Many dental practitioners have a business in partnership with others. This has many advantages such as the sharing of liabilities, responsibilities and risk. However, if the terms of a partnership are not properly documented this can carry significant risks if a dispute between the partners arises. In particular the loss of your NHS GDS contract. It is critical to mitigate this risk as the lack of a formal partnership agreement can result in bitter and lengthy disputes between partners over the future of the practice’s NHS contract and cause serious damage to your business.
Partnership disputes arise for different reasons, although they typically emanate from disagreements over the direction and strategy of the business or the differential performance and workloads of partners and the basis upon which partners share profits. More recently we have seen an increase in disputes involving divorcing couples who are partners in practices who no longer wish to work together.
Impact of a dispute on NHS contracts
Whilst the impact of these disputes can of course be damaging to practices with private patients, the ramifications on NHS contracts for those practices without formal partnership agreements is particularly significant.
Unless there is an agreement, a partnership can be dissolved by one partner without the consent of the other partners simply by serving a letter on the others. The only way to avoid this is to include a clause in the partnership agreement preventing a partner from dissolving the partnership in this way. If a partnership has been dissolved the NHS contract automatically comes to an end.
We have seen ex-spouses and other partners dissolving a partnership simply out of spite leaving both partners without an income.
NHS contracts cannot be sold. However, it is common practise for someone to join a partnership as an incoming partner, work in partnership with the original partners for a period of time, and for the original partners to then retire. This has the effect of leaving the incoming partner with the benefit of the NHS contract.
Difficulties arise in situations where there is a partnership dispute and both partners want to retain the benefit of the NHS contract but can no longer work in business together.
A properly drafted partnership agreement can set out how to deal with these situations. However, most dental practices do not have such agreements particularly where a husband and wife are in partnership.
Unless the partners have agreed and signed a partnership agreement, or otherwise have clear evidence of what has been agreed between them, the partnership is governed by statute. Therefore when both partners decide they can no longer work together but want to keep the NHS contract, they are left to rely on an archaic piece of legislation, the Partnership Act 1890 (the Act).
The act is basic at best and does not deal with commercial arrangements now entered into. In contrast, partnership agreements generally cover more situations that regularly arise within a potential dispute, not assisted by the act.
There are a number of key principles that the act confers on partnerships:
- It requires equality between the partners including relating to profit share
- No majority of partners can expel another partner
- The death of a partner will automatically dissolve the partnership
- Any partner can dissolve the partnership at any time.
At first glance these do not perhaps appear to be especially draconian provisions. However, if you have not agreed a provision for expulsion of a partner then a situation can arise where one partner may be failing to carry out his share of the workload and yet will still be entitled to an equal share of the profits.
By contrast, partnership agreements will expressly set out the requirements of partners so that all partners are fully aware of what is expected and any potential consequences.
Dissolution of a partnership
Under the act, if agreement cannot be reached between partners as to the retirement of a partner then the only way to bring the partnership to an end is by way of dissolution.
As mentioned above, dissolution automatically terminates the practice’s contract with NHS England, resulting in serious damage to the business or its destruction.
On dissolution the business comes to an end and the partners are required to sell the business’ assets and meet any outstanding liabilities. Contracts with employees are terminated and the partnership may have to meet the cost of redundancy payments. Dissolution also triggers the obligation to immediately repay any loans and overdraft facilities and can lead to advanced tax payments.
NHS GDS contract provisions on dissolution of a partnership
An NHS GDS contract will subsist until it is terminated in accordance with the terms of the contract.
The contract allows for new partners to join, partners to leave or for one partner to take over the NHS contract as an individual dental practitioner where notice is given to NHS England. However, the key to this process is consent between all the partners. All partners are required to sign a notice to this effect. If all the partners consent to the transfer then NHS England must transfer the contract.
That clearly does not deal with the situation where more than one partner wishes to retain the entirety of the NHS contract but they do not want to work with each other.
There is no provision within the NHS GDS contract for splitting the contract between partners and such an exercise would only be possible with the full consent of NHS England. Even if NHS England were prepared to agree to this it is likely that consent would only be given with a renegotiation of the contract on less favourable terms.
If the partnership is dissolved then NHS England will carry out a needs assessment in order to establish what level of contract would be required. If the level is above a certain value then the contract will be put out to tender. Clearly there is a risk of none of the parties being successful in the tendering process.
If the contract is of such a value that a tendering process is not required then NHS England may decide to grant the contract to one partner, but again that requires the co-operation and consent of NHS England. The contract must represent good value and meet the needs assessment, which is likely to lead once again to a renegotiation of contract terms and units of dental activity value.
Maintaining a constructive dialogue with NHS England throughout a dispute is essential and can help mitigate the position. It is far better not to be in that position at all!
While it might appear to be the ‘pre-nup’ of the dental world, a formal partnership agreement will mitigate the risk of losing the benefit of the NHS GDS contract in the event of a partnership dispute.
Nicola is a partner in the Litigation and Dispute Resolution department at Pannone Corporate LLP. Nicola’s litigation practice focusses on commercial contractual disputes (frequently concerning dental contracts), judicial review and partnership disputes particularly in the dental and general practitioner sector.