Article / 1 May 2024
In this month’s update we:
The Court of Appeal has held that a partner who resigned from a partnership was entitled to be paid their share of the value of the partnership assets despite the partnership agreement not containing any provision to that effect.
Proctor v Proctor [2024] EWCA Civ 324 involved a dispute between the partners in a family partnership that operated a 600-acre Yorkshire farm. The partnership was originally set up by the family’s grandparents but, by the time of the dispute, the four partners were two brothers, their sister and their father.
The partners had entered into a partnership agreement under which each of the four partners was entitled to an equal one-quarter share in the partnership profits. However, whilst the agreement set out various circumstances in which a partner would cease to be a partner, it was silent on a partner’s ability to unilaterally resign from the partnership. There is also no such right under the Partnership Act 1890.
The sister, who lived and worked in London, had no day-to-day involvement in the partnership. Perhaps mindful of the fact that, as a partner, she was liable for the debts and obligations of the partnership which had made a loss in 2008 and 2009, the sister wrote to the other partners in June 2010 “to confirm my resignation from the partnership with immediate effect”. The other partners, under the mistaken belief that she was entitled to resign, all accepted her resignation and continued in partnership together, taking over the assets and liabilities of the partnership. However, nothing was said, let alone agreed, between the partners about the financial terms on which the sister was to leave the partnership.
After the sister’s resignation, the partnership was found to have the benefit of a yearly tenancy of the farmland which was protected under the Agricultural Holdings Act 1986. This asset had a substantial value, despite not having previously been recorded in the partnership’s accounts (due to the partners being unaware of its existence).
The sister claimed she was entitled to a payment reflecting her interest in the partnership assets, essentially equal to one-quarter of the value of the agricultural tenancy at the time of her resignation. The judge at first instance agreed with the sister. But the continuing partners appealed his decision arguing that there was no express agreement that the sister was entitled to such a payment; no basis for implying an agreement to that effect; and no other statutory or legal basis for any such entitlement. They argued that, by retiring from the partnership, she had effectively given up her interest in its assets.
The Court of Appeal dismissed the continuing partners’ appeal.
The Court noted that, since the assets of a partnership are owned collectively by the partners, each partner has a proprietary interest in the partnership property. When determining what happens to that proprietary interest when a partner retires, the first port of call is what the partners have agreed in the partnership agreement. But, if that agreement is silent, what is the position?
The Court rejected the continuing partners’ submission that a partner who resigns without any agreement as to whether or not a payment should be made is to be taken as agreeing to surrender or assign their interest to the continuing partners without payment. As the Court noted, there being no agreement as to what, if anything, should be paid is very different from there being an agreement that nothing should be paid.
Since her resignation, the continuing partners had continued to use the sister’s interest in the partnership assets without accounting to her for it. They should now be required to do so, based on the actual value of the relevant assets at the relevant time rather than on their book values (which would be based on an historic cost or, in the case of the agricultural tenancy, nil since it was not known at the time and therefore was not included in the accounts).
This case is a reminder of the importance of partners agreeing all relevant terms in a written partnership agreement. In the absence of express agreement, disputes and litigation may result in the court stepping in to decide what the appropriate arrangements are.
Since all partnerships are different, a “one-size-fits-all” approach is not appropriate and the exact requirements will vary. For example, professional partnerships will generally provide that a retiring partner is not entitled to receive any payment for their share of the partnership assets which will simply transfer automatically to the continuing partners. In a family farming partnership as featured in this case, careful thought needs to be given to how, on a partner’s retirement or resignation, the interests of those partners who wish to continue farming can be reconciled with those who wish to realise their property.
The Government has announced that it will be introducing legislation to stop non-disclosure agreements (NDAs) being used to prevent victims from reporting a crime or from disclosing it to certain groups.
The proposal was one of six recommendations included in the Government’s response to its 2019 consultation on the misuse of confidentiality clauses. That consultation was launched, following high profile cases such as that involving Zelda Perkins and Harvey Weinstein, in order to address concerns that victims of sexual harassment felt unable to report crimes or seek appropriate medical or legal help due to extensive “gagging” clauses included in settlement agreements which they were required to sign.
The new legislation will clarify that NDAs cannot be legally enforced if they prevent victims from reporting a crime. It will also ensure that information related to criminal conduct can be discussed with the following groups without fear of legal action:
The Government announcement gives no indication of what is meant by “information related to criminal conduct” and whether this requires a crime to have been committed or merely that the victim suspects something may be a crime. It is not limited merely to crimes involving sexual harassment and other forms of “hate crime”, for example relating to race, disability or religion, will also be caught.
It is important to remember that not all confidentiality clauses will be affected by the new legislation. The Government recognises that they can legitimately be used to protect commercially sensitive information, financial agreements and any other obligations. These are unrelated to the type of disclosures that the Government is seeking to protect and will retain their legal effects.
The Government has said that legislation will be introduced “as soon as parliamentary time allows”. Given that it is five years since the original consultation on this was launched, it remains to be seen whether the legislation will be passed before the general election.
The UK’s reporting on payment practices regime has been extended and expanded by the Reporting on Payment Practices and Performance (Amendment) Regulations 2024 (the 2024 Regulations).
The 2024 Regulations, which came into force on 5 April 2024, extend the expiry date of the regime from 6 April 2024 to 6 April 2031 and introduce additional reporting requirements for in-scope entities.
The late payment of suppliers has long been recognised as a significant issue for UK businesses, particularly small businesses. Late payment adversely affects the liquidity of affected organisations, restricts their ability to invest and can, ultimately, force them to exit the market.
The Reporting on Payment Practices and Performance Regulations 2017 (the Principal Regulations) were introduced to increase information and transparency in the market regarding the payment practices and performance of large businesses. It was hoped that this transparency would help to drive a culture change toward more prompt payment.
The Principal Regulations impose a duty on large companies to report on their payment practices and policies approximately every six months, and to publish those reports on a Government-hosted website that is open to the public. (Equivalent regulations impose the same requirements on large limited liability partnerships.) Information that must be included in the reports includes:
The Principal Regulations were originally due to expire on 06 April 2024, but a 2023 consultation showed strong support for continuing with the reporting regime and for improving some of its requirements. This has been reflected in the 2024 Regulations.
The 2024 Regulations amend the expiry and review dates under the Principal Regulations so that the expiry date of the regime is now 6 April 2031 (with a review to take place by 6 April 2029).
In addition to carrying forward the existing reporting requirements, the 2024 Regulations also expand the regime by introducing provisions that require the reporting of:
The 2024 Regulations also clarify how payments should be reported when a third party “supply chain” finance provider is involved.
The Government is due to publish updated guidance for in-scope businesses on how to comply with the revised regime.
FTSE Russell, the UK’s major benchmark provider, has published an overview of the provisional changes it intends to make to its FTSE UK Index Series ground rules once the FCA’s anticipated reforms to the UK listing regime take effect.
The FTSE UK Index Series (FTSE Series) comprises several stock market indices, including the FTSE 100, FTSE 250, and FTSE All-Share. These indices are used by investors to measure the performance of the UK equity market and are key for comparing a company’s performance against a peer group. Inclusion within the FTSE Series is helpful for raising a company’s profile and attracting institutional investment, and so remains a goal of many companies listing on the Main Market of the London Stock Exchange.
FTSE Russell sets eligibility criteria for inclusion of securities in the FTSE Series. If a security satisfies that criteria, the size of its market capitalisation determines in which index it is included.
Currently, one of the eligibility criteria for inclusion in the FTSE Series is that a company has Premium listed equity shares traded on the Main Market.
Under the FCA’s proposals for listing reform, the current Premium and Standard listing segments will be replaced by a new single category for commercial companies – Equity Shares (Commercial Companies) (ESCC). Five new listing categories in total will be created, including one for Closed Ended Investment Funds, a Transitional category for commercial companies currently with a Standard listing, and an International Secondary Listings category.
To accommodate the proposed new listing structure, FTSE Russell has indicated (in its recently published Summary and FAQs) the following key developments in relation to the FTSE Series:
As current Premium listed companies are expected to be automatically mapped to the new ESCC and Closed Ended Investment categories (as applicable), there is not expected to be an immediate impact to the FTSE Series on day one of the new listing regime.
FTSE Russell will confirm its Index inclusion criteria shortly after the listing regime changes are finalised. The FCA has recently consulted on the second tranche of its proposed new UK Listing Rules sourcebook (UKLR) and expects the final UKLR to be published at the beginning of H2 2024. Implementation of the new regime is expected to take place two weeks after publication of the final rules.
First published in Accountancy Daily.
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