Partnership Deed of Dissolution: What are ‘warranties’ and ‘mutual warranties’?

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• What are the departing partner’s warranties?
• What are the remaining partners’ warranties?
• What are mutual warranties?

In a Partnership Deed of Dissolution there will always be a clause that relates to unilateral and mutual warranties of the parties to the Agreement. The enforceability of the entire Agreement is strengthened by this clause, which makes it one of the more essential clauses to the entire Agreement. For assistance drafting these warranties, you’d be wise to contact a business solicitor.

What are the departing partner’s warranties?

In this provision, the business solicitor should draft it in such a way that the departing partner is required to acknowledge their obligations under the Agreement.

For example, the departing partner should warrant and represent to the remaining partner(s) that he or she understands, agrees and will willingly comply with the Agreement, including the confidentiality provisions, the restraint of trade provisions and any related provisions in the Employment Agreement.

Essentially, the idea behind this clause is to get the departing partner to acknowledge their duties under the Agreement.

What are the remaining partners’ warranties?

The other unilateral warranties relate to the remaining partner(s). They are important because they ensure that the interests of the departing partner are adequately protected, such as reputation and ability to find new work. Of course, some of these provisions might have no effect if, say for example, the departing partner leaves for personal, rather than professional, reasons.

Your business lawyer should be including the following provisions into the unilateral warranties of the remaining partner(s):

1. That there are no significant negotiations with any existing or potential clients that have not been disclosed to the departing partner that will have a material effect on the profitability of the business;
2. That the remaining partner will operate the business without disclosing any past difficulties experienced between the departing partner and the remaining partner in the business partnership; and
3. That, if requested by the departing partner, the remaining partner will provide a positive written reference in relation to the departing partner’s contribution to and involvement in the business partnerships that the departing partner may provide to prospective employers.

What are mutual warranties?

The clause that relates to Mutual Warranties is important because it dictates that each party to the Partnership Deed of Dissolution warrants to each other that each is respectively authorized to enter into the Agreement and that their entering into the Agreement and performing the obligations drafted into the Agreement gives the Agreement enforceability.

Your business lawyer should draft a number of mutual warranties into the provision, and should ensure, through the wording of the provision, that the Agreement, as a whole, is enforceable. The parties to the Agreement should warrant to each other that each of the following statements is true and correct, and will be correct at the Termination Date:

1. Power: The parties have the power to enter into, and perform their obligations under, this Agreement and to carry out the transactions contemplated by this Agreement;
2. Corporate authorisations: It has taken all necessary action to authorise the entry into and performance of this Agreement and to carry out the transactions contemplated by this Agreement;
3. Binding Agreement: Documents binding this Agreement create valid and binding obligations enforceable in accordance with their terms;

Conclusion

There is a mutual respect that should be drafted by your business lawyer into the Warranties clause. It protects the interests of the Business and the confidentiality of its clients. It also prevents the parties to the Agreement from defaming one another following the termination of the partnership.

If you are looking to have a Partnership Deed of Dissolution drawn up, our advice is to speak with one of our experienced business lawyers who can help you draft this crucial document. Call LegalVision on 1300 544 755 and give your business the protection it requires.