A partnership dispute in Victoria can quickly move from a commercial disagreement to a legal contest over control, asset preservation, dissolution, and the final account between partners. For business owners, directors and professionals operating through a partnership structure, the issue is rarely confined to whether the relationship has broken down. The more significant question is often how the partnership should be wound up, how partnership property should be dealt with, and what each partner is entitled to receive.
In Victoria, the starting point is the partnership agreement, followed by the Partnership Act 1958, including the statutory framework for dissolution by court and the settlement of accounts after dissolution. Where the agreement is silent, incomplete, or disputed, equitable accounting principles may influence how capital, profits, liabilities, drawings, disputed transactions, and goodwill on dissolution are treated.
These disputes often involve more than a simple exit. Alleged misconduct, an ineffective expulsion clause, exclusion from management, use of partnership funds and post-dissolution profits can materially affect the commercial outcome, particularly where the winding up process determines both legal rights and practical leverage in the dispute.
What Law Applies to a Partnership Dispute in Victoria?
The legal framework for a partnership dispute in Victoria starts with the partnership agreement and the Partnership Act 1958 (Vic). The agreement usually governs profit shares, management rights, retirement, valuation, restraints, and any expulsion clause. Where the agreement is silent, incomplete, or disputed, the Act and equitable accounting principles determine how the partnership is dissolved, wound up, and financially reconciled.
Several provisions are central. Section 24 concerns partnership property, including property and rights brought into the partnership or acquired for the purposes of the partnership business. Section 29 provides that a partner cannot be expelled by a majority unless an express power exists in the agreement and is exercised in good faith. Sections 32 to 34 deal with partners’ duties to render accounts, account for private profits, and avoid competing with the firm.
For dissolution, section 39 allows dissolution by court in specified circumstances, including where a partner’s conduct prejudicially affects the business, where it is not reasonably practicable to carry on the partnership, or where dissolution is just and equitable. Section 44 may be relevant where a partnership is prematurely dissolved after a premium has been paid. Section 48 sets the statutory order for the final account between partners, including losses, capital, advances, and surplus assets. In practice, this process can involve drawings, liabilities, indemnities, disputed transactions, and goodwill on dissolution.
The statutory framework operates with equitable principles. In Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384, the High Court confirmed that partners owe fiduciary obligations and may be required to account for profits made from partnership opportunities or connections. In Chan v Zacharia (1984) 154 CLR 178, the High Court applied those principles after dissolution, where a former partner obtained a lease connected to the partnership before its affairs were fully wound up.
Victorian authority also shows why dissolution is not always the end of the financial relationship. In Sobey v Sobey [2019] VSC 536, the Supreme Court of Victoria considered the taking of accounts where one partner continued operating the business and using partnership assets before the winding up was finalised. The commercial result often depends on the accounting, not merely the declaration of dissolution.
How Do Courts Approach Partnership Dissolution and Winding Up in Victoria?
When will the Court order dissolution?
In a serious partnership dispute in Victoria, the Court first considers whether the partnership can continue under its agreement and the Partnership Act 1958 (Vic). Dissolution is not ordered merely because the partners are frustrated with each other. The Court looks for a legal basis, such as conduct that prejudicially affects the business, circumstances making it no longer reasonably practicable to carry on the partnership, or a position where dissolution is just and equitable.
Where trust and confidence have broken down, the evidence must show more than personal hostility. The issue is whether the breakdown affects the conduct of the business, protection of partnership assets, or completion of an orderly winding up. Similar issues of exclusion, commercial control, and business breakdown can arise in closely held company disputes, including applications for just and equitable winding up.
What evidence do courts require?
The evidence is usually commercial and documentary. Courts will consider the partnership agreement, financial records, bank statements, capital accounts, tax records, asset registers, correspondence, management decisions and how the business was operated. Where partnership property is disputed, the Court may examine whether the asset was acquired for partnership purposes, paid for with partnership funds, recorded in the accounts, or used in the business.
Allegations of misconduct require careful proof. Claims involving unauthorised drawings, diversion of revenue, misuse of client relationships, exclusion from management, or competing activity often affect the final account between partners. The evidence may also determine whether urgent relief is needed before the final accounting process is complete.
How does the Court deal with expulsion and control disputes?
A partner cannot usually be forced out simply because the majority wants control. An expulsion clause must be clearly found in the partnership agreement and exercised according to its terms, in good faith and for a proper purpose. If the clause is ambiguous, or if it was used to appropriate value or avoid an accounting obligation, the dispute may shift from management control to equitable relief and financial adjustment.
For high-value partnerships, the practical issue is often whether one partner has attempted to secure the business, clients, premises, goodwill, or records before the legal position is resolved. Courts are alert to conduct that changes the commercial balance before dissolution or winding up is complete.
What happens after dissolution is ordered?
Dissolution does not automatically settle the financial position. The partnership must still be wound up, liabilities paid, assets realised or allocated, and the final account between partners taken. This may include capital contributions, advances, drawings, indemnities, unpaid profits, disputed expenses, and goodwill on dissolution.
In many commercial disputes, the account is where value is determined. A declaration of dissolution may establish the end of the partnership relationship, but the financial outcome depends on the evidence, the accounts and the equitable treatment of benefits obtained before winding up is complete.
What Are the Most Common Partnership Disputes in Victoria?
A partnership dispute often becomes urgent when one partner controls the accounts, records, premises, client relationships, or banking access, while the other is excluded from meaningful participation. In commercial litigation, the immediate issue is not only who is right. It is how value is preserved while the partnership is dissolved, wound up, and accounted for.
Disputes arise over whether an asset is partnership property or personally owned by one partner. This may involve business premises, equipment, intellectual property, trading names, licences, vehicles, software, client databases, or funds held through associated entities. The way an asset is recorded in the accounts is important, but not always decisive. Courts may also consider how the asset was paid for, used, and treated by the partners during the business relationship.
Another common issue is exclusion from management and access to records. One partner may be removed from banking access, accounting systems, email accounts, supplier communications, or premises before the legal position is resolved. That can affect both commercial leverage and the final account between partners. Early steps may be needed to preserve records, prevent asset dissipation, and ensure that the winding up is not conducted by one partner without adequate transparency.
The accounting exercise often turns on disputed drawings, personal expenses, related-party payments, loans, unpaid capital contributions, and profits said to have been diverted. A partner who has used partnership opportunities, funds, or relationships for personal gain may be required to account for that benefit. These issues are particularly significant where one partner continued trading after dissolution, or where the business’s goodwill and client base were carried forward into a new structure.
An expulsion clause can also become contentious where one partner is removed without clear contractual authority, proper process, or good faith. In high-value partnerships, attempted expulsion may be linked to control of goodwill, premises, clients, and future revenue. Where the removal is invalid, the dispute may require injunctions, dissolution, valuation evidence, and a final account.
Goodwill on dissolution is often commercially sensitive. The dispute may concern whether goodwill has separate value, whether it should be sold, allocated or compensated, and whether a partner has improperly appropriated it before the winding up is complete.
What Should Partners Consider Before Starting or Defending a Partnership Dispute?
Before commencing or defending a partnership dispute, the first strategic question is what outcome is being pursued: dissolution, control of the business, preservation of partnership property, recovery of funds, access to records, valuation of goodwill, or a negotiated exit. The legal pathway should follow the commercial objective, not the other way around.
Evidence should be secured early. Partnership agreements, financial statements, tax records, capital accounts, bank records, asset registers, correspondence, and accounting system access may determine the strength of the claim. Where one partner controls the records, urgent steps may be required to prevent loss, alteration, or selective disclosure of information, including considering whether evidence preservation measures such as Anton Piller orders are appropriate. In some matters, interim relief may also be needed to preserve assets, restrain misuse of funds, or maintain access to essential business records pending dissolution, and the final account between partners.
A careful assessment is also needed before relying on an expulsion clause. If the clause is unclear, inconsistently applied or used for an improper commercial purpose, it may intensify the dispute rather than resolve it. Similarly, continuing to trade after dissolution can create additional accounting exposure, particularly where partnership opportunities, premises, client relationships, or goodwill on dissolution are retained by one partner.
The strongest position is usually built before proceedings are issued: documentary control, a clear theory of the account, an assessment of asset value and a measured litigation strategy that protects leverage without unnecessarily damaging the business being preserved.
Frequently Asked Questions
How do you resolve a partnership dispute in Victoria?
A partnership dispute is usually resolved by first reviewing the partnership agreement, then applying the Partnership Act 1958 (Vic). Depending on the dispute, the pathway may involve negotiation, mediation, urgent court orders, dissolution, winding up, and a final account between partners. The right strategy depends on whether the business can continue, whether assets need protection, and whether one partner controls records, funds, or goodwill.
Can a court dissolve a partnership in Victoria?
Yes. The Court can order dissolution by court where the legal grounds are established, including where a partner’s conduct prejudicially affects the business, where it is no longer reasonably practicable to continue, or where dissolution is just and equitable. Dissolution ends the partnership relationship, but it does not automatically resolve the financial position. The partnership must still be wound up and accounted for.
What happens to partnership property when a partnership ends?
Partnership property is dealt with during winding up. It may include premises, equipment, intellectual property, trading names, client records, bank accounts, and other assets acquired for partnership purposes. If ownership is disputed, the Court may consider how the asset was paid for, used, recorded, and treated by the partners. Asset issues should be resolved before any final distribution.
Can one partner expel another partner from a partnership?
A partner cannot usually be expelled simply because the other partner or majority wants control. There must be a valid expulsion clause in the partnership agreement, and it must be exercised according to its terms, in good faith, and for a proper purpose. If the expulsion is invalid, the affected partner may challenge it and seek relief, including injunctions, dissolution, and a detailed financial account.
How is goodwill dealt with when a partnership is dissolved?
Goodwill on dissolution may have value if the business has a recognised name, client base, referral network, location, or commercial reputation. The dispute is often whether goodwill should be sold, valued, allocated, or compensated. A partner who carries forward the business, clients, or brand before winding up is complete may need to account for that benefit.
What Should You Do If a Partnership Dispute is Affecting the Business?
A partnership dispute should be addressed before control of records, funds, clients, or partnership property becomes entrenched. Dissolution, winding up, and the final account between partners are not merely procedural steps. They determine how value is preserved, how liabilities are allocated, and whether any partner must account for benefits obtained from the business, including goodwill on dissolution.
For business owners, directors and professionals, early advice can clarify whether the matter calls for negotiation, urgent relief, dissolution by court, valuation evidence, or a structured exit. Pentana Stanton Lawyers advises on complex commercial disputes, including partnership dissolution and winding up. Learn more about our commercial litigation services or book a consultation to discuss your position.
This article is general information only and not legal advice. For advice specific to your circumstances, please contact our team.
