Opinion ID: 1058004
Heading Depth: 2
Heading Rank: 2

Heading: accounting and settlement

Text: The Plaintiffs argue that the circuit court correctly found that they had met their burden for an order of judicial dissolution of the partnership under Code § 50-73.117 but then erroneously failed to perform an accounting and winding up of the Firm's business, including the settlement of the partners' accounts that is required by Code § 50-73.123. The Plaintiffs thereby raise the question of whether the circuit court failed to do that which Code § 50-73.123 required it to do after it determined a judicial dissolution was warranted under Code § 50-73.117. This question presents an issue of statutory interpretation, which we review de novo. Jones v. Williams, 280 Va. 635, 638, 701 S.E.2d 405, 406 (2010). Code § 50-73.123(A) directs the circuit court to ascertain the value of a partnership's assets and liabilities and apply the assets to discharge its obligations to creditors, including, to the extent permitted by law, partners who are creditors. Thereafter, [a]ny surplus shall be applied to pay in cash the net amount distributable to partners in accordance with their right to distributions under subsection B. Id. Code § 50-73.123(B) states that [e]ach partner is entitled to a settlement of all partnership accounts upon winding up the partnership business. In settling accounts among the partners, the profits and losses that result from the liquidation of the partnership assets shall be credited and charged to the partners' accounts. The partnership shall make a distribution to a partner in an amount equal to any excess of the credits over the charges in the partner's account. A partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner's account that is attributable to an obligation for which the partner is liable under § 50-73.96. Historically, an accounting was a term of art describing a particular remedy in equity available against any agent, trustee, committee[, or] partner. [8] John L. Costello, Virginia Remedies § 16.01[1] (3d ed.2005). Such an equitable accounting included two steps. First, the account is to be stated; this is a determination of who owes what. Second, the account is to be settled; this is the payment by the debtor of the money found to be owing. W. Hamilton Bryson, Bryson on Civil Procedure § 12.03[2][c] (4th ed.2005). Although Code § 50-73.123 does not explicitly direct the circuit court to perform the historical equitable accounting as an incident to a judicial dissolution, the steps required by Code § 50-73.123(A) and (B) are identical to those comprised by the historical accounting in equity. Moreover, it simply is common sense that the liabilities of the partnership must be satisfied and that any residual surplus be distributed among the partners, in that order. The winding up of a partnership's business incident to a judicial dissolution thus necessarily includes the completion of an accounting. See Spencer W. Symons, 4 Pomeroy's Equity Jurisprudence § 1421 (5th ed. 1941) (An accounting is necessary to a final and complete relief in a judicial dissolution.) The Plaintiffs alleged in their complaint that Rogers had overdrawn his accounts while their own respective accounts were underdrawn. [9] Paragraph 7.4 of the partnership agreement provided that [o]verdrawn accounts shall be considered by the Firm as accounts receivable and underdrawn accounts shall be considered by the Firm as accounts payable. Accordingly, the complaint sought an accounting that would result in Rogers repaying the allegedly overdrawn balance of his accounts and the corresponding distribution of their underdrawn accounts. Although the Plaintiffs adduced evidence to support the allegations of their complaint, the circuit court neither made factual findings as to the value of the partners' respective account balances nor directed the repayment of any excessive withdrawals or distribution of any surplus. Both the letter opinion and the final order focus on the Plaintiffs' obligation to repay Rogers and his wife under the terms of their respective notes and the Firm's obligation to pay unpaid interest on the partners' equity. Both are silent as to the value of the principal balances of the partners' accounts in the Firm, whether the Firm had any surplus after the satisfaction of its outstanding liabilities, if any, and whether any partner either owed any amount to the Firm or was entitled to any distribution from it. [10] Accordingly, it is clear that the circuit court failed to perform the accounting necessarily inherent in a winding up of the Firm's business and prerequisite to a settlement of its accounts among the partners and its final judicial dissolution. We therefore will vacate the court's judgment insofar as it fails to account for all the assets and liabilities of the Firm, including the principal balances of each partner's accounts, and fails to provide for the distribution of any residual surplus. We will remand the case for further proceedings consistent with this opinion, including factual findings as to the satisfaction of any outstanding liabilities of the Firm, the extent of any residual surplus, the value of each partner's accounts based on his respective contributions and withdrawals, and the proportion to which any partner either is liable to the Firm or is entitled to a distribution from the Firm based on the provisions of the partnership agreement.