Partnership break up is ‘commercial divorce’. It is more difficult than any other commercial dispute. It brings emotional baggage.
Can the relationship be saved? Most practices will go through good and not so good phases. Does ‘not so good’ mean ‘irretrievable breakdown’, the marital test? If blood has not been spilt on the waiting room carpet, then it must always be sound judgment to see if some outside advice might help to re-engage relationships.
What happens if attempts at reconciliation fail? The partners can agree on a controlled dissolution. If they cannot manage to agree this then the partnership will fall apart in an uncontrolled manner. This will be more damaging and costly.
If the partners can agree an end date for their relationship they need to determine an agenda of issues to be addressed by then. Professional advisors should be involved.
The Walker Brothers must be given credit for the alternative title to this article – ‘breaking up is hard to do’. But the most critical line in their memorable ballad is surely ‘make it easy on yourself’. Whether the end is controlled or not, there are certain key issues which, if handled well, can make the difference between a good and bad partnership break-up.
The succession plan
After the death of any relationship, ‘life goes on’. It is in the interests of all the partners for there to be communication over the individual plans for the future because this will dictate how they may best wind up their affairs. The partners must focus on these discussions and determine the succession plan as soon as possible.
The succession plan will often involve both patient issues and premises issues. It may well be difficult to progress the succession plan without the early involvement of the relevant NHS commissioner. Going there, however, too early, may cause alarm and perhaps over reaction. What will inspire confidence will be the presentation of an agreed succession plan and one which addresses existing GMC or PMS contracts.
It will be crucial to examine the terms of the GMS/PMS contract at an early stage to ascertain what is to happen to the contract upon the dissolution. For example the standard GMS contract states that if the partnership terminates or is dissolved the contract can only continue with one of the former partners if (amongst other things) all the former partners agree.
PMS agreements on the other hand do not recognise partnerships as such although it is not uncommon for them to be executed by a number of individuals who happen to be in partnership. Accordingly the model PMS agreement does not lend itself to use in the case of multiple providers and partnership disputes are not catered for. The worst scenario is probably if the contract terminates and the contract goes out to tender.
The practice agreement
The practice agreement is an important document that must be read by all the partners so they understand its application in the context of a dissolution. Often practice agreements focus more on continuity of the partnership, partners retiring and new partners joining, rather than the entire end of the partnership.
The role of the partnership accountant is key. Accounts will need to be drawn to the date of dissolution. However, it may be many months post the dissolution date before the accountant is in a position to present the accounts. The dissolution accounts will hopefully show a trading profit. The balance sheet will reflect the value of assets and help to assist the partners in accounting arrangements between themselves.
This aspect often proves one of the most challenging. Where the premises are freehold, almost certainly there will be an outstanding mortgage debt issue. Leasehold cases can sometimes be more difficult. There will be issues about the primary liability of the named tenant partners to the landlord for the duration of the lease term and rights to assign the lease.
There will need to be discussion over notional rent and cost rent. Property owning partners who leave may call for equitable accounting. Finding a valuer experienced in GP premises is clearly vital.
When and how to tell the staff is a matter of careful judgment. It is better done when the partners can present a joint plan going forward. If this is not possible then it may be desirable to have an early meeting when the message may be ‘we have problems, they are not of your making, we are confident we can resolve them and we wish to keep an open line of communication with you.’
There will be formal, legal issues to address. Dissolution of the entire partnership is likely to determine contracts of employment. TUPE and consultation issues must be understood.
Customers of any business are its core. It should be a priority to manage patient goodwill in the most positive way.
Where the practice dissolves, and there is no continuing business, in most cases restrictive covenants are unlikely to have much relevance.
Most practice agreements will contain an arbitration clause. The advantage of arbitration is that it is private. That said, the parties to the arbitration pay for the arbitrator. Delay can sometimes be more a feature of arbitration than of the court process.
Formal or informal mediation ought to be firmly on the agenda where the partners are unable to agree on major aspects of the break up.
Graeme Jump is a Solicitor and Accredited Mediator in the Dispute Resolution Department at Weightmans LLP Solicitors.