Former partner liable for new debts

A former partner may remain liable for the debts of the company from which he has withdrawn as a partner for a long time, as was recently confirmed by a ruling of the Court of Appeal in Den Bosch.

We recently wrote about the liability of new partners in a general partnership (VOF) for old debts. This showed that the new partners are also liable for debts incurred before they joined the partnership. A thorough audit and clear agreements on liability with the existing partners in the VOF can ease the pain somewhat.

Now that it has been established that a new partner is liable for an old debt, the question is whether the reverse also applies: can a partner who has left the partnership be held liable for a new debt of the general partnership? In some cases, the answer is yes.

This liability is obviously unpleasant, but it can also cause conflicts. This sometimes occurs in public limited companies (N.V.) and private limited companies (B.V.) as well, resulting in a shareholder dispute. In any case, we advise seeking legal advice in good time, before problems arise (for example, by drawing up a shareholders’ agreement. You can read about what a shareholders’ agreement is here). This will provide clarity about the legal options and allow them to be weighed up against other solutions for a shareholder dispute.

Continuing performance contract: ongoing performance

The Court of Appeal in Den Bosch confirmed that a partner who had already left the company remained liable for a debt arising later from a continuing performance contract. The question then is: what is a continuing performance agreement? A continuing performance agreement is an agreement in which the parties have committed themselves to a continuing performance over a longer period of time. These are therefore generally agreements that run for a longer period of time and are entered into for an indefinite or definite period.

Continuing performance contract entered into before partner’s withdrawal

In the case before the Court of Appeal in Den Bosch, the partnership had entered into a continuing performance contract with a publisher in January 2009. Under that contract, the publisher provided services for which the partnership paid a monthly fee. In August 2009, one of the partners terminated the partnership, withdrew and the other partner continued the business independently. That same month, this was recorded in the commercial register at the Chamber of Commerce.

Claim arose after withdrawal

In 2010, the company failed to pay ten invoices from the publisher. As a result, the publisher had a claim against the company for failure to fulfil its obligations under the long-term agreement. The publisher claimed payment of the outstanding invoices from the partner who had withdrawn. The former partner defended himself by arguing that he was not liable because the claims arose after his withdrawal.

Withdrawn partner remains liable

The Court of Appeal in Den Bosch ruled that a partner remains liable after his withdrawal for commitments entered into before his withdrawal. According to the Court, this also applies to amounts that became due after withdrawal on the basis of a previously concluded continuing performance contract. The Court considered it important that the former partner had not informed the publisher of his departure from the company. The publisher could not be expected to regularly consult the commercial register to check whether there had been any changes to their contractual parties. In its judgment, the Court attached importance to the fact that, when concluding the continuing performance contract, the publisher had relied on the possibility of having recourse to multiple private assets. According to the Court, this certainty on the part of the publisher could not simply be taken away by the departure of one of the partners.

This means that partners are, in principle, liable for debts arising later from previously concluded long-term agreements.

Identify agreements before terminating the partnership

If you are considering terminating the partnership within a general partnership or limited partnership, it is not only important to make clear agreements with the other partners, but also to identify the current (long-term) agreements and actively inform the contracting parties about the changes within the company.

Would you like to know more about the possibilities and risks involved in joining or leaving a general partnership (VOF) or a limited partnership (CV)? Please contact us using the form below or call us directly on 020-5210130. Our corporate law solicitors will be happy to assist you!