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Partnership Law - Question 1

The partnership is a means by which two or more people come together in order to form a business with the sole purpose of eating profit. In Victoria Australia Partnership Act 19957 governs the jurisdiction of partnership.

There are major two forms of partnership- general and limited. In a general partnership, each partner has unlimited liability for the debts and other responsibilities of the business all of the partners are responsible for the management and organisation of the business. A limited partnership is one in which one or more partner's liability for the debts and other obligations of the business is very limited. There are a few advantages and disadvantages of a partnership. Advantages are- it provides a platform for all those people who have business care and financial resources in order for them to combine then to run a business, it is very cheap and has less of paperwork involved to establish a partnership, the entire control and management of the firm is divided amongst the partners involved, there are many governments all tax rebates and subsidies provided to in partnership form as compared to a sole trader proprietorship. Some of the disadvantages are- a partnership is not a separate legal entity each partner is fully responsible for all the liabilities and debts that are incurred on behalf of a business either by the business itself or by other partners with or without their knowledge, the could be many possible disputes among the partners on issues like individual share on profit, their control, and decisions of the business, a partnership is not liable for coming under the purview of any income tax as an individual taxpayer. The partners of the partnership firm are eligible to pay the income tax with respect to their own share of taxable profits for every financial year.[1]

There are some partnership firms which are a public limited company and their revenue is incurred by the contribution of the shareholders of the respective countries stock exchange. However, if any company becomes insolvent then the rise of the shareholders depends on the insolvency terms of the shareholder agreement was signed by them with the company. Generally, the right of the shareholders is very limited in any insolvency scenario. If the insolvent company appoints any liquidator its primary responsibility is to pay the creditors of the company. In such a case the rights of the shareholders tend to be very limited when it comes to making a decision on whether there should be a committee of inspection that could help the appointed liquidator. It depends upon the liquidator on how he is going to allocate the arrears of dividend which could be paid partly to the outstanding amounts of the shareholders.[2]

If a company appoints any voluntary administrator after the insolvency, he has the power over the company and its directors. The shareholders of such companies do not have any right to vote now or in future once the voluntary administrator is appointed. However, this could be challenged by the shareholders if their shareholder's agreement says otherwise, meaning it allows the company creditors to have a power of saying in any scenarios possible.


The Partnership Act of Australia (Victoria), 1957, is silent on how the shareholders will have the repercussions of suing any public company limited by shares. However, the Australia securities exchange commission has held that if a partnership firm limited by shares goes insolvent, then the shareholders of such firm are not liable to question or sue the firm for their respective shares on dividends. Hence in the current case, the shareholders off the GoGet company shall not benefit from implicating any legal action against the firm and by extension threatening to impose any legal action.

Partnership Law - Question 2

As per the Corporations Act 2001 whenever any firm gets dissolved or goes insolvent, a receiver is appointed by the court whose job is to first apply aspects of the partnership in payment of the debts and the other liabilities of the partnership and subsequently distribute the supplies if any left among the partners. However, when it comes to partnership there is no receiver appointed. State of that a liquidator or a group of liquidators are appointed to the partners individually. Search group of liquidators video thanks establishes an authority who stars is to distribute the partnership assets in accordance with the operations at priorities. However, a very recent Western Australian supreme court case, Woods & White v Hopkins (2016) WASC 16, have rejected this approach.

The question of appointing an external administrator does not stand with any partnership law of Australia. Under the common liquidation process of any company in relation to the unsecured debts and claims, the liquidator shall acquire the company's assets as per section 556 and 561 of the Corporation's Act. Section 556 talks about the wide variety of priorities when it comes to payment of debt and claims into winding up of a company. It says that along with the other things the expenditure on winding up shall be first paid as incurred by the appointee followed by the entitlement of the employees. However, when it comes to any secured creditor, he ranks above all the prospective creditors of the company. He is firstly and entitled to have his security for his employees as per section 561 of the corporation's act. This priority is only available in the case of non-circulating security interest there the employee entitlements shall be put above any circulating component of the security interest. It is a feature of interest that whenever any partnership is founder under the provisions of a corporations act which comprises of five or more members they shall fall within the ambit of section 583 of the Corporation's Act.[3]

In the above-mentioned case, applicable to the joint debts of the partners which furthermore shall be as per the priority basis of section 556 of the Corporations Act. The CBA accepted the first contention of the liquidators regarding the applicability of the partnership acids first on the joint debts of the partners. They held that partnership assets should be distributed as per section 50 of the partnership act and section 57. Section 50 is about the application of partnership property and section 57 is on rules for distribution of the acids on the final settlement of the accounts.

The question that arose in front of the jury was that providing about the partners the partnership act is applicable but should order of priorities as referred in section 56 of the Corporation's Act should be applicable in consonance with the partnership act. Hence it was held that in section 556, the legislature talked about winding up and dissolution of any company and not a partnership. Therefore section 556 applicability on a partnership does not stand. Section 556 cannot be applicable to the dissolution of winding up of the partnership unless the partnership is a company.


Therefore as per the above-mentioned case, section 556 of the Corporations Act shall be applicable on the GoGet Stores as it is a public company limited by shares. The winding-up of the partnership firm shall be in consonance with the Corporations Act of Australia. The liquidators are appointed by the court and not by the partners of the insolvent firm. Hence it could be held that Jovinick cannot have any say on how the assets of the partnership firm should be divided amongst all.

Partnership Law - Question 3

For availing defence for non-payment of money e to the suppliers, is considered to be an effort which is too vague to be admitted. The common law provides certain defences to the directors of any company who have acted default.

Four directors of a company are expected to work in the best interest of the company and the people who work with them. However, due to unforeseen circumstances, things may get worse for all. In such a case if a person or group of people want to sue the company, then there are certain differences which take can avail.[4]

  1. Duty of good faith- this is what it is considered to be the best defence for any director of the company. They could assert that whatever they did it was an in good faith and in the best interest of the company as a whole. They could plea that the exercise to their powers and discharge their duties with full honesty and for the betterment of the people.

However, then any of the dispute among the stakeholders and the directors of a company happens, it is just objectively that what a director considers anything reasonable that was in the best interest of the company. In the current case, it is quite evident that there was a lot of mismanagement among the directors of the company. When the going gets store was starting a new business with Jovinick Ventures Pty Ltd, it had the blessing of Nancy and Stephanie only. The remaining directors Imran, David, and Grace did not support their idea of joining with another company as already they were bankrupt. Hence during the voting, not either of them was present. Regardless of the absence, Nancy and Stephanie started the trading with Jovinick knowing that they already owe Beveridge a certain sum of money.

  1. Duty of Care and Diligence- It is expected of the directors that they discharge their powers and duty with due care and due diligence that a prudent man could think of any circumstances. This is just based on what a prudent man would have done if he were in the position of the director of the company or holds the same powers and responsibility as the director of the company. the responsibilities of the executive directors and other directors with certain specialisation and special skills and experience have a higher standard to maintain in any given circumstances. For example finance director who is skilled in financial economics shall we suppose to have breached his duty if he is not of any help to the company in financial matters[5]

However, none of the directors could clean the difference of duty of care and diligence if they are not able to meet the minimum objective standards. for example, it is expected of all the directors to take adequate steps in order to monitor and guide the management of the company. This shall extend to you the responsibility of all the directors to be present in all of the board of meeting and not be absent without any good reason. All directors are expected to have the minimum financial knowledge to understand the company's financial position and any financial statements that are required of the company to be made. Similarly in the given case, directors Nancy and Stephanie did not act due diligence as they already knew that they were under huge debt and even then they started a new business with Jovinick Ventures Pty Ltd. Having started a new business with Beveridge they were unable to pay them also as a result of which they had to sell one of the stores at a cost of $3 million.

Partnership Law - Question 4

  1. In the given case, Stephanie, Nancy, Grace, Imran and David do not seem to have satisfied the requirements of the partnership. As per section 7 of the partnership act 1957, which defines the rules for determining the existence of partnership states that things like joint tenancy, tenancy in common, the property of 8 ownership, the spelling of gross returns do not state that the concerned person/s are into a partnership. The receipt by the person of the share of profits of a business is proof that he is the partner of that business that is also subject to certain conditions. In short, there has to be a partnership agreement among the concerned persons in order to define that they are into partnership.

The current case, Stephanie, Nancy, Grace, David and Imran do not seem to satisfy the requirements of the partnership, and hence it cannot be called a partnership firm.

  1. Since there are no grounds that could prove that there is a partnership amongst the directors, therefore the items brought by David and Nancy but not make the others liable for the payment of it.
  2. For any matter to be assessed on by the partners of the company, all off must have a common consensus. In the new painting opportunities, Stephanie and Nancy did not take the view of the other people who had to have an equivalent say in the functioning of the business. The same is applicable to the new business venture with Jovinick. Hence the new painting opportunities taken by Stephanie and Nancy which was not disclosed to the other partners do not make them liable for the expenses incurred. Furthermore, the usage of the partnership tools that the used for this new painting opportunities had to be borne by Stephanie and Nancy, individually.

References for Duty of Care and Diligence

Fletcher, ’Conducting business as a partnership.’ (2018) <https://fletcherlaw.com.au/2018/03/conducting-business-as-a-partnership/  >

John-Williamson-Noble &Tim Gordon, ‘Shareholders' rights in private and public companies in Australia.’ (2017) <https://uk.practicallaw.thomsonreuters.com/2-611 6545?transitionType=Default&contextData=(sc.Default)&firstPage=true#co_anchor_a272115>

Piper Alderman, ‘Winding-up companies in a partnership – guidance for liquidators who are appointed to companies acting in partnership.’ (2016) <https://piperalderman.com.au/insight/winding-up-companies-in-a-partnership-guidance-for-liquidators-who-are-appointed-to-companies-acting-in-partnership/ >

Craig Andrade et al, ‘Duties and liabilities of directors of Australian companies.’ (2017) <https://www.bakermckenzie.com/-/media/files/locations/australia/bk_australia_dutiesliabilitiesofdirectors_dec17.pdf?la=en>

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Law Assignment Help

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