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What to Do When Dealing with the Death of a Partner

Losing a partner can be a difficult and stressful time for any law firm.  Apart from mourning the loss of a respected leader, colleague, and friend, the firm also faces the responsibility of handling the partner's ongoing files and matters.  Additionally, there may be concerns about obligations to the Bar Council as well as questions on what to inform the deceased Member’s estate about their obligations.  This article aims to address some of these concerns through a discussion of the Partnership Act 1961 ("PA 1961") and the Bar Council Rules and Rulings ("Rules and Rulings").  This article will also discuss the LawCare Fund, the Professional Indemnity Insurance (“PII”) Scheme, and more.
The process that ensues when a partner passes away is often referred to as “Estate Management”.  This involves the transition of the deceased partner’s interests, responsibilities, and client relationships within the law firm to another partner and/or family member.  It can be a complex process that requires careful planning, adherence to legal obligations, and sensitivity to the emotions of grieving friends and family.
Fortunately, the deceased themself has alternatives to manage their interests before death. Members are advised to reflect on their options and taking into account all considerations that suit them, they may seek to enter into a Partnership Agreement.  In fact, it is often in the best interest of the firm to have a well-drafted partnership agreement that anticipates and addresses these options.
The first option that partners may opt for is to pass his/her share of the profits to the beneficiaries upon his/her demise.  Section 44 of the PA 1961 states that, where any member of a firm has died and the surviving or continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts, as between the firm and the outgoing partner or his estate; then, in the absence of any agreement to the contrary, the outgoing partner or his estate is entitled to such share of the profits made since the dissolution as may be attributable to the use of his share of the partnership assets, or to interest at the rate of 8% per annum on the amount of his share of the partnership assets.
However, the estate of the deceased partner would not be able to rely on section 44 of the PA 1961 if the right of estate to post-dissolution profits or interest has been excluded in the partnership agreement.  The deceased’s share will continue as if he or she were still alive, and the beneficiary will continue to get a share of the deceased’s profits at the agreed rate of his/her specified portion.   The receipt of profits of the partnership by the estate does not make the estate a partner in the business.  In this regard, section 4(c)(iii) of the PA 1961 states that when a person being the widow or child of a deceased receives profits by way of annuity, the beneficiary is not, by reason only of such receipt, a partner in the business or liable as a partner.
The second option is through a sale and purchase agreement among the surviving partners, and the proceeds of the sale will be distributed to the beneficiaries.  Such an option also provides equitable compensation to the family of the deceased partner.  This option is provided for under section 44 PA 1961 which states that, where the partnership contract gives an option to the surviving partners to purchase the interest of the deceased partner, and the option is duly exercised, the estate of the deceased partner is not entitled to any further or other share of profits.  However, if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account for the profit under section 44 PA 1961.
Certainly, the unexpected passing of a partner would leave the other partners with many questions and concerns, especially when it comes to adhering to the legal requirements or obligations.  
The following are some of the matters that ought to be borne in mind when a Member passes away.
(a)     Who should be notified?
When a Member passes away, the firm or the estate of the deceased Member will need to notify the Bar Council and the State Bar to which the Member is registered.
Upon notification of the Member’s death, the Bar Council will write to the deceased Member’s family to enquire and/or inform inter alia the following:
  • to ask whether during the Member’s lifetime, the Member had made plans to deal with  the unexpected and whether he has nominated a solicitor to take over the firm’s clients’ files and accounts, in the event of that Member’s death;
  • if no such plan exists, whether the family member(s)/firm would be able to appoint another solicitor to take over the firms’ client files and accounts; or
  • if the family member(s)/firm would prefer the Bar Council to handle the firm’s client files and accounts.
 This is to ensure that there is a smooth transfer of the client’s case to another solicitor and to safeguard the interests of the clients, the law firm, and the estate.
(b)     Who can make a claim from the LawCare Fund?
Since all Members are contributors to the LawCare Fund, the deceased Member’s beneficiary, trustee, or nominee designated by the Member can also make a claim from the LawCare Fund.  Where a nomination has been made, the nominee will be able to receive the sum assured from the insurer.  Payment is issued immediately upon receipt of funds from the insurer, which usually takes approximately two months from the date of notification.  It is therefore advantageous for Members to appoint a nominee, as it facilitates the process.
(c)     How can the estate make a claim from the LawCare Fund?
To make a claim from the LawCare Fund, the deceased Member must have had a valid Sijil Annual and Practicing Certificate when they passed away.  The deceased Member’s beneficiary must notify the Bar Council’s Membership Department of his/her demise and also provide a copy of the Member’s Death Certificate.  The Bar Council will then enquire as to whether a beneficiary has been nominated.  If there is such a nomination, the nominee/beneficiary will need to provide the Bar Council with a copy of their identity card (“IC”).
If no such nomination had been made, the whole claims process will take a lot longer to complete.   This is because Muslim Members would have to wait for the faraid certificate or the grant of letter of administration prior to receiving the Lawcare Fund cheque.  Whereas, Non-Muslim Members will need to wait for the grant of letter of administration.  Once the additional documents are provided to the Bar Council, the payment will be made to either to the executor or administrator of the deceased Member’s estate.  Therefore, Members are advised to inform their beneficiaries or nominees about the Lawcare Fund and provide the contact details for the Bar to make the process easier when the time comes.
More information about LawCare Fund is available here.
(d)     What happens to the partnership?
Under section 35(1) of the PA 1961, the death of a partner would result in the dissolution of the partnership unless there is an agreement between the partners.  Therefore, upon the death of a partner, the surviving partner has to prove the existence of an agreement for the partnership among the surviving partners to continue notwithstanding the death of one partner.  Such agreement has to be made between all partners including the deceased partner.  However, in a situation where there is only one surviving partner, the partnership cannot continue.
In cases where a partner has passed away, the Bar Council will enquire into the existence of such a partnership agreement.  If there is such an agreement, the Bar Council will issue a “Letter of No Objection” for the partnership to continue.  In the absence of this agreement, the Register of Firm Names will be updated to reflect that the law firm has been dissolved.
(e)     How will any debts or obligations affect the firm or the deceased partner’s estate?
Section 11 of the PA 1961 states that, “Every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in a due course of administration for such debts and obligations, so far as they remain unsatisfied but subject to the prior payment of his separate debts”.
Therefore, every partner in the firm is jointly liable for debts and obligations incurred while he or she is a partner.  In the event of his or her death, his or her estate will also remain liable in the due course of administration for such debts and obligations, in so far as they remain unsatisfied.  
Section 45 of the PA 1961 states that, “Subject to any agreement between the partners, the amount due from surviving or continuing partners to an outgoing partner or the representatives of a deceased partner in respect of the outgoing or deceased partner's share is a debt accruing at the date of the dissolution or death”.  It establishes that when a partner passes away, the money related to the deceased partner’s share in the partnership shall be a debt owed by the surviving partners to the deceased partner’s representatives, and that this debt starts accumulating from the date of the partner’s death, subject to any agreement between the partners.  The deceased partner’s representatives shall be entitled to claim such rights.
Where, after a partner’s death, the partnership business is continued in the old name of the firm, the continued use of that name or of the deceased partner’s name as part thereof shall not of itself make his estate liable for any partnership debts contracted after his death.  This is laid out in section 16 of the PA 1961 and further fortified in section 38 of the PA 1961.
Partners are required to account to the firm for any private profits derived from transactions concerning the partnership or from any use of the partnership’s assets, as stated in section 31 of the PA 1961.  This obligation applies even after a partnership is dissolved by the death of a partner and before the affairs have been completely wound up.
(f)     How does the firm deal with the deceased partner’s clients?
Any act or instrument relating to the business of the firm and done or executed in the firm’s name, or in any other manner showing an intention to bind the firm, by any person thereto authorised, whether a partner or not, is binding on the firm and all the partners as stated in section 8 of the PA 1961.  
As such, all case files and client accounts can be transferred to other partners to continue, and the law firm has the responsibility to proceed with the same as if the deceased partner was still around.   Nevertheless, the client has the right and the option whether to proceed with the same firm or to seek another lawyer or other law firm to handle his/her case.
Where it is a sole proprietorship, the firm or estate will need to notify the Bar Council.  The Bar Council will then intervene to retrieve the case files from the firm and return them to the clients.   Active clients may then proceed to appoint a new solicitor at their own discretion.
Although the exact words set out in the Rules and Rulings do not address the death of a partner, the Rules and Rulings still provide Members with the information and indication as to how to proceed and will serve as good practice for the surviving partners of the firm.
Partners are advised to seek written instructions directly from all the clients of the deceased in respect of all outstanding matters.  The partners are also advised to ascertain from each client whether to hand over the conduct of outstanding matters to the client themself, to the new solicitor of the client’s choice, or to the new solicitor appointed by the firm to complete the deceased’s partner’s outstanding matters.
Partners are advised to return or release all clients’ documents in their control to the client, the person as instructed by the client, the new solicitor appointed by the firm to take over the deceased’s outstanding matters or deal with such documents in such manner as may be directed by the Bar Council.  This would be subject to any lien for fees and subject further to any contrary duty or obligation under any agreement or otherwise.
Similarly, partners are advised to return or release all clients’ monies in their custody or control to the client, any person as instructed by the client, the new solicitor appointed by the firm to take over the deceased solicitor’s outstanding matters or deal with such monies in such manner as may be directed by the Bar Council.
If the partners are unable to locate any of the deceased solicitor's clients, they should notify the Bar Council of the names, the last known addresses, and the contact numbers of those clients.
Finally, the partners are advised to return documents or payments with regard to any undertaking that they will not be able to honour due to the death of the solicitor originally handling the undertaking.
(g)     How should the firm deal with the clients’ accounts if a partner passes away?
If the parties had chosen not to dissolve the partnership due to an existing agreement between the partners and the Bar Council has already issued a letter of no objection, the firm may proceed to manage the clients’ accounts as they did prior to the partner’s passing, giving a continuity of the partnership.  
On the other hand, if the firm is dissolved, the surviving partners should close the clients’ accounts and appoint an auditor to audit all clients’ accounts.  Thereafter, the firm will need to file an inventory of files and Accountant’s Report with the Bar Council.  These actions supplement the obligations imposed by the Legal Profession Act 1976, rules, and other applicable rulings.
(h)     What happens if there are claims against the deceased Member?
After the death of the Member, the estate of the former Member may still be liable for any claim filed thereafter (depending on the statute of limitation).  In this regard, under the PII Scheme, the insurer is liable to provide indemnity in respect of negligence suits made against a former Member (or his estate in the event of his death), subject to terms and conditions of the policy.  The said indemnity also extends to cover costs incurred for claimant’s costs, defence costs and mitigation costs.
Cover provided under the PII Scheme for a deceased Member is based on the Member’s last policy year.  This means the Member’s last mandatory limit and base excess is applicable.
The estate of the deceased Member must make a notification to the Insurer within 60 days in the event they receive any writ, letters of demand, assertion of threat to sue or of any circumstances that may lead to a claim.
It cannot be overstated how the loss of a partner in a legal firm can be a challenging and emotional time for everyone involved.  However, there are steps that can be taken to ensure stability and address the various concerns that arise.  By following these steps and seeking guidance from Bar Council, law firms will be able to navigate the aftermath of a partner's loss with greater stability and clarity.