Chapter 5Non-corporate organisations – sole traders and partnershipswould not grant it. The other partners could manage the
firm back to financial prosperity.
The court will not, however, expect the partners to
put in more capital. (Jennings v Baddeley(1856).)
Any partner may petition.6 The just and equitable ground.Under s 35(f ) the
court may dissolve a partnership if it is just and equit-
able to do so. Although there is no direct authority on s
35(f ), it appears to give the court wide powers to hear
petitions which could not be made under the other five
heads that we have considered.
In Harrison v Tennant(1856) a judicial dissolution
was ordered where a partner was involved in long and
messy litigation which he refused to settle. A similar
order was made in Baring v Dix(1786) where the objects
of the firm could not be achieved. The partnership was
to further a patent device for spinning cotton which had
wholly failed but Dix would not agree to dissolution.
The court dissolved the firm.
It appears from Re Yenidje Tobacco Co Ltd(1916), a
company dissolution based upon the fact that the com-
pany was in reality a partnership, that deadlock between
the partners is enough for dissolution, even though the
business is prospering.
Any partner may petition. The court is unlikely, how-
ever, to dissolve a firm on the petition of a partner com-
mitting misconduct unless the other partners are doing
so as well.
The power of creditors to seek the dissolution of a
partnership is considered under the heading ‘The insolv-
ent partnership’ (see later in this chapter).
Effect of dissolution
Realisation and distribution of the assets
1 Realisation.If it is not intended to bring the busi-
ness to an end (i.e. wind it up) following a dissolution
by reason, e.g. of death or retirement, the partnership
agreement usually provides that the deceased or retir-
ing partner’s share in the firm’s assets shall go to the
remaining partners and that they shall pay a price for it
based on the last set of accounts.
If this is not to be done, the assets of the firm will be
sold on dissolution.
Section 39 gives each partner on dissolution the right
to insist that the assets of the firm be used to pay cred-
itors in full and that any surplus be paid to the partners
according to their entitlement. For this purpose each part-
ner has what is called a lien over the assets. It becomes
effective only on dissolution. It is enforceable by the
partner concerned applying to the court for the appoint-
ment of a receiver under his lien who will make the
appropriate distribution.2 Sale of goodwill.If the assets are sold, one of them
may well be goodwill. It is unlikely these days that good-
will will appear on the balance sheet of the partnership
accounts, but that does not mean that it does not exist.
There are varying definitions of goodwill, e.g. ‘the prob-
ability of the old customers resorting to the old place’
(Lord Eldon, a famous Lord Chancellor); ‘the public
approbation which has been won by the business’ (Sir
Arthur Underhill – an authority on partnership law);
and ‘the benefit arising from connection and reputation’
(Lord Lindley – one of our greatest equity lawyers, and
later a judge who was the first author of the standard
practitioners’ work Lindley on Partnership).
Goodwill is in financial terms the excess of the price
you pay for a business over the net tangible assets, such
as plant and machinery, which you acquire.
When goodwill is sold, the seller and buyer usually
agree by the contract of sale to restrictions to stop the
seller from, for example, setting up in the same business
again next door to the one he has just sold and taking
back the goodwill of that business.
If there is no agreement as to restrictions on the seller,
the position is as set out below:■the purchaser may represent himself as continuing
the business of the seller (Churtonv Douglas(1859)),
but he must not hold out the seller as still being in the
business;
■the seller may, however, carry on a similar business
and compete with the buyer (Tregov Hunt(1896));
this can decrease the value of partnership goodwill;
■the seller must not, however, compete under the
name of the former firm or represent himself as con-
tinuing the same business;
■the seller may advertise his new business but may not
actually circularise or otherwise canvass customers of
his old firm.3 Final account.When the firm is dissolved and the
property sold there is a final account between the part-
ners and then a distribution of the assets. This account
is a record of transactions from the date of the last
accounts to the date of the winding-up.131