THE

SCOTTISH LAW REVIEW.

VOL. XXIII.

DECEMBER, 1907.

No. 276.

THE LIMITED PARTNERSHIPS ACT, 1907. THIS Act comes into force on the 1st January, 1908. The idea of establishing a system whereby the liability of partners in a firm or company is limited to a certain specified sum, with due notice and protection to the interests of creditors, and without incurring the expense of the formation and carrying on of a company incorporated under the Companies Acts, is an excellent one. It is not new. Prior to the passing of the Companies Act of 1862 much was written in favour of the introduction of such a system. Parliamentary inquiries were made and reports submitted in 1837 and 1844. Such a system has, however, yet to be discovered. The present Act does not do so.

The title of the Act is a mis

Act to establish

Act to establish "limited partner

nomer. It is not an ships." A condition precedent to any benefit under the statute is that there must be one or more persons called general partners, who shall be liable for all debts and obligations of the firm. When this condition has been satisfied, then one or more persons may be admitted, who are to be called "limited partners." A body corporate may be a limited partner. Such limited partners at the time of entering into the partnership must contribute thereto a sum or sums as capital or property valued at a stated amount, and are not to be liable for the debts or obligations of the firm beyond the amount so contributed. That amount cannot, during the continuance of the partnership, either directly or indirectly, be drawn out or received back. If it is so drawn out or received back any such partner is liable for the debts and obligations of the firm up to the amount so drawn out or received back.

The partnership agreement must be registered with the Registrar of Joint Stock Companies in accordance with the

provisions of the Act. If it is not so registered the partnership is deemed to be a general partnership, and every limited partner is deemed to be a general partner. The particulars required for this registration are (a) the firm-name; (b) the general nature of the business; (c) the principal place of business; (d) the full name of each of the partners; (e) the term, if any, for which the partnership is entered into, and the date of its commencement; (f) a statement that the partnership is limited, and the description of every limited partner as such; and (g) the sum contributed by each limited partner and whether paid in cash or how otherwise. Nothing is said regarding the capital of the general partners. So far as the firm-name is concerned, there is no notice given to the public that there are any limited partners in the firm. This information can only be ascertained by an inspection of the register, which is to be open to any one on payment of a fee not exceeding one shilling. Some notice to the public ought to have been provided for. In 1905 a Limited Partnership Act was passed in Cape Colony on much the same lines as the Act now under consideration, and the Legislature there provided that the word "registered" should appear after the name of any partnership registered under the Act.

It is difficult to see what material benefit is to be derived from the new Act which cannot be obtained under the law as at present existing. Contrast the position of a limited partner with a lender of money to a firm on a contract that the lender shall receive a rate of interest varying with the profits, or "shall receive a share of the profits arising from carrying on the business," under sec. 2, sub-sec. 1 (d) of the Partnership Act, 1890, which corresponds to sec. 1 of Bovill's Act, 28 & 29 Vict. cap. 86, and which in turn but embodied, although in a restricted sense, the common law. Assume the money lent under the 1890 Act the capital of the limited partner under the Act of 1907. Both may receive a return varving with the profits of the concern. Both are alike in the fact that on the bankruptcy of the firm their claims are postponed to the claims of ordinary creditors. A limited partner "shall not take part in the management of the partnership business, and shall not have power to bind the firm." He may, however, "by himself or his agent, at any time inspect the books of the firm and examine into the state and prospects of the partnership business, and may advise with the partners thereon." Under the existing law these privileges can be obtained under the agreement by which the loan is made.

The mere fact of "advising with the partners" is not in itself a ground of present liability as a partner of a firm. If a limited partner takes part in the management of the partnership business he is liable for all debts and obligations of the firm incurred while he so takes part in the management as though he were a general partner. A like liability would follow under sec. 14 (1) of the Act of 1890. A lender of money under the Act of 1890 is in some respects in a much better position than a limited partner under the new Act. Assume there is nothing in the agreement in either case as to the admission of new partners, a lender under the Act of 1890 would be entitled to object to any new partner being admitted into the firm without his consent. It is different with a limited partner. "A person may be introduced as a partner without the consent of the existing limited partners" (sec. 6 (5) (d)). Under the existing law the agreement for loan need only be known to the firm and lender. Under the new Act the partnership agreement must be registered, and is open to the inspection of the public. At present, on the death of the lender, and in the absence of any agreement to the contrary, his executors, on reasonable notice, could call up the loan. Under the Act the money of the limited partner will require to remain in the firm during the continuance of the partnership. Further, and subject to any agreement to the contrary, a lender may, without the consent of the firm, assign his claim to a third person. A limited partner cannot, without the consent of the general partners, assign his share in the partnership. If the share is competently assigned, a notice of the fact must forthwith, in the case of a limited partnership registered in Scotland, be made in the Edinburgh Gazette (sec. 10 (1)). Such a notice will probably be the first intimation many of the creditors will get that there are limited partners in the firm. A limited partner is not entitled, subject to any agreement to the contrary, to dissolve the partnership by notice.

One of the most difficult provisions in the Act to appreciate is that contained in sub-sec. 4 of sec. 6 relating to applications for the winding up of limited partnerships. Why such applications should be by petition under the Companies Acts, 1862 to 1900, or why the provisions of these Acts relating to the winding up of companies by the Court should be made applicable to limited partnerships, we are at a loss to understand. It would surely have been much simpler and less expensive to have had such partnerships wound up like ordinary partnerships.

It will be interesting to watch the working of the Act in practice. We shall be much surprised if it is availed of to any considerable extent. ALLAN M'NEIL.

THE BANKRUPTCY (SCOTLAND) BILL, 1907.

IV.

It now remains to give as succinctly as possible, within the limits to which this article is necessarily confined, some account of the more important alterations and amendments of the law regarding the ordinary process of sequestration which are proposed to be effected by the bill. In doing so it may perhaps be most convenient to deal with the sections and clauses of the bill in their chronological order, which is practically identical with that of the Act of 1856.

The Constitution of Notour Bankruptcy. The bill consolidates the law on this subject by combining the provisions of the Acts of 1856 and 1880. The provisions of these Acts, though somewhat confusing, are nevertheless consistent, and must be read together. Under the Act of 1856, where imprisonment was, under the law as it then stood, incompetent or impossible, a charge must be followed by arrestment, poinding, or adjudication. The Act of 1880 provided a mode of constituting notour bankruptcy, not in cases in which prior to its passing imprisonment was incompetent or impossible, but in those in which, by virtue of its provisions, imprisonment was for the first time rendered incompetent. Cases, therefore, in which imprisonment is incompetent or impossible, not by reason of the provisions of the Act of 1880, but on other grounds, still continue to be regulated by sec. 7 of the Act of 1856, and in such cases therefore arrestment, poinding, or adjudication in accordance with its terms must still be resorted to. The provisions of the Act of 1880 are, accordingly, applicable to all debtors without distinction, except those who, by the provisions of the Act itself, are not exempted from liability to imprisonment or those who were exempt from imprisonment under the law as it stood prior to the passing of the Act. Sec. 7 of the bill combines the provisions of these two Acts by providing that notour bankruptcy shall be constituted (1) by sequestration or by the issuing of an adjudication of bankruptcy in England or Ireland; or (2) by insolvency concurring either (a) with a duly executed charge for payment followed by the expiry of the days of charge without payment, or, where a charge is not necessary or not competent, by insolvency concurring with an extracted decree for payment

followed by the lapse of the days intervening prior to execution without payment having been made, or by execution of poinding of any of the debtor's moveables, or by a decree of adjudication of any part of the debtor's heritable estate for payment or in security; or (b) with a sale of any effects belonging to the debtor under a poinding or under a sequestration for rent. No change is made with reference to the constitution of the notour bankruptcy of a company, nor to the commencement and endurance of notour bankruptcy generally. But sec. 9 provides that in the case of a debtor executing a trust deed or assignation of his property for behoof of his creditors generally in terms of the Act, its granting shall from its date operate as an equivalent of notour bankruptcy for the special purpose of rendering alienations or preferences to creditors void and challengeable, but to that purpose and effect only. Sec. 10 contains an entirely new provision for the keeping by the Sheriff-clerk of a register of expired charges, in which each expired charge shall be entered as of the date of its presentation, with the names and designations of the creditor and debtor respectively, the amount of the debt, and the date of the charge. It further provides that, unless such expired charge bears to have endorsed on it a certificate by the Sheriff-clerk of its registration, it shall not be received as evidence of notour bankruptcy in any bankruptcy or other proceedings. A registered expired charge is to cease to be operative as evidence of notour bankruptcy on the expiry of four months from the date of the charge, though, if the decree has not meantime been implemented, provision is made that a new charge may competently be given and registered so as to constitute notour bankruptcy anew.

Qualification for Sequestration.-The bill provides in sec. 14 that, in the case of a living debtor, the petition for his sequestration may be awarded either on his own petition or that of his mandatory, and in sec. 15 that, except in the case of the summary sequestration of small estates, the qualification of a petitioning or concurring creditor shall be one creditor of £50, or two or more creditors for debts of not less than £50 in the aggregate. In the case of a deceased debtor sec. 16 provides that sequestration at the instance of a creditor shall not be awarded until the expiration of three months (instead of six, as at present) from the date of the debtor's death, unless, as at present, he is at the time of his death notour bankrupt or his successors concur or renounce the succession. Sec. 17 of the bill re-enacts sec. 2 of the Act of 1860.

Interim Preservation of Estate.-Sec. 18 of the bill re-enacts,