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Amendment of section 24 of Act of 1994 - insertion of additional subsections concerning penal clauses
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24. Section 24 of the Act of 1994 is amended by the insertion of the following subsections after subsection (5):
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“(6) If a partnership agreement contains a provision to the effect that a partner who fails to perform any of his obligations under, or otherwise breaches any provision of, the partnership agreement may be subject to, or suffer remedies for, or consequences of, the failure or breach that are specified in the partnership agreement or otherwise applicable under any law then those remedies or consequences shall not be unenforceable or rendered inapplicable solely on the basis that they are penal in nature.
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(7) Without prejudice to the generality of subsection (6), the remedies or consequences to which that subsection applies include:
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(a) reducing, eliminating or forfeiting—
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(i) the partnership interest in the investment limited partnership of the partner who has failed to perform, or has breached, the obligation or provision concerned (in this subsection referred to as the ‘defaulting partner’ (and the partners who have neither failed to perform, nor breached, the obligation or provision concerned are referred to in this subsection as the ‘non-defaulting partners’)), or
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(ii) any rights of the defaulting partner under the partnership agreement;
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(b) subordinating the partnership interest in the investment limited partnership (in this subsection referred to as a ‘partnership interest’) of the defaulting partner to the interests of non-defaulting partners;
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(c) effecting a sale or forfeiture of the defaulting partner’s partnership interest;
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(d) arranging for the lending by other partners or other persons to the defaulting partner of the amount necessary to meet the relevant commitment of the defaulting partner;
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(e) providing for the fixing of the value of the defaulting partner’s partnership interest by means of appraisal or by the application of a formula and the redemption or sale of the defaulting partner’s partnership interest at that value.
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(8) A general partner who, on the basis of a provision contained in the partnership agreement, and a failure or breach, referred in subsection (6), purports in good faith—
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(a) to make a decision that a partner be subject to, or suffer remedies for, or consequences of, the failure or breach that are specified in the partnership agreement or otherwise applicable under any law,
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(b) to make a decision that a partner shall not be subject to, and shall not suffer remedies for, or consequences of, the foregoing failure or breach, or shall only be subject to, or suffer, certain remedies or consequences in that behalf (in this subsection referred to as a ‘partial decision’), or
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(c) to give effect to a decision referred to in paragraph (a) or to a partial decision and, in either case, to take the appropriate steps (if any) required to be taken for that purpose,
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shall not be liable for having made any such decision nor, as the case may be, for having given effect to a decision referred to in paragraph (a) or to a partial decision or, in either case, for having taken any aforementioned steps.
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(9) References in the preceding subsections to a partnership interest shall be construed as including references to any part of a partnership interest.”.
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