LAW COMMISSION: draft Bill to introduce duty to act in good faith to fellow partners

A new Partnerships Bill to guarantee continuing existence for partnerships when partners leave and give them a legal identity separate from their members was proposed last week by the Law Commission.

The draft Bill contains default provisions for those partnerships - including some smaller law firms - that have no written partnership agreement, replacing the 1890 Partnership Act.

It would make partnerships legal entities and enable them to enter contracts and hold property.

They would not be automatically dissolved if one of the partners were to leave or if there were any change of partner.

The commission said 'many people would be astonished to learn' that partnerships automatically dissolve on a change of membership and that they cannot hold property.

Under the proposals, partners would continue to be responsible for the obligations of the partnership, while a statutory duty for partners to act in good faith towards the partnership and each of the partners would be introduced.

This would not be capable of being excluded by agreement.

Where a partnership does come to an end, if it is solvent there would no longer be a winding up under the supervision of the courts.

Instead, the draft bill contains proposals to allow the court to appoint a partnership liquidator.

The proposed Bill would also replace the 1907 Limited Partnership Act, enabling increased involvement in the running of such partnerships by the investors.

All partnerships would be subject to the proposed legislation within two years of it coming into force, but there would be a special exemption for some limited partnerships.

Partnership expert Ronnie Fox, senior partner of City firm Fox Williams, said he was pleased the continuation of partnerships had been assured and the right to legal identity had been conferred in the draft.

However, Mr Fox said all partnerships should be given the option of whether they should be affected by any new legislation.

Law Commission chairman, Mr Justice Toulson, said there was no indication as to when the draft legislation might be adopted, but added: 'We would look to government in the first instance to decide in principle that it accepts these proposals.'

Jeremy Fleming