Farming feature – November 2024
Within family partnerships, it is common for partners to find it difficult to discuss what should happen in the event that a partner leaves the partnership.
However, as the following case sadly demonstrates, this only stores up problems for the future.
The recent case of Procter v Procter [2024] EWCA Civ 324 involved a family farming in partnership.
There was a partnership agreement in place, which confirmed that each partner was entitled to a one quarter share of the profits.
However, the agreement did not confirm what would happen when a partner left the partnership.
A dispute arose when one of the partners decided to retire, as the retiring partner claimed that she was entitled to a one quarter share of the partnership’s assets and income but the remaining partners disagreed.
Therefore, the court was required to consider what a retiring partner is entitled to, where the terms of a departure are not agreed.
The court’s decision
The court decided that the retiring partner was entitled to the value of her share of the partnership assets at retirement.
This decision clarified the following:
An agreement that a partner should retire does not automatically mean they want to give up their interest in the partnership for nothing.
When determining a retiring partner’s financial entitlements, the starting point is checking the terms of the partnership agreement. If the agreement confirms the retiring partner should receive a payment in respect of their partnership share, or that their share shall vest in the continuing partners without payment, that determines conclusively what the retiring partner is entitled to.
Where the agreement does not deal with entitlement on retirement and there has been no other agreement at the time of a partner’s retirement, the retiring partner is taken to have retained their share in the partnership assets at the date of their retirement.
Unless agreed otherwise, the value of the retiring partner’s share should be based on the actual market value of the relevant partnership assets at the time of retirement and not the book value entered into the partnership accounts.
To help avoid these issues arising, partners should take action now by:
Taking professional advice to ensure the bespoke drafting required for your partnership agreement is achieved.
Record the agreement in writing to provide certainty and prevent disputes in the future.
How can Crombie Wilkinson Solicitors help?
The position on a retirement should not be left as an afterthought in a farming partnership, especially where substantial value is held.
Partnership disputes remain a prime area of costly litigation. Crombie Wilkinson Solicitors’ agricultural team provides clear, concise and thorough advice on Partnership Agreements and other agricultural matters, so do not hesitate to contact us on 01653 600070.
However, should you find yourself in a position where a dispute escalates, litigation experts are on hand to help.
For further information, contact a member of the team on 01904 624185.
by Amy Clarkson of Crombie Wilkinson Solicitors
