Business clinic: Can uncle use assets for separate business?

Whether you have a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help. Here, Thrings associate Robert James advises on a tricky partnership question.

Q My dad has a 50% share in a farming partnership. He has been having trouble with my uncle, who is the other partner in the business.

My uncle has let his wife, who has nothing whatsoever to do with the farming partnership, set up a farming business of her own on another part of the farm.

He has transferred more than 120 cattle into her own name over a number of years and has been claiming some of the Basic Payment for land owned by the farming business for himself. I am worried. Can you help?

A As a starting point, the options and relief available to your father depend on the terms governing the business relationship between him and your uncle. It is not clear from the information provided whether a formal partnership deed exists.

Robert James, associate, Thrings

If one does exist, one would expect that deed to set out most of the relevant terms.

In the absence of a deed, or a specific provision dealing with a particular issue, the fall-back position is to look at the Partnership Act 1890, which is the key piece of legislation.

See also: Business Clinic – do wills override partnership agreements?

In principle, there is nothing preventing your uncle supporting his wife. This is not without its caveats, however. Each partner owes the others a duty of good faith.

It is not unusual to see a term that states each partner must devote his or her whole time and attention to the partnership.

One of the questions a court might ask is whether your uncle’s involvement with his wife’s business is diluting his contribution to the partnership?

From what you describe, I am concerned that your uncle’s involvement with his wife’s business may mean that he is competing with the partnership, and he may be using the partnership’s property in furtherance of the wife’s business.

Certainly, the use of the land for a separate business and the transfer of 120 cattle to his wife without your father’s consent requires some serious explanation.

As for the Basic Payment issue, the position seems relatively straightforward. Provided the partnership is the occupier of the land and the owner of the relevant entitlements, then the funds received in relation to the claim will be the partnership’s property.

If your uncle has simply pocketed the monies for himself, he is in the wrong.

The simplest relief is to ask your uncle to account for any unlawful monies retained or private profits made, so your father is placed back in the position he would have been in but for any breach.

This solution assumes that your father wants to continue in business with him. If he does not want to carry on, it is unlikely that your father can simply throw your uncle out of the business. Rather, he would need to dissolve the partnership.

On a practical note, during that process he may try to buy out your uncle’s interest to enable him to continue trading as he was. In terms of a nuclear option, if the breaches persist, your father may be able to obtain an injunction restraining any unlawful conduct on the part of your uncle.

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