining? Had the aggrieved former employee made any sort of claim, or stated their intention to do so? If not, then the new partners could not have reasonably known of the risk, nor discovered it in their due diligence (unless perhaps poor labour hire practices were identified as endemic - not suggesting that this is the case). The new partners must simply accept the liability as a consequence of the risk of taking on ownership of a business.

However, if the partnership (including former partners) knew of the liability, but suppressed it from discovery by new partners during due diligence, then the new partners possibly have a legal case for damages. There is an obligation to make relevant information available for those contemplating joining a partnership.

The third possibility is of course that new partners were fully aware of the liability and entered with their eyes open. Then it's clear that they must accept the consequences of the ruling regarding reparations to the aggrieved former employee.

We would not have had any expectation of the claim when the partnership changed. It could not have been anticipated. The individual had left 2 years before the partnership change without any apparent issues at the time.

Delicate one this isn't it?

Bruce

Because the original partnership probably wasn't officially dissolved, IE the firm kept trading with change of partners on a sort of  roll on roll off basis, the new partners are liable.

I was taught joining a partnership was a VERY risky thing to do, I certainly wouldn't do so without taking legal advise. I'd be surprised if your new partners didn't do so.

Not really. Winky's correct; unless the previous partners were aware of a possible difficulty and chose to surpress it, then it has to be down to commercial risk. 

I think the new partners have taken on liabilities as well as benefits of the existing business.

Another query is the time frame involved and whether statute of limitations applies?

+1

If there is a formal Partnership Agreement, what does it say about historic liabilities?

Of there is no formal agreemment, I doubt past liabilites could be inherited by new partners.

Sounds more like an accounting issue than a legal one - can you post that retroactively as a loss against prior years' books, or take the benefit now?

Unless the information was known and deliberately supressed at the time then I'd have to say the new Partners have to take their sahre of the liability. There's many risks in entering/running a business and that's one of them. I think Winkys comprehemsive post covers it.

It's not an accounting issue, the prior years books will be closed and if a payout is likely the hit will have to be taken in current year profits (either by paying the liability or providing for it)  

We will pore over the Partnership Agreement but so far have not spotted anything about previous liabilities. Practice Agreements follow standard professional templates. Our Solicitors may well advise on ours. The Partnership model is the standard for the majority of GP practices, especially those like ours where we own the premises.

I don't understand the suggestion about the accounts. Not sure applicable, changing the bottom line on a previous year's accounts is going to be horribly complex for tax amongst other things-and also for the retired partners who are fully paid out of the business.

As a a group we usually hammer these things out to mutual satisfaction and move on, it is not a lot of money. I have a feeling there is no 'right' answer' I just hope it is not me that rings a retired colleague and asks him to chip in if that is the way we decide to go!

Bruce

There is a right answer.

Because the original partnership probably wasn't officially dissolved, IE the firm kept trading with change of partners on a sort of  roll on roll off basis, the new partners are liable.

It's not up to you or your present partners to decide whose liable.

Get advice from solicitors who deal in business law.

I would have thought that if you buy into a business,  after completing due diligence,  you take on its assets and its debts which would include any that arise from previous trading and those who leave do so with a clean slate but I would guess it depends on what legal arrangements and words were used at the time. Best to get expert advice as suggested above

Not sure how any of the following might be relevant, but the Partnership Act does seem to set out the basics, regardless of what to some people might be fair or reasonable. Might be worth a quick resd ?

PARTNERSHIP ACT 1892 - SECT 17

Liabilities of incoming and outgoing partners

17 Liabilities of incoming and outgoing partners

(1) A person who is admitted as a partner into an existing firm other than a limited partnership or incorporated limited partnership does not by that admission alone become liable for anything done before the person became a partner.

(2) A person who is admitted as a general partner into an existing limited partnership or incorporated limited partnership does not by that admission alone become liable for anything done before the person became a general partner.

(3) A partner who retires from a firm other than a limited partnership or incorporated limited partnership does not by that retirement alone cease to be liable for partnership debts and obligations incurred before the partner’s retirement.

(4) A partner who retires from a limited partnership or incorporated limited partnership does not by that retirement alone cease to be liable for liabilities of the firm incurred before the partner’s retirement for which the partner was liable.

<small>Note :
"Liability" is defined in section 49.</small>

(5) A retiring partner in a firm other than a limited partnership or incorporated limited partnership may be discharged from any existing liabilities by an agreement to that effect between the partner and the members of the firm as newly constituted and the creditors, and this agreement may be either expressed or inferred as a fact from the course of dealing between the creditors and the firm as newly constituted.

(6) A retiring partner in a limited partnership or incorporated limited partnership may be discharged from any existing liabilities by an agreement to that effect between the partner and the firm and the creditors, and this agreement may be either expressed or inferred as a fact from the course of dealing between the creditors and the firm.

Don.

I know his name may suggest otherwise, but I don't think Bruce is actually an Aussie.

I know, but Aussie/NSW law dating from 1892 (or whenever) is probably based on UK Parnership Act of 1890, being of a similar date. I once acted as an Expert Witness in a case where UK law didn't have any precedence and the Barristers turned to the Commonwealth instead.

A quick search on the internet didn't immediately turn up anything within the UK. I thought the Aussie/NSW guidelines might provide a better baseline for Bruce to consider, before contacting the Practice Solicitor. However, I would be surprised if the Partnership Agreement, being a standard agreement for GPs , hadn't already been subjected to detailed interpretation in a few cases similar to Bruce's. A consultation with the solicitor should soon steer Bruce and his colleagues in the right direction.

OOps,

Just realised I didn't copy the full title of the article in my initial post.

Anyway, rather than offering another opinion of the moral position, why not try the latest derivative of the 1890 Act then speak with the solicitor.