Net Value Means Current Value Not Book Value, Rules Court
16th January, 2014
When a family partnership broke up, a lack of precision in the drafting of the partnership agreement led to an appearance in the Court of Appeal.
Two farmers took their 19-year-old son into partnership in 1997. In 2009, the son gave three months’ notice to terminate the partnership. The partnership agreement gave the remaining partners the right to buy out the retiring partner.
A dispute arose between them as to the price to be paid for the retiring partner’s share. Should it be based on the current market value of the assets, as the son claimed, or on the value of the assets shown in the partnership accounts, as his parents claimed?
The partnership agreement stated that in the event of a termination of the partnership, the ‘net value’ to be attributed to the assets would be ‘agreed between the Partners or their respective successors (as the case may be) or in default of such agreement shall be determined by the partnership accountants’. However, there was no definition of ‘net value’, which LJ Lewison described as a ‘most regrettable’ omission.
After an extensive discussion of the role of the accountants and their expertise, the Court of Appeal concluded that the partnership agreement required that on a termination, the actual values of the assets had to be taken into account rather than their ‘book values’ in the annual accounts.
It was persuasive that the alternative to the buy-out provision in the partnership deed was a winding up of the partnership, when the assets would have been disposed of at their open-market values.
The lesson for any partnership is that the partnership deed needs to be clear as to the definition of terms.
For advice on all partnership law, or to bring your partnership deed up to date, contact Mark Briegal on 01244 405563 or email [email protected]
You might also be interested in...
16th November, 2018
It is reported that a quarter of all complaints dealt with by the Legal Ombudsman revolve around costs therefore to avoid complaints and confusion, it is important to be clear from the outset. The new Transparency Rules (which the SRA have now confirmed will come into effect on 6 December 2018) require that accurate and relevant information is... Read More »
5th November, 2018
Aaron & Partners LLP has once again seen improved rankings in The Legal 500 – a comprehensive guide... Read More »
10th October, 2018
In the lead up to World Mental Health Day on 10 October 2018, we have been posting a series of short articles discussing mental health and stress in the workplace. In this final article, we will be providing tips, to employers and employees, for managing stress and dealing with mental ill health in the workplace. Click here to... Read More »