Dissolution Notes
Law (Universiti Teknologi MARA)
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Dissolu'on
1. Automa'c 1) Upon the expira'on of 'me or event
Dissolu'on -Sec 34(1)(a) & (b): A partnership entered into for a 3xed term/a par7cular event is automa7cally
dissolved upon the expira7on of that term/termina7on of that event.
-A>er the expira7on of the term/termina7on of the event, the partnership may s7ll con7nue, but it
will be considered as a partnership at will.
-If it con7nues, it will be governed under Sec 34(1)(c) [unde3ned 7me].
-A partnership at will may be dissolved at any 7me through a no7ce given by a partner to the other
partners of his inten7on to dissolve the partnership (Dissolu7on by no7ce)
-Where a 3xed term has not expired, a partner may apply to the court to dissolve the partnership
provided that the situa7on falls under any of the grounds of Sec 37.
2) Upon the death, bankruptcy, or charge on partner’s share
-Sec 35(1): Every partnership is dissolved as regards all the partners by the death or bankruptcy of
any partner.
-However, partners may agree for the partnership to con7nue in spite of the death or bankruptcy of
a partner (the business may s7ll carry on with the surviving partners or the personal representa7ves
of the deceased partner).
-Sec 35(2): A partnership may be dissolved if any partner suMers his share of the partnership
property to be charged under the Act for his separate debt.
-This provision provides a partner with the choice to con7nue with the partnership or not when the
other partner charges his share of the partnership property as security for his own personal debt.
-This amounts to puOng the partnership property at the risk of the possibility of allowing a third
party to take over the partner’s por7on of the partnership property in the event that he is not able
to pay oM his loan.
3) Upon the supervening illegality
-Sec. 36: A partnership is dissolved by the occurrence of any event which makes it unlawful for the
business of the 3rm to be carried on or for the members of the 3rm to carry it on in partnership.
-A change in circumstances or status in law could make it unlawful for the business of a 3rm to be
carried on or for the members of the 3rm to carry on in partnership.
-R v Kupfer: The defendant was a partner in a 3rm with his two brothers who carried out business in
Frankfurt and London. Payment was to be made by the defendant for an order from the London
oUce to a Dutch company in Holland. War broke out on 4 th August 1914. The defendant paid the
Dutch company when the payment was due, but was then charged with the oMence of trading with
the enemy. One of the issues was whether the partnership has been dissolved by the outbreak of
war. Held: The partnership was dissolves as soon a war was declared.
2. By No'ce 1) Wong Peng Yuen v Senanayake: Mutual con3dence reposed by each other is one of the main
elements in the partnership agreement. Loss of con3dence may induce a partner’s inten7on to
dissolve the partnership.
2) Sec 34(1)(c): A partnership entered into for an inde3nite amount of 7me may be dissolved by any
partner giving no7ce of the other partner(s) of his inten7on to dissolve the partnership.
3) A partnership entered into for an unde3ned 7me is called a partnership at will.
i) Sec 28(1): Where no 3xed term has been agreed upon for the dura7on of the
partnership, any partner may determine the partnership at any 'me on giving no'ce of
his inten7on (either to dissolve the partnership or determine a 3xed period) to do so to all
the other partners.
ii) Sec 28(2): Where a partnership for an inde3nite period was created by a wri[en
document, it is necessary for the no'ce of dissolu'on to also be in wri'ng and signed by
the partner giving no'ce.
-The no7ce does not need any reason on why a partner intends to dissolve the partnership.
-It does not require the consent of the other partners
-Once given, it cannot be withdrawn except agreed by all partners
4) Sec. 34(2): The partnership is dissolved from the date men7oned in the no7ce, or if no date is
men7oned, as from the date of communica7on of the no7ce.
5) If the no7ce is not wriNen:
-The inten7on to dissolve the partnership must be inferred from the conduct of the
partner(s)
-Tham Kok Cheong & Ors v Low Pui Heng: The conduct of the other three partners in
selling the 3rm to the limited company must be considered as showing their inten7on to
dissolve the partnership. The date that the fourth partner knew of the sale is the date
when the dissolu7on takes eMect.
6) Subramaniam CheAar v Kader Mastan: The no7ce of a partner’s inten7on must be
communicated to the other partners. The act of simply leaving the 3rm or being inac7ve cannot be
considered as a no7ce of inten7on to re7re. The giving of no7ce must be made known to the party
to whom the no7ce is intended.
3. By Court -Sec 37: Upon an applica7on made by a partner, the court may order the dissolu7on of the
partnership on any one of the grounds.
1) Mental disorder
-Sec 37(a): When the court is sa7s3ed that a partner is a luna7c or of permanently unsound mind.
-A partner or anyone who has the right can make an applica7on to have the partnership dissolved
(for the mental incapacity of a partner) under Sec. 19 of the Mental Health Act 1952. While
proceedings are pending in court for the dissolu7on of the partnership, the court can grant an
interlocutory injunc7on to restrain a partner who is mentally incapable from interfering with the
conduct of the partnership business.
-Jones v Noy: A person would be considered incapable of managing his property and aMairs where
he suMers from a medical disorder such as a mental illness, arrested or incomplete disorder of the
mind, psychopathic disorder and any other disorder or disability of the mind.
2) Permanent incapacity
-Sec 37(b): When a partner becomes permanently incapable of performing his part of the
partnership contract.
-A medical report is needed alongside the applica7on. The partner’s current state and the possibility
of his recovery, no ma[er how remote, must be considered.
-Whitwell v Arthur: The partners of a 3rm of pharmacists applied to the court to dissolve the
partnership on the grounds of permanent incapacity of their partner who had suMered a stroke that
had le> him paralyzed, leaving him unable to perform his du7es in the business. Held: Dissolu7on
was not allowed at the 7me the applica7on was made as there was evidence that the sick partner’s
condi7on was improving.
3) Prejudicial conduct
-Sec 37(c): When a partner has been guilty of such conduct which aMects prejudicially the carrying
on of the business.
-Such conduct may directly or indirectly aMect the business.
-Snow v Milford: An adulterous aMair of a partner in a banking business was not considered as
conduct prejudicial to the business as mere bad behavior unrelated to the partnership business
would not cause the applica7on to be considered. (XX)
-Essel v Hayward: A solicitor who was entrusted with a client’s money had used the money for his
personal needs. Held: Such behavior amounts to prejudicial behavior as it aMects the credibility of
the 3rm. (//)
-Carmichael v Evans: Carmichael and Evans were partners. Carmichael was convicted of travelling
on a train without a 7cket with the inten7on to defraud and so Evans applied to have the
partnership dissolved based on this. Held: As honesty was an important element in a business,
Carmichael’s convic7on for dishonesty was considered to be detrimental to the partnership
business. (//)
4) Persistent breaches
-Sec 37(d): When a partner persistently commits a breach of the partnership agreement and causes
it to be unreasonably prac7cable for the other partners to carry on the partnership business with
him.
-Persistent breaches aMect the faith and con3dence among the partners, and as such the
partnership cannot con7nue to exist. The court must be sa7s3ed that the acts of a partner are such
that it destroys the mutual con3dence that is necessary to carry on a partnership business.
-Cheeseman v Price: A partner persistently made mistakes in book keeping and did not keep a
regular record of the money he had received from their customers. Held: Such behavior can allow
the partnership to be dissolved. (//)
-J.M.M. Lewis & Ors v W.E. Balasingam: Consistent absence from the oUce does not cons7tute an
excessive behavior of a partner that would enable the partnership to be dissolved. (XX)
5) Carrying on business at a loss
-Sec 37(e): When the business of the partnership can only be carried on at a loss.
-A partnership exists with a view of making pro3t If it is impossible for pro3t to be obtained, it
defeats the purpose of crea7ng a partnership at the 3rst place, thus, enabling it to be dissolved.
However, it must be proven that there is prac7cable impossibility of making pro3t.
-Handyside v Campbell: The plain7M applied to the court to have the partnership dissolved on the
ground that the business would only con7nue making losses. The other partners admi[ed that the
3rm had been suMering losses, but if it was not due to the poor management by the plain7M, and
his absence for a long 7me due to illness, there is possibility for the business to recover and make
pro3ts. Held: The applica7on to dissolve the partnership was not allowed.
6) Just and equitable grounds
-Sec 37(f): In any circumstances, the court may in its opinion dissolve the partnership on just and
equitable grounds.
-Any partner may apply, but the court may refuse to consider the applica7on of a partner who may
be at fault. Where both par7es are at fault, the court may allow the applica7on on just and
equitable grounds.
-The grounds are non-exhaus7ve and it can be of any situa7on. (e.g. complete breakdown of
communica7ons between partners, or when the partnership has reached a deadlock)
-Mere diMerences between partners would not be a ground to have a partnership dissolved.
-Re Yenidje Tobacco Co. Ltd: Although the partnership’s business was thriving, the rela7onship of
the partners had come to a stands7ll. They only communicated through the secretary of the 3rm.
Held: The dissolu7on of the 3rm was ordered on just and equitable grounds.
4. EVect of 1) A partner is en7tled to no7fy the public to inform them that the partnership has been dissolved.
dissolu'on i) Personal no7ce must be given to exis7ng third par7es who have been dealing with the
3rm.
ii) No7ce by way of adver7sement must be given to no7fy any future third par7es
2) The authority of partners s7ll con7nues to a limited extent to enable them to wind up the 3rm’s
business.
3) The partners are allowed to apply the partnership property towards the payment of the 3rm’s
debts and liabili7es.
4) Where one partner has paid a premium to enter into a partnership that has been prematurely
dissolved (before expira7on of term), he would be en7tled to the repayment of the premium in
whole or in part of he is not at fault.
5) Regardless of the mode of dissolu7on, if former partners wish to resume the partnership, new
agreement must be entered into and the partnership must be registered.
