Malik v Mahboob Hussain Junior & Ors

On dissolution of a partnership, the normal rule is that partnership property should be sold so that each partner receives full value. The court nevertheless has a broad discretion to order another method, including a compulsory buy-out, where that is fair and just. No universal rule requires the court to refuse a buy-out merely because the selling partner might obtain a higher price through an open-market sale. The court must assess the particular circumstances, including valuation reliability, the parties’ motives, the possibility of genuine competing bids and the risk of unfairness. A sale process may be structured to prevent tactical or sham bidding. Where a buy-out is ordered, valuations must use consistent assumptions and provide a fair outcome.

The judgment determined issues arising on the taking of the final account after the dissolution and winding-up of a partnership between Tariq Mahmood Malik and Mahboob Hussain Junior. The partnership assets comprised the Stockport Road property and a 50 per cent interest in the company operating the restaurant business.

The substantive disputes had been addressed in an earlier judgment, [2020] EWHC 2334 (Ch), which found a partnership and ordered dissolution and winding-up. The remaining questions concerned valuation, whether the assets should be sold or bought out, and the terms of any sale or buy-out.

1. Disposition. The appropriate course was a sale of the Stockport Road property and the partnership’s 50 per cent interest in the Stockport Road company as one unit, followed by a buy-out at the court valuation if the sale did not produce a completed transaction.
2. Sections 39 and 44 of the Partnership Act 1890 require each partner to receive the full share to which he or she is entitled. Sale is the normal and usually expedient method of realising that value. However, the presumption is not absolute. The court may adopt any fair and just method, including a compulsory buy-out. The discretion is wide and must be exercised by reference to the particular facts.
3. There was no general rule that a buy-out was impermissible unless the court could exclude any real risk that the selling partner would lose the highest market price. That risk was an important consideration and might often be decisive, but other factors could outweigh it.
4. The valuation evidence had to be fair and internally consistent. The property and company valuations were to proceed on linked assumptions. The property was to be valued on the basis of continued occupation by the company, with rent initially at £78,000 per annum and increasing to £238,500 from 23 February 2023. The company valuation was to use updated revenue-per-establishment data, a 33 per cent uplift for wedding income during the relevant period, the applicable business-rates relief, a 20 per cent discount rate and the increased rent from 2023.
5. A wholly unregulated bidding process would risk tactical bidding designed to increase the price without a genuine ability or intention to complete. The sale agent could require deposits or proof of funds, impose a speedy completion timetable and treat default as repudiation. A reserve equal to the court valuation was required. The judgment also provided mechanisms enabling Mahboob to acquire at that valuation where a higher bidder could not complete.
6. Further directions were to be given for the valuations, resolution of disputes arising from them, the sale process and, if necessary, costs.

The judgment was a first-instance decision on the taking of the final account following the earlier substantive judgment in [2020] EWHC 2334 (Ch). It was not an appeal.