Tuesday, April 07, 2015
Partnerships: The liability of a new partner
Supreme Court creates clarity
The National Ordinance on Partnerships (Landsverordening personenvennootschappen) of Curacao (1 January 2012) and St. Maarten (1 April 2014) mentions two main variants of the partnership: the public partnership and the silent partnership. The public partnership is a partnership (i) for carrying on a profession or business or performing professional or business acts, which (ii) partnership acts externally in a way which is clearly recognizable by third parties (iii) under a name it uses as such (Section 7:801 subsection 1 of the Civil Code).
The partners of a public partnership are jointly and severally liable for the obligations of the partnership. If a limited partnership is involved (commanditaire vennootschap: 'CV') the ordinary partners will be jointly and severally liable for the obligations of the CV; the sleeping partners are not liable for such obligations.
Section 7:824 subsection 2 of the Civil Code provides that a partner who joins or succeeds will only be committed (read: liable) to the obligations which arise after he joined or succeeded. In other words: he cannot be sued for the old debts.
As appears from the Explanatory Memorandum, the second subsection assumes that no sound reason can be given for accepting the joint and several liability of partners who are joining the partnership for obligations already existing at the moment they join it. According to the Explanatory Memorandum, in the event of a partner joining the partnership the business creditors retain their claims on the partners already present and on the partnership whereby they can continue to recover their claims from the assets of the partnership community and from the assets of the partnership which is a legal entity. Their rights will not be curtailed. In the event of a failure in the fulfillment of a contract effected by the partnership before a partner joined the partnership there will be no question of any liability of this joining partner for the whole if this failure took place before he joined and for that reason he cannot be blamed for it.
In the Netherlands apart from the CV there is also the general partnership (vennootschap onder firma: 'VOF'). There has been ambiguity over there for many years regarding the question of whether a new partner who joined a VOF or the new managing partner of a CV can be sued personally for debts which arose before he joined as a partner. In its ruling of 13 March 2015 the Supreme Court expressed an opinion on this question (ECLI:NL:HR:2015:588). The Supreme Court:
"According to Section 19 subsection 1 Commercial Code (Wetboek van Koophandel: 'WvK') the managing partners of a limited partnership are jointly and severally liable. Section 18 WvK, which also applies pursuant to Section 19 subsection 2 WvK to the managing partners of a limited partnership, provides with regard to the general partnership that each of the partners is jointly and severally liable "for the obligations of the partnership". No restriction can be read into it on obligations of the partnership which arose after a partner joined the partnership. Moreover, the purport of Sections 18 and 19 subsection 1 WvK involves that the joint and several liability of the partners relates to all the debts existing at the time they joined the partnership, or which arise subsequently. After all, these provisions are intended to protect the creditors of a general partnership or a limited partnership in a situation whereby the separate partnership assets (separated from that of the partners) are insufficient to fulfill all the obligations of the partnership, by giving them a possibility for recovery from the assets of the (managing) partners themselves.
The circumstance that under this interpretation of these Sections the existing creditors of the partnership obtain a new available means of recovery by this new partner joining the partnership does not lead to a different opinion. There is a sound reason for this, namely that these creditors entered into a legal relationship with a partnership for obligations which the (managing) partners guarantee personally by law. In addition, (managing) partners of a general partnership or a limited partnership accepting joint and several liability for obligations of the partnership already in existence when they join the partnership serves legal certainty. After all, having to examine the moment at which the obligations of the partnership arose with a view to the question of which partner or partners can be sued for this, does not have to take place."
Therefore, according to Dutch law the new partner of a VOF or the new managing partner of a CV is jointly and severally liable for the debts of the VOF or the CV respectively which arose before he joined the partnership as a partner. This ruling by the Supreme Court is relevant to the BES Islands and Aruba. So in this respect there is a substantial difference between the Netherlands, Aruba and the BES Islands on the one hand and Curacao and St. Maarten on the other hand.