“… In these difficult times, in which many professional practices are facing potential or actual insolvency, it is important for “partners” to know what liabilities they face …”

Last week’s Court of Appeal judgment in the case of Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35 has brought more certainty to the frequently arising issue, “When is a partner not a partner?”

This will enable partnerships and LLPs to draft or redraft their governing agreements with greater confidence that their intentions as to the status of fixed share partners or members (as non-employees) will be upheld. Equally, individuals will have more clarity as to whether or not they are giving up their employment law rights when they become a “partner”.

Matters such as introduction of capital into the business, a share of profits that varies in size depending on the success of the business, a voice in management, and the apparent intention of the parties (as intimated by the nature of the documentation that is drawn up) are all relevant considerations when determining whether someone is a true Partnerships Act partner.

In these difficult times, in which many professional practices are facing potential or actual insolvency, it is important for “partners” to know what liabilities they face. While anyone held out as a partner is likely to have claimants knocking at their door in the event of their firm’s insolvency, any “partner” who is not a true partner will (still, despite Tiffin) have a much better chance of sending such claimants away empty-handed. Tiffin has undoubtedly made rebuffing such claims more difficult in some cases, but there are still ample opportunities for salaried and some fixed share partners to escape the financial consequences of their firm’s insolvency.

“… The classic example that is often given is where a firm has contracted to build a bridge, and dissolution occurs when only half of the bridge has been built …”

The recent case of Boghani v Nathoo [2011] EWHC 2101 (Ch) (judgment 2 August 2011) is a useful modern authority relating to the obligation and entitlement of partners to carry on the firm’s business following partnership dissolution.

At the date of dissolution the assets of the firm included two substantial but incomplete hotel developments. The partners were unable to agree how those developments should be disposed of in the winding up of the affairs of the firm, with one partner contending that following a three month marketing campaign the uncompleted hotels should be sold to the highest bidder, and the other partner maintaining that the hotels should be completed before being sold.

Expert evidence confirmed that the projects could each be sold within three months of commencement of a marketing campaign, whether or not the projects had been completed, but that the benefit to the firm of completing the projects was considerably more (some £65m more, net of the cost of completing the projects) compared with simply selling off the uncompleted hotels.

Section 39 of the Partnership Act 1890 states:

“On the dissolution of a partnership every partner is entitled, as against the other partners in the firm, and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners to the firm; and for that purpose any partner or his representatives may on the termination of the partnership apply to the Court to wind up the business and affairs of the firm.”

In other words, every partner in a partnership dissolution has the right to require that the assets of the firm should be sold and the proceeds used to pay the debts of the firm, with any surplus to be distributed amongst the partners.

However, section 38 states:

“After the dissolution of a partnership the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue notwithstanding the dissolution so far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise.”

The classic example that is often given is where a firm has contracted to build a bridge, and dissolution occurs when only half of the bridge has been built. The contract to build the bridge is a “transaction begun but unfinished.” There are contractual “obligations” to complete the project.

In the Boghani case, the Court considered whether it was “necessary” to complete the projects in order to wind up the affairs of the firm, and what “complete transactions” meant in this context.

Both of the principal contracts governing the developments permitted the firm to assign the benefit of the agreements and novate its obligations if it could find another developer to take its place. In addition, both partners were willing and able to purchase the uncompleted projects. It followed from that that it was not “necessary” to complete the projects, as the winding up could occur through disposal of the hotels. The “transactions” (the outstanding contractual obligations) could be “completed” through assignment and/or novation.

Furthermore, the projects required further financing to complete them. While there was no indication either way as to whether such financing would be available, the Court pointed out that financing would involve “further and new post-dissolution contracts.” That said, historically the Courts have recognised that where a firm has an obligation to finish a bridge, it can (post-dissolution) enter into new contracts to purchase the girders necessary to finish it. So there is a lack of clarity here as to how one distinguishes between the need to enter into new financing contracts and the need to enter into new contracts to purchase girders.

However, in the Boghani case, on the basis (principally I believe) of the ability to assign/novate the contracts, the Court found that it was not appropriate to order that the partners should co-operate in completing the projects prior to sale; instead the uncompleted hotels should be marketed and sold immediately.

The corollary of the above is that where a firm has both a contractual obligation and the ability to complete a project, and there are no “escape clauses” (for example, permitting assignment/novation, or indeed permitting termination of the contract altogether), and/or there are no third parties (or partners) willing to take over the incomplete project, partners are likely to be entitled to insist that their co-partners should co-operate in completing the project as part of the winding up process.

“… considerable profits have been made, and essentially it is worth fighting over …”

The recent case of Eaton v Caulfield & others (an unfair prejudice petition brought under section 994 of the Companies Act 2006, coupled with a just and equitable winding up petition under section 122(1)(g) of the Insolvency Act 1986) highlights the difficulties faced by LLP members who do not have an LLP members’ agreement setting out their rights and obligations.

All too often parties who wish to enter into business together incorporate an LLP, but are in such a rush to get started that they don’t think about or finish thinking about the precise basis on which they wish to do business together. They plunge into a business project only to find some time later that issues emerge, perhaps issues that were always there but had not been identified. By then the business has taken wing, there is considerable client/customer goodwill and/or considerable profits have been made, and essentially the business is worth fighting over.

Typically, one or more parties decide that it would be better for them to be doing business on their own or to the exclusion of one or more of the other participants, and they look for ways to exit the people they can no longer work with, or to walk away themselves, taking their capital and business connections with them.

Unfortunately, the default rules (contained in the Limited Liability Partnerships Regulations 2001) that govern the relationship between the parties in the absence of agreed terms are minimal and usually inadequate to deal with the sort of issues that often arise. In many cases where there is no LLP members’ agreement the participants discover that they cannot lawfully do what they want to do.

In the Eaton case the parties found themselves at trial arguing over whether one party had been entitled to expel the other and whether certain verbal exchanges were sufficient to override the default rule that in the absence of contrary agreement the profits and capital are to be shared equally.

The difficulty with not writing down the precise terms on which you are going to be in business together, and making it a term of that agreement that all variations have to be in writing and signed by the parties, is that the law recognises oral agreements and oral variations of written agreements.

So in the Eaton case the (no doubt very expensive) trial was concerned with what was said about expulsion in a management meeting and during an argumentative drinking session on a train journey, and what terms as to profit-sharing and ownership of capital were agreed in an exchange of emails.

It is always difficult in such cases to pull a clear statement as to what was agreed out of a morass of conversation and often casually-expressed correspondence.

The outcome was that it was found that there was no agreement permitting the expulsion of a member, so that Mr Eaton, by being “dismissed”, had been unfairly prejudiced and was entitled to wind up the LLP and receive an equal share of any surplus value in the business.

This outcome may well have been a disaster for all concerned, including the “winner”, as the value of any business’s goodwill would be bound to be severely damaged by entry into liquidation and consequent ceasing to trade. In such a case the parties may try to do a hurried deal to salvage such value as they can, that is if they can bring themselves at that point in time to negotiate with one another.

In effect in such cases the Judge writes the parties’ agreement for them, but the cost of that can typically be at least 100 times greater than the cost of taking professional advice at the outset.

Those who wish to use an LLP as their business vehicle should ensure that they have an LLP members’ agreement in place, before they open their doors for business.  Those who have omitted to do so should put one in place as soon as they can, before the honeymoon period is over.

“… most conduct that would have been sufficient to justify a discrimination or sexual harassment claim may well be oppressive and unacceptable and cause anxiety, alarm or distress …”

It is quite a common occurrence these days to find at the first meeting with a client that he or she has a perfectly good discrimination claim against the firm or LLP in which he or she has been a partner or member, but that the claim is barred by the very short limitation period (three months) applicable to discrimination and other claims in the Employment Tribunal. Such claims encompass discrimination on the grounds of age, race, nationality, religion (including the absence thereof), gender and sexual orientation, as well as sexual harassment.

It is pretty grim for someone who has a good claim under one or more of these heads, who has taken a bit of time to compose themselves after what may have been a traumatic ejection from their place of work, to find that they have no remedy in the Employment Tribunal because they have left it too long.

However, all may not be lost. The civil remedy under section 3 of the Protection From Harassment Act 1997 is often available to a potential discrimination claimant. The harassment cause of action has a limitation period of six years. Its ambit goes far beyond discrimination.

In order to establish such a claim against one or more partners or members or an LLP, the claimant has to prove the following:

1    The defendant(s) pursued a course of conduct (on at least two separate occasions) which:

a    amounted to harassment of the claimant; and

b    The defendant knew or ought to have known (an objective reasonable person test is applied) amounted to harassment of the claimant; and

2    The conduct was oppressive and unacceptable.

The above of course begs the question what is harassment.  Harassment means causing anxiety, alarm or distress.  Unlike a personal injury claim it is not necessary to demonstrate psychiatric injury (or negligence, or foreseeability).

Conduct includes speech, but the speech must go beyond “the ordinary banter and badinage of life”.

There is no requirement for other illegality.  Therefore the harassment does not have to be capable of amounting to a criminal act other than harassment, or another tort.

Harassment does require conduct outside the norm.  That said, most conduct that would have been sufficient to justify a discrimination or sexual harassment claim may well be oppressive and unacceptable and cause anxiety, alarm or distress.

Each case of course turns on its own facts, but as management regimes grow tougher in the poor economic climate, practices need to consider carefully what is and is not acceptable conduct in the drive to “incentivise” partners/members.

Few would doubt that what might be characterised as bullying of one sort or another does take place between partners in some firms, even in professional practices, whether by way of autocratic rule, offensive office banter, strategic manoeuvring, or opinion-shaping or other forms of “ganging-up”.

Personal damages (for anxiety, etc) and actual financial loss can be recovered, and there is no limit.  The usual requirements of mitigation apply, but subject to that it is open to partner and LLP member claimants to recover very substantial sums.  In one of the leading cases, which was an employment case involving long-term bullying, which resulted in two nervous breakdowns, the recovery was in excess of £800,000 plus legal costs.

In many cases there may well be a cross-over or overlap between harassment and the duty of good faith.  However, in many LLP environments the duty of good faith may well not apply, even by implication, and in others it may be expressly excluded under the members’ agreement.  Also, breach of the duty of good faith is unlikely to give rise to the ability to claim damages for non-financial injury (at least not without establishing psychiatric injury).  There may be types of conduct which arguably engage only one of these causes of action, so unless there is good reason to do otherwise one should consider pursuing harassment and breach of the duty of good faith in tandem.

“… after a few hours of tight-lipped civility, one or other of the parties … cannot stop himself telling the other party what he really thinks …”

There are a number of factors which distinguish partnership disputes from other types of commercial dispute.  In consequence, different methods are sometimes required to achieve settlement.

In this article I include in “partnership disputes” any dispute between proprietor managers of a small business, be they disputes between partners in a traditional partnership, or members of a limited liability partnership (LLP), or boardroom disputes between director shareholders of a limited company.  The unifying factor is proprietors who have worked together shoulder to shoulder to build and run a small business.  In this article I refer to all of these scenarios when I refer to “partners” and “partnership”.

Like all groups of people who face challenges together, partners must adapt to each other’s strengths and weaknesses, relying to a very great extent on mutual support and having trust and confidence in one another.  That trust and confidence is taken as a given, usually not even considered on a day-to-day basis.

But any breach of that trust will take centre stage.  Anyone charged with resolving such disputes must understand and take account of the emotional issues which often predominate.

I have repeatedly come across a willingness of sophisticated businessmen to walk away from the settlement process because of financially insignificant issues.  Partners who are not offered appropriate treatment for their emotional wounds are often willing to abandon settlement efforts and proceed to resolve their dispute in the much more expensive and uncertain forum of court proceedings or arbitration.  The costs and risks will greatly outweigh the commercial value (often £nil) of the issue which their head tells them to move on from, but which their heart will not let go of.

Examples of things which are sometimes very important to partners, but which have little or no financial value, are demonstration of remorse, admission of guilt, apology, thanks, and recognition of contribution.  In some disputes this emotional “currency” is more valuable to a party than any financial currency they are likely to be offered.  Going into a mediation, they may not even realise that this is the case.

Most importantly, the expression of remorse, apology, etc must be genuine, or at least perceived to be genuine.  It is difficult to fake a genuine apology, or put another way, it is very easy to spot a contrived apology. 

This creates an impasse.  While it is difficult for some parties to compromise without receiving some emotional currency as part of the deal, equally it can be very difficult for their opponent to reach deeply enough into his or her emotional pocket to find enough of this genuine currency to hand over.

In some mediations, after a few hours of tight-lipped civility, one or other of the parties becomes overwhelmed with anger or a sense of injustice and cannot stop himself telling the other party what he really thinks, what damage has been done, and how he feels about it.  Voices can become raised and the mediator has to assess how far he should allow the parties to go before stepping in. Sometimes this breaking of the emotional tension benefits both parties as it enables them to “move on”.

Though mediation is not as predictable as physics, it can be the case in mediation that for every action there is an equal and opposite reaction.  The anger, pain, distress and vulnerability that is communicated subliminally to an opponent in an uncontrolled emotional outburst is often the trigger for the opponent to find it in himself, just as spontaneously, to offer the genuine apology or other emotional currency that the other party is looking for. 

The giver of the apology may have been suffering from a niggling doubt about his own moral integrity, and through his genuine expression of remorse the weight of this doubt about his own conduct may have been lifted.  Often it is not as clear-cut or one-way as that, because both parties could have done better and both need to apologise or give recognition in some way.  Either way, all appropriate emotional “payments” having been made, and both parties having got things off their chest, they are ready to focus on the financial or other commercial terms of a settlement, and to make the concessions that will be required if a compromise is to be reached.

“… the income of the firm may well diminish and/or partners may not account fully or at all for accrued WIP …”

Unless there is an express agreement between partners permitting retirement, no partner can retire from a partnership at will.  The only way to bring about termination of the relationship is for one or more of the partners to give notice of dissolution to the other(s). 

However, on notice of dissolution being given, a firm may not immediately cease to trade.  Indeed, a firm may carry on trading for a considerable period.  This is driven by two factors, firstly the duty to clients/customers to complete retainers/contracts, and secondly the benefit if any of continuing the dissolved firm as a going concern until it can be sold (possibly to one or more of its partners, or otherwise to an outside purchaser) or merged into another firm, or otherwise dealt with so as maximise the benefit to partners and/or minimise the potential downsides.

Whether or not the firm continues to trade, until the winding up of the firm is complete (and this can take many years, even if the firm does not continue to trade) the partners at the date of the dissolution notice (including the partner(s) who served it), remain as partners, with a continuing duty of good faith to one another, and a continuing ability to bind one another to contracts with third parties for the purpose of the winding up.

The principal downsides of dissolution are normally as follows:

•  The partners’ income tax is normally accelerated by a year, subject to any overlap relief to which individual partners may be entitled.
• Redundancy/lieu of notice payments may become payable to staff.
• Liabilities may arise from leases that cannot be assigned or can only be sub-let at an under-rent.
• Ongoing storage of files and papers (not underpinned by ongoing income).
• Costs of recovery of unpaid fees, or loss of unpaid fees, particularly where clients decide to try to avoid payment in the hope that a firm that ceases to trade may not bother to/be in a position to sue for fees and/or based on alleged breach of retainer arising out of cessation of services/inadequate service following the dissolution.
• In the case of a firm of solicitors, if there is no successor firm for insurance purposes (e.g. a firm with which the dissolved firm merges) then the dissolved firm must purchase (six years’) run-off insurance, typically at a premium of between two and three times last annual premium.

For so long as the firm continues to trade these downsides may not materialise, and can be avoided altogether at any stage if all of the partners agree to an (often back-dated) retirement of the partner who served the notice, or other form of acquisition by the “continuing” partners, thus bringing about a technical dissolution only, which does not lead to the downsides listed above.

In the absence of any such agreement the firm will be in what is known as general dissolution, and will have to be wound up, and the downsides listed above will occur.   

As partners make plans to go elsewhere and/or as they physically leave the firm, the income of the firm may well diminish and/or partners may not account fully or at all for accrued WIP (preferring, dishonestly, to bill it in their new firm, where they may be able to retain 100% of its value for themselves).  At the same time the outgoings (e.g. rent) may not diminish at the same rate or at all, and eventually a marginal position may come about in which it is not economic to keep the firm going, even in order to complete long retainers (for example to complete litigation) with the result that bills cannot be rendered and/or claims for repayment of fees or damages may be made by clients.

Along the way, partners will be looking for a safe haven in another business, and will wish to take clients with them in order to secure the best terms for themselves in their new business.  Disputes may well arise between the partners in relation to who should take which clients with them (none or them being entitled to do so as of right, at least until the firm could no longer carry out the work and there is no prospect of anyone paying for the goodwill).

In the absence of an event such as a merger which prevents a general dissolution, other businesses may be put off recruiting partners of the dissolved business (and this potentially includes the partner who served the notice).  Such businesses may fear that those partners may be saddled with personal liabilities arising out of the dissolution. 

In the case of solicitors, other firms may be wary of taking on partners in such a way as to make the acquiring firm a successor practice to the old firm for insurance purposes.  This can arise in many different ways and if it does arise the acquiring firm will be required to take out insurance at next renewal which takes into account the claims history of the dissolved firm, thus substantially increasing the premium.

Matters such as this tend to encourage settlement between the partners of the dissolved firm, in the form of an agreed retirement of the leaving partner.  In the event of such a settlement, it is important to document it properly.  There are many traps for the unwary.

Generally the only reason a group of partners will elect to wind up the firm, rather than agree to the retirement of the partner who wants to leave, is where the extent of the assets and/or continuing/anticipated future work are so outweighed by the actual or future liabilities that the partners do not want to release the leaving partner from his obligation to contribute to those liabilities and/or to release the leaving partner’s capital.  In such circumstances they will insist on the leaving partner remaining as a partner in the dissolved firm (as he does automatically unless released by agreed retirement), sharing all of the liabilities.

In essence, when a partner gives notice of dissolution, his co-partners will need to consider what (if any) amount (in addition to the return of the “leaving” partner’s capital) they are prepared to pay for the benefit of the firm’s fixed assets, name and goodwill, whilst also taking on the liabilities of the firm.  The balance sheet in the accounts will not provide the answer.  The biggest elements taken into account in any settlement tend to be the value of goodwill (which is usually not reflected in the balance sheet), off-balance sheet work-in-progress, and sometimes off-balance sheet liabilities (often associated with leases), all of which can be difficult to value.

I will return to these and other aspects of dissolution in future posts.

This article may also be helpful.

“… the conviction that a partnership will last forever in sickness or in health, for richer or poorer, may fade quickly …”

As is well known, under certain Middle Eastern legal systems a husband can divorce his wife by uttering, “I divorce thee” three times in her presence.

In contrast, in a partnership at will a great deal of breath can be saved, as “I hereby dissolve the firm” only has to be uttered once in order to bring about a dissolution.  (Unless, which is quite rare, the partnership at will is governed by a deed, in which case there is legal uncertainty as to whether the notice should be in writing, so a short written notice of dissolution is advisable.)

The ability of a partner, who wants to leave a practice, to threaten to dissolve the firm (and, if not satisfied with what he is offered, actually to dissolve it) is an unnecessary risk for any practice to bear.  Being a partnership at will offers no advantages whatsoever.

I see a steady flow of clients who went into partnership thinking either (a) “We’ll organise a deed later, when time permits”, or (b) “People shouldn’t be in partnership if they need a partnership deed.”

Under (a), either the partners find, when they come to draft a deed, that they cannot agree terms, so they fall out, or they fall out about something else long before they even begin to consider the terms of their partnership.

Under (b), like the first bloom of love that goes hand in hand with not having a pre-nuptial agreement, the conviction that a partnership will last forever in sickness or in health, for richer or poorer, may fade quickly.

I intend to develop the difficulties that can emerge in this situation, and possible ways of dealing with them, in future posts.

In the meantime, I can conclude this post by saying that all partnerships without a partnership deed should get one right away, though I would also caution that this needs to be done after building consensus within the practice, as one does not want to bring about dissolution in the course of attempting to prevent dissolution.  If there is any existing tension in the firm then you will need to consider whether now is the right time to raise the subject of a deed.

This document may provide further food for thought.

“… Possession being nine-tenths of the law, a partner/member in this position may have to sue to recover his capital …”

A worrying trend has been emerging.  It has become much more common for partners and LLP members leaving professional practices to have difficulty extracting their capital.

Typically professional practice governing agreements provide for capital to be repaid following or over a period of time after retirement. Partners falling victim to the new trend may not be told that the practice does not intend to repay their capital until just before the first instalment is due. One or more of a variety of reasons may be given:

• We can’t afford it, maybe later.
• Before you joined us, you said you could bring in work worth £x per annum, but you haven’t, and we are retaining your capital as damages for misrepresentation.
• There have been a number of serious problems in your department, and we think you are to blame, so we are retaining your capital as damages for negligence.
• Since you left the practice you have breached your obligations not to solicit and/or act for clients, so we are retaining your capital as damages for breach of your covenants.

Not all such allegations are true. It is troubling in some instances to come across highly-regarded professional practices making such allegations in circumstances in which they must doubt whether they can prove them.

Possession being nine-tenths of the law, a partner/member in this position may have to sue to recover his capital. Unless he can find solicitors who will back him with a conditional fee agreement and/or after-the-event insurers to cover the risk of an adverse costs order, he will have to incur (and may not recover) substantial amounts of his own money for his own legal fees, and pay the other side’s costs in addition if he loses. His opponents may find ways to drag the proceedings out, hoping that the partner/member runs out of money and gives up. As much money or more can be spent on the proceedings than the amount of the retained capital. The resources of one man are pitted against the resources of a professional practice.

Typically the amount of capital may represent something like six months’ gross pay for the partner/member. It is a lot of money, but on the other hand it is possible over time to recover from such a loss. Partners sometimes prefer that route rather than risking everything in legal costs.

On the other hand, some partners/members “go for it”, sometimes backed by their new partners.  Any demonstration of force/intention to sue can have an immediate effect, and it is gratifying when an individual’s former practice that knows it is in the wrong backs down.

Alternatively, by negotiating the right exit terms in the first place, problems such as this an be avoided altogether.

“… At the outset he has been lulled into a false sense of security, and may consider himself to be the victim of a scam …”

Lawyers and accountants have been very creative in their use of LLPs.  But sometimes our good work may be hijacked and applied creatively by others for purposes that we did not intend.  Here’s a disturbing example I’ve come across.  Employment and partnership lawyers may wish to take note.  

A businessman wants to engage a skilled workforce, pay them as little as possible with no employment rights, and avoid paying employer’s NI or accounting under PAYE.  (HMRC may be watching this one from the wings.)

Prospective workers are invited to apply for a job.  The “scheme” works particularly well for the businessman in sectors in which a large proportion of workers’ remuneration is paid as commission or year end bonus, such as in sales or recruitment, and even better if all of the workers will work from home, will never meet one another, and thus will never compare notes.

On sign-up, rather than being asked to sign an employment contract, each worker is presented with an inch-thick LLP members’ agreement.  There is also a short side letter in comforting terms, which sets out the “initial” profit share, commission and/or bonus structure and other benefits of the job, which are attractive.  The worker may only read (or understand) the side letter. 

The worker has signed employment contracts before, but he does not appreciate the full ramifications of LLP membership.  It may be sold to him on the basis of the tax advantages of self-employment.  He may not take legal advice. 

Deep inside the members’ agreement are provisions under which the businessman determines from time to time what the profit share of each member including himself will be.  Only he can vote or benefit from capital profits of the LLP.  Holidays are in his discretion.  Unfair prejudice rights and any duty of good faith between members are excluded.  Only the businessman has to approve and sign the accounts.

After a while, possibly up to a year, the businessman may notify a worker that the worker’s profit share and/or bonus are not going to be as large as originally envisaged.  At the same time the worker may be summarily “retired” with no notice or pay in lieu.  Under the members’ agreement, which the worker signed, all of this is permitted.

The worker is now unemployed and considerably out of pocket.  At the outset he has been lulled into a false sense of security, and may consider himself to be the victim of a scam.  He asks for your advice.  He may well have employment rights – see section 4(4) of the Limited Liability Partnerships Act 2000 and Kovats v TFO Management LLP (EAT) – or other rights arising out of what may have been said to him a year before.  But you have to tell him that his case is not run-of-the-mill, and that the outcome may be uncertain.  

While you consider the best way to deal with the matter, the businessman is busy recruiting your client’s replacement, once more muddying the waters with LLP membership.

“… Typically the senior partner becomes complacent about the fabulous hand of cards that life has dealt him and starts to presume that he can do no wrong …”

It may come as no surprise that amongst professional practices that have no provision in their partnership deed for regular senior partner elections, an unusually high proportion of involuntary partner exits involve the senior partner.

Such partners are sometimes founder and/or name partners, and may be self-appointed to the senior partner role.  The other partners wouldn’t dare challenge the arrangement, or where they do dare (after it all becomes too much, see below), the repercussions can be explosive.

Such situations cause great distress to all concerned and can be highly damaging to the firm. They must be handled with care and sensitivity.

I have found that various combinations of the factors set out below appear again and again in senior partner exit/expulsion cases.  Typically the senior partner becomes complacent about the fabulous hand of cards that life has dealt him and starts to presume that he can do no wrong.  I have dubbed this state of mind “senior partner-itis”.  Symptoms include:

• Insists on controlling everything/having a finger in every pie
• No-one is permitted to question his vision for the practice or how he conducts himself
• Holds a senior governance position at the local cricket, rugby, golf or other sports club
• Is known locally as a great laugh and/or drinking companion
• Exhibits classic mid-life crisis behaviour (affairs, actual or attempted, sometimes with staff, sometimes multiple/serial)
• His time spent in the office diminishes to a few token appearances once in a while
• Is increasingly erratic and unreliable
• Treats the resources of the firm as his own (sometimes leading to conduct that some would classify as fraud)

Whereas some of these “symptoms” are harmless in themselves (and indeed to be valued, as any practice needs its practice developers who are willing and able to take clients and contacts ”out on the town”), any senior partner (or indeed any other partner!) exhibiting more than half of these symptoms may need to be kept under observation, or hopefully to rein himself in, before his partners draw the conclusion that he simply has to go.