Business Partnership Disputes in Singapore: How to Resolve
As a partner in a partnership, you may be facing ongoing disputes with the other partners. Or, even if you are not on the receiving end of these disputes, ongoing tension between other partners in the partnership may be adversely affecting the business.
This article provides 5 possible solutions to enable you to effectively resolve these disputes as soon as possible.
When Might Partnership Disputes Arise?
Disputes between partners can arise for many reasons. For one, they may arise if there are disagreements regarding the management of the business. For example, on how limited resources should be allocated, or if there are diverging visions for the business.
A lack of consensus on such matters could potentially result in a dispute as one (or more) partner(s) may then act in a way which the others do not agree with.
Disputes may also arise if you feel that some partners are not acting for the benefit of the business. For instance, a partner may be secretly competing with the partnership, or putting in less than his or her fair share of work.
As partners generally share in both profits and losses of the partnership (subject to exceptions which will be addressed in the next section), disputes may arise if there is perceived inequality in each partner’s contributions to the business.
Preliminary Issue to Consider in Partnership Disputes
What are the terms of your partnership agreement?
Your first port of call should always be to look towards the partnership agreement. This is to determine if the agreement contains a dispute resolution clause and if there is one, how it states that disputes should be resolved.
For example, there may be a clause requiring all disputes between the partners to be resolved through a compromise mediated by a neutral third-party.
If there is no dispute resolution clause, or if the mechanism stated within is insufficient to resolve the dispute, you may consider the following options:
How Partnership Disputes May be Resolved
1) Negotiating with the partner(s) involved
You should consider resolving the partnership dispute by negotiating with your partner(s). If the dispute is resolved amicably, it is recommended that the partnership agreement be updated at this juncture.
This ensures that any changes that have arisen since the commencement of the partnership and as a result of the negotiation (e.g. in terms of the partnership’s goals or each partner’s decision-making powers) are reflected in the agreement, to facilitate the partnership moving forward.
Cost-effective: As no third-party intermediaries are involved, there will be no external costs.
Requires all parties’ cooperation: Given that the relationship between you and the partner(s) in dispute may be extremely acrimonious, cooperating to come to a compromise may not be feasible.
2) Seeking commercial mediation
You can resolve your dispute through commercial mediation at the Singapore Mediation Centre (SMC). In a commercial mediation, a neutral third-party, i.e. a mediator, will be appointed by the SMC to facilitate negotiations between the partners.
The aim is to arrive at a mutually acceptable solution in the form of a settlement agreement.
- Time-effective: Where both parties have agreed to commercial mediation, a mediation session will likely be convened within days of submitting a Request for Mediation.
- Confidential: All communications made during the mediation, including information disclosed and views expressed, are made on a strictly “without prejudice” basis and cannot be used by the parties in any other proceedings.
- Cost-effective: Although costs are involved in bringing a matter to mediation, mediation is likely to be less expensive than commencing litigation.
- In mediation, the payable fees are standardised depending on the amount of the claim and the duration of mediation.
- For example, for a claim amounting up to $100,000, the fee to be paid is fixed at $963 per day. If mediation carries on for 2 days, parties will know that the fee will amount to $963 x 2 = $1926.
- As a result, parties to a mediation will be able to predict the payable fees with reasonable certainty. This is unlike litigation, where fixed fees are rarely applicable. Instead, the costs of litigation are contingent on many factors, including your choice of counsel, the type of court where the hearing takes place and whether witnesses are to be brought in.
- Unlikely to affect the business: As mediation proceedings are entirely confidential, important business partners outside of the partnership (such as suppliers, investors and clients) are unlikely to become aware of any partnership disputes and lose confidence in the business as a result.
- More time may need to be taken to persuade all parties to agree to mediation: After receiving one party’s request for mediation, SMC will have to contact the other potential parties to the mediation within 14 days, to persuade them to participate in a mediation session. If the parties do not manage to decide on a mediation date within 21 days of the date of request, they will be given up to 6 months from the date of request to do so. This may stretch out the entire mediation process.
- Hinges on both parties’ willingness to cooperate: Mediation is unlikely to succeed if one party refuses to cooperate in proceedings, as no settlement can ultimately be made.
3) Removing the partner
It is possible for a partner to be removed by a majority of the partners if the power to do so has been conferred by express agreement between the partners.
Effective: As the partner whom you or a majority of the partners have a dispute with is removed from the partnership, it is likely that the issue will no longer persist.
- Availability of removal strictly dependent on partnership agreement: In the absence of any express agreement between the partners allowing a majority of partners to remove a partner, such removal is not possible.
- Removing the partner may compromise the partnership structure:
- For partnerships structured as Limited Partnerships (LPs), they are required to have at least 1 general partner (to be responsible for all the actions of the LP, and its debts and losses) and 1 limited partner (to be responsible for the LP’s debts and losses up to his agreed contribution, provided that he does not take part in the management of the LP).
- If an LP’s only limited partner has been removed such that it has no limited partner registered with the Accounting and Corporate Regulatory Authority (ACRA), the LP will be suspended and the general partner(s) will have their business registered as a general partnership.
- If an LP’s only general partner has been removed, it is likely that the LP will be dissolved, given that no management decisions can be made by the remaining limited partners.
4) Suing the partner
Resolving partnership disputes by suing the partner that you have a dispute with is another option to resolve the partnership dispute, but civil litigation should usually be one of your last resorts.
Finality of court decisions: The advantage of engaging in civil litigation is that the court’s decision is final and binding on the parties. Thus, the losing party will not be able to disregard the decision without being in contempt of court.
- Costly: Litigation is likely to be costly, especially when legal expertise has to be sought.
- Detrimental to the business: Opting for litigation is likely to be extremely disruptive to the business. As litigation proceedings are usually not confidential, important business partners may become aware of such dispute and as a result, may lose confidence in your business. Even if you win the lawsuit, there is a significant chance that the business may still be negatively affected, for example, if the public no longer trusts that the partnership can be governed well.
- Time-consuming: Resolving a partnership dispute using civil litigation will usually take a significant period of time, as there are many steps to this process.
5) Dissolution of the partnership
Alternatively, if the differences between the partners have broken down irretrievably such that they can no longer carry on the business, it may be more feasible to consider dissolving the partnership.
For partnerships structured as general partnerships and LPs, there are several grounds of dissolution under the Partnership Act which may be relevant to partnership disputes. The court can give an order to dissolve a partnership when:
- A partner has been guilty of conduct which prejudices the partnership’s business;
- A partner wilfully or persistently commits a breach of the partnership agreement;
- The business of the partnership can only be carried on at a loss; and
- Where it is just and equitable for the partnership to be dissolved.
On the other hand, a partnership structured as a Limited Liability Partnership (LLP) can be dissolved in the following 3 ways:
- The LLP may apply to ACRA be struck off the register, if such application is approved and if there is no sustainable objection.
- The partners may voluntarily pass a resolution to wind up the LLP if they believe that the LLP will be able to pay off its debts in full within 12 months after the commencement of the winding up.
- The LLP may apply to court to have itself wound up if the partners have made a resolution to this effect.
Straightforward: As the requirements for dissolution are set out in the various partnership statutes (such as the Limited Liability Partnerships Act for LLPs), it is relatively simpler to apply to the court or ACRA in accordance with these requirements.
Final and irreversible: Once the partnership has been dissolved, it is not possible for it to be reinstated. Thus, dissolution is a step that should be taken only if all partners are certain that the business cannot and should not be carried on any longer.
How to Ensure Partnership Disputes Can be More Effectively Resolved in the Future
Inserting/updating dispute resolution clause in partnership agreement
As mentioned above briefly, it is possible to insert a dispute resolution clause into the partnership agreement. The purpose of such a clause is to allow partners to have a clear expectation of how disputes are to be resolved.
Ideally, there should be the following terms in a dispute resolution clause:
- Form of dispute resolution: As civil litigation is likely to be long and protracted, it may be preferable to have mediation as the only avenue for dispute resolution. Alternatively, the clause can compel parties to engage in mediation prior to initiating legal action in court.
- Governing law and jurisdiction: If there are parties domiciled overseas involved in the partnership, it may be uncertain whether disputes will be resolved in Singapore or overseas. Thus, it would be best to set out from the outset which jurisdiction the dispute is to be resolved in, and which jurisdiction’s law is to be applied to the dispute.
Inserting a buyout mechanism in partnership agreement
It is also possible to insert a buyout mechanism into the partnership agreement, which states the terms and conditions under which a partner can buy over another partner’s interest in the partnership in the event a dispute arises.
Inserting clause for removal of partner
As mentioned earlier, a partner can only be removed by a majority of the partners if the power to do so had been conferred by express agreement between the partners. Thus, it would be useful if a clause conferring such power on a majority of the partners is inserted into the partnership agreement, such that a partner can be removed if the need arises.
A partnership dispute is likely to cause significant stress to the parties involved, especially if it is adversely affecting the running of your business. However, a more coherent understanding of the available options to resolve the dispute will ensure that this process will proceed more smoothly.
A corporate lawyer will be able to advise you on how to resolve any partnership disputes you are currently facing as amicably and economically as possible.
To ensure that any future disputes between partners are resolved effectively and in a timely manner, the drafting of the partnership agreement, which forms the foundation of the partnership, is also of utmost importance.
As the effectiveness of the clauses will depend on their exact wording, you may also wish to engage a corporate lawyer to draft your partnership agreement for you.
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