When parties to a partnership find themselves in dispute, resolving any disagreement can present a challenging problem, especially when one of the parties becomes uncooperative or unresponsive. Worrells is sometimes appointed as the Receiver of partnerships to facilitate the orderly winding up of a partnership where such disputes occur.
In a case handled by our Brisbane office, we were appointed Receivers of a partnership operated by two individuals, which ran a cool room installation business. One partner (“Partner A”) sought to dissolve the partnership due to concerns over misappropriation of partnership funds by the other partner (“Partner B”), who had also become unresponsive.
Challenges arose for Partner A in attempting to finalise the partnership's administration, predominantly due to the lack of communication and cooperation from Partner B, who failed to provide necessary information to reconcile the respective partnership interests and finalise the partnership’s tax affairs.
Given the impasse, Partner A applied to the Court to declare the partnership dissolved and appoint Worrells as Receiver to facilitate its winding up.
It is important that the order is carefully considered to ensure the Receiver can fulfil their role. In this case, as Receiver, we were granted extensive powers to wind up the partnership's affairs, including:
Taking possession of all financial records and books of account.
Collecting all partnership assets, demanding debts, and initiating legal action to recover assets.
Disposing of partnership assets and undertaking all necessary actions for their orderly realisation.
Conducting inquiries and taking accounts to ascertain and adjust the rights of both partners and produce final accounts.
Distributing the partnership's assets according to statutory provisions after settling accounts.
The Receiver’s reasonable remuneration, costs, and expenses would be met as a priority from the partnership assets.
Importantly, the order provided for the Receiver’s remuneration and costs amounts to be paid first from Partner B’s share of surplus assets, and if those assets are insufficient, by Partner B directly. If we were unable to recoup the shortfall from Partner B directly, that shortfall was to be paid out of Partner A’s distribution, and Partner A was provided the right to seek recovery of that shortfall amount from Partner B.
The costs of dealing with a partnership dispute are inherently expensive, given the range of tasks that a Receiver is required to do. However, where one partner is completely unresponsive, those costs can be significantly exacerbated, particularly as highlighted by this case, to the detriment of the unresponsive partner. The uncooperative nature of Partner B meant that the increased costs incurred were all required to come out of his share of the partnership assets, leaving him with no recovery at all. Had he been cooperative, the costs would have been less, and there would likely have been a return to him.
This case not only demonstrates the role that court-appointed receivers can play in resolving partnership disputes, but also the financial implications for all parties involved where communication and cooperation break down. It can be expensive to be uncooperative!
When your clients face complex partnership disputes, we are always happy to discuss the position to see what options might be available to assist your clients in achieving a resolution.
