Take this story of two siblings and two farms. The farms are held in a family partnership and each brother lives on a different farm. They disagree about farming, land use, money and much else, and each considers ‘his’ farm as a separate entity.
However, the farms are not separate entities because they’re held in a single partnership structure set up decades ago. Given their animosity, each brother wants a clean break, but the partnership structure and the family dynamics make it impossible.
Take another story, of a son and his parents. The son was keen on farming, and his parents took him into the family partnership. But once he married, his wife loathed country life, and decided she wanted him to come out of the partnership. He wanted to claim his ‘share’ of the business.
It sounds simple in business terms, but the inadequacies of the partnership agreement and the rancour of the ensuing litigation forced the sale of the entire farm. Years later, parents and son are still not speaking.
A common analogy for such situations – with their combinations of emotion, family and the division of assets – is an acrimonious divorce. However, rural partnership disputes are normally more complex. The pathways for a split are less defined; there are labyrinthine structures to unravel; and perhaps complex tax and inheritance issues.
Furthermore, divorces rarely involve division of assets such as combine harvesters worth hundreds of thousands of pounds, nor debt incurred to buy them. Many of these situations arise because of the way the business is structured.
Family farming partnerships tend to fall into three types. First, you have Partnerships at Will, where people have come together into partnership perhaps without even realising they have done so. These are governed by the Partnership Act of 1890 and not surprisingly are not really suitable for the realities of modern business.
Next you have the Farming Partnership which has a written agreement. That’s preferable to a Partnership at Will, but very often we see that these were put in place by a grandfather or father, perhaps with siblings, in the 1960s or 1970s.
Families then forget to modernise them, to reflect changes in the business structure or relationships. If there are inadequate dispute resolution or governance arrangements, the outlook can be tortuous.
Thirdly we have the farming company, which can work very well indeed. But we also see companies that have been set up following tax or legal advice in the past; and where the parties involved were previously involved in a partnership, they may not be fully aware of differences in regulation and administration requirements. The governance systems of the company may also be inadequate to deal with deadlock.
In all these situations, it is not the structure that is unfit for purpose, just the way they were set up. There’s a lack of provision for someone leaving and a lack of provision for change or family animosities, either in the current generation or future ones.
Dealing with situations like those above (which, by the way, are fictional, but very typical of rural partnership disputes) is hugely complex.
They require a multi-disciplinary approach, involving not just rural specialists but experts in alternative dispute resolution and litigation. Even then, problems can continue for years. It would have been far easier to take a precautionary approach beforehand.
Good constructive legal advice should permit them to effect a clean break, keep their farms, and lead the lives they want to.
In mixing farming and family, it is essential to apply modern risk management in structuring the business, always trying to anticipate and cater for fall-outs and feuds. Not just in your own generation but in future ones too – otherwise you may end up in a novel.
This article featured in the Scotsman on 25 July 2016.
