The Law of Limited Liability Partnerships 9781526516695, 9781526516718, 9781526516688

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THE LAW OF LIMITED LIABILITY PARTNERSHIPS

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THE LAW OF LIMITED LIABILITY PARTNERSHIPS Fifth Edition Consultant Editor

John Whittaker BCL, MA Barrister (retired), Serle Court

General Editor

John Machell QC LLB (Soton) Barrister, Serle Court Contributors, Barristers, Serle Court Tim Benham-Mirando BA, BCL (Oxon) Thomas Braithwaite MA (Cantab) Emma Hargreaves MA (Cantab), LLM Jennifer Haywood MA (Cantab) Gregor Hogan BA, BCL (Oxon) Max Marenbon MA (Oxon), LLM (Cantab) James Mather MA (Cantab) Adil Mohamedbhai MA (Cantab), LLM Matthew Morrison BCL, MA (Oxon) Amy Proferes LLB (London), MA (London), AM (Harvard) with a chapter on UK Financial Services Regulation and LLPs by Nick Williams LLB (Bristol) Partner, Allen & Overy LLP a chapter on Taxation of LLPs and Members by Colin Ives CTA, ATT Senior Professional Services Tax Partner, BDO LLP and a chapter on Discrimination and Whistleblower Protection by Clare Murray LLB (Hons), Sarah Chilton LLB (Hons) Dip LP and Beth Hale MA (Cantab) CM Murray LLP

BLOOMSBURY PROFESSIONAL Bloomsbury Publishing Plc 50 Bedford Square, London, WC1B 3DP, UK 1385 Broadway, New York, NY 10018, USA 29 Earlsfort Terrace, Dublin 2, Ireland BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc © John Whittaker and John Machell 2021, except Chapter 15 © Clare Murray 2021, Chapter 20 © Allen & Overy LLP 2021 and Chapter 23 © Colin Ives 2021 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/ open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2021. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN:  HB: ePDF: ePub:

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PREFACE It is now over 20 years since the Limited Liability Partnership legislation came into force and LLPs are a common and accepted feature of business life, both in the UK and further afield. Whilst some commentators have long predicted the death of partnership as a model for commercial ventures, it continues to be regarded an attractive option for many businesses particularly in the form of an LLP, which combines the benefit of separate legal personality and limited liability with the flexibility of partnerships. The steady trickle of reported cases raising LLP law issues to which reference was made in the preface to the fourth edition has continued, most notably Mr Justice Newey’s decision in Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch), [2017] Ch 157 that the profit share of an LLP member is potentially susceptible to forfeiture under equitable principles. Mr Justice Henderson’s decision in Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch), that the doctrine of termination by acceptance of repudiatory breach does not apply to LLP agreements, seems to have been accepted in most quarters; at least, litigants do not seem keen to challenge its correctness. This work continues to benefit from the inclusion of chapters contributed by experts in their fields. Chapter 15 covers discrimination law as it applies to LLPs and their members. The updating of the text has been undertaken by Clare Murray, Sarah Chilton and Beth Hale of CM Murray LLP, who have taken over responsibility for the chapter which was largely originally written by Susanne Foster. Chapter 23 deals with taxation of LLPs and their members, and it has been written, as previously, by Colin Ives of BDO, with the assistance of Sean Richardson. Chapter 20 on financial services has been taken on by Nick Williams of Allen & Overy LLP, replacing John Goodhall, who has retired from practice. The updating of the remainder of the book has only been possible with the substantial work undertaken by the Serle Court team. John Whittaker has remained Consultant Editor and has continued to provide invaluable comments on all the chapters. As I noted in the preface to the fourth edition, this work would not exist without John’s intellect, dedication and hard work. The bulk of the updating has been done by the team of contributors from Serle Court now comprising, in order of seniority, Thomas Braithwaite, Jennifer Haywood, Matthew Morrison, James Mather, Adil Mohamedbhai, Emma Hargreaves, Amy Proferes, Gregor Hogan, Tim Benham-Mirando and Max Marenbon.

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Preface

Finally, the publishers, Bloomsbury Professional, have kindly prepared the tables of cases and legislation and the index. We are grateful to them, particularly Andy Hill and Peter Smith. The LLP Act is the governing statute for LLPs in all parts of the UK. There are, however, some differences in law between England and Wales on the one hand, and each of Scotland and Northern Ireland on the other. In the light of this, we should make clear that, whilst we hope that this book will prove to be of use and value in Scotland and Northern Ireland (and beyond), we are only intending to set out comprehensively the law of LLPs in England and Wales. The law is intended to be as at 1 January 2021. John Machell QC Serle Court

CONTENTS Prefacev Table of Casesxix Table of Statutesxlvii Table of Statutory Instruments lxvii Table of United Kingdom Materialslxxix Table of International Materialslxxxi Chapter 1  Overview and Introductory Matters1 The business entity 1 Disclosure and regulation 2 The Registrar 3 ‘LLP Search’ 6 Scheme of the legislation 7 Transitional provisions and continuity of the law 10 Partnership law 10 Punishment of offences 12 The United Kingdom 12 Financial services 13 Groups and subsidiaries 13 Chapter 2  Incorporation 15 The requirements 15 (a)  Two or more persons subscribe 15 (b)  The incorporation document 22 (c)  Statement of compliance 29 Certificate and registration 30 Inspection32 Trading not commenced 33 Chapter 3  The Corporate Entity Separate legal personality Piercing the corporate veil ‘Unlimited capacity’ Banks and landlords Effect of failure to notify the registrar The registered office LLP ceasing to satisfy section 2(1)(a)

35 35 37 39 39 40 40 43

Chapter 4  Formalities and Requirements after Incorporation 45 Requirements as to display and disclosure 45 Display of name at registered office and other locations 45 Disclosure of information 46 Effect of breach of requirements 47 Formalities for contracts, deeds and other documents 48 Generally48 Pre-incorporation contracts 50

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Change of name Duty to notify changes Confirmation statement

Contents

51 54 55

Chapter 5  The LLP and the Outside World 57 Agency57 Members and other agents acting within their authority 58 Members and other agents acting outside their authority 58 Employees (and other non-member agents) 59 Members61 Third party ‘knowing’ that no authority 63 No ‘knowledge or belief’ by third party as to membership 64 Cessation of membership 66 Vicarious liability for torts and other wrongs 67 Acts of members 67 Acts of employees 69 Chapter 6  Charges and Debentures 71 Introduction71 Registration of charges 72 Duty to register 72 Particulars, and instrument of charge, to be sent to the Registrar 73 Post-registration74 Power of the court to extend time and rectify 75 The LLP’s registers and copies 76 Copies of charges 76 Register of debenture holders 77 Form of registers 79 Alternative inspection location 80 Details of right of inspection 80 Debentures81 Re-issue of redeemed debentures 81 Rights and position of debenture holders 81 Liability of trustees of debentures 82 Duty of LLP to issue debentures or certificates on allotment 83 Floating charges 83 Chapter 7  Conversion from a Partnership 85 Introduction85 The decision to convert 85 Stamp duty and stamp duty land tax 86 Transfer of the partnership business and assets 86 Customer/client contracts 87 Employees88 Leases88 Banking88 Investments89 Professional indemnity insurance 89 Indemnities89 Annuities90

Contents

‘True and fair’ accounts Partnerships of accountants

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90 91

Chapter 8  Membership: General Matters 93 Introduction93 First members 93 New members 94 Changes in a member’s name or address 96 Notice in the london gazette 96 Protection of residential addresses from disclosure 97 Limited liability 100 A member’s share and interests 102 Alienation of a share or interest 104 Fiduciaries as members 107 Leaving members 108 Shadow members 110 De facto members 111 People with significant control 114 Chapter 9  Employment and Worker Status 117 Introduction117 Employment – the partnership law position 117 Employment – the effect of section 4(4) 121 Worker status 125 TUPE128 Chapter 10  The LLP Agreement: General Principles 133 LLP act 2000, section 5(1) 133 The position in default 135 Execute before incorporation? 138 Rectification139 Amendment140 Rescission and termination 141 Rescission for misrepresentation 142 Rescission of an agreement to form an LLP143 Rescission, either by the new member or by an existing member, of an agreement that a person join an existing LLP144 Rescission by one or more existing members of a new LLP agreement, a variation of an existing LLP agreement or a retirement agreement 144 Non-disclosure145 Repudiation145 Partnership law 145 The application of the doctrine to LLPs146 The consequences if the doctrine applies to LLPs150 Remedies for breach 153 Generally153 Damages153 Other remedies 154 Governed by foreign law? 154

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Chapter 11  The LLP Agreement: Contents 157 Introduction157 Points for consideration 158 The business of the LLP158 Accounts and accounting obligations 158 Funding159 Profits and losses 160 New members 161 Designated members 161 Authority162 Property163 Inspection of books and records, and obtaining information, by members 163 Liability of members to third parties 163 Liability of members to the LLP, and exclusions and indemnity 164 Liability of members to other members, and exclusions and indemnity 165 Conflicts of interest 165 Meetings, decision-making and management 166 Assignment by a member of his share 167 Duty of good faith? 167 Unfair prejudice and winding-up petitions 168 Salaried members 168 Fiduciary members 169 Retirement169 Power of expulsion 171 Restrictive covenants 171 Garden leave 174 Liability to contribute in a winding up 175 Surplus in a winding up 175 Default rules 176 Dispute resolution 176 Amendment of agreement 176 Chapter 12  Designated Members 177 Introduction177 Appointment and retirement of designated members 178 Option (i): specifying named members 178 Option (ii): all members automatically designated members 179 Ceasing to be a member 180 Duties, responsibilities and powers of the designated members 180 LLP obligations 180 Direct duties and powers 184 Designated members and the LLP187 CDDA 1986 188 Chapter 13  Duties and Responsibilities of Members 189 Introduction189

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Duties to the LLP189 Statutory duties 189 Duties to other members 189 A member’s duties to the LLP190 Duty to account 190 Fiduciary obligations 191 Forfeiture201 Other (non-statutory) duties and responsibilities of a member to the LLP205 Statutory duties and responsibilities 207 Duties and responsibilities on the members as a whole 207 Duties (with penalties for non-compliance) on individual members 208 LLP obligations: liability of members ‘in default’ 209 Insolvency Act 1986 and Company Directors Disqualification Act 1986 211 A member’s duties to his co-members 212 General212 Good faith between negotiating parties 213 Duty of care? 214 Cause of action 214 Default duty to render ‘true accounts’ etc 215 Express and implied contractual terms of good faith or mutual trust and confidence 216 Duties in decision-making 217 Chapter 14  Rights, Indemnities and Protection of Members 219 Introduction219 Default rule rights 220 Right to inspect the books and records of the LLP220 Right to obtain information from other members 227 Right to be indemnified 228 Rights given by CA 2006 to every member 229 The rights 229 Waiver of rights? 231 Rights given by IA 1986 to Contributories 232 Decision-making as to individual membership rights 234 Excluding a member’s liability to the LLP (and to other members) 234 Discretionary power of court to relieve members from liability 236 Claims by a member against the LLP238 Derivative claim by a minority of members 238 Chapter 15  Discrimination and Whistleblower Protection 245 Introduction245 Discrimination protection 245 Prohibited discriminatory conduct 247 Direct discrimination 247 Indirect discrimination 248 Harassment249 Victimisation249 Instructing, causing or inducing discrimination 249 Aiding discrimination 250 Former relationships 250

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Potentially permissible discriminatory treatment 250 Territorial scope of discrimination law 251 Time limits for discrimination claims 254 Mandatory early conciliation in discrimination claims 254 Burden of proof in discrimination claims 255 Remedies256 Declaration257 Compensation257 Duty to mitigate 257 Recommendation258 Injury to feelings 258 Employment tribunal jurisdiction and arbitration provisions in an LLP agreement – which prevails? 259 Common discrimination issues relating to LLP members 260 Sexual harassment and bullying 260 Age discrimination 265 Mandatory retirement ages 266 Alternatives to a mandatory retirement age 270 Further impact of age discrimination in LLPs271 Appointing on the basis of post-qualification experience 272 Sex discrimination 272 Pregnancy discrimination 273 Profit share entitlement for members 275 Equal pay 276 Maternity leave for LLP members 278 Shared parental leave and pay 279 Flexible working requests 279 Disability discrimination 280 What is a disability? 280 Direct disability discrimination 281 Discrimination arising from a disability 282 Duty to make reasonable adjustments 282 Costs of making the adjustments 284 Enquiries about disability and health 284 Permanent health insurance/long-term disability cover 285 Whistleblower and other ‘worker’ protections 286 Qualifying disclosure 286 Protected disclosure 287 Detriment288 Time limits 288 Remedies289 Territorial scope of whistleblowing law 290 Part-time worker protection 290 Other quasi-employment law protections 293 Discrimination litigation – an LLP member’s access to information 294 Introduction294 Information294 Informal request for information 296

Contents

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Chapter 16  Funding and Profits and Losses 299 Funding299 Profits and losses 303 Profits303 Losses305 Chapter 17  The Business and Affairs of the LLP: Conduct and Decision-Making 307 Introduction307 Participation in the business and affairs of the LLP307 Decision-making309 Business connected matters 309 Non-business connected matters 310 Membership matters 315 The Duomatic principle 315 Enforcement of individual members’ participation rights 316 Management committee 316 Delegation of statutory duties and powers given to the members as a whole? 318 Death of a member or assignment of his share 319 Effect of winding up 319 Fetters on decision-making powers 319 Introduction319 Subjective fetters 322 Objective fetters 325 Reasons329 Consequences of invalidity 330 Chapter 18  The Member and the Outside World 333 Introduction333 Contracts333 Deeds334 Torts334 Negligence334 Excluding liability of member of LLP of auditors 346 Other torts causing economic loss 347 Joint liability with the LLP347 Individual status of certain professionals 348 Fiduciary obligations 348 Liability in an insolvent liquidation 349 Chapter 19  Cessation of Membership and its Consequences 351 Introduction351 Cessation of membership 351 Cessation by agreement or by ‘reasonable notice’ 351 Death/dissolution354 Bankruptcy/liquidation of a member 355 Expulsion/compulsory retirement 356

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Consequences of cessation of membership Notification to the Registrar and cessation of agency Obligations and rights of the outgoing member LLP in liquidation No agreement as to entitlement on cessation Does a leaving member have a right to payment for the value of his ‘share’? Does the ‘share’ of a leaving member survive cessation?

357 357 357 361 361 362 363

Chapter 20  UK Financial Services Regulation and LLPs 367 Introduction367 Regulated activities and the need for authorisation 367 Obtaining FCA authorisation and being FCA-authorised374 Other regulatory requirements 379 Collective investment schemes 379 Day-to-day control over management 382 Operated by way of business 383 Commercial purposes for which entered into 384 Alternative investment funds 384 ‘Collective investment undertaking’ 385 Raising capital with a view to investment 386 Use of an LLP386 Brexit387 Chapter 21  Accounts and Audit 389 Introduction389 Accounting records 389 Financial year 391 Individual accounts: IAS and non-IAS393 Non-IAS individual accounts 394 Accounting standards and SORP 398 Formats399 Abridged accounts 400 Reports401 Micro-entity LLPs402 Dormant subsidiary LLPs403 Group accounts 403 IAS group accounts 404 Non-IAS group accounts 405 Audit and auditors’ report 405 Approval of the annual accounts 409 Filing accounts with the registrar 409 Filing derogation for small LLPs411 Circulation and publication of accounts 412 Revision of accounts and reports 413 Accounts in euros 415 Exemptions from audit requirements 415 Small LLPs415 Subsidiary LLPs416 Dormant LLPs417

Contents

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Chapter 22  The Appointment and Position of Auditors of LLPs 419 Introduction419 Appointment419 Term of office 421 Requirements for appointment as auditors 422 Duties, and rights, of the auditors 423 Omitting the name of the auditors 424 Fixing the auditors’ remuneration 424 Termination of appointment 424 Section 519 statement 427 ‘In default’ 430 Notification of cesser of appointment to the appropriate audit authority 430 Section 1157 relief 431 Indemnities and liability limitation agreements 432 Chapter 23  Taxation of LLPs and Members 433 Introduction433 Computation of taxable profits 435 Capital allowances 435 Income tax 436 Corporation tax 440 Associates and connected persons 448 Individual members’ taxation 449 Commencement rules 450 Change of accounting reference date 451 Cessation452 Loss relief 452 Salaried members 454 Partnership annuity payments 459 Partnership annuity transfers 460 Pension relief 460 Loan interest relief 461 Partial incorporation to an LLP462 National insurance contributions 463 Capital gains tax (CGT) 463 Contribution of assets to a partnership 464 CGT rollover relief 465 Liquidation/winding up 465 Stamp duty 466 Stamp duty land tax (SDLT) 467 Inheritance tax (IHT) 469 Value added tax (VAT) 470 Costs of conversion 470 Anti-avoidance legislation 471 Transfer pricing 472 LLP expanding overseas 475 UK branches of overseas LLPs478

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Chapter 24  Investigations, Striking Off and Rectification of the Register 481 Government power to investigate or require information 481 Introduction481 Investigation by inspectors 481 Direction to LLP to produce documents and provide information 485 Voluntary disclosure 486 Power to enter premises 486 Permitted disclosure only 487 Investigation by Secretary of State 487 Applications to court by Secretary of State 487 Striking the LLP’s name off the register 488 Introduction488 Striking off on the Registrar’s initiative 489 Striking off on application by members 490 After striking off 492 Rectification of the register 497 Chapter 25  LLPs in Other Jurisdictions 501 Introduction501 Other jurisdictions 503 Corporate entity LLPs503 Non-corporate entity LLPs514 Chapter 26  Foreign Connections and Dealing with Overseas LLPs 523 Foreign connections of UK LLPs523 Introduction523 Jurisdiction over UK LLPs524 Overseas LLPs526 Requirements for carrying on business in the UK 526 Company Directors Disqualification Act 1986, s 11 527 Jurisdiction of English court over overseas LLPs528 Recognition of limited liability of overseas LLP members 532 Chapter 27  Insolvency and Winding up of LLPs: A General Introduction 545 Introduction545 Chapter 28  Moratorium and Voluntary Arrangements 547 Moratorium547 Voluntary arrangements 548 The proposal 548 Consideration of the proposal 550 Challenge to the voluntary arrangement 551 Administration of the voluntary arrangement 552 Chapter 29  Administration 553 Introduction553 Appointment by the court 554 Appointment of administrator by holder of floating charge 555 Appointment of administrator by LLP556

Contents

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Moratorium557 Statement of LLP’s affairs 557 Administrator’s proposals and creditors’ approval 558 Conduct of the administration 559 Functions of administrator 559 Distribution559 General duties 560 Ending administration 560 Chapter 30  Receivership 563 Introduction563 Limitation on the appointment of administrative receivers 564 Appointment of receivers 565 Duties and powers 565 All receivers 565 Administrative receivers 566 Statement of affairs in administrative receivership 567 Administrative receiver’s report 567 Chapter 31  Commencement of Winding Up 569 Voluntary winding up 569 Types of voluntary winding up 570 Compulsory winding up 572 Determination by the LLP573 Failure to commence business within a year or suspension of business 573 Inability to pay debts 573 Just and equitable winding up 574 Application for a winding-up order 574 Who can present a petition? 574 Contributories575 Individual member? 576 Sufficient interest? 577 Other possible petitioners 578 Procedure578 Functions of official receiver and appointment of a liquidator 579 Chapter 32  Unfair Prejudice and Just and Equitable Winding Up 583 Introduction583 The statutory provisions 583 Companies Act 2006, s 994 583 Contracting out of s 994 586 Insolvency Act 1986, s 122 586 Who can present a petition? 587 Application of statutory provisions to LLPs588 Section 994 588 O’Neill v Phillips 589 Section 122(1)(e) 591 Obtaining relief 592 Breakdown of relationship between members 593

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Contents

Chapter 33  Conduct of the Liquidation 599 General599 Status of members’ claims 599 Disclaimer of onerous property 604 Rescission of contracts 605 Crown preference and top slicing 606 Chapter 34  Misfeasance and Adjustment of Prior Transactions 609 Malpractice and misfeasance 609 Fraudulent trading 610 Wrongful trading 611 Adjustment of withdrawals 614 Transactions at an undervalue 616 Preferences619 Extortionate credit transactions 620 Avoidance of floating charges 621 Unenforceability of liens 622 Transactions defrauding creditors 623 Re-use of LLP names 624 Chapter 35  Completion of the Winding Up and Dissolution 629 Introduction629 Voluntary winding up 629 Compulsory liquidation 630 Consequences of dissolution 631 Chapter 36  Arrangements and Reconstructions 633 Introduction633 Companies Act 2006, sections 895 to 900 633 Insolvency Act 1986, section 110 634 Companies (Cross-Border Mergers) Regulations 635 Chapter 37  Disqualification 637 The legislation and the scope of a disqualification order 637 Unfitness641 Case law 644 Collegiate responsibility 645 Other grounds for disqualification 646 Compensation orders 651 Consequences of contravention 652 Applications for leave to act 653 Appendix 1  Limited Liability Partnerships Act 2000

655

Appendix 2  Limited Liability Partnerships Regulations 2001, SI 2001/1090

673

Index

681

TABLE OF CASES All references are to paragraph number

4Eng Ltd v Harper [2009] EWHC 2633 (Ch)����������������������������������������������������������������  34.33 889457 Alberta Inc v Katanga Mining Ltd [2008] EWHC 2679 (Comm) [2009] 1 BCLC 189���������������������������������������������������������������������������������������������������������  26.4 A A Ltd v Z [2019] IRLR 952�������������������������������������������������������������������������������������������  15.141 A & BC Chewing Gum, Re [1975] 1 WLR 579, [1975] 1 All ER 1017, (1974) 119 SJ 233������������������������������������������������������������������������������������������������������������  10.39 A & C Restoration LLP, Re [2020] EWHC 1404 (Ch)����������������������������������  12.3, 13.6, 34.2 AA Mutual International Insurance Co Ltd, Re [2004] EWHC 2430 (Ch), [2005] 2 BCLC 8�������������������������������������������������������������������������������������������������������������   29.4 AB & Co, Re [1900] 1 QB 541, 69 LJQB 375, 82 LT 169, 16 TLR 238, 7 Mans 134����������������������������������������������������������������������������������������������������������  26.36 AB v MB [2013] (1) CILR 1�����������������������������������������������������������������������������������������  13.14 A-G for Hong Kong v Reid [1994] 1 AC 324, [1993] 3 WLR 1143, [1994] 1 All ER 1���������������������������������������������������������������������������������������������������  13.9, 13.14 A-G of Belize v Belize Telecom Ltd [2009] 2 All ER 1127, [2009] 2 BCLC 148��������   10.5 AL Underwood Ltd v Bank of Liverpool & Martins [1924] 1 KB 775�������������������������   5.16 AMP General Insurance Ltd v Macalister Todd Phillips Bodkins [2006] NZSC 105, [2007] 1 NZLR 485��������������������������������������������������������������������������  13.25, 13.26 ARG (Mansfield) Ltd, Re [2020] EWHC 1133 (Ch)�����������������������������������������������������   29.9 ASA Resource Group Plc, Re [2020] EWHC 1370 (Ch)����������������������������������������������  29.17 Aas v Benham [1891] 2 Ch 244, 65 LT 25��������������������������������������������������������������������   13.9 Abbey Leisure Ltd, Re see Virdi v Abbey Leisure Abouraya v Sigmund [2015] BCC 503��������������������������������������������������������������������������  14.41 Abu Dhabi National Tanker Company v Product Star Shipping Ltd (The ‘Product Star’) [1993] 1 Lloyds LR 397����������������������������������������������������������������������������  17.27 Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq HL 461, [1843–60] All ER Rep 249, (1854) 2 Eq Rep 1281����������������������������������������������������������������������������������   13.9 Acute Property Developments Ltd v Apostolou [2013] EWHC 200 (Ch), [2013] Bus LR D22����������������������������������������������������������������������������������������������������������������  5.1 Adams v Cape Industries Plc [1990] Ch 433, [1990] 2 WLR 657, [1991] 1 All ER 929��������������������������������������������������������������������������������������������������������    3.5 Agip (Africa) Ltd v Jackson [1990] Ch 265, [1991] 3 WLR 117, 134 SJ 198��������������   5.16 Ailyan v Smith [2010] EWHC 24 (Ch), [2010] BPIR 289, [2011] LLR 187����������������  34.14 Airey v Cordell [2006] EWHC 2728 (Ch), [2007] Bus LR 391��������������   13.11, 14.41, 14.43 Albion Life Assurance Society, Re (1880) 16 Ch D 83�������������������������������������������������  16.18 Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656, 69 LJ Ch 266, 82 LT 210���������������������������������������������������������������������������������������  17.27, 17.30, 17.31 Altus Group (UK) Ltd v Baker Tilly Tax & Advisory Services LLP [2015] EWHC 12 (Ch), [2015] STC 788, [2015] STI 158���������������������������������������������������  9.13, 9.19 American Leaf Blending Co v Director-General of Inland Revenue [1979] AC 676, [1978] 3 WLR 985, [1978] 3 All ER 1185�������������������������������������  2.6, 20.29 Amin Rasheed Shipping Corp v Kuwait Insurance Co, The Al Wahab [1984] AC 50, [1983] 3 WLR 241, [1983] 2 All ER 884�������������������������������������������������  10.51, 26.32 Anderson v Sense Network Ltd [2019] EWCA Civ 1395���������������������������������������������  20.25 Andrews v Ramsay & Co [1903] 2 KB 635������������������������������������������������������������������  13.16 Anglesea Colliery Company, Re (1866) LR 1 Ch App 555, 35 LJ Ch 809, 15 LT 127�������������������������������������������������������������������������������������������������������������  31.18 Anglo-Continental Produce Co Ltd, Re [1939] 1 All ER 99, 83 SJ 95�������������������������   32.28

xx

Table of Cases

Anstalt Monde Petroleum SA v Westerzagros Ltd [2016] EWHC 1472 (Comm)��������  10.46 Apex Global Management Ltd v Fi Call Ltd, Re [2013] EWHC 1652 (Ch), [2014] BCC 286���������������������������������������������������������������������������������������������������   32.6 Archer v Nubuke Investments LLP [2014] EWHC 3425 (Ch)����������������������������������������  17.3 Archer Structures Ltd v Griffiths [2003] EWHC 957 (Ch), [2004] 1 BCLC 201, [2003] BPIR 1071������������������������������������������������������������������������������������������������  34.37 Arklow Investments Ltd v Maclean [2000] 1 WLR 594�����������������������������  8.35, 13.9, 18.15 Armagas Ltd v Mundogas SA (The Ocean Frost) [1986] AC 717, [1986] 2 WLR 1063, [1986] 2 All ER 385����������������������������������������������������������������������������������������  5.1, 5.26 Armhouse Lee Ltd v Chappell (The Times, 7 August 1996)�����������������������������������������    2.11 Armour v Liverpool Corporation [1939] Ch 422, [1939] 1 All ER 363, 55 TLR 397����������������������������������������������������������������������������������������������������������  2.6 Armstrong v Jackson [1917] 2 KB 822, 86 LJKB 1375, 117 LT 479, 33 TLR 444������  13.14 Arnold v Britton [2015] UKSC 36, [2015] AC 1619����������������������������������������������  10.5, 18.3 Arthur Average Association for British, Foreign & Colonial Ships, Re, Ex parte Hargrove & Co (1875) LR 10 Ch App 542, sub nom Re Arthur Average Association, Ex parte Cory & Hawksley, 44 LJ Ch 569, 32 LT 713, 23 WR 939, 2 Asp MLC 570���������������������������������������������������������������������������������������������������  2.6, 2.9 Ashborder BV v Green Gas Power Ltd [2005] 1 BCLC 634����������������������������������������  14.20 Aspden v Webbs Poultry & Meat Group (Holdings) Ltd [1996] IRLR 521������������������  15.158 Assenagon Asset Management SA v Irish Bank Resolution Corpn Ltd (formerly Anglo Irish Bank Corpn Ltd) [2012] EWHC 2090 (Ch), [2013] 1 All ER 495, [2013] Bus LR 266������������������������������������������������������������  17.27, 17.31 Asset Land Investment Plc and another v Financial Conduct Authority [2016] UKSC 17����������������������������������������������������������������������������  20.23, 20.27, 20.28 Associated Provincial Picture Houses Ltd v Wednesbury Corpn [1948] 1 KB 223, [1947] 2 All ER 680, (1947) 63 TLR 623������������������������������������������������  17.37, 17.38 Associated Shipping Services v Department of Private Affairs of H H Sheikh Zayed Bin Sultan Al-Nahayan (Financial Times, 31 July 1990)������������������������������������  26.10 Astec (BSR) plc, Re [1998] 2 BCLC 556, [1999] BCC 59����������������������������������  17.30, 32.3 Atlasview Ltd v Brightview Ltd [2004] EWHC 1056 (Ch), [2004] 2 BCLC 191��������������������������������������������������������������������������������������������������  8.26, 32.6 Attorney-General v Davy (1741) 2 Atk 212, 26 ER 531�����������������������������������������������  17.12 Attorney-General v Kowalski [2015] SASC 123����������������������������������������������������������  17.43 Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34, 75 LJ Ch 437, [1906] WN 65������������������������������������������������������������������������������  17.20 Ayodele v Citylink Ltd [2017] EWCA Civ 1913�����������������������������������������������������������  15.46 B BBGP Managing General Partner Ltd v Babcock & Brown Global Partners [2010] EWHC 2176 (Ch), [2011] Ch 296, [2011] 2 WLR 496���������������������������������������  14.13 BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc [2013] UKSC 28, [2013] 1 WLR 1408, [2013] 3 All ER 271�������������������������������������������������  29.4, 31.12 BTI 2014 LLC v Sequana SA [2019] 2 All E.R. 784�������������������������������������������  10.23, 34.2 Backos v WFW Global LLP [2019] EWHC 243 (Ch)��������������������������������������������������   11.51 Baden, Delvaux & Lecuit v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1993] 1 WLR 509, [1992] 4 All ER 161, [1983] BCLC 325����������������������������������������������������������������������������������������   5.16 Ballast plc, Re [2005] BCC 96��������������������������������������������������������������������������������������  29.24 Bamford v Bamford [1970] Ch 212, [1969] 2 WLR 1107, [1969] 1 All ER 969����������   13.11 Bank of Beirut SAL v HRH Prince Adel El-Hashemite [2015] EWHC 1451 (Ch), [2016] 1 Ch 1, [2015] 3 WLR 875��������������������������������   2.11, 2.37, 2.39, 24.40, 24.45 Bank of Credit & Commerce International (Overseas) Ltd v Akindele [2001] Ch 437, [2000] 3 WLR 1423, [2000] 4 All ER 221����������������������������������������������������������   5.16 Bank of Ireland v Jaffery [2012] EWHC 1377 (Ch)������������������������������������������������������  13.23 Bank of Scotland v Henry Butcher & Co [2003] EWCA Civ 67, [2003] 2 All ER (Comm) 557, [2003] 1 BCLC 575����������������������������������������������������������������  5.12, 5.22 Banner Homes Group Plc v Luff Developments Ltd [2000] Ch 372, [2000] 2 WLR 772, [2000] 2 All ER 117�������������������������������������������������������������������������������������  13.34

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Barber v Rasco International Ltd [2012] EWHC 269 (QB)������������������������������������������  10.32 Barclays Bank plc v Grant Thornton UK LLP [2015] EWHC 320 (Comm), [2015] 2 BCLC 537���������������������������������������������������������������������������������������������  18.23 Barings Plc (No 3), Re [1999] 1 All ER 1017���������������������������������������������������������������  37.41 Barings Plc (No 5), Re [2000] 1 BCLC 523, [1999] 1 BCLC 433����������  37.19, 37.20, 37.21 Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37, [2006] 1 WLR 1476, [2006] 1 All ER 333������������������������������������������������������������  8.27 Barrett v Duckett [1995] 1 BCLC 243, [1995] BCC 362������������������������  14.37, 14.41, 14.42 Barton v Investec Henderson Crosthwaite Securities Ltd (UKEAT/1803/0304) [2003] ICR 1205, [2003] IRLR 332, (2003) 100(22) LSG 29������  15.43, 15.44, 15.45 Barton Manufacturing Co Ltd, Re [1999] 1 BCLC 740, [1998] BCC 827�������������������  34.14 Base Metal Trading Ltd v Shamurin [2004] EWCA Civ 1316, [2005] 1 All ER (Comm) 17, [2005] 1 WLR 1157, [2005] 2 BCLC 171������������  10.51, 10.52 Batesons Hotels (1958), Re [2013] EWHC 2530 (Ch), [2014] 1 BCLC 507����������������   32.3 Bates van Winkelhof v Clyde & Co LLP see Clyde & Co LLP v Bates Van Winkelhof Bear v Bromley (1852) 18 QB 101, 7 Ry & Can Cas 507, 21 LJQB 354���������������������  2.7, 2.9 Beauchamp v Woolworth Plc [1990] 1 AC 478, [1989] 1 WLR 1, [1989] STC 510���������������������������������������������������������������������������������������������������  2.6 Beckett Investment Management Group Ltd v Hall [2007] EWCA Civ 613, [2007] ICR 1539, [2007] IRLR 793���������������������������������������������������������������������   11.42, 11.44 Beghal v DPP [2015] UKSC 49, [2015] 3 WLR 344, [2015] 2 Cr App R 34���������������   24.7 Bell Pottinger LLP, Re [2021] EWHC 672 (Ch)������������������������������  37.1, 37.2, 37.17, 37.19 Bell v Lever Bros Ltd [1932] AC 161, 101 LJKB 129, 146 LT 258�����������������������������  13.15 Belmont Finance Corpn Ltd v Williams Furniture Ltd [1979] Ch 250, [1978] 3 WLR 712, [1979] 1 All ER 118�������������������������������������������������������������������������������������  3.4 Bersel Manufacturing Co Ltd v Berry [1968] 2 All ER 552������������������������������������������  17.13 Bevan v Webb [1901] 2 Ch 59, 70 LJ Ch 536, 84 LT 609, 49 WR 548���������������  14.9, 14.10 Bhullar v Bhullar [2003] EWCA Civ 424, [2003] 2 BCLC 241�����������������������������������   13.9 Biomethane (Castle Eaton) Ltd, Re [2020] BCC 111����������������������������������������������������  29.20 Birch v Cropper (1889) 14 Ch App 525, [1886–90] All ER Rep 628���������������������������   33.8 Bilta UK Ltd (in liquidation) v Natwest Markets plc [2020] EWHC 546 (Ch)������������   34.3 Bilta (UK) Ltd (in liquidation) v Nazir [2015] UKSC 23, [2015] 2 WLR 1168, [2015] 2 All ER 1083��������������������������������������������������������������������������������������  3.4, 34.3 Bishopsgate Investment Management Ltd v Maxwell (No 2) [1994] 1 All ER 261, [1993] BCLC 1282�������������������������������������������������������������������������������������  13.9, 13.32 Blackpool Marton Rotary Club v Martin [1988] STC 823��������������������������������������������  2.5, 2.7 Bleuse v MBT Transport Ltd (UKEAT/0339/07 & UKEAT/0632/06) [2008] ICR 488, [2008] IRLR 264��������������������������������������������������������������������������������������������������  15.36 Blisset v Daniel (1853) 10 Hare 493, 68 ER 1022��������������������������������������������������������  19.13 Bloxham v Freshfields Bruckhaus Deringer (ET/2205086/2006) [2007] Pens LR 375���������������������������������������������������������������������������������������������������������  15.106 Boardman v Phipps [1967] 2 AC 46, [1966] 3 WLR 1009, [1966] 3 All ER 721���������   13.9 Bonsor v Musician’s Union [1956] AC 104, [1954] 2 WLR 687, [1954] 1 All ER 822��������������������������������������������������������������������������������������������������������  9.6 Bonus Breaks Ltd, Re [1991] BCC 546�������������������������������������������������������������������������  34.41 Borland’s Trustee v Steel Bros & Co Ltd [1901] 1 Ch 279, 70 LJ Ch 51, 49 WR 120�����������������������������������������������������������������������������������������������������������  19.35 Boulting v Association of Cinematograph, Television & Allied Technicians [1963] 2 QB 606, [1963] 2 WLR 529, [1963] 1 All ER 716�������������������������������������������   8.23 Bourne v Charit-Email Technology Partnership LLP (in liquidation) [2009] EWHC 1901 (Ch), [2010] 1 BCLC 210���������������������������������������������������������������������������  31.29 Bowmaker Ltd v Tabor [1941] 2 KB 1, [1941] 2 All ER 72, 110 LJKB 497����������������  14.26 Bowman v Secular Society Ltd [1917] AC 406, 86 LJ Ch 568, 117 LT 161, 33 TLR 376, 61 Sol Jo 478�������������������������������������������������������������  2.35, 2.38, 2.39, 2.40, 13.9 Bowthorpe Holdings Ltd v Hills [2002] EWHC 2331 (Ch), [2003] 1 BCLC 226��������   13.11 Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 WLR 1661, [2015] 4 All ER 639����������������������������������������������������������������������������������  17.28, 17.37, 19.13 Brand & Harding Ltd (Co No 554589), Re [2014] EWHC 247 (Ch)����������������������������  32.28

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Table of Cases

Bratton Seymour Service Co Ltd v Oxborough [1992] BCLC 693, [1992] BCC 471, [1992] EGCS 28�����������������������������������������������������������������������������������������  10.5, 10.17 Bray v Smith (1908) 124 LT Jo 293������������������������������������������������������������������������������  17.19 Braymist Ltd v Wise Finance Co Ltd [2002] EWCA Civ 127, [2002] Ch 273, [2002] 3 WLR 322, [2002] 2 All ER 333, [2002] 1 BCLC 415��������������������������������������   4.20 Breakspear v Ackland [2009] Ch 32, [2008] 2 All ER 62, [2008] All ER (D) 260 (Feb)��������������������������������������������������������������������������������������������������������������  17.40 Bridge v Deacons [1984] AC 705, [1984] 2 WLR 837, [1984] 2 All ER 19������   11.42, 11.44 Bridgehouse (Bradford No. 2) Ltd v BAE Systems Plc [2020] EWCA Civ 759����������   11.32 Bridgewater Navigation Co Ltd, Re [1891] 2 Ch 317, [1891–4] All ER Rep 174�������������������������������������������������������������������������������������  16.6, 16.16, 33.8, 33.9 Briggs v Oates [1990] ICR 473, [1991] 1 All ER 407, [1990] IRLR 472���������������������   9.20 Bristol & West Building Society v Mothew [1998] Ch 1, [1997] 2 WLR 436, [1996] 4 All ER 698�������������������������������������������������������������������������������������  8.35, 13.9, 13.14, 13.16, 13.25, 18.15 British America Nickel Corp Ltd v MJ O’Brien Ltd [1927] AC 369, 96 LJPC 57, 13 LT 615�������������������������������������������������������������������������������������������������������������  17.30 British Midland Tool Ltd v Midland International Tooling Ltd [2003] EWHC 466 (Ch), [2003] 2 BCLC 523������������������������������������������������������������������������������������   13.9 Brockbank, Re, Ward v Bates [1948] Ch 206, [1948] 1 All ER 287, [1948] LJR 952����������������������������������������������������������������������������������������������������  17.20 Brooks v Armstrong [2015] EWHC 2289 (Ch)�������������������������������������������������������������   34.6 Brooks v Armstrong [2016] EWHC 2893 (Ch)�������������������������������������������������������������   34.6 Bropho v Human Rights & Equal Opportunities Commission [2004] FCAFC 16, 77 ALD 331, Federal Court of Australia������������������������������������������������������������������  13.33 Brown v Andrew (1849) 18 LJQB 153, 12 LTOS 398��������������������������������������������������  17.19 Brown v IRC [1965] AC 244, [1964] 3 WLR 511, [1964] 3 All ER 119����������������������  18.15 Brown v InnovatorOne plc [2012] EWHC 1321 (Comm)�����������������������  13.33, 20.27, 20.33 Buchler v Talbot [2004] UKHL 9, [2004] 1 All ER 1289, [2004] 1 BCLC 281�����������   33.1 Bumper Development Corporation v Commissioner of Police of the Metropolis [1991] 1 WLR 1362, [1991] 4 All ER 638, (1991) 135 SJ 382���������������������������  26.10 Burland v Earle [1902] AC 83, 71 LJPC 1, 50 WR 241����������������������������  13.9, 14.37, 14.41 Burnden Holdings (UK) Ltd v Fielding [2018] UKSC 14�����������������������������������  13.9, 31.18 Burrell v Burrell [2005] WTLR 313������������������������������������������������������������������������������  17.27 Burton v Bevan [1908] 2 Ch 240, 77 LJ Ch 591, [1908] WN 140��������������������������������  12.12 C C & E Comrs v Hedon Alpha Ltd [1981] QB 818, [1981] 2 WLR 791, [1981] 2 All ER 697��������������������������������������������������������������������������������������������������������  14.35 C & E Comrs v Lord Fisher [1981] 2 All ER 147, [1981] STC 238�����������������������������  2.6 C & E Comrs v Yarburgh Children’s Trust [2002] STC 207, [2001] BTC 5651, [2002] BVC 141��������������������������������������������������������������������������������������������������������������  2.6 CAS (Nominees) Ltd v Nottingham Forest FC plc [2002] BCC 145, [2002] 1 BCLC 613���������������������������������������������������������������������������������������������������������  14.13 CBS Inc v Ames Records & Tapes Ltd [1982] Ch 91, [1981] 2 WLR 973, [1981] 2 All ER 812��������������������������������������������������������������������������������������������������������  12.10 CEF Holdings Limited v Mundey [2012] EWHC 1524 (QB)���������������������������������������   11.42 CHEZ Razpredelenie Bulgaria AD v Komisia za zashtita ot diskriminatsias (Case C-83/14) [2015] WLR (D) 314, [2015] All ER (EC) 1083, [2015] IRLR 746�������������������������������������������������������������������������������������������������������������  15.16 CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704, [2002] BCC 600, [2001] Emp LR 895�������������������������������������������������������������������������������������  10.46, 13.9, 14.29 CVC v Almeida [2002] UKPC 16, [2002] 2 BCLC 108, [2002] BCC 684�������������������   32.8 Calmex Ltd, Re [1989] 1 All ER 485 (Ch)��������������������������������������������������������������������  24.40 Campbell v Campbell [2017] EWHC 182 (Ch)�������������������������������������������������������������  13.25 Canadian Land Reclaiming & Colonizing Co, Re (1880) 14 Ch D 660, 42 LT 559, 28 WR 775����������������������������������������������������������������������������������������������������������������   8.37 Cane v Jones [1980] 1 WLR 1451, [1981] 1 All ER 533, (1979) 124 SJ 542���������������  17.17

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Caparo Industries Plc v Dickman [1990] 2 AC 605, [1990] 2 WLR 358, [1990] 1 All ER 568�������������������������������������������������������������������������������������������������  18.7, 18.9 Capital Fire Insurance Association, Re (1882) 21 Ch D 209�����������������������������������������   31.11 Capital for Enterprise Fund A LP v Bibby Financial Services Ltd [2015] EWHC 2593 (Ch)������������������������������������������������������������������������������������������������   29.2 Carluccio’s Ltd, Re [2020] EWHC 886 (Ch)�����������������������������������������������������������������  29.18 Carson Country Homes Ltd, Re [2009] EWHC 1143 (Ch), [2009] 2 BCLC 196, [2009] All ER (D) 95 (Jun)�����������������������������������������������������������������������������  4.13, 5.8 Carr-Glynn v Frearsons [1999] Ch 326, [1999] 2 WLR 1046, [1998] 4 All ER 225��������������������������������������������������������������������������������������������������������   18.7 Cassels v Stewart (1881) 6 App Cas 64, 29 WR 636��������������������������������������������  5.12, 14.29 Cathie v Secretary of State for Business, Innovation & Skills (No 2) [2012] EWCA Civ 739, [2012] BCC 813�����������������������������������������������������������������������  37.16 Cavendish Square Holding BV v Talal El Makdessi [2013] EWCA Civ 1539, [2013] 1 All ER (Comm) 787, [2013] 2 CLC 968����������������������������������������������������������   11.42 Champagne Perrier SA v HH Finch Ltd [1982] 1 WLR 1359, [1982] 3 All ER 713, (1982) 126 SJ 689������������������������������������������������������������������������������������������������   16.2 Charit-Email Technology Partnership LLP v Vermillion International Investments Ltd [2009] EWHC 388 (Ch), [2009] BPIR 762, [2009] All ER (D) 95 (Feb)����������������������������������������������������������������������������������  31.23, 32.12 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 3 WLR 267, [2009] All ER (D) 12 (Jul)����������������������������������������������������������������������������  10.5, 18.3 Charterhouse Capital Ltd, Re [2014] EWHC 1410 (Ch)��������������  17.27, 17.31, 17.32, 17.38 Chesterton Global Ltd (t/a Chestertons) v Nurmohamed (UKEAT/0335/14) [2015] ICR 920, [2015] IRLR 614����������������������������������������������������������������������  15.165 Cheung Yau Bor v Wong Fook [1988] HKCFI 438�������������������������������������������������������  9.2 Cheyne Finance Plc (in receivership), Re [2007] EWHC 2402 (Ch), [2008] 1 BCLC 741���������������������������������������������������������������������������������������������������������  31.12 Children’s Investment Fund Foundation (UK) v Attorney General [2020] UKSC 33, [2020] 3 WLR 461�����������������������������������������������������������������������������������������������  17.43 Chime Corpn Ltd, Re (2004) 7 HKCFAR 546��������������������������������������������������������������   32.6 Christophorus 3 Ltd, Re [2014] EWHC 1162 (Ch)�������������������������������������������������������   29.2 Chu v Lau [2020] UKPC 24����������������������������������������������������������  31.15, 32.8, 32.28, 32.29, 32.30, 32.31, 32.32 Ci4net.com Inc, Re [2004] EWHC 1941 (Ch), [2005] BCC 277����������������������������������   29.5 Cia Maritima San Basilio SA v Oceanus Mutual Underwriting Association (Bermuda) Ltd (The Eurysthenes) [1977] QB 49, [1976] 3 WLR 265, [1976] 3 All ER 243���������������������������������������������������������������������������������������������  12.12 Ciban Management Corporation v Citco (BVI) Limited [2020] UKPC 21�������������������  17.17 Citco Banking Corporation NV v Pusser’s Ltd [2007] UKPC 13, [2007] Bus LR 960, [2007] 2 BCLC 483������������������������������������������������������������  17.27, 17.30, 17.31, 17.40 City of York Council v Grosset [2018] EWCA Civ 1105��������������������������������������������  15.141 Clark v Nomura International plc [2000] IRLR 766�������������������������������  17.27, 17.37, 17.44 Clark (Inspector of Taxes) v Oceanic Contractors Inc [1983] 2 AC 130, [1983] 2 WLR 94, [1983] 1 All ER 133, [1983] STC 35������������������������������������  26.36 Claridge’s Trustee in Bankruptcy v Claridge [2011] EWHC 2047 (Ch), [2012] 1 FCR 388, [2011] BPIR 1529����������������������������������������������������������������������������  34.18 Clasper Group Services, Re (1988) 4 BCC 673, [1989] BCLC 143�����������������������������   37.3 Closegate Hotel Development (Durham) Ltd v Mclean [2013] EWHC 3237 (Ch), [2014] Bus LR 405����������������������������������������������������������������������������������������������  29.17 Clyde & Co LLP v Bates van Winkelhof [2014] UKSC 32, [2014] 1 WLR 2047, [2014] 3 All ER 25, [2013] ICR 883������������������������������������  9.2, 9.6, 9.10, 9.16, 9.18, 9.19, 9.23, 9.27, 9.34, 15.1, 15.31, 15.32, 15.33, 15.34, 15.58, 15.159, 15.176, 23.83 Cobden Investments Ltd v RWM Langport Ltd [2008] EWHC 2810 (Ch), [2008] All ER (D) 195 (Nov)����������������������������������������������������������������������  13.9, 13.13 Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2002] EWHC 2748 (Ch), [2003] 2 BCLC 153, [2003] TLR 27����������������������������������������������������������   13.9

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Colt Technology Services v SC Global Group Srl [2020] EWHC 1417 (Ch)������  29.4, 31.12 Commerzbank AG v Keen [2006] EWCA Civ 1536, [2007] ICR 623, [2007] IRLR 132����������������������������������������������������������������������������  17.27, 17.28, 17.40 Comrs of Customs & Excise v Barclays Bank [2006] UKHL 28, [2007] 1 AC 181, [2006] 3 WLR 1, [2006] 4 All ER 256������������������������������������������������  18.7, 18.8, 18.9 Companhia de Seguros v Heath (REBX) Ltd [2000] 1 WLR 112, [2000] 2 All ER (Comm) 787������������������������������������������������������������������������������������������  13.25 Compania de Electricidad de la Provincia de Buenos Aires Ltd, Re [1980] Ch 146, [1979] 2 WLR 316, [1978] 3 All ER 668������������������������������������������������������������  31.18 Company (No 002567 of 1982), Re A [1983] 2 All ER 854, [1983] 1 WLR 927, [1983] BCLC 151 �����������������������������������������������������������������������������������������������   32.8 Company (No 003843 of 1986), Re A [1987] BCLC 562, [1987] BCC 624����������������   32.8 Company (No 004415 of 1996), Re A [1997] 1 BCLC 479������������������������������������������   32.8 Company (No 00685 of 1996), Re A [1997] 1 BCLC 639, [1997] BCC 830���������������  31.14 Company (No 007466 of 2003), Re A [2004] 1 WLR 1357�������������������������������  21.47, 24.40 Company (No 006834 of 1988), Re, ex parte Kremer [1989] BCLC 365, (1989) 5 BCC 218������������������������������������������������������������������������������������������������  32.26 Computer Systems plc v Ranson [2012] EWCA Civ 841, [2012] IRLR 769, (2012) 156 (26) SJLB 31�������������������������������������������������������������������������������������������������  13.41 Comr of Corporate Affairs v Bracht (1989) 7 ACLC 40�����������������������������������������������   37.3 Comr of Police of the Metropolis v Shaw [2012] ICR 464, [2012] IRLR 291�������������  15.174 Condliffe v Sheingold [2007] EWCA Civ 1043, [2008] LLR 44����������������������������������  17.25 Conlon v Simms [2006] EWCA Civ 1749, [2008] 1 WLR 484, [2007] 3 All ER 802, [2006] EWHC 401 (Ch), [2006] 2 All ER 1024���������������������������������������  13.15, 13.34 Consolidated Goldfields of New Zealand Ltd, Re [1953] Ch 689, [1953] 1 All ER 791, [1953] 2 WLR 584�����������������������������������������������������������������������������������������������  31.18 Continental Assurance Co of London Plc, Re [2001] BPIR 733�����������������������������������   34.6 Contract Utility Services (CUS) Ltd, Re [2019] EWHC 1657 (Ch)������������������������������  34.28 Conway v Petronius Clothing Co Ltd [1978] 1 WLR 72, [1978] 1 All ER 185, (1978) 122 SJ 15���������������������������������������������������������������������������������������  14.10, 14.14, 14.15 Conway v Ratiu [2005] EWCA Civ 1302, [2006] 1 All ER 571, [2006] 1 EGLR 125��������������������������������������������������������������������������������������������������  3.5, 18.16 Coroin Ltd (No 2), Re [2012] EWHC 2343 (Ch), aff’d [2013] EWCA Civ 781, [2014] BCC 14, [2013] 2 BCLC 583������������������������������������������������������������������  37.12 Cotman v Brougham [1918] AC 514, 87 LJ Ch 379, [1918–19] All ER Rep 265���������������������������������������������������������������������������������������������������������  2.38, 2.40 Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707, [1999] 2 All ER 457, [1999] EMLR 434������������������������������������������������������������������������������������������������   13.7 Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374, [1984] 3 WLR 1174, [1984] 3 All ER 935����������������������������������������������������������  17.38 Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 All ER 700, [1991] BCLC 1045���������������������������������������������������������������������������������������������������������������������   5.16 Cowell v Quilter Goodison Co Ltd [1989] IRLR 392����������������������������  9.2, 9.10, 9.17, 9.34 Cranfield v Bridgegrove Ltd [2003] EWCA Civ 656, [2003] 1 WLR 2441, [2003] 3 All ER 129�����������������������������������������������������������������������������������������������������������   26.11 Create Financial Management LLP v Lee [2020] EWHC 1933 (QB)���������������������������  13.14 Credit Company, Re (1879) 11 Ch D 256, 48 LJ Ch 221, 27 WR 380��������������������������   6.24 Credit Suisse Asset Management Ltd v Armstrong [1996] ICR 882, [1996] IRLR 450, (1996) 140 SJLB 141�������������������������������������������������������������������������������������������   11.47 Criterion Properties Plc v Stratford Properties LLC [2004] UKHL 28, [2004] 1 WLR 1846, [2006] 1 BCLC 729������������������������������������������������������������������������������  5.1, 5.16 Crowther v Thorley [1884] 33 WR 330�������������������������������������������������������������������������  2.6 Curl Brothers Ltd v Webster [1904] 1 Ch 685���������������������������������������������������������������   11.44 Currencies Direct Ltd v Ellis [2002] EWCA Civ 779, [2002] 2 BCLC 482, [2002] BCC 821���������������������������������������������������������������������������������������������������   17.2 Customs & Excise v Lord Fisher [1981] 2 All ER 147, [1981] STC 238���������������������  2.6 Customs & Excise v Yarburgh Children’s Trust [2002] STC 207���������������������������������  2.6

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D DB v General Medical Council [2018] EWCA Civ 1497��������������������������������������������  15.193 DKLL Solicitors v HM Revenue & Customs [2007] EWHC 2067 (Ch), [2008] 1 BCLC 112, [2007] BCC 908����������������������������������������������������������������������������   29.2 DTC (CNC) Ltd v Gary Sargeant & Co [1996] 1 WLR 797, [1996] 2 All ER 369, [1996] 1 BCLC 529��������������������������������������������������������������������������������������  14.5, 21.3 Da’Bell v National Society for the Prevention of Cruelty to Children (NSPCC) (UKEAT/0227/09) [2010] IRLR 19���������������������������������������������������������������������  15.53 Dadourian Group International Inc v Simms [2006] EWHC 2973 (Ch), [2006] All ER (D) 351 (Nov)������������������������������������������������������������������������������������������  3.5 Dadswell v Jacobs (1887) 34 Ch D 278, 56 LJ Ch 233, 55 LT 857, 35 WR 261����������   14.9 Dalby v Bodilly [2004] EWHC 3078 (Ch), [2005] BCC 627���������������������������������������  17.32 Daniels v Daniels [1978] Ch 406, [1978] 2 WLR 73, [1978] 2 All ER 89���������  14.37, 14.41 Daraydan Holdings Ltd v Solland International Ltd [2004] EWHC 622 (Ch), [2005] Ch 119, [2004] 3 WLR 1106, [2005] 4 All ER 73�����������������������������������   13.9 Dashfield v Davidson [2008] EWHC 486 (Ch), [2009] 1 BCLC 220, [2008] BCC 662��������������������������������������������������������������������������������������������������������������   10.5 Davidson (as liquidator of Finnan Developments (Raynes Park) LLP) v Finnan & Ors [2020] EWHC 1607 (Ch)������������������������������������������������������������������������������   34.1 Dawes & Henderson (Agencies) Ltd (In Liquidation) (No 2), Re [1999] 2 BCLC 317, (1999) 96(8) LSG 29�������������������������������������������������������������������������������������������  37.41 Dawnay Day & Co Ltd v De Braconier D’Alphen [1998] ICR 1068, [1997] IRLR 442, (1997) 94(26) LSG 30���������������������������������������������������������������������������������   11.42 Dawson-Damer v Taylor Wessing LLP [2017] EWCA Civ 74, [2017] 1 WLR 3255�������������������������������������������������������������������������������������������  14.12, 15.193 Dawson-Damer v Taylor Wessing LLP [2020] 3 WLR 1����������������������������������������������  17.40 De Maroussem v Commissioner of Income Tax [2004] UKPC 43, [2005] STC 125, [2004] 1 WLR 2865���������������������������������������������������������������������������������������������  12.12 Deacon v Yaseen [2020] EWHC 465 (Ch)��������������������������������������������������������������������   33.9 Debenhams Retail Ltd, Re [2020] EWCA Civ 600��������������������������������������������  29.18, 29.25 Dewhurst v Revisecatch Ltd, 26 November 2019, case number 2201909/2018�����������������������������������������������������������������������������������������������  9.31, 9.32 Dey v Pullinger Engineering Co [1921] 1 KB 77, [1920] All ER Rep 591, 89 LJKB 1229, KBD�������������������������������������������������������������������������������������������   4.16 Diamantides v J P Morgan Chase Bank [2005] EWCA Civ 1612���������������������������������  3.5 Directors of Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99 (1867) 16 LT 500������������������������������������������������������������������������������������������������������������������  13.34 D’Jan of London Ltd, Re [1994] 1 BCLC 561, [1993] BCC 646���������������������������������  13.26 Dodd v Amalgamated Marine Workers’ Union [1924] 1 Ch 116, 93 LJ Ch 100, 129 LT 819, 40 TLR 44, [1923] 2 Ch 236��������������������������������������������������   14.9, 14.11 Dodds v Walker [1981] 1 WLR 1027, [1981] 2 All ER 609, (1981) 42 P&CR 131������������������������������������������������������������������������������������������������������������    3.11 Don King Productions Inc v Warren [2000] Ch 291, [1998] 2 All ER 608, [1998] 2 BCLC 132�����������������������������������������������������������������������������������������  7.7, 13.9, 13.14 Donelien v Liberata UK Ltd [2018] EWCA Civ 129����������������������������������������������������  15.141 Dorsey Ventures, Re [2019] (1) CILR 249�����������������������������������������������������������  13.38, 14.6 Drake v Harvey [2010] EWHC 1446 (Ch), [2011] 1 All ER (Comm) 344, [2010] 2 BCLC 688����������������������������������������������������������������������������������  19.16, 19.23 Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48, [2003] 2 AC 366, [2002] 3 WLR 1913, [2003] 1 All ER 97, [2003] IRLR 608, [2003] 1 BCLC 32, [2003] 1 Lloyds Rep 65, [2003] 2 All ER (Comm) 451���������������������������������  5.22, 5.23, 5.26 Duche v Duche (1920) LT Vol CXLIX 300, on appeal LT Vol CXLIX 338�����������������   14.11 Duncombe v Secretary of State for Children, Schools & Families [2009] EWCA Civ 1355, [2010] 4 All ER 335, [2010] IRLR 331�����������������������������������  15.28, 15.36 Dungate v Lee [1969] 1 Ch 545, [1967] 2 WLR 670, [1967] 1 All ER 241�����������������    2.11 Dunn v Secretary of State for Justice [2018] EWCA Civ 1998; [2019] IRLR 298�������  15.141 Dunne v English (1874) 18 Eq 524, 31 LT 75������������������������������������������������������  13.9, 13.20

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Dunster’s Case, Glory Paper Mills Co, Re [1894] 3 Ch 473, 63 LJ Ch 885, 71 LT 528�������������������������������������������������������������������������������������������������������������  2.3 Duomatic Ltd, Re [1969] 2 Ch 365, [1969] 2 WLR 114, [1969] 1 All ER 161������������  17.17 Dymoke v Association for Dance Movement Psychotherapy UK Ltd [2019] EWHC 94 (QB) ��������������������������������������������������������������������������������������������������  17.38 E EBR Attridge Law LLP v Coleman (No 2) (UKEAT/0061/09) [2010] 1 CMLR 28, [2010] ICR 242, [2010] IRLR 10������������������������������������������������������������������������  15.14 EE & Brian Smith (1928) Ltd v Hodson [2007] EWHC 2753 (QB)�����������������������������   11.42 EIC Services Ltd v Phipps [2003] EWHC 1507 (Ch), [2003] 1 WLR 2360, [2003] 3 All ER 804, [2004] 2 BCLC 589�������������������������������������������������������������������������  17.17 ESS Production Ltd v Sully [2005] BCC 435, [2005] 2 BCLC 547�����������������������������  34.37 E-Squared Ltd, Re [2006] EWHC 532 (Ch), [2006] 1 WLR 3414, [2006] 3 All ER 779, [2006] 2 BCLC 277����������������������������������������������������������������������  29.24 Ead Solicitors LLP v Abrams (UKEAT/0054/15/DM) [2015] IRLR 978���������������������  15.14 Eagle Trust Plc v SBC Securities Ltd [1993] 1 WLR 484, [1992] 4 All ER 488, [1991] BCLC 438������������������������������������������������������������������������������������������������������������   5.21 Eaton v Caulfield [2011] EWHC 173 (Ch), [2011] BCC 386�����������������  19.12, 31.15, 32.20 Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, [1972] 2 WLR 1289, [1972] 2 All ER 492���������������������������������������������������������������������������������  10.39, 32.16, 32.26, 32.28 Eclairs Group Limited v JKX Oil & Gas plc [2015] UKSC 71�����������������������������  3.9, 17.26, 17.28, 17.34 Eclipse Film Partners No 35 LLP v HMRC [2015] EWCA Civ 95, [2015] STC 1429, [2015] BTC 10��������������������������������������������������������������������������������������������  2.6, 23.106 Eco Link Resources Ltd, Re [2012] BCC 731���������������������������������������������������������������   29.8 Edge v Pensions Ombudsman [2000] 1 Ch 602, [2000] 3 WLR 79, [1999] 4 All ER 546���������������������������������������������������������������������������������������������  17.27, 17.33 Edgeworth Construction v Kuehne Nagel International [1993] 3 SCR 206������������������  18.13 Edwardian Group Ltd, Re [2018] EWHC 1715 (Ch)����������������������������������������������������   8.26 Efobi v Royal Mail Group Ltd [2017] UKEAT 0203/16/DA����������������������������������������  15.46 Egyptian Intl Foreign Trade Co v Soplex Wholesale Supplies Ltd (‘The Raffaella’) [1985] 2 LLR 36, [1985] FLR 123����������������������������������������������������������������������  5.1 El Ajou v Dollar Holdings Plc [1994] 2 All ER 685, [1994] 1 BCLC 464, [1994] BCC 143���������������������������������������������������������������������������������������������������  5.8 Ellis v Joseph Ellis & Co [1905] 1 KB 324�����������������������������������������������������  9.2, 9.10, 9.12 Elsevier Ltd v Munro [2014] EWHC 2648 (QB), [2014] IRLR 766�����������������������������   11.40 Englefield Colliery Co, Re (1878) 8 Ch D 388, 38 LT 112�������������������������������������������   8.23 English Hop Growers Ltd v Dering [1928] 2 KB 174, [1928] All ER Rep 396, 97 LJKB 569�������������������������������������������������������������������������������������������������������������   11.50 Equiticorp International Plc, Re [1989] 1 WLR 1010, [1989] 5 BCC 599, [1989] BCLC 597������������������������������������������������������������������������������������������������  31.16 Erikson v Carr (1945) 46 SR (NSW) 9��������������������������������������������������������������������������  13.20 Essop and others v Home Office (UK Border Agency) [2017] UKSC 27���������������������  15.16 Eurides Pereira De Souza v Vinci Construction (UK) Ltd [2017] EWCA Civ 879������  15.53 Evans v Xactly Corporation Ltd, UKEAT/0128/18�������������������������������������������������������  15.66 Evans (C) & Son Ltd v Spritebrand Ltd [1985] 1 WLR 317, [1985] 2 All ER 415, [1985] FSR 267���������������������������������������������������������������������������������������������������  18.28 Exeter City AFC Ltd v Football Conference Ltd [2004] EWHC 2304, [2004] 1 WLR 2910, [2004] 4 All ER 1179, [2005] 1 BCLC 238�����������������������   11.32, 14.26 Exeter Trust Ltd v Screenways Ltd [1991] BCLC 888, [1991] BCC 477, (1991) 135 SJ 12�����������������������������������������������������������������������������������������  6.13, 24.40 Experience Hendrix LLC v PPX Enterprises Inc [2003] EWCA Civ 323, [2003] 1 All ER (Comm) 830, [2003] EMLR 515����������������������������������������������������������   11.45 Express Engineering Works Ltd, Re [1920] 1 Ch 466, 89 LJ Ch 379, 122 LT 790�������  17.17

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F Alternative Investments (Holdings) Ltd v Barthelemy [2011] EWHC 1731 (Ch), [2012] Ch 613, [2012] 3 WLR 10���������������������  1.24, 10.31, 13.2, 13.8, 13.9, 13.12, 13.13, 13.33, 13.40, 13.41, 17.27, 17.29, 17.33 FCA v Capital Alternatives Ltd [2014] EWHC 144 (Ch), [2014] 3 All ER 780, [2014] Bus LR 1452��������������������������������������������������������������������������������������������  20.24 FSA v Fradley (t/a Top Bet Placement Services) [2005] EWCA Civ 1183, [2006] 2 BCLC 616, [2006] LLR 35��������������������������������������������������������  20.25, 20.28 FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, [2015] AC 250, [2014] 3 WLR 535��������������������������������������������������������������������������������   13.7 FHR European Ventures LLP v Mankarious [2011] EWHC 2308 (Ch)������������������������   13.9 FHR European Ventures LLP v Mankarious [2013] EWCA Civ 17, [2014] Ch 1, [2013] 3 WLR 466�����������������������������������������������������������������������������������������������   13.11 Fag og Arbejde (acting on behalf of Karsten Kaltoft) v Kommunernes Landsforening (acting on behalf of the Municipality of Billund) [2015] 2 CMLR 19, [2015] ICR 322, [2015] IRLR 146����������������������������������������������������������������������������������  15.131 Faieta v ICAP Management Services Ltd [2017] EWHC 2995��������������  17.38, 17.39, 17.40 Fairline Shipping Corporation v Adamson [1975] QB 180, [1974] 2 WLR 824, [1974] 2 All ER 967������������������������������������������������������������������������������������   18.6, 18.11 Fairway Magazines Ltd, Re [1992] BCC 924���������������������������������������������������������������  34.23 Fakhry v Pagden [2020] EWCA Civ 1207��������������������������������������������������������������������  24.33 Fargro Ltd v Godfroy [1986] 1 WLR 1134, [1986] 3 All ER 279, (1986) 130 SJ 524�����������������������������������������������������������������������������������������������������������  14.42 Farmizer (Products) Ltd, Re [1997] BCC 655, [1997] 1 BCLC 589, (1997) 94(8) LSG 27�����������������������������������������������������������������������������������������������������������������   34.6 Fasken Martineau DuMoulin LLP v British Columbia (Human Rights Tribunal) (2012) BCCA 313������������������������������������������������������������������������������������������������  9.2 Fawcett v Whitehouse (1829) 1 Russ & M 132, 39 ER 51��������������������������������������������  13.34 Fecitt v Manchester NHS Trust [2011] EWCA 1190, [2012] IRLR 64�������������������������  15.169 Feetum v Levy [2005] EWCA Civ 1601, [2006] Ch 585, [2006] 2 BCLC 102��������������������������������������������������������������������������������  1.18, 24.5, 27.2, 30.4 Félix Palacios de la Villa v Cortefiel Servicios SA (Case C-411/05) [2007] ECR I-8531, [2008] 1 CMLR 16, [2009] ICR 1111��������������������������������������������  15.78 Fennell v Halliwells LLP [2014] EWHC 2744 (Ch)�����������������������������������������������������  31.29 Ferguson v Wilson (1866) 2 Ch App 77, 15 LT 230������������������������������������������������������  3.4 Fi Call Ltd, Re [2014] BCC 286������������������������������������������������������������������������������������   32.6 Financial Conduct Authority v Allied Wallet Ltd [2020] BCC 147������������������������������   29.4 First Bespoke Ltd Partnership v Hadjigeorgiou (unreported, 12 June 2015)����������������  18.13 First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 LLR 194, [1993] BCC 533, [1993] BCLC 1409�����������������������������������������������������������������  5.8 First Independent Factors & Finance Ltd v Mountford [2008] EWHC 835 (Ch), [2008] BCC 598, [2008] 2 BCLC 297����������������������������������������������������������������  34.37 First Subsea v Balltec Ltd [2014] EWHC 1266 (Ch)�������������������������������������������  13.9, 13.14 Flanagan v Liontrust Investment Partners LLP [2017] EWCA Civ 985, [2015] EWHC 2171 (Ch)��������������������������������������������  1.24, 8.18, 10.21, 10.32, 10.34, 10.35, 10.37, 10.40, 10.41, 13.41, 15.172, 17.3, 32.5, 32.6, 32.21 Foley v Classique Coaches Ltd [1934] 2 KB 1, [1934] All ER Rep 88, 103 LJKB 550, 151 LT 242���������������������������������������������������������������������������������   11.40 Fortuna Fix Ltd, Re [2020] EWHC 2369 (Ch)��������������������������������������������������������������  29.16 Foss v Harbottle (1843) 2 Hare 461, 67 ER 189������������������������������������������  3.2, 14.37, 14.41 Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200, [2007] IRLR 425, [2007] 2 BCLC 239���������������������������������������������������������������������������������������������   13.9 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, [1964] 2 WLR 618, [1964] 1 All ER 630������������������������������������������������������������  5.1, 5.6 F&C

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Table of Cases

Fuchs v Land Hessen (Joined Cases C-159/10 & C-160/10) [2011] 3 CMLR 47, [2012] All ER (EC) 863, [2011] IRLR 1043�������������������������������������������������������  15.78 Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855, [2012] Ch 333, [2012] 1 BCLC 335����������������������������������������������������������������������������������   11.32, 14.26 Fuller v United Healthcare Services Inc & Anor [2014] UKEAT 0464/13/BA�������������  15.35 G GHE Realisations Ltd, Re [2005] EWHC 2400 (Ch), [2006] 1 WLR 287, [2006] 1 All ER 357��������������������������������������������������������������������������������������������������������  29.25 Gaiman v National Association for Mental Health [1971] Ch 317, [1970] 3 WLR 42, [1970] 2 All ER 362����������������������������������������������������������������������������������  17.27, 19.13 Galeforce Pleating Co Ltd, Re [1999] 2 BCLC 704������������������������������������������������������  37.19 Galoo Ltd v Bright Grahame & Murray [1994] 1 WLR 1360, [1995] 1 All ER 16, [1994] BCC 319���������������������������������������������������������������������������������������������������  10.49 Gamatronic (UK) Ltd v Hamilton [2016] EWHC 2225 (QB)���������������������������������������  13.23 Gamlestaden Fastigheter AB v Baltic Partners Ltd [2007] UKPC 26, [2007] 4 All ER 164, [2007] Bus LR 1521������������������������������������������������������������������������������������   32.6 Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [2001] EWCA Civ 1047, [2001] 2 All ER (Com) 299���������������������������������������������������������������������������������������������  17.27 Garwood’s Trusts, Re [1903] 1 Ch 236�������������������������������������������������������������������������   8.21 Gate Ventures plc, Re [2020] EWHC 709 (Ch)�������������������������������������������������������������   29.5 Generator Developments Limited v Lidl UK GmbH [2018] EWCA Civ 396��������������  13.34 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803, [1983] 3 WLR 163, [1983] 2 All ER 737������������������������������������������������������������������������  18.23 Georgiev v Technicheski Universitet Sofia, Filial Plovdiv (Joined Cases C-250/09 & C-268/09) [2011] 2 CMLR 7, [2012] All ER (EC) 840, [2011] CEC 1014��������  15.78 Giedo van der Garde BV v Force India Formula One Team Ltd [2010] EWHC 2373 (QB)�����������������������������������������������������������������������������������������������   11.45 ‘Gilbert Rowe, The’ see Rowan Companies Inc v Lambert Eggink Offshore Transport Consultants VOF, ‘The Gilbert Rowe’ Giles v Rhind [2002] EWCA Civ 1428, [2003] Ch 618, [2003] 2 WLR 237���������������  34.33 Gilford Motor Co Ltd v Horne [1933] Ch 935, 102 LJ Ch 212, [1933] All ER Rep 109����������������������������������������������������������������������������������������������������������������  3.5 Gillespie v Northern Health & Social Services Boards, Department of Health & Social Services, Eastern Health & Social Services Board & Southern Health & Social Services Board (Case C-342/93) [1996] ECR I-475, [1996] 2 CMLR 969, [1996] IRLR 214��������������������������������������������������������������������������   15.118 Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396, [2016] 1 CLC 712������������������������������������������������������������������������������������������������  10.46 Golstein v Bishop [2013] EWHC 881 (Ch), [2014] Ch 131, [2013] 3 WLR 572������������������������������������������������������������������������������������  10.32, 10.48, 10.49 Goodwood Recoveries Ltd v Breen [2005] EWCA Civ 414, [2006] 1 WLR 2723, [2006] 2 All ER 533���������������������������������������������������������������������������������������������  18.14 Gorham v British Telecommunications Plc [2000] 1 WLR 2129, [2000] 4 All ER 867��������������������������������������������������������������������������������������������������������   18.7 Grace v Biagioli [2005] EWCA Civ 1222, [2006] 2 BCLC 70����������������������������  32.4, 32.26 Gramophone & Typewriter Ltd v Stanley [1908] 2 KB 89�������������������������������������������  17.20 Grandactual, Re [2005] EWHC 1415 (Ch), [2006] BCC 73�����������������������������������������  32.24 Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560, [1992] 2 WLR 867, [1992] 1 All ER 865���������������������������������������������������������������������������������������������   18.7 Grant v Anderson & Co [1892] 1 QB 108, 61 LJQB 107, 66 LT 79�����������������������������  26.10 Gravil v Carroll [2008] EWCA Civ 689, [2008] ICR 1222, [2008] IRLR 829, [2008] All ER (D) 234 (Jun)�������������������������������������������������������������������������������������������   5.26 Gray v Global Energy Horizons Corporation [2020] EWCA Civ 1668�������������  13.14, 13.23 Grayan Building Services Ltd, Re [1995] Ch 241, [1995] 3 WLR 1, [1995] BCC 554��������������������������������������������������������������������������������������������  1.8, 13.32, 37.16 Greck v Henderson Asia Pacific Equity Partners (FP) LP [2008] CSOH 2 G.W.D. 8-155����������������������������������������������������������������������������������������������������  17.40

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Green v Hertzog [1954] 1 WLR 1309, (1954) 98 SJ 733����������������������������������������������  9.5 Green v Howell [1910] 1 Ch 495, [1908–1910] All ER Rep Ext 1157�������������������������  19.13 Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286, [1950] 2 All ER 1120, 94 SJ 855  17.31 Gresham Life Assurance Society (1872–73) LR 8 Ch App 446, 42 LJ Ch 183, 28 LT 150, 21 WR 186���������������������������������������������������������������������������������������������������  17.40 Griffith v Paget (1877) LR 6 Ch D 512, 37 LT 141, 25 WR 821����������������������������������   33.8 Griffiths v Secretary of State for Work & Pensions [2014] UKEAT 0372/13, [2014] Eq LR 545������������������������������������������������������������������������������������������������  15.149 Gross v Rackind [2004] EWCA Civ 815, [2005] 1 WLR 3505, [2004] 4 All ER 735��������������������������������������������������������������������������������������������������������   24.2 Group Seven Limited v Notable Services LLP [2020] Ch 129�������������������������������������   8.27 Grupo Mexico SAB de CV v Infund LLP & Ors [2019] EWCA Civ 1673��������  24.30, 24.47 Grupo Mexico SAB de CV v Registrar of Companies [2018] EWHC 1306 (Ch), [2018] Bus LR 1863, [2019] EWCA Civ 1673, [2020] Bus LR 567 (CA)��������  1.9, 2.15, 8.6, 8.28, 19.5, 19.6 Guidezone, Re [2001] BCC 692, [2000] 2 BCLC 321��������������������������������������������������  32.28 Guinness Plc v Saunders [1990] 2 AC 663, [1990] 2 WLR 324, [1990] 1 All ER 652��������������������������������������������������������������������������������������������������������  13.14 Gulf Investment Corporation v The Port Fund LP, Grand Court of the Cayman Islands 16 June 2020�����������������������������������������������������������������������������������  13.38, 14.6 Gurtner v Beaton [1993] 2 LLR 369, (The Times, 26 March 1992)������������  5.1, 5.5, 5.6, 5.7 Gwembe Valley Development Co Ltd v Koshy (No 3) [2003] EWCA Civ 1048, [2004] 1 BCLC 131�������������������������������������������������������������������������   11.25, 13.9, 13.14 H HLB Kidsons (a firm) v Lloyd’s Underwriters [2008] EWHC 2415 (Comm), [2008] All ER (D) 137 (Dec)������������������������������������������������������������������������������������������   11.28 HMRC v Hamilton & Kinneil (Archerfield) Ltd [2015] UKUT 130 (TCC), [2015] STC 1852, [2015] BTC 512�������������������������������������������������������������������������  16.2, 33.4 HR Harmer Ltd, Re [1959] 1 WLR 62, [1958] 3 All ER 689, (1959) 103 SJ 73����������   32.4 Hagen v ICI Chemicals & Polymers Ltd [2002] IRLR 31��������������������������������������������   18.7 Hailes v Hood [2007] EWHC 1616 (Ch)�������������������������������������������������������������  8.18, 16.10, 19.39, 32.5 Halifax plc v Davidson (Inspector of Taxes) [2000] SpC 239�������������������������������������  23.138 Halifax Plc v Halifax Repossessions Ltd [2004] EWCA Civ 331���������������������������������  24.40 Halliwells LLP, Re [2011] BCC 57�������������������������������������������������������������������������������   29.2 Ham v Ham [2013] EWCA Civ 1301, [2014] WTLR 255��������������������������������������������  19.16 Hampton Capital, Re [2015] EWHC 1905 (Ch)������������������������������������������������������������  34.14 Hamsard 3147 Ltd v Boots UK Ltd [2013] EWHC 3251 (Pat)�������������������������������������  10.46 Harben v Phillips (1883) 23 Ch D 14, 31 WR 173, 48 LT 741�������������������������������������   11.27 Harris v Mircrofusion 2003-2- LLP [2016] EWCA Civ 1212����������������������������  14.38, 14.41 Harris v Wyre Forest District Council (HL) see Smith v Bush, Harris v Wyre Forest District Council Hashmi v IRC [2002] EWCA Civ 981, [2002] 2 BCLC 489, [2002] BPIR 974, [2002] BCC 943��������������������������������������������������������������������������������������������������������������  34.33 Hassett v South Eastern Health Board (C-372/07) (2009) 105 BMLR 115, [2009] All ER (D) 201 (Apr), ECJ����������������������������������������������������������������������������������������   26.5 Hawken v Bourne (1841) 8 M&W 703�������������������������������������������������������������������������   5.16 Hawkes v Cuddy [2009] EWCA Civ 91, [2009] All ER (D) 42 (Apr)��������  8.23, 32.4, 32.28 Hayes v Bristol Plant Hire Co Ltd [1957] 1 WLR 499, [1957] 1 All ER 685���������������  17.18 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, [1963] 3 WLR 101, [1963] 2 All ER 575����������������������������������������������������������������  18.7, 18.9, 18.13, 18.15 Helmet Integrated Systems Ltd v Tunnard [2006] EWCA Civ 1735, [2007] IRLR 126�������������������������������������������������������������������������������������������������������������   13.9 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, [1967] 3 WLR 1408, [1967] 3 All ER 98�����������������������������������������������������������������������������������������������  13.14, 13.15 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, [1994] 3 WLR 761, [1994] 3 All ER 506���������������������������������������������������������������  13.13, 13.25, 18.6, 18.9, 18.13, 18.15, 18.16

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Hennigs v Eisenbahn-Bundesamt, Land Berlin v Mai (Joined Cases C-297/10 & C-298/10) [2012] 1 CMLR 18, [2012] CEC 545, [2012] IRLR 83���������������������  15.78 Henry v The Great Northern Railway Co (1857) 1 De G & J 606, 27 LJ Ch 1, 6 WR 87���������������������������������������������������������������������������������������������������������������  13.10 Hewage v Grampian Health Board [2012] UKSC 37, [2012] 4 All ER 447, 2013 SC (UKSC) 54������������������������������������������������������������������������������������������������  15.45, 15.46 Hill v Spread Trustee Co Ltd [2006] EWCA Civ 542, [2007] 1 WLR 2404, [2007] 1 All ER 1106���������������������������������������������������������������������������������������������������������  34.33 Hilton v D IV LLP [2015] EWHC 2 (Ch)������������  1.23, 10.10, 14.3, 14.7, 14.10, 14.12, 17.2 Hindle v John Cotton Ltd (1919) 56 Sc LR 625������������������������������������������������������������  17.34 Hirtenstein v Hill Dickinson LLP [2014] EWHC 2711 (Comm)����������������������������������  18.23 Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169, [1946] 1 All ER 350, 174 LT 422, 62 TLR 231�����������������������������������������������������������������������������   13.9 Hogg v Cramphorn [1967] Ch 254, [1966] 3 WLR 995, [1966] 3 All ER 420�������������  17.32 Hole v Garnsey [1930] AC 472, 99 LJ Ch 243, 143 LT 153, 46 TLR 312, 74 Sol Jo 214����������������������������������������������������������������������������������  10.18, 10.19, 16.6, 17.35, 17.36 Holland v HMRC [2009] EWCA Civ 625, [2009] WLR (D) 228���������������������������������   8.37 Holland v HMRC [2010] UKSC 51, [2010] 1 WLR 2793, [2011] 1 All ER 430����������   34.1 Hollandia, The [1983] AC 565, [1982] 3 WLR 1111, [1982] 3 All ER 1141����������������  10.52 Holmes v Keyes [1959] Ch 199, [1958] 2 WLR 772, [1958] 2 All ER 129������������������   10.5 Homes of England Ltd v Nick Sellman (Holdings) Ltd [2020] EWHC 936 (Ch)���������������������������������������������������������������������������������������  14.38, 14.41 Hopkins v TL Dallas Group Ltd [2004] EWHC 1379 (Ch), [2005] 1 BCLC 543����������������������������������������������������������������������������������������������������   5.1, 5.11 Horkulak v Cantor Fitzgerald International [2004] EWCA Civ 1287, [2005] ICR 402, [2004] IRLR 942����������������������������������������������������������������������������������  17.27 Horlick v Taylor [2018] EWHC 4034 (Ch)��������������������������������������������������������   11.31, 17.31 Ho Tung v Man On Insurance Co Ltd [1902] AC 232��������������������������������������������������   10.6 Horkaluk v Cantor Fitzgerald International [2004] EWCA Civ 1287���������������������������  17.44 Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch), [2017] Ch 157�������������������������������������������������������������������������������������������  13.16, 13.18 Howard Holdings Inc, Re [1998] BCC 549�������������������������������������������������������������������   26.2 Howard Smith Ltd v Ampol Ltd [1974] AC 821, [1974] 2 WLR 689, [1974] 1 All ER 1126�����������������������������������������������������������������������������������������������  17.27, 17.28, 17.29 Hundal v Border Carrier Ltd (2012) BCSC 447������������������������������������������������������������  9.2 Hunt v Conwy County Borough Council [2014] 1 WLR 254���������������������������������������  33.10 Hunt v Hosking; Ovenden Colbert Printers Ltd (in liquidation), Re [2013] EWHC 311 (Ch), [2013] 2 BCLC 388, [2013] BPIR 370������������������������������������������������������  34.14 Hunt (Liquidator of Total Debt Relief Ltd) v Financial Conduct Authority [2019] EWHC 2018 (Ch)������������������������������������������������������������������������������������������������  29.17 Hunter v Senate Support Services Ltd [2004] EWHC 1085 (Ch), [2005] 1 BCLC 175���������������������������������������������������������������������������������������������������������  17.29 Hurst v Bryk [2002] 1 AC 185, [2002] 2 All ER 193, [2000] 2 BCLC 117����������������������������������������������������������������������������������  10.21, 10.32, 10.33, 10.38, 10.39, 10.41, 10.42, 13.37, 26.26 Hursthanger v Wilson [2007] EWCA Civ 299, [2007] 4 All ER 1118, [2007] 2 All ER (Comm) 1037, [2007] NPC 41����������������������������������������������������������������������������   13.9 Hutchinson v Brayhead Ltd [1968] 1 QB 549, [1967] 3 WLR 1408, [1967] 3 All ER 98����������������������������������������������������������������������������������������������������������  5.1 Huth v Clarke (1890) 25 QBD 391, 55 JP 86, 59 LJQB 559�����������������������������������������  17.19 Hütter (David) v Technische Universität Graz (Case C-88/08) [2009] ECR I-5325, [2009] 3 CMLR 35, [2009] All ER (EC) 1129�������������������������������  15.78 Hydra Plc v Anastasi [2005] EWHC 1559 (QB), [2005] All ER (D) 276 (Jul)����������������������������������������������������������������������������������������������������   11.42, 11.43 Hydrodam (Corby) Ltd, Re [1994] 2 BCLC 180, [1994] BCC 161��������������  8.37, 8.39, 34.3

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I IBM UK Holdings Ltd v Dalgleish [2017] EWCA Civ 1212�����������������������������  17.27, 17.37 IRC v Burrell [1924] 2 KB 52, [1924] All ER Rep 672, 93 LJKB 709�������������������������   33.9 Idessa (UK) Ltd (in liquidation), Re [2011] EWHC 804 (Ch), [2012] BCC 315, [2012] 1 BCLC 80�����������������������������������������������������������������������������������������������   34.6 Igen Ltd (formerly Leeds Careers Guidance) v Wong [2005] EWCA Civ 142, [2005] 3 All ER 812, [2005] ICR 931�����������������������������������������������������������������������������  15.45 igroup Ltd v Ocwen [2003] EWHC 2431, [2004] 1 WLR 451, [2003] 4 All ER 1063���������������������������������������������������������������������������������������������  6.13, 24.40 Imageview Management Ltd v Jack [2009] EWCA Civ 63, [2009] 1 BCLC 724, [2009] All ER (D) 130 (Feb)����������������������������������������������������������������������  13.9, 13.16 Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 1 WLR 589, [1991] 2 All ER 597, [1991] ICR 524�����������������������������������������������������������������������������  17.27 Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443, [1972] 2 All ER 162, (1972) 116 SJ 255����������������������������������������������������������������������������������   13.9 Inertia Partnership LLP, The [2007] EWHC 539 (Ch), [2007] Bus LR 879, [2007] BCC 656���������������������������������������������������������������������������������������������������  31.26 In Plus Group Ltd v Pyke [2002] EWCA Civ 370, [2002] 2 BCLC 201����������������������   13.9 Ingeniøforeningen i Danmark v Region Suddanmark (Case C-499/08) [2010] All ER (D) 99 (Oct)���������������������������������������������������������������������������������������������������������  15.78 Ingenious Games LLP v Revenue and Customs Commissioners [2019] UKUT 226 (TCC)������������������������������������������������������������������������������������������������������������  17.27 Ing Re (UK) Ltd v R&V Versicherung AG [2006] EWHC 1544 (Comm), [2006] 2 All ER (Comm) 870, [2006] Lloyd’s Rep IR 653, [2007] 1 BCLC 108��������������  5.8, 5.16 Inquiry into Mirror Group Newspapers Plc, Re An [2000] Ch 194, [1999] 3 WLR 583, [1999] 2 All ER 641, [1999] 1 BCLC 690���������������������������������������������������  24.3, 24.7 Insitu Cleaning Co v Heads [1995] IRLR 4�������������������������������������������������������������������  15.66 Instant Access Properties Ltd (in liquidation) v Rosser & Ors [2018] EWHC 756 (Ch)����������������������������������������������������������������������������������������������������  8.35 Institute of Chartered Accountants in England & Wales v Customs & Excise Comrs [1999] 1 WLR 701, [1999] 2 All ER 449, [1999] STC 398��������������������������������  2.6 Instrumentation Electrical Services Ltd, Re [1988] BCLC 550, (1998) 4 BCC 301�����������������������������������������������������������������������������������������������������������  31.16 International Credit & Investment Co (Overseas) Ltd v Adham [1998] BCC 134�������  3.5 Inverclyde Property Renovation LLP v HMRC [2019] UKFTT 408 (TC), [2020] UKUT 161 (TCC)������������������������������������������������������������������������������������������������   23.7 Inversiones Frieira SL v Colyzeo Investors II LP (No 1) [2011] EWHC 1762 (Ch), [2012] Bus LR 1136, [2012] 1 BCLC 469�������������������������������������������������  14.6, 14.10 Inversiones Frieira SL v Colyzeo Investors II LP (No 2) [2012] EWHC 1450 (Ch), [2012] Bus LR 1136���������������������������������������������������������������  14.6, 14.7, 14.10, 14.12 Investec Asset Finance Plc v Revenue and Customs Commissioners [2020] EWCA Civ 579����������������������������������������������������������������������������������������������������   23.8 Investec Trust (Guernsey) Limited v Glenalla Properties Limited [2019] AC 271����������������������������������������������������������������������������������������������  2.2, 26.20, 26.27, 26.28, 26.29, 26.30 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, [1998] 1 All ER 98, [1998] 1 BCLC 531���������������������������������  10.5, 18.3 Ishola v Transport for London [2020] EWCA Civ 112�������������������������������������������������  15.145 Iswera v Comrs of Inland Revenue [1965] 1 WLR 663, 109 SJ 292, [1965] TR 159������  2.6 Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 544, [2005] 2 BCLC 91, [2004] IRLR 928��������������������������������������������������������������������������������������������������   13.9 Ittihadieh (Alireza) v 5–11 Cheyne Gardens RTM Company Ltd and Others; University of Oxford v Deer (Information Commissioner intervening) [2017] EWCA Civ 121����������������������������������������������������������������������������������������  15.193 Ivey v Genting Casinos UK Ltd [2018] AC 391������������������������������������������������������������   8.27 J JD v East Berkshire Community Health NHS Trust [2005] UKHL 23, [2005] 2 AC 373, [2005] 2 WLR 993, [2005] 2 All ER 443�������������������������������������������  17.32

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JE Cade & Son Ltd, Re [1991] BCC 360, [1992] BCLC 213���������������������������������������   32.3 JJ Coughlan Ltd v Rupareli [2003] EWCA Civ 1057, [2004] PNLR 4, (2003) 100(37) LSG 34���������������������������������������������������������������������������������������������������   5.22 JJ Harrison (Properties) Ltd v Harrison [2001] EWCA Civ 1467, [2002] 1 BCLC 162, [2002] BCC 729, [2001] WTLR 1327�����������������������������������������������������������������   13.9 JM Finn v Holliday [2013] EWHC 3450 (QB), [2014] IRLR 102��������������������������������   11.40 JP Morgan Chase Bank NA v Berliner Verkehrsbetriebe (BVG) [2009] EWHC 1627 (Comm)�������������������������������������������������������������������������������������������������������   26.5 JSC BTA Bank v Ablyazov [2018] EWCA Civ 1176����������������������������������������������������  34.33 JSC VTB Bank v Skurikhin [2019] EWHC 1407 (Comm)�������������������������������������������   8.18 Jackson & Bassford Ltd, Re [1906] 2 Ch 467, 95 LT 292���������������������������������������������  6.4 James v Buena Ventura Nitrate Grounds Syndicate Ltd [1896] 1 Ch 456, 65 LJ Ch 284, 12 TLR 176��������������������������������������������������������������������������������������������   10.6 Jarvis Plc v PricewaterhouseCoopers [2000] 2 BCLC 368, [2001] BCC 670, (2000) 150 NLJ 1109�������������������������������������������������������������������������������������������������������  22.28 Jessemey v Rowstock Ltd [2014] EWCA Civ 185, [2014] 1 WLR 3615, [2014] 3 All ER 409���������������������������������������������������������������������������������������������  15.24 Jesudason (appellant) v Alder Hey Children’‘s NHS Foundation Trust [2020] EWCA Civ 73������������������������������������������������������������������������������������������������������  15.168 Jetvitia SA v Bilta (UK) Ltd [2016] AC 1�����������������������������������������������������������������������  8.33 Jodrell v Peaktone Ltd [2012] EWCA Civ 1035, [2013] 1 WLR 784, [2013] 1 All ER 13����������������������������������������������������������������������������������������������������������  24.31 John Morley Building Co v Barras [1891] 2 Ch 386, 60 LJ Ch 496, 64 LT 856, 39 WR 619������������������������������������������������������������������������������������������������  17.12, 17.13 John Shaw & Sons (Salford) Ltd v Peter Shaw [1935] 2 KB 113���������������������������������  17.20 Johnson v Arden [2018] EWHC 1624 (Ch)�������������������������������������������������������������������  34.33 Johnson v Gore Wood & Co [2002] 2 AC 1, [2001] 2 WLR 72, [2001] 1 All ER 481���������������������������������������������������������������������������������������������  13.33, 13.36 Johnson Matthey & Wallace Ltd v Ahmed Alloush [1984] CAT 234, noted (1985) 135 NLJ 1012�������������������������������������������������������������������������������������������  26.19, 26.20 Johnstone v Bloomsbury Health Authority [1992] QB 333, [1991] 2 WLR 1362, [1991] 2 All ER 293���������������������������������������������������������������������������������������������  18.20 Jones v Lipman [1962] 1 WLR 832, [1962] 1 All ER 442, 106 SJ 531������������������������  3.5 Joseph v Deloitte NSE LLP [2020] EWCA Civ 1457���������������������������������������������������   10.5 K Kao, Lee & Yip v Donald Koo [1994] HKCA 239��������������������������������������������������������   11.44 Kao Lee & Yip v Koo [2003] WTLR 1283, HK������������������������������������������������������������   13.9 Kaupthing Capital Partners II Master LP Inc, Re [2010] EWHC 836 (Ch)������������������  26.10 Kaye v Croydon Tramways Co [1898] 1 Ch 358, 67 LJ Ch 222, 78 LT 237����������������  17.12 Kayley Vending Ltd, Re [2009] EWHC 904 (Ch), [2009] BCC 578����������������������������   29.2 Kaytech International plc, Re [1999] 2 BCLC 351, [1999] BCC 390���������  8.37, 8.39, 13.32 Kelly v Cooper [1993] AC 205, [1992] 3 WLR 936, [1992] NPC 134�������������������������  13.13 Kelly v Fraser [2012] UKPC 25, [2013] 1 AC 450, [2012] 3 WLR 1008���������������������  5.8 Kensington International Ltd v Republic of Congo [2005] EWHC 2684 (Comm), [2006] 2 BCLC 296, [2005] All ER (D) 370�������������������������������������������������������  3.5 Kent Coalfields Syndicate Ltd, Re [1898] 1 QB 754, 67 LJQB 500, 46 WR 453��������������������������������������������������������������������������������������������������  6.25, 14.17 Keppel v Wheeler [1927] 1 KB 577�������������������������������������������������������������������  13.16, 13.23 Kevin So v HSBC Bank plc [2009] EWCA Civ 296, [2009] All ER (D) 82 (May)��������������������������������������������������������������������������������������������������������������   18.7 Kirkwood v Gadd [1910] AC 422, 79 LJKB 815, 102 LT 753, 26 TLR 530, 54 Sol Jo 599�������������������������������������������������������������������������������������������������������  2.6 Knight v Frost [1999] 1 BCLC 364, [1999] BCC 819��������������������������������������������������   13.9 Kovats v TFO Management LLP [2009] All ER (D) 116 (May), EAT�����������������  9.20, 19.13 Krasner v Dennison [2001] Ch 76, [2000] 3 WLR 720, [2000] 3 All ER 234��������������  19.10 Kreditbank Cassel GmbH v Schenkers Ltd [1927] 1 KB 826, 96 LJKB 501, [1927] All ER Rep 421����������������������������������������������������������������������������������������������������������   4.16

Table of Cases

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Kubiangha v Ekpenyong [2002] EWHC 1567 (Ch), [2002] 2 BCLC 597��������������������  34.33 Kücükdeveci v Swedex GmbH & Co KG (Case C-555/07) [2011] 2 CMLR 33, [2011] 2 CMLR 27, [2010] IRLR 346�����������������������������������������������������������������  15.78 Kyshe v Alturas Gold Ltd (1888) 4 TLR 331����������������������������������������������������������������  17.19 L Lanber Properties LLP v Lander II GmbH [2014] EWHC 4713 (Ch)��������������������������   36.9 Landhurst Leasing Plc, Re [1999] 1 BCLC 286�������������������������������������������������  37.19, 37.20 Lands Allottment Co, Re [1894] 1 Ch 616, [1891–4] All ER Rep 1032, 63 LJ Ch 291��������������������������������������������������������������������������������������������������������   13.9 Lapthorne v Eurofi Ltd [2001] EWCA Civ 993, [2001] UKCLR 996��������������������������   11.40 Larvin v Phoenix Office Supplies Ltd [2002] EWCA Civ 1740, [2003] 1 BCLC 76, [2003] BCC 1����������������������������������������������������������������������������������  32.27 Law v Law [1905] 1 Ch 140, [1904–7] All ER Rep 526�����������������������������������������������  13.34 Lee v Neuchatel Asphalte Co (1889) 41 Ch D 1, 58 LJ Ch 408������������������������������������   16.2 Legal Costs Negotiators Ltd, Re [1999] BCC 547, [1999] 2 BCLC 171, (1999) 96(13) LSG 31�����������������������������������������������������������������������������������������   32.3 Lehman Bros International (Europe) (in administration), Re [2014] EWHC 704 (Ch) [2015] Ch 1, [2014] BCC 193�����������������������������������������������������������������������������  31.17 Lehman Bros International Europe Ltd (in administration), Re [2017] EWHC 2031 (Ch)������������������������������������������������������������������������������������������������  29.17 Lehman Brothers International (Europe) (in administration) No 4, Re [2018] AC 465������������������������������������������������������������������������������������������������   8.16 Lehman Brothers International (Europe), Re [2020] EWHC 1932 (Ch)�����������������������  29.17 Lehtimaki v Cooper [2020] 3 WLR 461������������������������������������������������������������������������  17.27 Lewis v IRC [2001] 3 All ER 499, [2001] 2 BCLC 392, [2000] TLR 800�������������������  34.18 Lewis’s of Leicester Ltd, Re [1995] BCLC 428, [1995] BCC 514�������������������������������  34.14 Lexington Insurance Co v AGF Insurance Ltd [2009] UKHL 40���������������������������������  10.51 Lighting Electrical Contractors Ltd, Re [1996] 2 BCLC 302, [1996] BCC 950�����������  34.41 Linklaters v HSBC Bank Plc [2003] 2 Lloyd’s Rep 545�����������������������������������������������  14.21 Lister v Hesley Hall Ltd [2001] UKHL 22, [2002] 1 AC 215, [2001] 2 All ER 769, [2001] 2 FCR 97, [2001] ICR 665�����������������������������������������������������������������������   5.26 Liverpool Household Stores Association, Re (1890) 59 LJ Ch 616, 62 LT 873, 2 Meg 217������������������������������������������������������������������������������������������������������������  17.19 Lloyd Cheyham & Co Ltd v Littlejohn & Co Ltd [1987] BCLC 303, 1986 PCC 389������������������������������������������������������������������������������������������������������  21.15 Lo-Line Electric Motors Ltd, Re, Companies Act 1985, Re [1988] Ch 477, [1988] 3 WLR 26, [1988] 2 All ER 692, [1988] BCLC 698�������������������������������������������   8.38 Lomas v JFB Frith Rixson Inc [2012] 2 Lloyd’s Rep 548���������������������������������������������  10.46 London & Cheshire Insurance Co Ltd v Laplagrene Property Co Ltd [1971] Ch 499, [1971] 2 WLR 257, [1971] 1 All ER 766������������������������������������������������������������  6.5 London Luton Airport Operations Limited v Levick, UKEAT/0270/18/LA�����������������  15.136 London School of Electronics, Re [1986] Ch 211, [1985] 3 WLR 474, (1985) 1 BCC 9939���������������������������������������������������������������������������������������������������������  32.24 Londonderry’s Settlement [1965] Ch 918, [1965] 2 WLR 229, [1964] 3 All ER 855��������������������������������������������������������������������������������������������������������  17.40 Loquitur Ltd, Re [2003] EWHC 999 (Ch), [2003] 2 BCLC 442, [2003] STC 1394�����   13.9 Lucio Pena v Coyne (No 2) [2004] EWHC 2685 (Ch), [2004] 2 BCLC 730����������������   36.2 Lymington Marina Ltd v MacNamara [2007] EWCA Civ 151, [2007] 2 All ER (Comm) 825, [2007] NPC 27���������������������������������������������������������������  17.27 Lyons v DWP Jobcentre Plus (UKEAT/0348/13) [2014] ICR 668�������������������������������   15.115 M MC Bacon Ltd, Re [1991] Ch 127, [1990] BCLC 324, [1990] BCC 78������������  34.14, 34.22 MCA Records Inc v Charly Records Ltd (No 5) [2001] EWCA Civ 1441, [2003] 1 BCLC 93, [2002] BCC 650������������������������������������������������������������������������������  18.28 MSC Mediterranean Shipping Co v Cottonex [2015] EWHC 283 (Comm)�����������������  10.46 MSD Cash and Carry plc, Re [2018] EWHC 1325 (Ch)�����������������������������������������������  34.22

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Table of Cases

McCarthy Surfacing Ltd, Re [2006] All ER (D) 193 (Apr)�������������������������������������������   8.26 McCririck v Channel 4 Television Corpn (Case 2200478/2013, 3 June 2013)������  9.31, 9.32 MacDonald Estate v Martin [1994] M.J. No. 398���������������������������������������������������������  13.20 McEllistrim v The Ballymacelligott Co-op [1919] AC 548, 88 LJPC 59, 120 LT 613, 35 TLR 354����������������������������������������������������������������������������������������������������������   11.40 McGuinness v Bremner plc 1988 SLT 891, 1988 SCLR 226, [1988] 4 BCC 161��������   32.4 McKee v O’Reilly [2003] EWHC (Ch) 2008, [2004] 2 BCLC 145������������������������������  32.27 Mckillen v Misland (Cyprus) Investments Ltd [2012] EWHC 521 (Ch)����������������������  13.33 McMaster v Byrne [1952] 1 All ER 1362, 96 SJ 325, [1952] WN 239�������������������������  18.15 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268�������������������������������������������������������������������������������  13.40 Macmillan Inc v Bishopsgate Investment Trust Plc (No 3) [1996] 1 WLR 387, [1996] 1 All ER 585, [1996] BCC 453����������������������������������������������������������������  26.16 McTear v Eade [2019] EWHC 1673 (Ch), [2019] BPIR 1380���������������������  12.3, 13.6, 16.2, 16.14, 17.17, 33.4, 33.5, 33.8, 34.12 Madarassy v Nomura International plc [2007] EWCA Civ 33, [2007] ICR 867, [2007] IRLR 246��������������������������������������������������������������������������������������������������  15.45 Madoff Securities International Ltd (in liquidation) v Raven [2013] EWHC 3147 (Comm), [2014] Lloyd’s Rep FC 95�������������������������������������������������������������������  37.19 Magi Capital Partners LLP, Re (Company 5758 of 2003) [2003] EWHC 2790 (Ch), [2003] All ER (D) 210 (Nov)�������������������������������������������������������������������������������  32.32 Mahmud v BCCI, sub nom Malik v BCCI [1998] AC 20, [1997] 3 WLR 95, [1997] 3 All ER 1�������������������������������������������������������������������������������������������������  13.41 Makdessi v Cavendish Square Holding BV [2015] UKSC 67�����������������������������   8.21, 11.45 Malik v BCCI see Mahmud v BCCI Malkinson v Trim [2002] EWCA Civ 1273, [2003] 1 WLR 463, [2003] 2 All ER 356��������������������������������������������������������������������������������������������������������  9.6 Mallone v BPB Industries plc [2002] EWCA Civ 126, [2003] BCC 113, [2002] ICR 1045, [2002] IRLR 452, [2002] Emp LR 919����������������������������������  17.27 Mangold v Helm (Case C-144/04) [2005] ECR I-9981, [2006] 1 CMLR 43, [2006] All ER (EC) 383��������������������������������������������������������������������������������������������������������  15.78 Manifest Shipping Co Ltd v Uni-Polaris Co Ltd [2001] UKHL 1, [2003] 1 AC 469, [2001] 2 WLR 170, [2001] 1 All ER 743���������������������������������������������������  5.16, 12.12 Manton v Brighton Corporation [1951] 2 KB 393, [1951] 2 All ER 101, 95 SJ 369�������������������������������������������������������������������������������������������������������������  17.19 Maresca v Brookfield Development & Construction [2013] EWHC 3151 (Ch)�����������   32.8 Market Wizard Systems (UK) Ltd, Re [1998] 2 BCLC 282, [1998–9] Info TLR 19, [1998] ITCLR 171�����������������������������������������������������������������������������������������������   37.3 Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72��������������������������������������������������������������������������������������������������  13.41 Medforth v Blake [2000] Ch 86, [1999] 3 WLR 922, [1999] 3 All ER 97�����������  13.9, 18.15 Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc [2009] EWCA Civ 531, [2010] 1 All ER (Comm) 1, [2009] 2 Lloyd’s Rep 639����������������������������������������������������������������������������������������������������������������  13.41 Merchants of the Staple of England v Governors & Company of the Bank of England (1887) 21 QBD 160, 57 LJQB 418, 52 JP 580, 36 WR 880, 4 TLR 46���������������������������������������������������������������������������������������������������  17.12, 17.15 Mercia Safetywear Ltd v Dodd (1988) 4 BCC 30, [1988] BCLC 250, [1988] PCC 212���������������������������������������������������������������������������������������������������  13.13 Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500, [1995] 3 WLR 413, [1995] 3 All ER 918�������������������������������������������  3.4 Merrett v Babb [2001] EWCA Civ 214, [2001] QB 1174, [2001] 3 WLR 1; leave to appeal refused [2001] 1 WLR 1859���������������������������������������������  14.32, 18.9, 18.12, 18.17 Messenger Leisure Developments Ltd v Comrs of Customs & Excise [2005] EWCA Civ 648, [2005] STC 1078����������������������������������������������������������������������  2.6 Michalak v Mid Yorkshire Hospitals NHS Trust (1810815/2008) [2007] EWHC 2469 (QB)�����������������������������������������������������������������������������������������������  15.54

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Midland Bank Trust Co Ltd v Green [1981] AC 513, [1981] 2 WLR 28, [1981] 1 All ER 153, 42 P&CR 201����������������������������������������������������������������������������������������   4.13 Milne v Rashid [2018] CSOH 23�����������������������������������������������������������������������������������  34.12 Ministry of Defence v Wallis [2011] All ER (D) 97������������������������������������������������������  15.36 Mistral Finance Ltd, Re [2001] BCC 27�������������������������������������������������������������  34.14, 34.21 Mohamud v Wm Morrison Supermarkets Plc [2016] AC 677��������������������������������������   5.26 Morphitis v Bernasconi [2003] EWCA Civ 289, [2003] Ch 552, [2003] 2 BCLC 53, [2003] TLR 143���������������������������������������������������������������������������������������������������   34.3 Morris v State Bank of India [2005] EWCA Civ 693, [2005] 2 BCLC 328, [2005] All ER (D) 242 (Jun)�������������������������������������������������������������������������������������������������   34.3 Moschi v Lep Air Services Ltd [1973] AC 331, [1972] 2 WLR 1175, [1972] 2 All ER 393��������������������������������������������������������������������������������������������������������  10.43 Moser v Cotton (1990) 140 NLJ 1313���������������������������������������������������������������������������  13.39 Muir v City of Glasgow Bank (1879) 4 App Cas 337, [1874–80] All ER Rep 1017, 40 LT 339�������������������������������������������������������������������������������������������   8.27 Mullins v Laughton [2002] EWHC 2761 (Ch), [2003] Ch 250, [2003] 4 All ER 94, [2003] BPIR 674���������������������������������������������������������������������  7.3, 10.32, 10.39, 13.33 Multinational Gas & Petrochemical Co v Multinational Gas & Petrochemical Services Ltd [1983] Ch 258, [1983] 3 WLR 492, [1983] 2 All ER 563��������������   13.11 Munchkins Restaurant Ltd and another v Karmazyn and others UKEAT/0359/09�������  15.66 Murad v Al-Saraj [2005] EWCA Civ 959, [2005] WTLR 1573������������������������������������  13.14 Murray v Maclay Murray & Spens LLP [2018] IRLR 710�������������������������������������������  15.10 N NJM Clothing Ltd, Re [2018] BCC 875������������������������������������������������������������������������   29.9 NRAM Ltd v Steel [2018] 1 WLR 1190������������������������������������������������������������������������   18.7 NZ Netherlands Society v Kuys [1973] 1 WLR 1126, [1973] 2 All ER 272, 1973) 117 SJ 565����������������������������������������������������������������������������������������  13.9, 13.12, 13.34 National Bank Trust v Yurov & Ors [2020] EWHC 100 (Comm)���������������������������������  34.33 National Grid v McKenzie [2009] EWHC 1817 (Ch)���������������������������������������������������   13.9 National Trustees Co of Australasia Ltd v General Finance Co of Australasia Ltd [1905] AC 373, 74 LJPC 73, 92 LT 736��������������������������������������������������������������  14.35 Neath Rugby Limited, Re [2007] EWHC 2999 (Ch)����������������������������������������������������  34.41 Nell v Longbottom [1894] 1 QB 767, 10 TLR 344����������������������������������������������  17.5, 17.19 Nelson v Anglo-American Land Mortgage Agency Co [1897] 1 Ch 130, 66 LJ Ch 112�������������������������������������������������������������������������������������������������  6.24, 14.9 Newman and Howard Ltd, Re [1962] Ch 257���������������������������������������������������������������   32.11 Newton, Re [2016] EWHC 3068 (Ch)���������������������������������������������������������������������������  34.39 Nicoll v Cutts (1985) 1 BCC 99, 427, [1985] BCLC 323, 1985 PCC 311��������������������   30.11 Norman v Theodore Goddard [1991] BCLC 1028, [1992] BCC 14�����������������������������  13.26 Normandy v Ind Coope & Co Ltd [1908] 1 Ch 84, 77 LJ Ch 82, 97 LT 872����������������  17.12 Northampton Regional Livestock Centre Co Ltd v Cowling [2015] EWCA Civ 651, [2015] 4 Costs LO 477, [2016] PNLR 5��������������������������������������������������������������   5.22 North Holdings Ltd v Southern Tropics Ltd [1999] 2 BCLC 625, [1999] BCC 746����   32.8 Northern Counties Securities Ltd v Jackson & Steeple Ltd [1974] 1 WLR 1133, [1974] 2 All ER 625, 118 SJ 498�������������������������������������������������������������������������   13.5 North-West Transportation Co v Beatty (1887) 12 App Cas 589, 56 LJPC 102, 57 LT 426�������������������������������������������������������������������������������������������������������������   13.9 Norwest Holst Ltd v Secretary of State [1978] Ch 201, [1978] 3 WLR 73, [1978] 3 All ER 280��������������������������������������������������������������������������������������������������������   24.5 Nurcombe v Nurcombe [1985] 1 WLR 370, [1985] 1 All ER 65, (1984) 128 SJ 766�����������������������������������������������������������������������������������������������������������  14.38 O OMP Leisure Ltd, Re [2008] BCC 67���������������������������������������������������������������������������   29.8 OTV Birwelco Ltd v Technical & General Guarantee Co Ltd [2002] EWHC 2240 (TCC), [2002] 4 All ER 668, [2002] 2 All ER (Comm) 1116, [2002] 2 BCLC 723��������������������������������������������������������������������������������������   4.11, 4.12 O’Donnell v Shanahan [2009] EWCA Civ 751, [2009] All ER (D) 253 (Jul)��������������   13.9

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Official Custodian for Charities v Parway Estates Developments Ltd [1985] Ch 151, [1984] 3 WLR 525, [1984] 3 All ER 679���������������������������������������   1.11, 3.11 Official Receiver v Stern (No 2) [2001] EWCA Civ 1787, [2002] 1 BCLC 119�������������������������������������������������������������������������������������  10.23, 13.13, 16.7 Olson v Gullo, 17 O.R. (3d) 790�������������������������������������������������������������������������  13.19, 13.20 O’Neill v Phillips [1999] 1 WLR 1092, [1999] 2 All ER 961, [1999] 2 BCLC 1����������������������������������������������������������������������������  10.39, 17.46, 32.15, 32.26 One Money Mail Ltd v RIA Financial Services [2015] EWCA Civ 1084��������������������   11.40 One Step (Support) Ltd v Morris-Garner [2018] UKSC 20, [2019] AC 649 (SC)����   11.45, 13.11 One World Logistics Freight Ltd, Re [2018] EWHC 264 (Ch)�������������������������������������   29.5 Orion Publishing Group Limited, The v Novel Entertainment Limited [2012] EWHC 1951 (Ch)������������������������������������������������������������������������������������������������   14.6 Oval 1742 Ltd (in creditors’ voluntary liquidation), Re [2007] EWCA Civ 1262, [2008] 1 BCLC 204���������������������������������������������������������������������������������������������   6.28 Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 WLR 1335, [1974] 3 All ER 511, 118 SJ 775����������������������������������������������������������������������������������������  5.7 Overnight Ltd, Re [2009] EWHC 601 (Ch), [2010] BCC 787��������������������������������������   34.3 Oxford Legal Group Ltd v Sibbasbridge Services Plc [2008] EWCA Civ 387, [2008] 2 BCLC 381, [2007] EWHC 2265 (Ch)����������������������������������������  14.5, 14.10, 14.14, 14.15 Oxnard Financing SA v Rahn [1998] 1 WLR 1465, [1998] 3 All ER 19, (1998) 95(19) LSG 23������������������������������������������������������������������������������  26.10, 26.20 P P & P Design Plc v PricewaterhouseCoopers [2002] EWHC 446 (Ch), [2002] 2 BCLC 648���������������������������������������������������������������������������������������������������������  22.26 POW Services Ltd v Clare [1995] 2 BCLC 435������������������������������������������������������������   8.30 Padstow Total Loss & Collision Assurance Association, Re (1882) 20 Ch D 137, 45 LT 774, [1881–5] All ER Rep 422������������������������������������������������������������������  2.7 Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711, [1971] 3 WLR 440, [1971] 3 All ER 16���������������������������������������������  5.1 Pantmaenog Timber Co Ltd, Re [2003] UKHL 49, [2004] 1 AC 158, [2003] 3 WLR 767, [2003] 4 All ER 18���������������������������������������������������������������������������������������   37.5 Paragon Finance v D B Thakerar & Co [1999] 1 All ER 400, (1998) 95(35) LSG 36, (1998) 142 SJLB 243CA�������������������������������������������������������������������������������������   13.7 Paragon Finance plc v Nash [2001] EWCA Civ 1466, [2002] 1 WLR 685, [2002] 2 All ER 248���������������������������������������������������������������������������������������������  17.27, 34.28 Paramount Airways Ltd (in administration), Re [1993] Ch 223, [1993] 3 WLR 690����������������������������������������������������������������������������������������������������������  34.18 Paramount Airways Ltd (No 3), Re [1994] BCC 172����������������������������������������������������   30.11 Park Air Services Plc, Re [1997] 1 WLR 1376, [1997] 3 All ER 193���������������������������  33.10 Parker v McKenna (1874) 10 Ch App 96, 44 LJ Ch 425, 31 LT 739����������������������������   13.9 Parkins v Sodexho [2002] IRLR 109�����������������������������������������������������������������������������  15.165 Parr v Moore Stephens LLP, 2200196/2019 and 2200243/2019�����������������������������������  15.98 Patley Farm LLP v Brake [2017] 1 WLR 343���������������������������������������������������������������  17.12 Patrick & Lyon Ltd, Re [1933] Ch 786, 102 LJ Ch 300, [1933] WN 98�����������������������   34.3 Pavlides v Jensen [1956] Ch 565, [1956] 3 WLR 224, [1956] 2 All ER 518����������������  14.41 Peach Publishing Ltd v Slater & Co [1998] PNLR 364, [1998] BCC 139��������������������   18.7 Peak Hotels and Resorts Limited (in liquidation), Re [2019] EWCA Civ 345�������������  34.30 Peel’s Case, Barned’s Banking Co, Re (1867) LR 2 Ch App 674, 36 LJ Ch 757, 16 LT 780, 15 WR 1100���������������������������������������������������������������������������������������   2.38 Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2009] UKPC 45, [2011] 1 WLR 2370���������������������������������������������������������������������������������������������   11.45 Pelling v Families Need Fathers Ltd [2001] EWCA Civ 1280, [2002] 2 All ER 440, [2002] 1 BCLC 645, (2001) 151 NLJ 1284���������������������������������������������������������   6.16 Pender v Lushington (1877) LR 6 Ch D 70, 46 LJ Ch 317�������������������������������������������  17.18 Peninsula Securities Ltd v Dunnes Stores (Bangor) Ltd [2020] UKSC 36, [2020] 3 WLR 521�����������������������������������������������������������������������������������������������   11.40

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Penrose v Official Receiver [1996] 1 WLR 482, [1996] 2 All ER 96, [1995] BCC 311��������������������������������������������������������������������������������������������������������������  34.41 Perfectair Holdings Ltd, Re [1990] BCLC 423�������������������������������������������������������������  32.19 Perrott & Perrott Ltd v Stephenson [1934] Ch 171, [1933] All ER Rep 549, 103 LJ Ch 47��������������������������������������������������������������������������������������������������������  17.13 Peskin v Anderson [2001] 1 BCLC 372, [2001] BCC 874��������������������������������������������  13.33 Peters American Delicacy Co Ltd v Heath (1939) 61 CLR 457�������������������������  17.27, 17.31 Petersen v Berufungsausschuss für Zahnärzte für den Bezirk Westfalen-Lippe (Case C-341/08)] 2010] 2 CMLR 31, [2010] All ER (EC) 961, [2010] IRLR 254�������������������������������������������������������������������������������������������������������������  15.78 Phelps v Hillingdon LBC [2001] 2 AC 619, [2000] 3 WLR 776, [2000] 4 All ER 504, [2000] 3 FCR 102������������������������������������������������������������������������������������������������   18.9 Philips v Brewin Dolphin Bell Lawrie [1998] 1 BCLC 700�����������������������������������������  34.14 Phillips v Symes [2002] 1 WLR 853�������������������������������������������������������������������������������  26.5 Phillips Products Ltd v Hyland [1987] 1 WLR 659, [1987] 2 All ER 620, (1985) 129 SJ 47��������������������������������������������������������������������������������������������������������������������  18.20 Phonogram Ltd v Lane [1982] QB 938, [1981] 3 WLR 736, [1981] 3 All ER 182������   4.20 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, [1980] 2 WLR 283, [1980] 1 All ER 556������������������������������������������������������������������������  10.43 Pickering (Davy) [2015] EWHC 380 (Ch), [2015] 2 BCLC 116����������������������������������  24.31 Piercy v S Mills & Co Ltd [1920] 1 Ch 77, 88 LJ Ch 509, 122 LT 20��������������������������  17.32 Pimlico Plumbers Ltd v Smith [2018] UKSC 29�����������������������������������������������  9.32, 15.121 Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108, [2013] 2 WLR 1200���������������  17.26, 17.27, 17.42 Plumbly (personal representative of the Estate of Harbour) v Spencer (Inspector of Taxes) [1999] 2 EGLR 191, 71 TC 399, [1999] BTC 246����������������������������������  9.4 Polegoshko v Ibragimov [2015] 6 WLUK 731��������������������������������������������������������������  24.42 Polysar Investments Netherlands BV v Inspecteur der Invoerrechten en Accijnzer (C-60/90) [1991] ECR I-3111, [1993] STC 222, ECJ�����������������������������������������  2.6 Popat v Shonchhatra [1997] 1 WLR 1367, [1997] 3 All ER 800, (1997) 141 SJLB 163���������������������������������������������������������������������������������  16.5, 16.10, 16.16, 19.21, 19.23, 33.9 Popely v Popely [2019] EWHC 1507 (Ch)��������������������������������������������������������������������   8.37 Portland Place (Historic House) Ltd, Re [2012] EWHC 4199 (Ch), [2013] WTLR 1049���������������������������������������������������������������������������������������������������������  37.41 Portsmouth City Council v Ensign Highway Ltd [2015] EWHC 1969 (TCC), [2015] BLR 675, 161 Con LR 71������������������������������������������������������������������������������������  17.27 Portuguese Consolidated Copper Mines Ltd, Re (1889) 42 Ch D 160, 58 LJ Ch 813, 62 LT 88����������������������������������������������������������������������������������������������������  17.12, 17.13 Powdrill v Watson [1995] 2 AC 394, [1995] 2 WLR 312, [1995] 2 All ER 65�������������   30.11 Prescott v Dunwoody Sports Marketing [2007] EWCA Civ 461, [2007] 1 WLR 2343��������������������������������������������������������������������������������������������������������   11.42 Prestige Grindings Ltd, Re [2005] EWHC 3076 (Ch), [2006] BCC 421, [2006] 1 BCLC 440���������������������������������������������������������������������������������������������  37.38 Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415, [2013] 3 WLR 1��������������������������������������������������������������������������������������������������������������  3.5 Preston & Duckworth Ltd, Re [2006] BCC 133������������������������������������������������������������  29.25 Price v Bouch (1987) 53 P&CR 257, [1986] 2 EGLR 179, (1986) 279 EG 1226����������������������������������������������������������������������������������������������������  17.27, 17.40 PricewaterhouseCoopers LLP v Carmichael [2019] EWHC 824 (Comm)��������   11.43, 11.44 Primlake Ltd v Matthews Associates [2006] EWHC 1227 (Ch), [2007] 1 BCLC 666��������������������������������������������������������������������������������������������������  8.37, 8.39 Priory Garage (Walthamstow) Ltd, Re [2001] BPIR 144����������������������������������������������  34.19 Pritchard Stockbrokers Ltd (In Special Administration), Re [2019] EWHC 137 (Ch)��������������������������������������������������������������������������������������������������  29.17 Proactive Sports Management Ltd v Rooney [2011] EWCA Civ 1444, [2012] 2 All ER (Comm) 815, [2012] IRLR 241������������������������������������������������   11.40

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Produce Marketing Consortium Ltd, Re [1989] 1 WLR 745, [1989] 3 All ER 1, [1989] BCLC 513, (1989) 5 BCC 569�������������������������������������������������������  14.35, 34.6 Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, [1982] 2 WLR 31, [1982] 1 All ER 354��������������������������������������������  3.2, 14.37, 14.41 Prudential Assurance Co Ltd v PRG Powerhouse Ltd [2007] EWHC 1002 (Ch), [2008] 1 BCLC 289, [2007] BPIR 839, [2007] BCC 500�����������������������������������  28.12 Pulbrook v Richmond Consolidated Mining Co (1878) LR 9 Ch D 610, 48 LJ Ch 65, 27 WR 377�����������������������������������������������������������������������������������������������������������  17.18 Punjab National Bank v de Boinville [1992] 1 WLR 1138, [1992] 3 All ER 104, [1992] 1 Lloyd’s Rep 7����������������������������������������������������������������������������������������   18.6 Q Quantum Actuarial LLP v Quantum Advisory Ltd [2021] EWCA Civ 227������������������   11.40 R R v Board of Trade, ex parte St Martin Preserving Co Ltd [1965] 1 QB 603, [1964] 3 WLR 262, [1964] 2 All ER 561���������������������������������������������������������������������������   24.2 R v Brockley [1994] 1 BCLC 606, [1994] BCC 131, [1994] Crim LR 671�����������������   37.4 R v Campbell [1984] BCLC 83�������������������������������������������������������������������������������������   37.3 R v Dept of Health ex p Source Informatics Ltd [2001] QB 424, [2000] 2 WLR 940, [2000] 1 All ER 786, 52 BMLR 65���������������������������������������������������������������������  13.33 R v Registrar of Companies, ex parte Attorney-General (1980) [1991] BCLC 476��������������������������������������������������������������������������������������������   2.11, 2.35, 2.39 R v Registrar of Joint Stock Companies, ex parte More [1931] 2 KB 197, 100 LJKB 638, 145 LT 522���������������������������������������������������������������������������������������������������    2.11 R v Secretary of State for the Environment, Transport & the Regions, ex parte Spath Holme Ltd [2001] 2 AC 349, [2001] 2 WLR 15, [2001] 1 All ER 195���������������   34.8 R v Secretary of State for the Environment, ex parte Berkshire Royal County Council (1996) 95 LGR 249, (1996) 160 JP Rep 516�������������������������������������������������������   34.8 R v Secretary of State for Social Services, ex parte Britnell [1991] 1 WLR 198, [1991] 2 All ER 726, (1991) 135 SJ 412�������������������������������������������������������������������������   34.8 R v Senior [1899] 1 QB 283, 68 LJQB 175, 79 LT 562, 63 JP 8, 47 WR 367��������������  12.12 R v Whitmarsh (1850) 15 QB 600, 16 LTOS 108, 117 ER 586������������������������������������  2.7 R (on the application of 1st Choice Engines Ltd) v Secretary of State for Business, Innovation & Skills [2014] EWHC 1765 (Admin)����������������������������������������������   24.5 R (on the application of FDA) v Secretary of State for Work and Pensions [2013] 1 WLR 444�����������������������������������������������������������������������������������������������  17.39 R (on the application of Griffin) v Richmond Magistrates’ Court [2008] EWHC 84 (Admin), [2008] 1 WLR 1525, [2008] BCC 575������������������������������������������������  34.37 R (on the application of Khatun) v Newham LBC [2004] EWCA Civ 55��������������������  17.38 R (on the application of POW Trust) v Chief Executive & Registrar of Companies [2002] EWHC 2783 (Admin), [2003] 2 BCLC 295��������������������������������������������  21.43 R (on the application of Sword Services Ltd) v Revenue and Customs Comrs (QBD) [2016] 4 WLR 113�����������������������������������������������������������������������������������������������  10.10 Raiffeisen Zentralbank Osterreich AG v Five Star Trading LLC [2001] EWCA Civ 68, [2001] QB 825, [2001] 1 All ER (Comm) 961, [2001] 2 WLR 1344�����������  26.16 Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900, [2012] 1 All ER 1137���������������������������������������������������������������������������������������������������������������   18.3 Ralls Builders. Ltd, Re [2016] EWHC 243 (Ch)�����������������������������������������������������������   34.6 Ravat v Halliburton Manufacturing and Services Ltd [2012] UKSC 1, [2012] IRLR 315, [2012] 2 All ER 905���������������������������������������������������������������  15.28, 15.35 Ravisy v Simmons & Simmons LLP and Taylor [2018] UKEAT 0085/18/OO������������  15.35 Ray v Sempers [1974] AC 370, [1973] 3 WLR 359, [1973] 3 All ER 131�������������������   2.36 Recovery Partners GP Limited Revoker LLP v Rukhadze [2018] EWHC 2918 (Comm)�������������������������������������������������������������������������������������������������������   13.9 Reda v Flag Ltd [2002] IRLR 747��������������������������������������������������������������������  15.158, 19.13 Redwood Master Fund Ltd v TD Bank Europe Ltd [2002] EWHC 2703 (Ch), [2006] 1 BCLC 149, [2002] All ER (D) 141 (Dec)���������������������������������  17.27, 17.31, 17.33, 17.40

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Reed v Young [1986] 1 WLR 649, [1986] STC 285, (1987) 59 TC 196, [1985] STC 25, 129 SJ 28, (1983) 59 TC 196���������������������������������  16.5, 16.12, 16.17 Reeves v Sprecher [2007] EWHC 117 (Ch), [2007] 2 BCLC 614��������������������������������  18.29 Regal (Hastings) Ltd v Gulliver (1942) [1967] 2 AC 134n, [1942] 1 All ER 378�����������������������������������������������������������������������������������������������  13.9, 13.14 Regent Leisuretime Ltd v Natwest Finance Ltd [2003] EWCA Civ 391, [2003] BCC 587, [2003] All ER (D) 385 (Mar)��������������������������������������������������������������  24.31 Reinhard v Ondra LLP [2015] EWHC 26 (Ch)�������������������������������������  8.5, 8.18, 8.21, 9.13, 9.16, 9.19, 9.20, 17.44, 19.29, 19.33, 19.38, 32.5 Rennie v Rennie [2020] S.L.T. 619�������������������������������������������������������������������������������  19.13 Revenue & Customs Comrs v Walsh [2005] EWHC 1304 (Ch), [2005] 2 BCLC 455, [2005] BPIR 1105, [2006] BCC 431, [2005] All ER (D) 46 (Jun)����������������������  34.37 Rex Williams Leisure Plc, Re [1994] Ch 1, [1994] 3 WLR 745, [1994] 4 All ER 27����������������������������������������������������������������������������������������������������������  24.18 Rhone v Stephens [1994] 2 AC 310, [1994] 2 WLR 429, [1994] NPC 43��������������������  10.13 Richardson v Blackmore [2005] EWCA Civ 1356, [2006] BCC 276���������������������������  32.24 Richbell Strategic Holdings Ltd, Re [1997] 2 BCLC 429���������������������������������������������  31.14 Ricketts v Ad Valorem Factors Ltd [2003] EWCA Civ 1706, [2004] 1 BCLC 1, [2004] BPIR 825��������������������������������������������������������������������������������������������������  34.37 Rihan v Ernst & Young Global Ltd [2020] EWHC 901 (QB)��������������������������  15.36, 15.175 Riley v Reddish LLP [2019] 6 WLUK 96���������������������������������������������������������������������  17.29 Risdon Iron & Locomotive Works v Furness [1906] 1 KB 49���������������������������  26.18, 26.24 Ritchie (JH) Ltd v Lloyd Ltd [2007] UKHL 9, [2007] 1 WLR 670, [2007] 2 All ER 353, [2007] 1 All ER (Comm) 987, [2007] 1 Lloyd’s Rep 544������������  17.40 Riverbank Hotels Ltd v City Centre Resources Ltd [2013] EWHC 4249 (Ch)�������������  31.14 Robinson v Ashton (1875) 20 Eq 25, 44 LJ Ch 542, 33 LT 88, 23 WR 674��������  16.16, 33.8 Robinson v Chief Constable of West Yorkshire [2018] AC 736�����������������������������  18.7, 18.9 Robinson v Department of Work & Pensions [2020] EWCA Civ 859��������������������������  15.141 Rogers (deceased), Re [2006] EWHC 753 (Ch), [2006] 1 WLR 1577, [2006] 2 All ER 792��������������������������������������������������������������������������������������������������������  18.30 Ronson International Ltd v Patrick [2006] EWCA Civ 421, [2006] 2 All ER (Comm) 344���������������������������������������������������������������������������������������������������  12.12 Rookes v Barnard (No 1) [1964] AC 1129, [1964] 2 WLR 269, [1964] 1 All ER 367��������������������������������������������������������������������������������������������������������  15.54 Rosenbladt v Oellerking GmbH (Case C-45/09) [2011] 1 CMLR 32, [2012] All ER (EC) 288, [2011] IRLR 51�����������������������������������������������������������������������������������  15.78 Ross Harper & Murphy v Banks 2000 SLT 699������������������������������������������������������������  13.25 Ross River Ltd v Cambridge City Football Club Ltd (2007) [2007] EWHC 2115 (Ch), [2008] 1 All ER 1004, [2008] 1 All ER (Comm) 1028���������������������������������������   13.9 Rowan Companies Inc v Lambert Eggink Offshore Transport Consultants VOF, ‘The Gilbert Rowe’ [1998] CLC 1574, [1997] 2 LLR 218��������������������������������  26.10, 26.20, 26.21 Rowe v Saunders [2002] EWCA Civ 242, [2002] BPIR 847����������������������������������������  19.10 Rowntree Ventures Ltd v Oak Property Partners Ltd [2017] EWCA Civ 1944������������   29.4 Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378, [1995] 3 WLR 64, [1995] 3 All ER 97����������������������������������������������������������������������������   8.27 Royal Mail Group Ltd v Efobi [2019] EWCA Civ 18���������������������������������������������������  15.46 Royal Society for the Prevention of Cruelty to Animals v AG [2002] 1 WLR 448, [2001] 3 All ER 530���������������������������������������������������������������������������������������������  17.27 Rushbond Plc v JS Design Partnership LLP [2020] EWHC 1982 (TCC)���������������������  18.15 Russell v Russell (1880) 14 Ch D 471���������������������������������������������������������������������������  14.29 Russell-Cooke Trust Company v Elliott & others [2001] All ER (D) 197 (July)����������  20.28 Russo-Chinese Bank v Li Yau Sam (PC) [1910] AC 174, 79 LJPC 60, 101 LT 689����  5.7 Rutherford v Seymour Pierce Ltd [2010] EWHC 375 (QB), [2010] IRLR 606������������  17.44 Ryder v Frohlich [2004] NSWCA 472��������������������������������������������������������������������������  10.32 Rye v Rye [1962] AC 496, [1962] 2 WLR 361, [1962] 1 All ER 146���������������������������  9.4

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S S & GR Valuation Service Co LLC v Boudrais [2008] EWHC 1340 (QB), [2008] IRLR 770�������������������������������������������������������������������������������������������������������������   11.46 SCMLLA Properties Ltd v Gesso Properties (BVI) Ltd [1995] BCC 793��������������������  33.10 SEIL Trade Finance Ltd, Re [1992] BCC 538���������������������������������������������������������������  34.32 Said v Butt [1920] 3 KB 497, 90 LJKB 239, [1920] All ER Rep 232���������������������������  18.29 Sailing Ship Kentmere Co, In re [1897] WN 58������������������������������������������������������������  32.29 Salomon v Salomon [1897] AC 22, 66 LJ Ch 35, [1895–9] All ER Rep 33�����������������  3.1 Samarkand Film Partnership No 3 v Revenue and Customs Commissioners [2017] EWCA Civ 77������������������������������������������������������������������������������������������������������  2.6 Sanders v Perry [1967] 1 WLR 753, [1967] 2 All ER 803, 111 SJ 296�������������������������   13.9 Sandhu v Gill [2005] EWCA Civ 1297, [2006] Ch 456, [2006] 2 All ER 22, [2006] 2 BCLC 38�����������������������������������������������������������������������������������������������������������   33.9 Sandilands v Marsh (1819) 2 B & Ald 673, 106 ER 511�����������������������������������������������   5.12 Savoy Hotel Ltd, Re [1981] Ch 351, [1981] 3 WLR 441, [1981] 3 All ER 646�����������   36.3 Scandinavian Bank Group Plc, Re [1988] Ch 87, [1987] 2 WLR 752, [1987] 2 All ER 70����������������������������������������������������������������������������������������������������������   16.4 Schillings International LLP v Scott [2019] EWHC 1335 (Ch)������������������������������������   11.51 Schmidt v Rosewood Trusts Ltd [2003] UKPC 26, [2003] 2 AC 709, [2003] 2 WLR 1442, [2003] 3 All ER 76������������������������������������������������������������������������  17.40 Scott v Frank F Scott (London) Ltd [1940] Ch 794, [1940] 3 All ER 508��������������������  10.17 Scott v National Trust for Places of Historic Interest or Natural Beauty [1998] 1 WLR 226, [1998] 2 All ER 705, [1998] JPL 465�����������������������  17.27, 17.28, 17.33 Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324, [1958] 3 WLR 404, [1958] 3 All ER 66�������������������������������������������������������������������  8.23, 13.9 Scottish Petroleum Co, Re (1883) 23 Ch D 413, 49 LT 348�����������������������������������������  10.23 Scullion v Bank of Scotland (t/a Colleys) [2011] EWCA Civ 693, [2011] 1 WLR 3212, [2011] BLR 449����������������������������������������������������������������������������  18.12 Seagull Manufacturing Co Ltd (No 2), Re [1994] 1 Ch 91, [1994] 2 WLR 453, [1994] 2 All ER 767���������������������������������������������������������������������������������������������   26.2 Seaton v Grant (1867) LR 2 Ch App 459����������������������������������������������������������������������  14.42 Secretary of State for Business, Enterprise & Regulatory Reform v Meade [2011] EWHC 4091 (Ch)������������������������������������������������������������������������������������������������  37.41 Secretary of State for Business, Enterprise & Regulatory Reform v Neufeld & Howe [2009] EWCA Civ 280, [2009] IRLR 475, [2009] All ER (D) 40 (Apr) �����������������������������������������������������������������������������������������  9.1, 9.9 Secretary of State for Business, Innovation and Skills v Rahman [2017] EWHC 2468 (Ch)������������������������������������������������������������������������������������������������  37.23 Secretary of State for Business, Innovation & Skills v Reza [2013] CSOH 86������������  37.19 Secretary of State for Business, Innovation & Skills v Saddique & Cardinali (unreported, October 2014)������������������������������������������������������������������  37.12 Secretary of State for Trade & Industry v Arnold [2007] EWHC 1933 (Ch), [2008] BCC 119, [2008] 1 BCLC 581�����������������������������������������������������������������   37.11 Secretary of State for Trade & Industry v Collins [2000] 2 BCLC 223, [2000] BCC 998, (2000) 97(2) LSG 29��������������������������������������������������������������������������  37.44 Secretary of State for Trade & Industry v Davies (No 2), Blackspur Group plc (No 3), Re [2001] EWCA Civ 1595, [2002] 2 BCLC 263, [2002] 2 BCLC 263�������������   37.1 Secretary of State for Trade & Industry v Deverell [2001] Ch 340, [2000] 2 WLR 907, [2000] 2 All ER 365������������������������������������������������������������������������������������  8.33, 37.12 Secretary of State for Trade & Industry v Ettinger [1993] BCLC 896, [1993] BCC 312��������������������������������������������������������������������������������������������������������������  13.32 Secretary of State for Trade & Industry v Hall & Nuttall [2006] All ER (D) 432 (Jul), Ch D������������������������������������������������������������������������������������������������  21.3 Secretary of State for Trade & Industry v Hollier [2006] EWHC 1804 (Ch), [2007] Bus LR 352, [2007] BCC 1, [2006] All ER (D) 232 (Jul)�����������������������   8.37 Secretary of State for Trade & Industry v Rosenfield [1999] BCC 413������������������������  37.41 Securities & Investments Board v Scandex Capital Management A/S [1998] 1 WLR 712, [1998] 1 All ER 514, (1998) 95(6) LSG 24������������������������������������  12.12

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Seldon v Clarkson Wright & Jakes [2012] UKSC 16, [2012] 3 All ER 1301, [2012] IRLR 590�����������������������������������������������������  15.13, 15.77, 15.78, 15.82, 15.83, 15.84, 15.85, 15.86, 15.87, 15.88, 15.89, 15.90, 15.91, 15.92, 15.93, 15.94, 15.95, 15.96, 15.97 Seldon v Davidson [1968] 1 WLR 1083, [1968] 2 All ER 755, 112 SJ 463�����������������   16.3 Senator Hanseatische, Re [1997] 1 WLR 515, [1997] 4 All ER 933, [1996] 2 BCLC 597������������������������������������������������������������������������������������������������  26.2, 31.26 Serco v Lawson [2006] UKHL 3, [2006] 1 All ER 823, [2006] IRLR 289���������������������������������������������������������������������������������������  15.28, 15.33, 15.35 Seven Energy International Ltd, Re [2019] EWHC 3391 (Ch)�������������������������������������   29.4 Sevenoaks Stationers (Retail) Ltd, Re [1991] Ch 164���������������������������������������������������  37.12 Sevilleja v Marex Financial Ltd [2020] UKSC 31��������������������������������������  3.2, 13.33, 13.36 Shamoon v Chief Constable of the Royal Ulster Constabulary (Northern Ireland) [2003] UKHL 11��������������������������������������������������������������������������������������������������  15.168 Shapland Inc, Re [2000] BCC 106���������������������������������������������������������������������  34.14, 34.23 Sharp v Blank [2019] EWHC 3096 (Ch)�����������������������������������������������������������������������  13.34 Shaw v DPP [1962] AC 220, [1961] 2 WLR 897, [1961] 2 All ER 446�����������������������    2.11 Shepherds Investments Ltd v Walters [2006] EWHC 836 (Ch), [2007] 2 BCLC 202, [2007] FSR 15, [2007] IRLR 110 �����������������������������������������������������������������������   13.9 Sherriff v Klyne Tugs (Lowestoft) Ltd [1999] ICR 1170, [1999] IRLR 481, (1999) 96(27) LSG 34�����������������������������������������������������������������������������������������������������  15.53 Shurbanova v Forex Capital Markets Ltd [2017] EWHC 2133 (QB)���������������������������  17.38 Shuttleworth v Cox Brothers & Co (Maidenhead) Ltd [1927] 2 KB 9, 96 LJKB 104, 136 LT 337������������������������������������������������������������������������������������������������  17.31, 17.40 Sidebottom v Kershaw, Leese & Co Ltd [1920] 1 Ch 154, 89 LJ Ch 113, 122 LT 325�����������������������������������������������������������������������������������������������������������  17.31 Sikorski v Sikorski [2012] EWHC 1613 (Ch)���������������������������������������������������������������   32.6 Simmons v Castle [2012] EWCA Civ 1039������������������������������������������������������������������  15.53 Simmons v IRC [1980] 1 WLR 1196, [1980] 2 All ER 798, (1980) 124 SJ 630����������  2.6 Simmons Box (Diamonds) Ltd, Re [2002] BCC 82������������������������������������������������������   34.1 Sinclair Investment Holdings SA v Versailles Trade Finance Ltd [2005] EWCA Civ 722, [2006] 1 BCLC 60��������������������������������������������������������������������������������  18.31 Singh v Atombrook Ltd [1989] 1 WLR 810, [1989] 1 All ER 385, (1989) 133 SJ 1133�����������������������������������������������������������������������������������������������������������������   3.12 Singla v Brown [2007] EWHC 405 (Ch), [2008] Ch 357, [2008] 2 WLR 283�������������  34.18 Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2019] UKSC 50; [2019] 3 WLR 997������������������������������������������������������������������������������������������  3.4, 8.33 Sisu Capital Fund Ltd v Tucker [2005] EWHC 2170 (Ch), [2006] BPIR 154��������������  28.12 Smania v Standard Chartered Bank [2015] ICR 436�����������������������������������������������������  15.175 Smith v Anderson (1880) 15 Ch D 247, 50 LJ Ch 39����������������������������������������������������  2.6 Smith v Bridgend County BC [2001] UKHL 58, [2002] 1 AC 336, [2001] 3 WLR 1347, [2002] 1 All ER 292����������������������������������������������������������������������  6.6 Smith v Bush, Harris v Wyre Forest District Council [1990] 1 AC 831, [1989] 2 WLR 790, 87 LGR 685�������������������������������������������������������������������  14.32, 18.6, 18.9, 18.12, 18.20, 18.21, 18.23 Smith v Croft (No 2) [1988] 1 Ch 114, [1987] 3 WLR 405, [1987] 3 All ER 909, [1987] BCLC 206������������������������������������������������������������������������������������������������  14.42 Smith v Jones [1954] 2 All ER 823, [1954] 1 WLR 1089, 163 EG 243������������������������  10.18 Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165, [1978] 1 All ER 18, (1977) 122 SJ 61��������������������������������������������������������������������������������������������������  14.32 Smith & Fawcett Ltd, Re [1942] Ch 304, [1942] 1 All ER 542, 111 LJ Ch 265���������������������������������������������������������������������������������������������  13.9, 17.29 Smithton Ltd (formerly Hobart Capital Markets Ltd) v Naggar [2014] EWCA Civ 939, [2015] 1 WLR 189, [2014] BCC 482��������������������������������  8.33, 8.37 Smiths v Middleton [1979] 3 All ER 842����������������������������������������������������������������������  30.14 Sobell v Boston [1975] 1 WLR 1587, [1975] 2 All ER 282, (1974) 119 SJ 760����������  19.30 Society of Lloyd’s v Robinson [1999] 1 WLR 756�������������������������������������������������������  17.35

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Socimer International Bank Ltd (in liquidation) v Standard Bank [2008] EWCA Civ 116, [2008] 1 Lloyd’s Rep 558, [2008] Bus LR 1304�����������  17.27, 17.28 Somerset v Land Securities Co [1897] WN 29��������������������������������������������������������������   6.25 Sonatacus Ltd, Re [2007] EWCA Civ 31, [2007] 2 BCLC 627, [2007] BPIR 106�������������������������������������������������������������������������������������������������������������  34.14 South Australian Asset Management Corporation v York Montague [1997] AC 197, [1996] 3 WLR 87, [1996] 3 All ER 365����������������������������������������������������������������  18.6 Southern Brazilian Rio Grande do Sul Ry Co Ltd [1905] 2 Ch 78, 74 LJ Ch 392, 92 LT 598�������������������������������������������������������������������������������������������������������������   16.2 Spaces London Bridge Ltd, Re [2019] BCC 280����������������������������������������������������������   29.9 Speed Investments v Formula One Holdings Ltd (No 2) [2004] EWCA Civ 1512, [2005] 1 WLR 1936, [2005] 1 BCLC 455�����������������������������������������������������������   26.5 Stadium Capital Holdings v St Marylebone Properties Co plc [2010] EWCA Civ 952����������������������������������������������������������������������������������������������������   11.45 Standard Chartered Bank v Pakistan National Shipping Corp (No 2) [2002] UKHL 43, [2003] 1 AC 959, [2002] 3 WLR 1547, [2003] 1 All ER 173, [2000] 1 LLR 218������������������������������������������������������������������������������������������������������������  18.27 Stanley v TMK Finance Ltd [2010] EWHC 3349 (Ch), [2011] BPIR 876, [2011] Bus LR D93����������������������������������������������������������������������������������������������������������������  34.14 Staray Capital Limited v Cha, Yang [2017] UKPC 43����������������������������  17.30, 17.32, 17.37 Stealth Construction, Re [2011] EWHC 1305 (Ch), [2012] 1 BCLC 297, [2011] BPIR 1173������������������������������������������������������������������������������������������������  34.23 Stein v Blake (No 2) [1998] 1 All ER 724, [1998] 1 BCLC 573, [1998] BCC 316������  13.33 Stekel v Ellice [1973] 1 WLR 191, [1973] 1 All ER 465, (1972) 117 SJ 126����������  9.2, 9.20 Stevens v Premium Real Estate Ltd [2009] 2 NZLR 384����������������������������������������������  13.16 Strategic Advantage SPC v Rutter [2020] EWHC 3171 (Ch)���������������������������������������   29.9 Stuart, Re [1897] 2 Ch 583, 77 LT 128��������������������������������������������������������������������������  14.35 Stupples v Stupples [2012] EWHC 1226 (Ch)��������������������������������������������������������������  13.16 Supercapital Ltd, Re [2020] EWHC 1685 (Ch)�������������������������������������������������������������  29.17 Swan, The, Bridges & Salmon v The Swan (Owner) [1968] 1 Lloyd’s Rep 5, (1968) 118 NLJ 182���������������������������������������������������������������������������������������������   18.3 Swan v Sandhu [2005] EWHC 2743 (Ch), [2006] BPIR 1035�������������������������������������   13.9 Swindle v Harrison [1997] 4 All ER 705, [1997] PNLR 641, [1997] NPC 50�������������  13.14 Syers v Syers (1876) 1 App Cas 174, [1874–1880] All ER Rep Ext 2127�������������  7.3, 10.39 Symbian v Christensen [2000] UKCLR 879, [2001] IRLR 77, [2001] Masons CLR 75���������������������������������������������������������������������������������������������������   11.40 Symm & Co Ltd, Re [2020] EWHC 317 (Ch), [2020] BCC 844����������������������������������   29.9 Synergy Agri Holdings Ltd v Agform Ltd [2020] EWHC 343 (Ch)��������������������  29.4, 31.12 Syston & Thurmanston Gas, Light & Coke Co Ltd [1937] 2 All ER 322���������������������   33.8 T T&N Limited, Re [2007] 1 All ER 851�������������������������������������������������������������������������   36.2 TPS Investments (UK) Ltd, Re [2020] EWHC 1135 (Ch)��������������������������������������������  29.20 Tager v Westpac Banking Corp [1997] 1 BCLC 313, [1998] BCC 73, [1997] BPIR 543�������������������������������������������������������������������������������������������������������������  28.12 Tann v Herrington [2009] EWHC 445 (Ch), [2009] Bus LR 1051, [2009] Lloyd’s Rep PN 106, [2009] PNLR 22, [2009] All ER (D) 135 (Mar)�����������������  13.25, 13.35 Target Holdings Ltd v Redferns [1996] AC 421, [1995] 3 WLR 352, [1995] 3 All ER 785��������������������������������������������������������������������������������������������������������  13.14 Taylor Sinclair (Capital) Ltd, Re [2001] 2 BCLC 176��������������������������������������������������  34.14 Tennent v City of Glasgow Bank (1879) 4 App Cas 615, 40 LT 694, 27 WR 649��������  10.23 Tesco Stores Ltd v Pook [2003] EWHC 823 (Ch), [2004] IRLR 618���������������������������   13.9 Thirty-Eight Building Ltd, Re [1999] 1 BCLC 416, [1999] BCC 260, [1999] BPIR 620��������������������������������������������������������������������������������������������������  34.20 Thitchener v Vantage Capital Markets LLP [2019] EWHC 1576 (QB)��������������  8.28, 10.32, 17.28, 19.4, 19.5 Thoars (decd), Re [2002] EWHC 2416 (Ch), [2003] 1 BCLC 499�������������������������������  34.14 Thomas v Atherton (1878) 10 Ch D 185�����������������������������������������������������������������������  13.25

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Thomas v Farr Plc [2007] EWCA Civ 118, [2007] ICR 932, [2007] IRLR 419�����������   11.42 Thomlin Patent Horseshoe Company, Re (1887) 55 LT 314�����������������������������������������   31.11 Thompson v The Renwick Group Plc [2014] EWCA Civ 635��������������������������������������   8.23 Thompson & Riches Ltd, Re [1981] 1 WLR 682, [1981] 2 All ER 477, (1981) 125 SJ 273������������������������������������������������������������������������������������������������  24.28 Thompson’s Trustee in Bankruptcy v Heaton [1974] 1 WLR 605, [1974] 1 All ER 1239, 118 SJ 295�����������������������������������������������������������������������������������  17.25 Thorne & New Brunswick Workmen’s Compensation Board (1962) 33 DLR (2d) 167�������������������������������������������������������������������������������������������������������  9.2 Tiffin v Lester Aldridge LLP [2012] EWCA Civ 35, [2012] 1 WLR 1887, [2012] 2 All ER 1113�������������������������������������������������������������������  9.2, 9.10, 9.17, 9.18, 9.19, 9.20, 9.31 Tillman v Egon Zehnder Limited [2020] AC 154����������������������������������������������������������   11.42 Timis v Osipov [2018] EWCA Civ 2321�����������������������������������������������������������������������  15.172 Tito v Waddell (No 2) [1977] Ch 106, [1977] 2 WLR 496, [1977] 3 All ER 129���������  10.13 Towcester Racecourse Co Ltd, Re [2019] BCC 274�����������������������������������������������������   29.9 Towcester Racecourse Co Ltd v The Racecourse Association Ltd [2002] EWHC 214 (Ch), [2003] 1 BCLC 260, (2002) 99(45) LSG 34��������������������������  17.20 Tower Taxi Technology LLP v Marsden [2005] EWCA Civ 1503��������������������������������  32.32 Tradepower (Holdings) Ltd v Tradepower (Hong Kong) Ltd [2010] 1 HKLRD 674 (CFA)������������������������������������������������������������������������������������������  13.13 Trego v Hunt [1896] AC 7, 65 LJ Ch 1, 73 LT 514, 44 WR 225, 12 TLR 80�������������������������������������������������������������������������������������������������   11.44, 14.10 Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517, NZ CA������������������������������������������  18.14 Trustor AB v Smallbone [2001] 1 WLR 1177, [2001] 3 All ER 987, [2001] 2 BCLC 436���������������������������������������������������������������������������������������������������������  3.5 Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 AC 164, [2002] 2 WLR 802, [2002] 2 All ER 377���������������������������������������������������������������������������������������������   8.27 Tymans Ltd v Craven [1952] 2 QB 100, [1952] 1 All ER 613, 96 SJ 196��������������������  24.31 U Uber BV v Aslam [2021] UKSC 5����������������������������������������������   8.5, 9.1, 9.31, 9.32, 15.112 Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch), [2006] FSR 17 (part of judgment only), [2005] All ER (D) 397�����������������������   8.34, 8.35, 13.9, 13.11 United Bank of Kuwait v Hammoud [1988] 1 WLR 1051, [1988] 3 All ER 418, (1988) 132 SJ 1388����������������������������������������������������������������������������������������������  5.4 United Dominions Corporation Proprietary Ltd v Brian Proprietary Ltd (1985) 157 CLR 1 (HC Australia)������������������������������������������������������������������������  13.15, 13.34 Universal Project Management Services Ltd v Fort Gilkicker Ltd [2013] EWHC 348 (Ch), [2013] Ch 551, [2013] 3 WLR 164�����������������������������������������������������  14.38 V Vagliano Anthracite Collieries Ltd, Re [1910] WN 187, 79 LJ Ch 769, 103 LT 211������  2.3 Vaines v The Commissioners for Her Majesty’s Revenue and Customs [2018] EWCA Civ 45�������������������������������������������������������������������������������������������  23.18, 23.30 Various Claimants v Catholic Child Welfare Society [2012] UKSC 56, [2013] 2 AC 1, [2012] 3 WLR 1319�������������������������������������������������������������������������������   5.22 Vatcher v Paull [1915] AC 372��������������������������������������������������������������������������������������  17.34 Vehicle Inspectorate v Nuttall [1999] 1 WLR 629, [1999] 3 All ER 833, [1999] RTR 264�����������������������������������������������������������������������������������������������������������������������  12.10 Vento v Chief Constable of West Yorkshire Police [2002] EWCA Civ 1871, [2003] ICR 318, [2003] IRLR 102����������������������������������������������������������������������  15.53 Verner v General & Commercial Investment Trust [1894] 2 Ch 239, 63 LJ Ch 456, 10 TLR 341����������������������������������������������������������������������������������������������������������   16.2 Vintage Hallmark Plc, Re [2006] EWHC 2761 (Ch), [2008] BCC 150, [2007] 1 BCLC 788���������������������������������������������������������������������������������������������������������  37.21 Virdi v Abbey Leisure, sub nom Abbey Leisure Ltd, Re [1990] BCLC 342, (1990) BCC 60�����������������������������������������������������������������������������������������������������   32.8

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Virgo Fidelis Senior School v Boyle [2004] ICR 1210, [2004] IRLR 268�������������������  15.174 Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277, [1939] 1 All ER 513, 108 LJPC 40, 160 LT 579�������������������������������������������������������������������������  10.51, 26.36 Vivendi SA v Richards [2013] BCC 771�����������������������������������������������������������������������   8.35 W WWF-World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2007] EWCA Civ 286, [2008] 1 WLR 445, [2008] 1 All ER 74�����������������������   11.45 Waddington Ltd v Chan Chun Hoo Thomas [2009] 2 BCLC 82, HKCFA 63, Hong Kong����������������������������������������������������������������������������������������������������  3.2, 14.37 Walewski v HMRC [2020] UKFTT 58 (TC)������������������������������������������������������  23.40, 23.43 Walker v London Tramways Co [1879] 12 Ch D 705, 49 LJ Ch 23, 28 WR 163���������  10.52 Walker v Sita Information Networking Computing Ltd [2013] All ER (D) 317 (May)������������������������������������������������������������������������������������������������������������  15.131 Walker v Stones [2001] 1 QB 902, [2001] 2 WLR 623, [2000] 4 All ER 412��������������   5.24 Wall v London Northern Assets Corporation [1898] 2 Ch 469, 67 LJ Ch 596, 79 LT 249�������������������������������������������������������������������������������������������������������������  17.32 Wallersteiner v Moir (No 2) [1975] QB 373, [1975] 2 WLR 389, [1975] 1 All ER 849��������������������������������������������������������������������������������������������������������  14.37 Wallis & Simmonds (Builders) Ltd, Re [1974] 1 WLR 391, [1974] 1 All ER 561, [1974] 1 Lloyd’s Rep 272������������������������������������������������������������������������������������  6.5 Walters v Bingham [1988] 1 FTLR 260, (1988) 138 NLJ 7������������������������������������������  14.29 Watchorn v Comptroller of Stamps [1969] VR 168������������������������������������������������������  9.2 Watson v Watchfinder.co.uk Ltd [2017] BLR 1309�������������������������������������������������������  17.38 Waugh v MB Clifford & Sons [1982] Ch 374, [1982] 2 WLR 679, [1982] 1 All ER 1095���������������������������������������������������������������������������������������������������  5.1, 5.6 Weavering Capital (UK) Ltd (in liquidation) v Dabhia [2013] EWCA Civ 71�������������  37.19 Weikersheim’s Case, Land Credit Co of Ireland, Re (1873) 8 Ch App 831, 42 LJ Ch 435, 28 LT 653, 21 WR 612�����������������������������������������������������������������  2.3 Welsh Ministers v Price [2017] EWCA Civ 1768, [2018] 1 WLR 738�������������������������  24.33 Westbourne Galleries Ltd, Re see Ebrahimi v Westbourne Galleries Ltd West Mercia Safetywear Ltd v Dodd [1988] BCLC 250, [1988] BCC 30�����������  10.23, 16.7 West of England Bank, Re, ex p Hatcher (1879) 12 Ch D 284���������������������������������������  8.16 Westlowe Storage & Distribution Ltd, Re [2000] 2 BCLC 590, [2000] BCC 851��������������������������������������������������������������������������������������������������������������  14.35 Westmid Packing Services Ltd, Re (No 2) [1998] 2 All ER 124, [1998] 2 BCLC 646, [1998] BCC 836�����������������������������������������������������������������������������  13.32, 37.18, 37.19 Wetton v Ahmed [2011] EWCA Civ 610�����������������������������������������������������������������������   8.38 White (Dennis) Deceased, Re [2001] Ch 393, [2000] 3 WLR 885, [2000] 3 All ER 618����������������������������������������������������������������������������������  19.16, 19.18, 19.23 White v Davenham Trust Ltd [2010] EWHC 2748 (Ch), [2011] Bus LR 615, [2011] BCC 77�����������������������������������������������������������������������������������������������������  34.28 White v Jones [1995] 2 AC 207, [1995] 2 WLR 187, [1995] 1 All ER 691��������  13.2, 13.25, 18.6, 18.7, 18.9, 18.12, 18.15 White v White [2001] 1 WLR 481���������������������������������������������������������������������������������   5.16 White Digital Media Limited v Weaver [2013] EWHHC 1681 (QB)���������������������������   11.42 Whitley Partners Ltd, Re (1886) 32 Ch D 337, 55 LJ Ch 540���������������������������������������   2.14 Whitestar Management Limited [2018] EWHC 743 (Ch)���������������������������������������������  34.18 Wigfield v Potter (1882) 45 LT (NS) 612����������������������������������������������������������������������  2.6 Wilkinson v West Coast Capital [2005] EWHC 3009 (Ch), [2007] BCC 717�������������������������������������������������������������������������������  13.9, 13.13, 14.37, 17.30 Willers v Joyce [2016] UKSC 44, [2018] AC 843��������������������������������������������������������  26.28 William Hill Organisation Ltd v Tucker [1999] ICR 291, [1998] IRLR 313, (1998) 142 SJLB 140�����������������������������������������������������������������������   11.46, 11.47, 17.3 Williams v Harding (1866) LR 1 HL 9, 14 LT 139�������������������������������������������������������   8.16

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Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, [1998] 2 All ER 577,[1998] 1 BCLC 689���������������������������������������������  18.5, 18.7, 18.8, 18.9, 18.10, 18.11, 18.12, 18.13, 18.14, 18.16, 18.27 Williams v Trustees of Swansea University Pension and Assurance Scheme and another [2018] UKSC 65������������������������������������������������������������������������������  15.139 Williams v Wilsons Solicitors LLP (unreported, 29 June 2012)�������������  17.37, 19.13, 32.23 Wilson Solicitors LLP v Roberts [2018] EWCA Civ 52����������������������������������  10.32, 15.172 Winslow ex p Godfrey (1886) 16 QBD 696������������������������������������������������������������������   14.6 Wirecard Bank AG v Scott [2010] EWHC 451 (QB)�������������������������������������������  37.3, 37.38 Wm Morrison Supermarkets Plc v Various Claimants [2020] UKSC 12����������������������   5.26 Wood v Capita Insurance Services Ltd [2017] AC 1173����������������������������������������  10.5, 18.3 Wood v Watkin [2019] EWHC 1311 (Ch)���������������������������������������������������������������������  34.33 Woolfson v Strathclyde Regional Council, 1978 SC (HL) 90, 1978 SLT 159, (1978) 38 P&CR 521�������������������������������������������������������������������������������������������  3.5 Y Yazhou Travel Investment Co Ltd v Bateson [2004] HKCFI 258���������������������������������  18.16 Yenidje Tobacco Ltd, Re [1916] 2 Ch 426, [1916–17] All ER Rep 1050���������������������  32.28 York Tramways Co v Willows (1882) 8 QBD 685, 51 LJQB 257, 46 LT 296��������������  17.13 Yorkshire Fibre Co, Re (1870) LR 9 Eq 650�����������������������������������������������������������������  14.17 Young v Ladies’ Imperial Club Ltd [1920] 2 KB 523, [1920] All ER Rep 223, 89 LJKB 563��������������������������������������������������������������������������������������������������������  17.12 Young (M) Legal Associates Ltd v Lees [2006] EWCA Civ 613, [2006] 1 WLR 2562������������������������������������������������������������������������������������������  2.5, 2.7, 13.16 Z Zeckler v Assigned Risk Pool Manager Capital Commercial Services Ltd [2012] EWHC 3591 (Ch)������������������������������������������������������������������������������������������������  14.32 Zetnet Ltd, Re [2011] EWHC 1518 (Ch)�����������������������������������������������������������������������   32.6

xlvi

TABLE OF STATUTES All references are to paragraph number

Arbitration Act 1996 s 9�������������������������������������������������  11.51 s 44�����������������������������������������������  11.51 Banking Act 2009����������������������������  6.4 Betting and Gaming Act 1960����������   2.11 Capital Allowances Act 2001 s 33A��������������������������������������������  23.12 s 38A, 39��������������������������������������  23.11 s 56, 104D������������������������������������  23.12 Cathedrals Measure 1999 s 9(1)(f)����������������������������������������  18.30 s 35(1)������������������������������������������  18.30 Charging Orders Act 1979���������������   8.21 s 2��������������������������������������������������    8.21 Civil Liability (Contribution) Act 1978���������������������   11.20, 11.24, 14.31, 14.32, 14.33 s 7(3)��������������������������������������������  14.31 Companies Act 1844  s 2����������������������������������������������  2.7, 2.9 Companies Act 1862 s 4���������������������������������������  2.6, 2.7, 2.9 s 79�����������������������������������������������  32.29 Companies Act 1900 s 1�������������������������������������������������   2.39 Companies Act 1929 s 357���������������������������������������������  2.6 Companies Act 1948 s 147(3)����������������������������������������  14.14 s 165����������������������������������������������    24.2 Companies Act 1985����������������  1.16, 1.17, 1.18, 1.19, 1.21, 6.4, 14.4, 14.19 s 2(5)(a)����������������������������������������   16.4 s 15(2)������������������������������������������  2.7 s 36, 36A��������������������������������������   4.11 s 36C������������������������������������  4.20, 4.21 s 38������������������������������������������������    4.17 s 222(1)�������������������������������  14.3, 14.14 s 242A�������������������������������  24.30, 24.31 s 356���������������������������������������������   6.16 s 394(3)����������������������������������������  22.26 s 394(7)����������������������������������������  22.27 Pt XIV (ss 431–452)������������  1.16, 1.18, 3.20, 8.10, 24.1, 24.3, 24.14, 24.17, 31.26

Companies Act 1985 – contd s 431(2)�������������������������������  14.24, 24.5 s 431(3), (4)�����������������������������������     24.5 s 432��������������������������������������  8.26, 24.2 s 432(1)�����������������������������������������    24.4 s 432(2)���������������  2.11, 3.21, 8.26, 24.5 s 432(2)(a)��������������������  2.38, 3.20, 8.18 s 432(2)(c)�������������������������������������    3.21 s 432(2)(d)������������������������������������  14.16 s 432(2A)�������������������������������������  24.10 s 432(4)�������������  8.18, 8.26, 19.33, 24.5 s 433����������������������������������������������    24.8 s 434���������������������������������������������  13.30 s 434(1)–(3)�����������������������������������    24.7 s 436������������������������������������  13.30, 24.7 s 437���������������������������������������������  37.30 s 437(2)�����������������������������������������    24.4 s 437(3)����������������������������������������  24.10 s 441���������������������������������������������  24.18 s 446A–446D���������������  1.16, 24.1, 24.6 s 446E����������������  1.16, 24.1, 24.6, 37.30 s 447��������������������������  3.20, 3.21, 24.10, 24.11, 24.12, 24.13, 24.15, 24.18, 37.30 s 447(2)–(4)����������������������������������  24.11 s 447(5)�����������������������������  13.30, 24.11 s 447(8)����������������������������������������  24.11 s 447(9)����������������������������������������  24.11 s 447A������������������������  1.16, 24.1, 24.11 s 448����������������������������������  24.15, 37.30 s 448A�������������  1.16, 24.1, 24.14, 31.26 s 449�����������������������  24.10, 24.13, 24.18 s 449(1)(b), (c)�����������������������������  24.16 s 450(1)–(3)����������������������������������   24.9 s 451���������������������������������������������  24.11 s 451A������������������������������������������  37.30 s 451A(1)–(3)�������������������������������  24.10 s 452(1)���������������������������������  24.6, 24.7 s 452(1A)��������������������������������������    24.7 s 452(3)–(5)����������������������������������  24.12 s 452(5)������������������������������������������  24.7 s 453A�������������  1.16, 24.1, 24.15, 37.30 s 453A(5A)�����������������������������������  24.15 s 453B������������������������  1.16, 24.1, 24.15 s 453C��������������������������������  1.16, 13.30, 24.1, 24.11 s 459����������������������������������  14.26, 32.15 s 459(1A)�������������������������������������   32.7 s 461(2)(d)������������������������������������   8.20 s 716������������������������������������������  2.6, 2.7

xlviii

Table of Statutes

Companies Act 1985 – contd s 723B, 723C����������������������������������  8.14 s 727�����������������������������������������������  14.34 s 730(5)������������������������������������������  12.10 s 744�����������������������������������������������  30.13 Sch 15C�����������  1.16, 24.1, 24.10, 24.13 Sch 15D�����������  1.16, 24.1, 24.10, 24.13 para 42��������������������������������������  24.18 Companies Act 1989 s 83������������������������������������  31.26, 37.30 Companies Act 2006�������������  1.5, 1.6, 1.9, 1.10, 1.13, 1.16, 1.17, 1.18, 1.19, 1.21, 1.22, 2.33, 2.39, 3.1, 4.10, 4.27, 6.3, 6.4, 6.14, 6.24, 7.18, 8.9, 9.21, 10.4, 11.4, 11.5, 11.28, 12.2, 12.3, 12.12, 13.4, 13.29, 13.31, 13.32, 14.2, 14.4, 14.22, 14.23, 14.25, 14.26, 14.34, 14.38, 17.10, 17.11, 21.2, 21.3, 21.24, 21.31, 21.38, 21.47, 21.48, 21.50, 22.34, 24.40, 24.44, 25.24, 26.1, 26.2, 27.1, 27.2, 32.13, 32.18, 36.4, 37.24 s 5���������������������������������������������������  8.19 s 7(2)����������������������������������������������  2.39 s 9(1)����������������������������������������������   2.33 s 9(5)����������������������������������������������  10.17 s 13(1)��������������������������������������������  2.33 s 15(4)�����������������������  2.38, 2.39, 24.44 s 18�������������������������������������������������  10.17 s 20������������������������������������  17.11, 17.15 s 21(1)��������������������������������������������  10.52 s 32(1)��������������������������������������������  10.6 s 33��������������������������������������  10.5, 19.35 s 33(1)������������������������������������������  10.17 s 37�������������������������������������������������   2.7 s 39(1)��������������������������������������������   3.7 s 43�������������������������������������������������  4.11 s 43(1)(a), (b)���������������������������������  4.11 s 43(2), (3)��������������������������������������  4.11 s 43–49�������������������������������������������  4.10 s 44�������������������������������������������������  4.11 s 44(1)–(4)��������������������������������������  4.13 s 44(5)–(6)�����������������������������  4.13, 4.14 s 44(7)��������������������������������������������  4.13 s 45(1)–(3)��������������������������������������  4.12 s 45(4)���������������������������������  4.12, 13.30 s 45(5)��������������������������������������������  4.12 s 46�������������������������������������������������  4.15 s 47�������������������������������������������������  4.17 s 49(1)–(6)��������������������������������������  4.18 s 51�����������  2.11, 4.19, 4.20, 4.21, 10.16 s 51(1)��������������������������������������������  4.20 s 52�������������������������������������������������  4.16

Companies Act 2006 – contd s 53–56�������������������������������������������  2.19 s 56(4)��������������������������������������������  12.17 s 57, 65�������������������������������������������  2.17 s 66(1)��������������������������������������������  2.17 s 66(3)(a)����������������������������������������  2.18 s 66(4)��������������������������������������������  2.18 s 67�������������������������������������������������  4.23 s 68�������������������������������������������������  4.23 s 68(3)��������������������������������������������  4.23 s 68(5)�����������������������������������  4.23, 12.9 s 69–72�������������������������������������������  4.24 s 73�������������������������������������������������  4.24 s 73(5)��������������������������������������������  4.24 s 74�������������������������������������������������  4.24 s 74(4), (5)��������������������������������������  4.24 s 75�������������������������������������������������  4.23 s 75(3)��������������������������������������������  4.23 s 75(5)��������������������������������������������  12.9 s 75(6)��������������������������������������������  4.23 s 76�������������������������������������������������  4.23 s 76(6)��������������������������������������������  12.9 s 76(7)��������������������������������������������  4.23 s 77�������������������������������������������������  4.22 s 80�������������������������������������������������  24.38 s 82(2)��������������������������������������������  12.9 s 84�������������������������������������������������   4.9 s 85�������������������������������������������������   4.2 s 86�������������������������������������������������  3.12 s 86(1)��������������������������������������������  2.22 s 87�������������������������������������������������  17.9 s 87(1), (2)��������������������������������������  3.15 s 87(3), (4)��������������������������������������  3.17 s 88(1)–(3)��������������������������������������  2.23 s 112�����������������������������������������������  32.13 s 126�����������������������������������������������  8.27 s 155�����������������������������������������������  12.1 s 156�����������������������������������������������  3.19 s 162������������������������������  1.7, 2.25, 2.26, 3.13, 6.23, 12.9 s 162(3)������������������������������������������  6.23 s 162(4)������������������������������������������  2.26 s 162(5)���������������������������������  6.24, 8.14 s 162(6)������������������������������������������  12.9 s 162(7)������������������������������������������  2.26 s 162(8)���������������������������������  2.26, 8.14 s 163��������������������������������������  2.25, 4.27 s 163(2)������������������������������������������   4.6 s 163(4), (5)������������������������������������  2.25 s 164�������������������������������  2.3, 2.25, 4.27 s 165�����������������������������������������������  2.27 s 165(1)������������������������������������������  12.9 s 165(3)������������������������������������������  2.27 s 165(4)������������������������������������������  12.9 s 165(5)������������������������������������������  2.27 s 167D(4)���������������������������������������  12.9 s 170�����������������������������������������������  13.6 s 170(4)������������������������������������������  13.6

Table of Statutes Companies Act 2006 – contd s 171�����������������������������������������������  13.6 s 172�����������������������������������  13.6, 13.10, 14.41, 14.43 s 173����������������������������������������������    13.6 s 174����������������������������������������������    14.15 s 175����������������������������������������������    13.6 s 175(1)�����������������������������������������    13.10 s 175(6)�����������������������������������������    13.9 s 176����������������������������������������������    13.6 s 177���������������������������������������������   13.6 s 177(6)(a)������������������������������������  13.10 s 178–181��������������������������������������    13.6 s 182����������������������������������������������    13.6 s 182(6)(a)������������������������������������  13.10 s 183–187�������������������������������������   13.6 s 232���������������������������������������������  14.30 s 234(3)(b)(i)��������������������������������  12.24 s 240���������������������������������������������   2.25 s 240(2), (3)����������������������������������  8.9 s 241, 242��������������������������������  2.25, 8.9 s 243�������������������������������  2.25, 8.9, 8.10 s 243(2)����������������������������������������   8.10 s 243(4)�����������������������������������������   4.2 s 243(5)�����������������������������������������    8.14 s 244�������������������������������  2.25, 8.9, 8.11 s 245��������������������������������������  2.25, 12.9 s 246��������������������������������������  2.25, 8.12 s 246(5)�����������������������������������������    12.9 s 246(6)����������������������������������������    8.12 Pt 11 (ss 260–269)����  14.38, 14.40, 14.41 s 260����������������������������������  14.38, 14.41 s 260(3)�����������������������������  14.40, 14.41 s 260(4)����������������������������������������  14.42 s 260(5)(c)������������������������������������  14.41 s 261���������������������������������  14.38, 14.39, 14.40, 14.41 s 261(2)����������������������������������������  14.39 s 262�����������������������  14.38, 14.40, 14.41 s 262(2)����������������������������������������  14.40 s 263�����������������������  14.38, 14.41, 14.43 s 263(2)(a)������������������������������������  14.43 s 263(3)(a)������������������������������������  14.42 s 263(3)(b)�������������������������������������  14.43 s 263(4)����������������������������������������  14.42 s 264�����������������������  14.38, 14.40, 14.41 s 264(2)����������������������������������������  14.40 s 281–287�������������������������������������  17.11 s 288–299, 309�����������������������������  11.27 s 323���������������������������������������������  11.29 s 333���������������������������������������������  11.27 Pt 15 (ss 380–474)���������������  1.28, 8.19, 12.11, 17.24, 21.2, 21.5 s 382(1)����������������������������������������  21.11 s 382(2)�����������������������������  21.10, 21.11 s 382(4)����������������������������������������  21.10 s 382(5)����������������������������������������  21.10

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Companies Act 2006 – contd s 382(6)�����������������������������������������    21.10 s 383����������������������������������������������    21.10 s 384����������������������������������  21.12, 21.21 s 384(2), (3)�����������������������������������    21.12 s 384A(1), (2)��������������������������������   21.11 384A(4), (5), (6), (7)���������������������   21.10 s 384B(1)(a)–(e), (2)���������������������   21.12 s 386�����������������������������������  13.31, 14.5, 14.14, 21.3, 21.54 s 386(1)–(5)�����������������������������������    21.3 s 387���������������������������������������������  13.31 s 387(1)–(3)�����������������������������������    21.5 s 388���������������������������������������������  13.31 s 388(1)��������������������������������  3.13, 14.3, 14.14, 21.4 s 388(1)(a)�������������������������������������    17.9 s 388(1)(b)�������������������������������������   14.14 s 388(2), (3)�����������������������������������    21.4 s 388(4)���������������������������������  21.4, 21.5 s 388(5)�����������������������������������������    21.4 s 389����������������������������������������������   13.31 s 389(1)�������������������������������  14.14, 21.5 s 389(2)�����������������������������������������    21.5 s 389(3), (4)�������������������������  13.30, 21.5 s 390����������������������������������������������    21.7 s 390(2)(a)�������������������������������������    21.7 s 390(3), (5)�����������������������������������    21.7 s 391(2), (3), (4)����������������������������    21.7 s 392����������������������������������  21.41, 34.41 s 392(1)–(5)�����������������������������������    21.7 s 392(2)(a), (b)������������������������������    21.7 s 393�������������������������  7.18, 13.29, 21.38 s 393(1)�����������������������������������������    21.9 s 394����������������  13.29, 19.18, 21.1, 21.8 s 394A�������������������������������������������    21.8 s 394A(1)��������������������������������������   21.25 s 394A(2)(a)–(e)����������������������������   21.25 s 394B���������������������������������  21.8, 21.25 s 394C���������������������������������  21.8, 21.25 s 395����������������������������������������������    21.1 s 395(1), (3), (3A), (4)������������������    21.8 s 396��������������������������������������  21.1, 21.8 s 396(A1)–(3)��������������������������������   21.13 s 396(2) ����������������������������������������   21.24 s 396(2A)��������������������������  21.24, 21.31 s 396(4), (5)�����������������������  21.13, 21.29 s 397��������������������������������������  21.1, 21.8 s 398����������������������������������������������    1.28 s 399����������������������������������������������    1.28 s 399(2), (3), (4)����������������������������    21.26 s 400������������������������������������  1.28, 21.26 s 400(1)(b)�������������������������������������    8.18 s 401������������������������������������  1.28, 21.26 s 401(1)(b)�������������������������������������    8.18 s 402������������������������������������  1.28, 21.26 s 403����������������������������������������������    1.28 s 403(1), (3), (3A), (4)������������������   21.27

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Companies Act 2006 – contd s 404������������������������������������  1.28, 21.29 s 404(1), (2)������������������������������������  21.29 s 404(4), (5)�����������������������  21.29, 21.30 s 405������������������������������������  1.28, 21.30 s 406������������������������������������  1.28, 21.27 s 407������������������������������������  1.28, 21.28 s 408�����������������������������������������������  1.28 s 409���������������������������  1.28, 21.8, 21.18 s 410��������������������������������������  1.28, 17.9 s 410A���������������������������������  21.8, 21.18 s 411������������������������������������  21.8, 21.18 s 414(1)����������������������������  12.14, 13.29, 14.15, 17.9, 21.38 s 414(2)������������������������������������������  21.38 s 414(4)������������������  13.29, 17.27, 21.38 s 414(5)������������������������������������������  21.38 s 414A(1)–(3)���������������������������������  21.21 s 414C(1)–(5)���������������������������������  21.21 s 414D��������������������������������������������  12.17 s 414D(1)–(5)���������������������������������  21.21 s 415(1)–(5)������������������������������������  21.22 s 415A��������������������������������������������  12.17 s 416(2)������������������������������������������  21.22 s 423����������������  6.27, 21.47, 22.3, 34.33 s 423(1)������������������  14.22, 21.45, 22.26 s 423(2), (3)�����������������������  21.45, 22.26 s 423(4)������������������������������������������  21.45 s 425����������������������������������  13.31, 21.45 s 431�����������������������������������������������  6.27 s 431(1), (2)�����������������������  14.22, 21.45 s 431(3)�����������������������������  13.31, 21.45 s 431(4)������������������������������������������  21.45 s 433�����������������������������������������������  13.31 s 433(1)�����������������������������  12.14, 21.38 s 433(2), (3)������������������������������������  21.38 s 434(1)������������������������������������������  21.46 s 434(3)������������������������������������������  21.39 s 434(4)�����������������������������  13.31, 21.46 s 434(5)������������������������������������������  21.46 s 435�����������������������������������������������  13.31 s 435(1), (2)������������������������������������  21.46 s 435(3)�����������������������������  13.31, 21.46 s 435(5)������������������������������������������  21.46 s 436�����������������������������������������������  21.46 s 436(2)������������������������������������������  13.31 s 437�����������������������������������������������  32.3 s 441����������������������������  1.9, 1.11, 13.31, 14.23, 21.39, 21.46, 21.47 s 442������������������������������������  21.7, 21.41 s 442(3)�������������������������������  21.7, 21.41 s 442(4)������������������������������������������  21.41 s 442(5)�������������������������������  21.7, 21.41 s 442(5A)���������������������������������������  21.41 s 443�����������������������������������������������  21.41 s 444�����������������������������������������������  21.39 s 444(1)�����������������������������  12.14, 21.44

Companies Act 2006 – contd s 444(1)(b)��������������������������������������  21.44 s 444(2)����������������������������  12.14, 14.22, 21.19, 21.44 s 444(2A)���������������������������������������  12.14 s 444(5)������������������������������������������  21.44 s 444(6)�����������������������������  21.39, 21.44 s 444(7)������������������������������������������  21.40 s 445�����������������������������������������������  21.39 s 445(1)������������������������������������������  12.14 s 445(3)������������������������������������������  12.14 s 445(5), (6)�����������������������������������  21.39, 21.40 s 446�����������������������������������������������  21.39 s 446(1), (2)������������������������������������  12.14 s 446(3), (4)�������������������������  21.39, 21.40 s 447, 448���������������������������������������  32.3 s 448A(1)���������������������������������������  21.25 s 448A(2)(a)–(e)�����������������������������  21.25 s 448B, 448C����������������������������������  21.25 s 449(1)������������������������������������������  12.14 s 449(2)������������������������������������������  12.14 s 450(1)�������������������������������  12.14, 17.9 s 450(4)������������������������������������������  17.27 s 451�����������������������������������������������  21.42 s 451(1)������������������������������������������  12.14 s 451(2), (3)�����������������������  12.14, 21.42 s 452�����������������������  14.23, 21.42, 37.24 s 452(1)������������������������������������������  21.32 s 453������������  21.43, 24.30, 24.31, 24.37 s 453(1)������������������������������������������  12.14 s 453(4)������������������������������������������  21.43 s 454����������������������������������  21.47, 21.49 s 454(1)–(3)������������������������������������  21.47 s 455����������������������������������  21.48, 21.49 s 455(4)������������������������������������������  21.48 s 456������������  13.29, 21.48, 21.49, 37.24 s 456(1)–(6)������������������������������������  21.48 s 458(1), (3), (4), (5), (6)����������������  21.48 s 459–461��������������������������  21.48, 22.32 s 463�����������������������������������������������  21.22 s 464�����������������������������������������������  21.15 s 465(1), (2)������������������������������������  21.11 s 465(4), (5), (6)�����������������������������  21.10 s 466�����������������������������������������������  21.10 s 467�����������������������������������������������  21.12 s 467(2), (3)������������������������������������  21.12 s 469(1)–(4)������������������������������������  21.50 s 471�����������������������������������������������  21.1 s 474��������������������������  1.18, 8.19, 21.21, 21.24, 21.31 s 474(1)������������������������������  21.8, 21.10, 21.12, 21.26, 21.52 Pt 16 (ss 475–539)�������������  12.11, 21.2, 21.5, 22.11 s 475�����������������������������������  21.31, 22.1 s 475(2)–(4)�����������������������  21.52, 21.54 s 477�������������������������  14.22, 21.51, 22.1

Table of Statutes Companies Act 2006 – contd s 477(1), (4), (5)����������������������������   21.52 s 478�������������������������  21.51, 21.52, 22.1 s 479�������������������������  21.51, 21.52, 22.1 s 479A(1)��������������������������������������   21.53 s 479A(2)(a)–(e)����������������������������   21.53 s 479B�������������������������������������������   21.53 s 479C�������������������������������������������   21.53 s 480�������������������������  21.51, 21.54, 22.1 s 480(3)�����������������������������������������   21.54 s 481����������������������������������  21.51, 21.54 s 485������������������������������������  18.26, 22.2 s 485(1)�������������������������������  12.15, 22.2 s 485(2)�����������������������������������������    22.3 s 485(3)�����������������������������������������    22.5 s 485(4)�����������  13.30, 17.9, 22.4, 22.10 s 485(5)�����������������������������������������    22.2 s 485A–485C������������������������  22.2, 22.7 s 485A(4), (6), (7)�������������������������    22.7 s 485C�������������������������������������������    22.8 s 486���������������������������  22.2, 22.6, 22.16 s 486(2)�����������������������������������������    22.6 s 486(3)���������������������������������  12.9, 22.6 s 486(4)�����������������������������������������    22.6 s 486A�������������������������������������������    22.2 s 487(1)�����������������������������������������    22.9 s 487(2)�����������������������������  22.10, 22.17 s 487(4)�����������������������������������������   22.17 s 488����������������������������������������������   22.10 s 488(2), (3)�����������������������������������   22.10 s 489����������������������������������������������   18.26 s 492����������������������������������������������   12.15 s 492(1)–(4)�����������������������������������   22.16 s 494����������������������������������������������   21.36 s 494ZA�����������������������������������������    22.8 s 494ZA(2)–(4)�����������������������������    22.8 s 494A�����������������������������������  22.7, 22.8 s 495����������������������������������������������    22.1 s 495(1)–(4)�����������������������������������   21.31 s 498(1)�����������������������������������������   21.32 s 498(2)�����������������������������  21.32, 21.46 s 498(3)�����������������������������  21.35, 21.46 s 498(4)�����������������������������������������   21.35 s 498(5)�����������������������������������������   21.35 s 499����������������������������������������������    13.30 s 499(1), (2)�����������������������������������   21.33 s 499(3), (4)�����������������������������������   21.34 s 500(1)–(5)�����������������������������������   21.34 s 501(1)–(5)�����������������������������������   21.34 s 502(1), (2)������������  22.14, 22.21, 22.23 s 503(1)–(3)�����������������������������������   21.37 s 504����������������������������������������������   21.37 s 504(3)�����������������������������������������   21.37 s 505(1), (2)�����������������������������������   21.37 s 505(3)�������������������������������  12.9, 21.37 s 506��������������  17.9, 21.37, 21.40, 22.15 s 506(2)�����������������������������������������   22.15 s 510����������������������������������������������   22.17

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Companies Act 2006 – contd s 510(2)�����������������������������������������   22.17 s 511����������������������������������������������   14.22 s 511(1)–(4)�����������������������������������   22.18 s 511A�������������������������������������������   22.19 s 512(1)�����������������������������������������   22.20 s 512(2)�������������������������������  12.9, 22.20 s 512(3)�����������������������������������������   22.20 s 513����������������������������������������������   22.21 s 515����������������������������������������������   14.22 s 515(1)–(4)�����������������������������������   22.22 s 516����������������������������������������������    7.19 s 516(1)–(3)�����������������������������������   22.23 s 518����������������������������������������������   14.22 s 518(1)�����������������������������������������   22.23 s 518(2)�����������������������������  12.16, 22.23 s 518(4)�����������������������������������������   22.23 s 518(5)�����������������������������  12.16, 22.23 s 518(6)�����������������������������  12.16, 22.23 s 518(7)–(10)���������������������������������   22.23 s 519���������������  7.19, 12.9, 12.16, 22.20, 22.23, 22.24, 22.25, 22.26, 22.27, 22.28, 22.30, 22.31, 22.32 s 519(1)�����������������������������������������   22.20 s 519(1)–(2B)��������������������������������   22.24 s 519(2C)–(2E)������������������������������   22.24 s 519(4)–(7)�����������������������������������   22.25 s 519A(1)��������������������������������������   22.23 s 519A(3)–(4) �������������������������������   22.24 s 520����������������������������������������������   14.22 s 520(1)�����������������������������������������   22.26 s 520(2), (3)�����������������������������������   22.26 s 520(4)������������������  22.26, 22.27, 22.32 s 520(5)�����������������������������������������   22.27 s 520(6)�������������������������������  12.9, 22.27 s 520(7), (8)�����������������������������������   22.27 s 521(A1)��������������������������������������   22.26 s 521(1)�����������������������������������������   22.26 s 521(2)�����������������������������������������   22.27 s 522����������������������������������������������   22.30 s 522(1)�����������������������������������������   22.30 s 522(5)–(8)�����������������������������������   22.30 s 523����������������������������������������������   22.30 s 523(1)–(3)�����������������������������������   22.31 s 523(4)�������������������������������  12.9, 22.31 s 523(5), (6)�����������������������������������   22.31 s 524����������������������������������������������   22.30 s 524(1), (2), (4)����������������������������   22.32 s 525����������������������������������������������   22.30 s 525(1)�����������������������������������������   22.30 s 526����������������������������������������������   22.30 s 532, 533��������������������������  18.26, 22.34 s 534����������������������������������  18.26, 22.34 s 534(3)�����������������������������������������   22.34 s 535, 536��������������������������  18.26, 22.34 s 537, 538��������������������������  18.26, 22.34 s 542(3)�����������������������������������������    16.4

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Table of Statutes

Companies Act 2006 – contd s 738, 739���������������������������������������      6.2 s 740�����������������������������������������������     6.27 s 741�����������������������������������������������  13.31 s 743������������������������������������  3.13, 13.31 s 743(1)���������������������������������  6.17, 6.23 s 743(2)–(6)������������������������������������  6.17 s 744����������������������������������  13.31, 14.22 s 744(1)���������������������������������  6.17, 6.24 s 744(1)(b)��������������������������������������  6.17 s 744(2), (5)������������������������������������  6.17 s 745�����������������������������������������������  13.31 s 745(1)–(5)������������������������������������  6.19 s 746������������������������������������  6.20, 13.31 s 746(3)�������������������������������  6.20, 14.22 s 747(2)������������������������������������������  6.20 s 747(3)������������������������������������������  6.20 s 748�����������������������������������������������  6.21 s 749������������������������������������  6.27, 13.31 s 750�����������������������������������������������  6.29 s 750(1)������������������������������������������  6.29 s 751�����������������������������������������������  6.29 s 752�����������������������������������������������      6.2 s 752(1)(b)��������������������������������������  6.26 s 752(2)������������������������������������������  6.26 s 753�����������������������������������������������  6.26 s 754����������������������������������������  6.2, 6.28 s 754(3)������������������������������������������  6.28 s 769�����������������������������������������������  6.31 s 770�����������������������������������������������  6.31 s 771������������������������������������  6.31, 13.31 s 774�����������������������������������������������  6.31 s 775��������������������������������������  6.14, 6.31 s 776�����������������������������������������������  6.31 s 778(2)������������������������������������������  6.31 s 782�����������������������������������������������  6.31 Pt 21A (ss 790A–790ZG)���������������  8.40 s 790F���������������������������������������������  12.9 s 790M(12)�������������������������������������  12.9 s 790N��������������������������������������������  12.9 s 790VA������������������������������������������  12.9 s 790X��������������������������������������������  12.9 s 790X(9)(b) ����������������������������������  12.9 s 790ZA(4)(b) �������������������������������  12.9 s 790ZB(2)(b) ��������������������������������  12.9 s 853A���������������  3.14, 4.28, 12.5, 12.13 s 853A(1)(a)�����������������������������������  4.28 s 835A(5)������������������������������  4.27, 4.28 s 853B�������������������������  3.14, 4.27, 4.28, 12.5, 12.13 s 853C–853K���������������  3.14, 4.28, 12.5 s 853L�������  3.14, 4.28, 12.5, 12.9, 12.13 s 853L(1), (3), (4)���������������������������  4.29 s 853L(5)�������������������������������  4.29, 12.9 s 854�����������������������������������������������  4.28 s 854A��������������������������������������������  4.28 s 855�����������������������������������������������  4.28 s 855A��������������������������������������������  4.28

Companies Act 2006 – contd s 859A���������������������  6.3, 6.4, 6.5, 14.22 s 859A(4)���������������������������������������      6.5 s 859B��������������������������������������������      6.5 s 859B(6)����������������������������������������     6.5 s 859C���������������������������������������  6.5, 6.7 s 859D���������������������  6.5, 6.8, 6.10, 6.14 s 859E���������������������������������������������    6.5 s 859F����������������������  6.5, 6.6, 6.10, 6.13 s 859G��������������������������������������������    6.8 s 859H(1)����������������������������������  6.7, 6.8 s 859H(3), (4)���������������������������������    6.6 s 859I(2)–(6)����������������������������������  6.10 s 859K(2)���������������������������������������  6.11 s 859K(2)(ii)�����������������������������������  6.11 s 859K(3), (4)���������������������������������  6.11 s 859K(6)–(8)���������������������������������  6.12 s 859L���������������������������������������������  6.11 s 859M�������������������������������������������  6.13 s 859P�����������������������������  3.13, 6.4, 6.14 s 859P(2)–(4)���������������������������������  6.14 s 859Q��������������������������  6.4, 6.16, 14.22 s 859Q(4)������������������������������  6.15, 6.24 s 859Q(5)������������������������������  6.14, 6.15 s 859Q(6)–(8)���������������������������������  6.15 s 859Q(7)���������������������������������������  14.22 s 860(2)������������������������������������������    6.8 s 863(5)������������������������������������������    6.6 s 877(2)���������������������������������  6.16, 6.23 s 877(4)���������������������������������  6.16, 6.24 s 877(5)������������������������������������������     6.16 s 877(6)������������������������������������������  6.16 s 877(7)������������������������������������������  14.22 Pt 26 (ss 895–900)������������  24.24, 29.14 s 895��������������������������  8.19, 17.9, 33.16, 36.1, 36.2 s 895(1)������������������������������������������  36.2 s 896�����������  8.19, 17.9, 36.1, 36.2, 36.3 s 896(2)(b)��������������������������������������  14.22 s 897�����������������������������������  8.19, 13.31, 17.9, 36.1, 36.2 s 898�����������������������������������  8.19, 13.30, 17.9, 36.1, 36.2 s 899��������������������  8.19, 17.9, 36.1, 36.2 s 899(1)������������������������������������������  36.3 s 899(2)(b)��������������������������������������  14.22 s 900������������������  8.19, 13.31, 36.1, 36.2 s 900(2)(b)��������������������������������������  8.18 Pt 26A (ss 901A–901L)�����������������  29.14 s 993������������������������������������  34.3, 37.26 Pt 30 (ss 994–999)��������������  24.18, 32.9 s 994������  3.21, 8.20, 8.26, 10.26, 10.35, 10.39, 10.44, 10.47, 10.50, 11.32, 14.26, 17.46, 19.3, 19.5, 19.40, 22.21, 32.1, 32.3, 32.7, 32.9, 32.11, 32.12, 32.13, 32.14, 32.15, 32.16, 32.17, 32.19, 32.20, 32.23, 32.24, 32.25, 32.26, 32.27, 32.28, 32.31, 32.32

Table of Statutes Companies Act 2006 – contd s 994(1)�����������  11.32, 32.3, 32.7, 32.14 s 994(2)�������������  8.26, 22.21, 32.3, 32.9 s 994(3)�����������������������  3.21, 8.26, 10.9, 10.47, 11.32, 11.40, 19.5, 19.40, 22.21, 32.3, 32.7, 32.14 s 995��������������������������  3.21, 8.20, 11.32, 24.18, 32.3 s 996������������������������  8.20, 11.32, 22.21, 32.4, 32.6, 32.8, 32.21 s 996(2)������������������������������������������  8.18 s 996(2)(e)����������������  14.14, 16.7, 19.33 s 997–999�������������������������������������  11.32 s 1000��������������������������������  24.23, 24.30 s 1000(1)–(3)��������������������������������  24.23 s 1000(4)–(6)���������������������  24.19, 24.23 s 1000(7)(a), (b)���������������������������  24.28 s 1001�������������������������������  24.23, 24.30 s 1001(1)��������������������������������������  24.23 s 1001(2)–(4)���������������������  24.19, 24.23 s 1001(5)(a), (b)���������������������������  24.28 s 1003�������������������������������������������  24.23 s 1003(1)��������������������������������������  24.19 s 1003(4), (5)��������������������������������  24.27 s 1004(1)��������������������������������������     24.24 s 1004(1)(b)����������������������������������  24.24 s 1004(6)(a), (b)���������������������������  24.28 s 1005(1)–(5)��������������������������������  24.24 s 1006(1)–(7)��������������������������������  24.25 s 1007(1), (2)��������������������������������  24.26 s 1007(4)–(7)��������������������������������  24.26 s 1008�������������������������������������������  24.25 s 1009(1)–(7)��������������������������������  24.24 s 1010�������������������������������������������  24.24 s 1011��������������������������������  24.25, 24.33 s 1012�����������������������������������  2.11, 19.9, 24.20, 35.6 s 1013����������������������������������  24.20, 35.6 s 1013(3), (4), (6), (7)������������������  24.21 s 1014�������������������������������������������  24.21 s 1014(1)��������������������������������������      35.6 s 1015����������������������������������  24.21, 35.6 s 1016–1019���������������������������������    35.6 s 1024�������������������������������������������  24.30 s 1024(4)��������������������������������������  24.30 s 1025(1)–(7)��������������������������������  24.30 s 1026(2), (3)��������������������������������  24.30 s 1027(1)–(4)��������������������������������  24.30 s 1028(1)–(4)��������������������������������  24.31 s 1029(1)(a)–(c)���������������������������  24.33 s 1029(2)��������������������������������������  24.33 s 1030(1)–(4)��������������������������������  24.34 s 1030(5)���������������������������  24.32, 24.34 s 1031(1)(a)����������������������������������  24.32 s 1031(1)(b)����������������������������������  24.35 s 1031(1)(c)����������������������������������  24.36 s 1031(2)–(4)���������������������  24.32, 24.37

liii

Companies Act 2006 – contd s 1032(1)–(5)��������������������������������  24.37 s 1033�������������������������������������������    12.9 s 1033(1)–(7)��������������������������������  24.38 s 1034(1)��������������������������������������  24.22 s 1034(2), (3)��������������������������������  24.39 s 1035–1038��������������������������  1.16, 24.1 s 1051����������������������������������  26.7, 26.35 s 1051(3)��������������������������������������    26.7 Pt 35 (ss 1060–1120)���������������  1.9, 1.18 s 1060(1), (2)���������������������������  1.9, 1.18 s 1061–1063����������������������������  1.9, 1.18 s 1061(1)������������������������������������������  1.9 s 1062���������������������������  2.37, 2.41, 6.10 s 1064������������������������������������  1.11, 2.37 s 1064(3)(a)����������������������������������    4.25 s 1065�������������������������������������������    2.41 s 1066�������������������������������������������    2.37 s 1068��������������������  1.9, 1.12, 1.18 2.16, 2.31, 3.15, 4.28, 6.23, 12.2, 12.5 s 1068(6)��������������������������������������    1.9 s 1069, 1070, 1072–1076��������  1.9, 1.18 s 1072�������������������������������������������    1.12 s 1072(2)��������������������������������������    1.12 s 1073�������������������������������������������    1.12 s 1074��������������  1.12, 6.13, 24.41, 24.43 s 1075�������������������������������������������    1.12 s 1076��������������  1.12, 6.13, 24.41, 24.43 s 1077�����������������������������  1.11, 3.15, 8.8 s 1078��������������������  1.11, 2.31, 3.15, 8.8 s 1079�������������������������������������������    3.11 s 1080��������������������������������������  2.41, 8.8 s 1080(1), (4), (5)�����������  1.9, 1.13, 1.18 s 1081�������������������������������������������    1.9 s 1081(1)����������������������   1.11, 1.12, 3.11 s 1081(3)��������������������������������������    1.12 s 1081(4)��������������������������������������    3.11 s 1081(5)�������������������������������  1.12, 3.11 s 1082��������������������������������������  1.9, 8.13 s 1083��������������������������������������  1.9, 1.18 s 1084������������������������������������  1.9, 24.20 s 1085�������������������  1.9, 1.11, 1.13, 2.41, 3.11, 10.17 s 1085(2)��������������������������������������    1.13 s 1086���������  1.9, 1.13, 2.41, 3.11, 10.17 s 1087��������������������������������������  1.9, 1.14 s 1088�����������������������������  1.9, 8.13, 8.14 s 1090��������������������������������������  1.9, 1.13 s 1091�������������������������������������������    1.9 s 1091(1)–(3)��������������������������������    1.13 s 1092�����������������������������  1.9, 1.13, 1.18 s 1093�������������������������  1.9, 24.41, 24.43 s 1093–1098���������������  8.7, 10.26, 24.40 s 1094�������������������������  1.9, 24.41, 24.43 s 1094(3)��������������������������  24.41, 24.43, 24.44, 24.45, 24.46 s 1095��������������������  1.9, 2.24, 8.6, 24.41

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Table of Statutes

Companies Act 2006 – contd s 1096�������������������������  1.9, 24.30, 24.44 s 1096(1)���������������������������  24.42, 24.44 s 1096(3)���������������  24.43, 24.44, 24.45, 24.46, 24.47 s 1097�����������������������������������������������  1.9 s 1098�������������������������������  1.9, 2.24, 8.6 s 1099����������������������������  1.9, 2.17, 4.23, 24.19, 1.18 s 1099(1)����������������������������������������    1.9 s 1099(3)(b)������������������������������������    1.9 s 1100������������������������������������  1.13, 1.18 s 1105���������������������������������������������  6.14 s 1108–1110����������������������������  1.9, 1.18 s 1111��������������������������������������  1.9, 1.18 s 1112���������������������������������������������  1.10 s 1113������������������������������  8.6, 8.7, 8.30, 14.23, 37.24 s 1113(1)–(3)�������������������������  1.10, 4.30 s 1113(4)�����������������������������������������  4.30 s 1113(5)�����������������������������������������  1.10 s 1114���������������������������  1.9, 1.18, 14.23 s 1115��������������������������������������  1.9, 1.18 s 1116�������������  1.9, 1.11, 1.18, 2.37, 8.8 s 1117–1119�����������������������������  1.9, 1.18 s 1121���������������������  12.10, 12.11, 13.31 s 1121(1)����������������������������������������  12.11 s 1121(2)����������������������������������������  22.29 s 1121(3)����������������������������������������  12.11 s 1122���������������������������������������������  12.11 s 1122(1), (2)���������������������  12.11, 22.29 s 1122(3)���������������������������  12.11, 22.29 s 1122(3)(a)������������������������������������  22.29 s 1124������������������������������������  1.16, 24.1 s 1134�����������������������  4.27, 13.31, 21.45 s 1134(a)�����������������������  2.28, 6.22, 21.6 s 1134(b)����������������������  2.28, 6.17, 6.22 s 1135���������������������������  2.28, 6.22, 21.6 s 1135(2)����������������������������������������  21.6 s 1136��������������������������������������  6.4, 6.23 s 1137����������������������������������  6.24, 21.45 s 1137(1)(b)������������������������������������  6.17 s 1138����������������  2.28, 6.22, 13.31, 21.6 s 1139���������������������������������������������  26.11 s 1139(1)�������������������������������  2.22, 3.12 s 1139(2)����������������������������������������  3.12 s 1140���������������������������������������������  24.43 s 1141���������������������������������������������  2.25 s 1145���������������������������������������������  6.17 s 1157���������������������  14.34, 14.35, 22.33 s 1157(2)����������������������������������������  22.33 s 1159���������������������������������������������      8.19 s 1159(2)����������������������������������������  21.26 s 1159(4)�����������������������������  8.19, 21.26 s 1161(1)��������������������������  21.25, 21.26 s 1161(3)����������������������������������������  22.25 s 1162�����������������������  8.19, 21.25, 22.12 s 1163���������������������������������������������  1.28

Companies Act 2006 – contd s 1169���������������������������������������������  21.54 s 1173�������������������  3.11, 4.6, 4.13, 4.27, 6.19, 21.37, 22.7, 22.8 s 1173(1)����������������������������������������  21.26 s 1176������������������������������������  1.16, 24.1 Pt 42 (ss 1209–1264)����������  7.19, 22.11 s 1212����������������������������������  7.19, 22.11 s 1213���������������������������������������������  22.11 s 1213(2)����������������������������������������  22.11 s 1214���������������������������������������������  22.12 s 1214(1)–(4), (6)���������������������������  22.12 s 1215(1)����������������������������������������  22.12 s 1215(2)(a), (b)�����������������������������  22.12 s 1216(1), (2)����������������������������������  22.11 s 1216(3)�����������������������������  7.19, 22.11 s 1216(3)(b)������������������������������������  7.19 s 1216(4)�����������������������������  7.19, 22.11 s 1216(4)(b)������������������������������������  7.19 s 1216(5)�����������������������������  7.19, 22.11 s 1216(6)����������������������������������������  22.11 s 1217��������������������������������  22.11, 22.30 s 1239���������������������������������������������  22.11 s 1248(1)–(4)����������������������������������  22.13 s 1248(5)(a)������������������������������������  22.13 s 1248(6)–(8)����������������������������������  22.13 s 1252���������������������������������������������  22.12 s 1255(1)����������������������������������������  22.13 s 1260���������������������������������������������  22.12 s 1261�����������������������  7.19, 22.11, 22.12 s 1261(1)����������������������������������������  22.12 s 1286���������������������������������������������  25.2 s 1286(2)(a)������������������������������������  1.26 s 1292(1), (2)����������������������������������  11.52 s 1295������������������������������������  1.16, 24.1 s 1297���������������������������������������������  1.22 Sch 1A��������������������������������������������  8.40 Sch 1B��������������������������������������������  8.40 Sch 6�����������������������������������������������  8.19 Sch 7����������������  1.28, 8.19, 21.25, 22.12 para 6������������������������������������������  8.27 Sch 10���������������������������������������������  22.11 Companies (Audit, Investigations and Community Enterprise) Act 2004��������������������������  1.16, 24.1 Company Directors Disqualification Act 1986���������  1.8, 1.16, 1.17, 1.19, 1.26, 3.22, 8.17, 8.23, 8.34, 8.36, 8.37, 8.38, 11.34, 12.26, 13.32, 14.15, 17.21, 17.24, 17.26, 24.18, 26.2, 26.9, 27.1, 27.2, 37.1, 37.2, 37.6, 37.9, 37.10, 37.13, 37.24 s 1���������������������������������������������������  37.41 s 1(1)�������������������  37.1, 37.2, 37.3, 37.4 s 1A������������������������������������������������  37.1 s 2��������������������������������������  37.13, 37.23 s 2(1)����������������������������������������������  37.22

Table of Statutes Company Directors Disqualification Act 1986 – contd s 2(2), (3)��������������������������������������  37.23 s 3����������������  12.26, 37.13, 37.24, 37.25 s 3(1)���������������������������������  12.26, 37.24 s 3(2)��������������������������������������������  37.24 s 3(3)��������������������������������������������  37.24 s 3(3)(b)����������������������������������������  37.27 s 3(4), (5)��������������������������������������  37.25 s 4��������������������������������������  37.13, 37.26 s 4(1)��������������������������������������������  37.26 s 4(1)(b)����������������������������������������  37.26 s 4(2), (3)��������������������������������������  37.26 s 5�����������������������������  37.1, 37.27, 37.28 s 5(1)���������������������������������  37.27, 37.28 s 5(2)��������������������������������������������  37.28 s 5(3)��������������������������������������������  37.27 s 5(4B)������������������������������������������  37.27 s 5A��������������������������  37.1, 37.13, 37.29 s 5A(5)�����������������������������������������    37.1 s 6������������  13.32, 37.1, 37.5, 37.6, 37.7, 37.9, 37.11, 37.12, 37.31 s 6(1)�������������������������������������  37.1, 37.2 s 6(1)(a)������������������������������������������  37.2 s 6(1)(b)�������������������������������  37.9, 37.10 s 6(1A)�����������������������������������������    37.1 s 6(2)�������������������������������������  37.7, 37.8 s 6(2A)�����������������������������������������    37.7 s 6(3)��������������������������������������������  37.11 s 6(3C)������������������������������������������  37.12 s 7����������������������������������  2.4, 37.1, 37.6, 37.11, 37.12, 37.31 s 7(2A)�����������������������������������������    37.1 s 8����������������  24.18, 37.13, 37.30, 37.31 s 8(1)��������������������������������������������  37.30 s 8(1A), (2)�����������������������������������  37.30 s 8(2A)�����������������������������������������    37.1 s 8(3), (4)��������������������������������������  37.30 s 8ZA–8ZE��������������������������  37.1, 37.31 s 8ZA(3)���������������������������������������  37.31 s 8ZD(4)���������������������������������������  37.31 s 8A����������������������������������������������    37.1 s 8A(1), (2)�����������������������������������  37.45 s 9�������������������������������������������������  13.32 s 9(1A)�����������������������������������������    37.1 s 9A�������������������������������������  37.1, 37.32 s 9A(4)�����������������������������������������  37.32 s 9B�������������������������������������  37.1, 37.32 s 9C����������������������������������������������  37.32 s 10������������������������������������  37.13, 37.33 s 10(2)������������������������������������������  37.33 s 11��������������������������  8.21, 11.38, 19.10, 26.9, 37.34, 37.37, 37.38 s 11(1)–(3)������������������������������������  37.34 s 11(4)������������������������������������������    26.9 s 12�����������������������������������������������  37.35 s 12A���������������������������������  37.37, 37.38 s 12B��������������������������������������������  37.37

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Company Directors Disqualification Act 1986 – contd s 12C����������������������������������������������  37.1 s 13��������������������������������������  37.4, 37.37 s 15�������������������  8.17, 8.21, 8.36, 19.10, 37.38, 37.39, 37.40 s 15(2)���������������������������������  37.4, 37.38 s 15(3)������������������������������������������  37.39 s 15(4)������������������������������������������  37.40 s 15(5)���������������������������������  8.36, 37.40 s 15A��������������������������������������������  37.36 s 15A(5)���������������������������������������  37.36 s 15B��������������������������������������������  37.36 s 15C��������������������������������������������  37.36 s 17��������������������������������������  37.4, 37.41 s 22(4)������������������������������������������    8.38 s 22(5)���������������������������������  8.33, 37.12 s 22(10)����������������������������������������    37.1 Sch 1 Pt I (paras 1–5A)����������������������  37.13 para 1, 2, 3����������������������������  37.14 para 4�������������������������  13.32, 37.14 para 5������������������������������������  13.32 Pt II (paras 6–10)���������������������  37.13 para 5, 6, 8����������������������������  37.15 Sch 4���������������������������������������������    37.1 Consumer Rights Act 2015�������������  14.30, 18.18, 18.19, 18.25 Pt 1�����������������������������������������������  18.25 Pt 2�����������������������������������������������  18.25 s 62�����������������������������������������������  18.25 Contracts (Rights of Third Parties) Act 1999�����������  10.13, 18.18, 18.22 s 1�������������������������������������������������  10.13 s 6(1), (2A)�����������������������������������  10.13 Corporate Bodies’ Contracts Act 1960���������������������������������������    4.11 s 2�������������������������������������������������    4.11 Corporate Insolvency and Governance Act 2020�����  27.3, 28.1 s 1�������������������������������������������������    28.1 s 2�������������������������������������������������    28.1 s 12�����������������������������������������������    34.7 s 12(3)–(9)������������������������������������    34.7 Sch 3 para 36–38��������������������������������    28.1 Corporation Tax Act 2009����������������  23.29 s 46�����������������������������������������������  23.30 s 54�����������������������������������������������  23.30 s 1273�������������������������������������������    23.9 s 1273(1)(b)����������������������������������  23.62 Corporation Tax Act 2010 s 454���������������������������������������������  23.59 s 455����������������������������������  23.60, 23.64 s 969–970�������������������������������������  23.15 s 1262�������������������������������������������    23.8 County Courts Act 1984 Pt VI (ss 112–117)������������������������  37.35

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Table of Statutes

Criminal Justice Act 1967 s 9���������������������������������������������������  12.2 Criminal Justice Act 1982 s 37�������������������������������������������������  1.25 Criminal Justice Act 1987 s 2��������������������������������������  31.26, 37.30 Data Protection Act 1998���������������  15.193 Data Protection Act 2018��������������  15.190, 15.193, 15.195 s 53���������������������������������������������  15.194 s 146�������������������������������������������  15.195 s 149�������������������������������������������  15.195 s 155�������������������������������������������  15.195 s 167�������������������������������������������  15.193 Sch 2–4���������������������������������������  15.194 Deregulation Act 2015�����������������������  15.52 s 2���������������������������������������������������  15.52 Disability Discrimination Act 1995���  15.2 Employment Relations Act 1999�����  15.189 s 10��������������������������������������  9.28, 15.72 s 12�������������������������������������������������  9.28 Employment Rights Act 1996�������  9.23, 15.26, 15.28, 15.33, 15.34, 15.56, 15.58, 15.61, 15.121, 15.175, 15.189 s 13�������������������������������������������������  9.28 Pt IVA (ss 43A–43L)������������������  15.160 s 43B����������������  15.161, 15.162, 15.165 s 43B(1)��������������������������������������  15.162 s 43B(2)��������������������������������������  15.163 s 43C������������������������������������������  15.161 s 43C(1)(b)(ii)����������������������������  15.167 s 43D–43G��������������������  15.161, 15.167 s 43H������������������������������������������  15.161 s 45A����������������������������������������������  9.28 s 47B���������������������������������  9.23, 15.160 s 47B(1A)–(1E)��������������������������  15.160 s 48(3)(a), (b)�����������������������������  15.170 s 49���������������������������������������������  15.171 s 49(2)����������������������������������������  15.171 s 49(4)����������������������������������������  15.174 s 49(6)����������������������������������������  15.160 s 49(6A)�������������������������������������  15.173 s 71��������������������������������  15.113, 15.123 s 72(1)���������������������������  15.112, 15.122 s 73��������������������������������  15.113, 15.123 s 75E–75K����������������������������������  15.127 s 80F–80I�����������������������������������  15.129 s 86�������������������������������������������������  19.7 s 203�����������������������������������������������  15.55 s 203(1), (2), (5)�����������������������������  15.56 s 230���������������������  9.1, 9.19, 9.22, 9.25, 9.32, 9.34, 15.112 s 230(1), (2)��������������������������������  15.113 s 230(3)��������������������������������  9.23, 9.25, 9.26, 15.121 s 230(3)(b)����������������������������  9.30, 15.1, 15.121, 15.159

Employment Tribunals Act 1996 s 18�������������������������������������������������  15.56 s 18A����������������������������������������������  15.38 s 18A(8)�����������������������������������������  15.38 Enterprise Act 2002������������������  17.9, 27.2, 33.14, 34.1 s 204�����������������������������������������������  37.1 Pt 8 (ss 210–236)���������������������������  12.2 s 248�����������������������������������������������  27.2 s 249�����������������������������������������������  27.2 s 250(1)������������������������������������������  30.4 s 251(1)������������������������������������������  33.14 s 252�����������������������������������������������  33.15 s 278(2)������������������������������������������  33.14 Sch 26���������������������������������������������  33.14 Enterprise and Regulatory Reform Act 2013�����������������  15.165, 15.166, 15.198 s 18(1)(a)������������������������������������  15.166 s 66(1)����������������������������������������  15.197 Equality Act 2010��������������������  9.32, 15.2, 15.3, 15.4, 15.10, 15.11, 15.17, 15.21, 15.23, 15.24, 15.25, 15.26, 15.32, 15.33, 15.36, 15.40, 15.41, 15.45, 15.52, 15.57, 15.58, 15.61, 15.63, 15.64, 15.65, 15.66, 15.77, 15.83, 15.108, 15.114, 15.121, 15.123, 15.125, 15.131, 15.132, 15.133, 15.134, 15.135, 15.139, 15.140, 15.142, 15.146, 15.148, 17.35 preamble�����������������������������������������  15.2 s 4���������������������������������������������������  15.4 s 6(1)������������������������������������������  15.131 s 6(4)������������������������������������������  15.134 s 6(5)������������������������������������������  15.132 s 9(1)����������������������������������������������  15.4 s 10(1)��������������������������������������������  15.4 s 11(a)���������������������������������������������  15.4 s 13���������������������  15.12, 15.114, 15.125 s 13(1)��������������������������������������������  15.14 s 13(2)�������������������������������  15.25, 15.77 s 13(3)����������������������������������������  15.137 s 15���������������������������������������������  15.141 s 15(1)����������������������������������������  15.139 s 15(2)����������������������������������������  15.141 s 18�������������������   15.110, 15.114, 15.115 s 18(2)�����������������������������  15.15, 15.110 s 18(3), (4)����������   15.15, 15.111, 15.112 s 18(5)����������������������������������������  15.116 s 18(6)���������������������������  15.113, 15.123 s 18(6)(a), (b)�����������������������������  15.113 s 18(7)���������������������������  15.114, 15.125 s 19�������������������������������������������������  15.16

Table of Statutes Equality Act 2010 – contd s 19(1)������������������������������������������  15.16 s 19(2)������������������������������������������  15.16 s 19(2)(d)���������������������������  15.25, 15.77 s 19(3)�������������������������������  15.16, 15.17 s 20(1), (2)������������������������������������  15.143 s 20(3), (4)���������������������  15.143, 15.149 s 20(5)������������������������������������������  15.143 s 20(7)������������������������������������������  15.153 s 20(9)������������������������������������������  15.150 s 20(10)����������������������������������������  15.146 s 21�����������������������������������������������  15.152 s 23�����������������������������������������������  15.15 s 23(1)������������������������������������������  15.138 s 26(1)��������������������  15.18, 15.63, 15.68 s 26(2)�������������������������������  15.18, 15.63 s 26(3)�������������������������������  15.18, 15.64 s 26(4)������������������������������������������  15.19 s 26(4)(a)–(c)�������������������������������  15.68 s 26(5)������������������������������������������  15.20 s 27(1), (2)������������������������������������  15.21 Pt 5 (ss 39–83)�����������������  15.26, 15.27, 15.33, 15.121 s 44–46�����������������������������������������    9.32 s 45������������������������������  15.3, 15.4, 15.5, 15.8, 15.10, 15.27 s 45(1)������������������������������������������    15.5 s 45(2)������������������������������������������    15.6 s 45(3)–(6)������������������������������������    15.8 s 45(7)�������������������������������  15.8, 15.144 s 46����������������������������������������  15.3, 15.4 s 46(6)(a), (b)�������������������������������    15.7 s 60��������������������������������  15.154, 15.157 s 60(2), (5)����������������������������������  15.157 s 60(6)����������������������������������������  15.156 s 60(9), (10)��������������������������������  15.154 s 66(1), (2)����������������������������������  15.122 s 69���������������������������������������������  15.122 s 74(7)����������������������������������������  15.122 s 83�����������������������������������������������    9.32 s 83(2)(a)��������������������������������������  15.121 s 108���������������������������������������������  15.24 s 108(7)����������������������������������������  15.24 s 109���������������������������������������������  15.65 s 110���������������������������������������������  15.49 s 110(1), (2)����������������������������������  15.10 s 111���������������������������������������������  15.22 s 112(1)–(4)����������������������������������  15.23 s 119���������������������������������������������  15.49 s 123(1)(a), (b)�����������������������������  15.37 s 123(3)(a)������������������������������������  15.37 s 124����������������������������������  15.47, 15.52 s 124(2)�����������������������������  15.47, 15.53 s 124(3)����������������������������������������  15.52 s 124(6)����������������������������������������  15.49 s 136�����������������������  15.41, 15.42, 15.46 s 136(2)�����������������������������  15.41, 15.46 s 136(3), (5)����������������������������������  15.41

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Equality Act 2010 – contd s 138���������������������������������������������  15.197 s 138(4)����������������������������������������  15.197 s 140B������������������������������������������  15.39 s 144����������������������������������  15.55, 15.57 s 144(4), (6)����������������������������������  15.57 s 158���������������������������������������������  15.25 s 212�������������������������������������������  15.135 s 213������������������������������  15.112, 15.122 Sch 1���������������������������������������������  15.133 para 2(1)�����������������������������������  15.135 para 5(1)�����������������������������������  15.135 Sch 8���������������������������������������������  15.153 para 8����������������������������������������  15.153 Sch 9���������������������������������������������  15.25 para 10�����������������������  15.102, 15.103 para 10(1)–(3), (7)��������������������  15.103 Sch 22�������������������������������������������  15.25 European Communities Act 1972 s 9(3)��������������������������������������������    1.11 European Union (Withdrawal) Act 2018��������������������������������  20.8, 26.4 s 1–7���������������������������������������������  15.36 s 3�������������������������������������������������    22.7 European Union (Withdrawal Agreement) Act 2020������  26.4, 27.4 s 41(4)������������������������������������������    26.6 Sch 5 para 1(1)����������������������  26.6, 36.9 Finance Act 1998 s 42�����������������������������������������������  23.26 Finance Act 2001�������������  23.108, 23.139, 23.142 s 76�����������������������������������������������  23.140 Finance Act 2002 s 103(5)����������������������������������������     23.26 Finance Act 2003�����������������������������  23.127 s 65��������������������������������������  7.5, 23.127 s 104���������������������������������������������  23.127 Sch 5���������������������������������������������  23.131 para 8����������������������������������������  23.131 Sch 15�������������������������������������������  23.128 Sch 17A para 7����������������������������������������  23.131 Finance Act 2004�����������������������������  23.127 s 227(4)����������������������������������������  23.100 s 228���������������������������������������������  23.98 s 238���������������������������������������������  23.99 Sch 15 para 10, 14, 18��������������������������  23.128 Sch 36�������������������������������������������  23.100 Sch 41�������������������������������������������  23.127 Finance Act 2006�����������������������������  23.128 Sch 24�������������������������������������������  23.128 Finance Act 2008�����������������������������  23.11 Finance Act 2009 Sch 55�������������������������������������������  23.23 Finance Act 2013�����������������������������  23.80 Sch 3���������������������������������������������  23.80

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Table of Statutes

Finance Act 2014��������  23.3, 23.14, 23.28, 23.33, 23.83 Finance Act 2015�������������������������������  23.5 Finance (No 2) Act 2015��������������������  23.5 Finance Act 2018��������������������  23.6, 23.21 Finance Act 2019���������������������������  23.134 Sch 18�����������������������������������������  23.134 Finance Act 2020����������������������  23.5, 23.7 s 98�������������������������������������������������  33.14 Financial Services Act 1986 s 75�������������������������������������������������  20.28 Financial Services and Markets Act 2000����������������  1.16, 1.19, 1.27, 20.3, 20.9, 20.29, 24.10, 31.26 s 19��������������������������������������  20.3, 20.22 s 21�������������������������������������������������  20.21 s 23�������������������������������������������������  20.4 s 24�������������������������������������������������  20.4 s 24–26�������������������������������������������  20.22 s 26–29�������������������������������������������  20.4 s 28�������������������������������������������������  20.4 s 55B, 55C��������������������������������������  20.16 s 66A����������������������������������������������  20.17 s 118–131A������������������������������������  20.21 Pt XI (ss 165–177)�������������������������  32.3 s 165�����������������������������������������������  37.30 s 167–169���������������������������������������  37.30 s 171����������������������������������  24.12, 37.30 s 172�����������������������������������������������  37.30 s 173����������������������������������  24.12, 37.30 s 175�����������������������������������������������  37.30 s 235�������������������������  1.27, 20.23, 20.28 s 235(1) �����������������������������������������  20.23 s 235(2)������������������  20.23, 20.27, 20.28 s 235(3)������������������������������������������  20.23 s 238�����������������������������������������������  20.21 s 284�����������������������������������������������  37.30 s 367�����������������������������������������������  29.10 s 367(1)������������������������������������������  31.26 s 418�����������������������������������������������  20.3 s 418(5B)����������������������������������������  20.9 Sch 6�����������������������������������������������  20.16 Human Rights Act 1998���������������������    3.3 Income and Corporation Taxes Act 1988 s 18 Sch D Case I���������������������������    2.6 s 114�����������������������������������������������  23.29 s 118ZA(4)���������������������������������  23.123 s 659E�����������������������������������������  23.142 s 842B����������������������������������������  23.140 Sch 28AA�����������������������������������  23.144 Income Tax Act 2007 s 103B��������������������������������������������  23.81 s 103C��������������������������������������������  23.81 s 107�����������������������������������������������  23.76 s 108����������������������������������  23.43, 23.76 s 113A��������������������������������������������  23.78

Income Tax Act 2007 – contd s 115�����������������������������������������������  23.82 s 116A�������������������������������  23.37, 23.54 s 398�������������������������������������������  23.107 s 399������������������������������������  2.6, 23.107 s 399(2)(b)����������������������������������  23.140 s 399(6)��������������������������������������  23.140 s 480(4)��������������������������������������  23.142 s 809AAZA������������������������������������  23.57 s 809AAZB�����������������������  23.57, 23.58 s 835–835F�������������������������������������  23.15 s 993���������������������  23.41, 23.59, 23.121 s 994�������������������������������������������  23.121 s 1004�����������������������������������������  23.140 Income Tax (Trading and Other Income) Act 2005 s 25������������������������������������  23.17, 23.26 s 34�������������������������������������������������  23.17 s 198–200���������������������������������������  23.67 s 202, 205���������������������������������������  23.74 s 217�����������������������������������������������  23.73 s 220�����������������������������������������������  23.71 s 627(2)������������������������������������������  23.95 s 850C��������������������������������������������  23.34 s 850C(2)����������������������������������������  23.38 s 850C(5)����������������������������������������  23.47 s 850C(8)����������������������������������������  23.38 s 850C(9)���������������������������  23.38, 23.42 s 850C(10)�������������������������  23.39, 23.43 s 850C(11)–(17)����������������  23.39, 23.43 s 850C(13), (14)�����������������������������  23.43 s 850C(18)–(21)�����������������������������  23.39 s 850C–850E����������������������������������  23.33 s 850D������������������������������  23.34, 23.36, 23.56 s 850E���������������������������������������������  23.47 s 854�����������������������������������������������  23.25 s 863��������������������������  23.8, 23.9, 23.59, 23.62, 23.83 s 863(1)������������������������������������������  23.13 s 863(4)��������������������������������������  23.123 s 863–863G������������������������������������  23.13 s 863A��������������������������������������������  23.84 s 863A–863G���������������������������������  23.14 s 863B��������������������������������������������  23.85 s 863B(2)����������������������������������������  23.87 s 863B(3)����������������������������������������  23.88 s 863C�������������������������������  23.85, 23.90 s 863D�������������������������������  23.85, 23.93 s 863D(1)���������������������������������������  23.91 s 863F(1), (2)���������������������������������  23.92 s 863H–863L����������������������������������  23.51 s 863I����������������������������������������������  23.51 Sch 2 para 132(1), (2)��������������������������  23.95 Inheritance Tax Act 1984 s 10���������������������������������������������  23.133 s 104, 116, 267A������������������������  23.132

Table of Statutes Insolvency Act 1986�����������  1.6, 1.8, 1.16, 1.17, 1.19, 1.26, 3.3, 6.25, 8.17, 8.38, 10.4, 11.34, 12.2, 12.10, 13.32, 14.27, 17.11, 17.24, 17.28, 26.2, 27.1, 27.2, 27.3, 28.4, 29.1, 30.1, 30.3, 31.7, 31.16, 31.21, 31.26, 34.39, 35.5, 37.36 Pt AI������������������������������������  28.1, 28.10 s A1, A3, A4���������������������������������    28.2 s A6�������������������������������������  12.18, 28.2 s A7, A8, A9���������������������������������    28.3 s A10–A15�����������������������������������    28.3 s A16, A17, A18, A19, A20����������    28.3 s A38��������������������������������������������    28.3 s A42–A44�����������������������������������    28.3 Pt I (ss 1–7B)���������������������  1.15, 12.18, 24.24, 27.1, 28.4, 29.14, 34.8, 34.35, 36.1 s A3–A8���������������������������������������  12.21 s 1(1)�������������������  17.9, 28.5, 28.6, 28.7 s 1(2)��������������������������������������������    28.8 s 1(3)�������������������������������������  28.5, 28.9 s 2(2)��������������������������������������������    28.8 s 2(3)��������������������������������������������    28.8 s 2(4)��������������������������������������������  12.18 s 3�������������������������������������������������  28.11 s 3(1)��������������������������������������������  28.10 s 4(1A)�����������������������������������������  28.10 s 4(3), (4), (4A), (4B), (5A)���������  28.10 s 4(6)��������������������������������������������  28.20 s 4A(2)�����������������������������������������  28.11 s 5�������������������������������������������������  28.11 s 6(1), (2), (3), (4)������������������������  28.12 s 6A���������������������������������������  8.34, 28.5 s 7(2)–(4)��������������������������������������  28.13 Pt II (ss 8–27)������������  1.15, 21.7, 24.24, 27.1, 29.1, 34.8 s 8–27�������������������������������������������    29.1 s 9�������������������������������������������������    17.9 Pt III (ss 28–72H)���������  1.15, 27.1, 34.8 Pt III Ch I (ss 28–49)�������������������    30.6 s 29(2)��������������������������  29.7, 30.3, 30.5 s 30��������������������������������������  18.30, 30.6 s 31�����������������������������������������������    30.6 s 33(1)������������������������������������������    30.6 s 34, 35�����������������������������������������    30.6 s 37�����������������������������������������������  30.11 s 39(1)������������������������������������������    30.7 s 41�����������������������������������������������  37.24 s 42(1)������������������������������������������    30.8 s 42(3)������������������������������������������    30.8 s 43(1)������������������������������������������  30.10 s 43(3)������������������������������������������  30.10 s 43(3)(b)��������������������������������������  30.10 s 44(1)(a)–(c)�������������������������������  30.11 s 44(2)–(2C)���������������������������������  30.11 s 46(1)(a), (b)�������������������������������    30.9 s 47��������������������������������������  24.5, 30.14

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Insolvency Act 1986 – contd s 47(1), (2)������������������������������������  30.12 s 47(3)–(5)������������������������������������  30.13 s 48(1)������������������������������������������  30.14 s 48(1)(a)–(d)�������������������������������  30.14 s 48(2)������������������������������������������  30.14 s 48(5)������������������������������������������  30.14 s 72A����������������������������  30.3, 30.4, 31.2 s 72A(3)��������������������������������  30.5, 31.2 s 72B–72D, 72DA, 72E–72GA�����    30.4 Pt IV (ss 73–219)���������������  1.15, 24.24, 27.1, 34.8 s 73(1)������������������������������������������    31.1 s 74��������������������������  8.15, 11.48, 14.27, 31.17, 31.19, 33.6, 33.7 s 74(2)(a), (b)�������������������������������  31.18 s 74(2)(d)��������������������������������������  31.18 s 74(2)(f)�������������  33.2, 33.4, 33.6, 33.7 s 79���������������������������  8.16, 14.27, 31.19 s 79(1)������������������������������������������  31.17 s 80–82�����������������������������������������    8.16 s 84������������������  12.12, 29.24, 31.1, 31.6 s 84(1)�����������������������������������  17.9, 31.1 s 84(1)(b)��������������������������������������    31.1 s 84(2A), (2B)������������������������������    31.2 s 86�����������������������������������������������    31.2 s 87�����������������������������������������������    31.2 s 87(1)������������������������������������������  17.23 s 88��������������������  8.18, 8.21, 31.2, 31.28 s 89�����������������������������������������������    31.5 s 89(1)������������������������������������������  12.19 s 89(2)������������������������������������������    31.3 s 89(4)���������������������������������  12.19, 31.3 s 90�����������������������������������������������    31.3 s 91��������������������������������������  14.17, 17.9 s 91(1)������������������������������������������    31.4 s 91(2)�������������  14.17, 17.9, 17.23, 31.4 s 91(3)������������������������������������������  17.10 s 92�����������������������������������������������    17.9 s 92(2)������������������������������������������  14.27 s 92(3)���������������������������������  17.10, 36.6 s 92(4)���������������������������������  17.10, 36.6 s 93(4)������������������������������������������  17.10 s 94(1)������������������������������������������    35.2 s 94(2)������������������������������������������    35.2 s 94(4)������������������������������������������    35.2 s 94(5)������������������������������������������    35.2 s 95�����������������������������������������������    31.5 s 95(4B)����������������������������������������    31.5 s 95(4C)����������������������������������������    31.5 s 95(6)������������������������������������������    3.12 s 96�����������������������������������������������    31.5 s 96(3)������������������������������������������    31.5 s 98����������������������������������������  17.9, 31.6 s 98(4)������������������������������������������    3.12 s 99����������������������������������������  31.6, 31.8 s 99(1)������������������������������������������  12.20 s 99(2)������������������������������������������  12.20

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Table of Statutes

Insolvency Act 1986 – contd s 99(3)������������������������������������������  12.20 s 100��������������������������������������  17.9, 31.6 s 100(1B)����������������������������������������  31.8 s 100(3)������������������������������������������  31.6 s 101�����������������������������������������������  31.7 s 101(2)������������������������������������������  31.7 s 101(3)������������������������������������������  31.7 s 103�������������������������  14.17, 17.23, 31.8 s 105(5)������������������������������������������  17.10 s 106(1)������������������������������������������  35.2 s 106(3)������������������������������������������  35.2 s 106(4)������������������������������������������  35.2 s 106(5) ������������������������������  17.10, 35.2 s 106(5A)���������������������������������������  17.10 s 106(6)������������������������������������������  35.2 s 107����������������������������  8.18, 33.1, 33.2, 33.5, 33.6, 33.7, 33.8 s 107–116���������������������������������������  33.1 s 108�����������������������������������������������  31.4 s 109�����������������������������������������������  3.11 s 110�����������  8.20, 17.9, 36.1, 36.4, 36.7 s 110(2)���������������������������������  8.18, 36.5 s 110(3)������������������������������������������  36.6 s 110(3)(a)���������������������������  17.9, 17.10 s 110(4)�����������������������������������  2.7, 36.5 s 110(5), (6)������������������������������������  36.7 s 111(2)����������������������������������  8.18, 36.8 s 111(3)�������������������������������������������  36.8 s 112�������������������������  6.25, 14.17, 14.27 s 112(1)������������������������������������������  14.42 s 114�����������������������������������������������  31.4 s 114(2), (3)������������������������������������  31.8 s 115�����������������������������������������������  17.23 s 116����������������������������������  14.27, 31.14 s 122����������������  14.27, 17.23, 31.9, 32.8 s 122(1)(a)��������������������������������������  17.9 s 122(1)(b)��������������������������������������  2.42 s 122(1)(c)����������������������  2.15, 3.19, 8.1 s 122(1)(e)���������������  3.21, 10.50, 17.46, 19.5, 19.40, 32.1, 32.8, 32.11, 32.12, 32.14, 32.19, 32.20, 32.23, 32.25, 32.28, 32.31, 32.32 s 122(1)(g)��������������������������������������  32.1 s 123���������������  29.4, 34.9, 34.17, 34.25 s 123(1)������������������������������������������  31.12 s 123(2)������������������������������������������  31.13 s 124�����������������������  11.32, 14.27, 31.16 s 124(1)������������������  31.16, 31.21, 31.24 s 124(5)������������������������������������������  31.25 s 124A�������������  3.20, 3.21, 24.18, 29.10 s 124A(1)���������������������������������������  31.26 s 124A(1)(b)�����������������������������������  31.26 s 124A(1)(bb)���������������������������������  31.26 s 124B�������������������������������  29.10, 31.26 s 125�����������������������������������������������  29.5 s 125(1)������������������������������������������  31.27

Insolvency Act 1986 – contd s 125(2)������������������������������������������  32.8 s 126�����������������������������������������������  14.27 s 126(1)������������������������������������������  31.29 s 127��������������������������  8.18, 8.21, 19.26, 19.33, 31.28 s 128(1)������������������������������������������  31.28 s 129�����������������������������������������������  19.26 s 129(1), (2)������������������������������������  31.28 s 130(2)�����������������������������  14.27, 31.29 s 131����������������������������������  13.30, 31.31 s 131(2)������������������������������������������  31.31 s 131(2A)���������������������������������������  31.31 s 132�����������������������������������������������  31.32 s 133�����������������������������������������������  31.33 s 133(2)������������������������������������������  31.34 s 135�����������������������������������������������  29.8 s 136�����������������������������������������������  14.28 s 136(2)�����������������������������  14.28, 31.30 s 136(3), (4), (5), (6)����������������������  31.30 s 137�����������������������������������������������  31.30 s 139����������������������������������  14.28, 31.30 s 141�����������������������������������������������  31.30 s 143�����������������������������������������������  14.17 s 143(1)������������������������������������������  33.1 s 143–200���������������������������������������  33.1 s 144����������������������������������  14.17, 17.23 s 144(1)������������������������������������������  33.1 s 146(2)–(5)������������������������������������  35.4 s 147�����������������������������������������������  14.27 s 154�����������������������������  33.1, 33.2, 33.8 s 155�����������������������������������  6.25, 14.17 s 165�����������������������������������������������  14.17 s 165(2)�������������������������������  14.17, 17.9 s 165(4A)���������������������������������������  17.10 s 166�����������������������������������������������  14.17 s 166(5)������������������������������������������  12.20 s 167����������������������������������  14.17, 17.23 s 168�����������������������������������������������  14.28 s 168(5)������������������������������������������  14.42 s 170�����������������������������������������������  37.24 s 172(8)������������������������������������������  35.4 s 173(2)(e)��������������������������������������  35.2 s 174�����������������������������������������������  35.4 s 175�����������������������������������������������  29.18 s 175(1)������������������������������������������  33.14 s 175(2)(a), (b)�������������������������������  33.14 s 176A��������������������������������������������  33.15 s 176A(1)���������������������������������������  33.15 s 176A(2)���������������������������������������  33.15 s 176A(2)(a)�����������������������������������  29.18 s 176A(3)–(5)���������������������������������  33.16 s 176A(6)���������������������������������������  33.15 s 178(2), (3)������������������������������������  33.10 s 178(4)(a), (b)�������������������������������  33.10 s 178(5), (6)������������������������������������  33.10 s 179�����������������������������������������������  33.11 s 181�����������������������������������������������  33.11

Table of Statutes Insolvency Act 1986 – contd s 181(2), (3)����������������������������������  33.12 s 182���������������������������������������������  33.12 s 182(1)–(4)����������������������������������  33.12 s 186(1), (2)����������������������������������  33.13 s 195���������������������������������������������  14.28 Pt IV Ch IX (ss 201–205)������������  24.33 s 201(2)–(4)����������������������������������    35.3 s 202���������������������������������������������  14.27 s 202(2)–(5)����������������������������������    35.5 s 203������������������������������������  14.27, 35.5 s 203(1)–(3)����������������������������������    35.5 s 203(5)����������������������������������������    35.5 s 205(1)–(4)����������������������������������    35.4 s 205(6)����������������������������������������    35.4 s 206–211�������������������������������������    34.1 s 206, 208, 210, 211���������������������    8.34 s 212��������������������������  8.17, 8.38, 11.48, 14.27, 14.35, 16.18, 17.24, 34.1, 34.2, 34.6, 34.33 s 212(1)(a)–(c)�������������������������������  34.1 s 212(3)������������������������������������������  34.1 s 212(5)�������������������������������  14.27, 34.1 s 213������������������������  8.17, 11.48, 14.21, 16.18, 17.24, 34.3, 37.33 s 213(2)����������������������������������������    34.3 s 214����������������������������  3.22, 8.17, 8.34, 8.37, 8.38, 11.48, 14.15, 14.21, 14.35, 16.18, 17.24, 17.25, 17.26, 19.7, 26.2, 34.3, 34.4, 34.6, 34.7, 34.8, 34.11, 34.12, 37.33 s 214(1)����������������������������������������    34.3 s 214(1)(d)������������������������������������  34.18 s 214(2)����������������������������������������    34.4 s 214(2)(b)������������������������������������  17.25 s 214(3)���������������������������������  19.7, 34.5 s 214(4)���������  13.26, 14.15, 17.25, 34.5 s 214(5)�������������������������������  17.25, 34.5 s 214(7)���������������������������������  34.3, 34.4 s 214A�������������������������  3.22, 8.17, 8.34, 8.38, 8.39, 11.35, 11.48, 14.15, 14.21, 14.35, 16.7, 16.15, 16.18, 17.24, 17.25, 17.26, 19.16, 34.7, 34.8, 34.9, 34.10, 34.11, 34.12, 34.13, 37.33 s 214A(2)�������������������������������������  34.13 s 214A(2)(a)�����������������������  8.17, 11.34, 16.15, 34.9, 34.13 s 214A(2)(b)������������������������  34.9, 34.13 s 214A(3), (4)�������������������������������  34.13 s 214A(5)����������������������������  17.25, 34.9 s 214A(6)��������������������������  17.25, 34.11 s 214A(7)�������������������������������������  34.10 s 214A(8)�������������������������������������    34.8

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Insolvency Act 1986 – contd s 216������������������������  8.34, 34.36, 34.37, 34.38, 34.39, 34.40, 34.41, 34.42 s 216(1), (2)����������������������������������  34.37 s 216(3)������������������  34.38, 34.39, 34.41 s 216(3)(c)������������������������������������  34.39 s 216(4)����������������������������������������  34.40 s 216(6), (7)����������������������������������  34.37 s 217�����������������������������������  8.34, 34.38, 34.39, 34.42 s 217(1)–(5)����������������������������������  34.42 s 218���������������������������������������������  24.17 s 218(4)–(6)����������������������������������  24.17 s 219���������������������������������������������  24.17 Pt V (ss 220–229)�������������������������    27.1 Pt VI (ss 230–246C)����������������������  1.15, 27.1, 34.8 s 230(2)����������������������������������������    30.3 s 236���������������������������������������������  37.5 s 238�����������������������  34.15, 34.18, 34.33 s 238(1)����������������������������������������  34.15 s 238(3)�����������������������������  34.15, 34.18 s 238(4)����������������������������������������  34.14 s 238(5)����������������������������������������  34.16 s 239�����������������������  34.18, 34.21, 34.26 s 239(1)–(3)����������������������������������  34.21 s 239(4)����������������������������������������  34.20 s 239(5)����������������������������������������  34.22 s 239(6)����������������������������������������  34.23 s 239(7)����������������������������������������  34.24 s 240�����������������������  34.17, 34.18, 34.26 s 240(1)–(3)�����������������������  34.17, 34.25 s 241����������������������������������  34.18, 34.26 s 241(2)����������������������������������������  34.18 s 244���������������������������������������������  34.27 s 244(3)����������������������������������������  34.28 s 244(4), (5)����������������������������������  34.29 s 245����������������������������������  34.30, 34.31 s 245(2)����������������������������������������  34.30 s 245(3)����������������������������������������  34.31 s 245(5)����������������������������������������  34.31 s 245(6)�����������������������������  34.30, 34.31 s 246���������������������������������������������  34.32 s 246(3)����������������������������������������  34.32 s 246ZA��������������������������������  34.3, 34.7, 34.11, 34.12 s 246ZB���������������������������������  34.3, 34.4 s 246ZB(2)�����������������������������������    34.4 s 246ZB(3)�����������������������������������    34.5 s 246ZB(4)�����������������������������������    34.5 s 246ZB(5)�����������������������������������    34.5 s 246ZB(7)�����������������������������������    34.4 s 246ZE����������������������������������������  29.15 s 246ZF����������������������������������������  29.15 Pt VII (ss 247–251)��������������  1.15, 27.1, 34.8 s 249����������������������������������  34.17, 34.23

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Table of Statutes

Insolvency Act 1986 – contd s 251��������������������������  8.33, 8.38, 30.13, 34.3, 34.30 s 251M(1)���������������������������������������  37.34 s 306�������������������������  8.21, 19.10, 19.33 s 339�����������������������  19.10, 34.14, 34.18 s 340�����������������������������������������������  19.10 s 388(1)������������������������������������������  30.3 s 389�����������������������������������������������  30.3 s 390������������������������������������  18.30, 30.3 s 411�����������������������������������������������  21.4 s 423����������������������������������  34.33, 34.34 s 423(1)������������������������������������������  34.34 s 423(3)������������������������������������������  34.33 s 423(5)������������������������������������������  34.35 s 424(1)(a)–(c)�������������������������������  34.35 s 424(2)������������������������������������������  34.35 s 429�����������������������������������������������  37.35 s 429(2)(b)��������������������������������������  37.35 s 430(5)������������������������������������������  12.12 s 435����������������������������������  34.17, 34.23 s 436�����������������������������������������������  34.14 Sch ZA1��������������������������������  28.1, 28.2 Sch ZA2�����������������������������������������  28.1 Sch A1��������������������������������������������  28.1 Sch B1�����������������������������������  29.1, 29.2 para 1(1)�������������������������������������  29.2 para 2������������������������������������������  29.2 para 3(1)–(4)������������������������������  29.3 para 4, 5��������������������������������������  29.3 para 10����������������������������������������  29.2 para 11����������������������������������������  29.4 para 12(1)��������������������������  17.9, 29.5 para 13(1)�����������������������������������  29.5 para 13(2)�����������������������������������  29.6 para 13(3)�����������������������������������  29.5 para 14���������������������  29.2, 29.8, 29.9, 29.22, 30.5, 31.2 para 14(1)�����������������������������������  29.7 para 14(2)��������������������������  29.7, 29.8 para 14(3)�����������������������������������  29.7 para 15(1)�����������������������������������  29.8 para 17����������������������������������������  29.8 para 18����������������������������������������  29.8 para 18(1)�����������������������������������  29.8 para 19, 21����������������������������������  29.8 para 22������������������������������  17.9, 29.2, 29.9, 29.22 para 23����������������������������������������  29.9 para 25����������������������������������������  29.9 para 25(a)�����������������������������������  29.9 para 25A�������������������������������������  29.9 para 26(1)�����������������������������������  29.9 para 27����������������������������������������  29.9 para 27(1), (2)����������������������������  29.9 para 29, 31, 34����������������������������  29.9 para 42���������������������������  29.10, 29.12 para 43���������������������������  29.11, 29.12

Insolvency Act 1986 – contd para 44���������������������������  24.24, 29.12 para 47����������������������������������������  29.13 para 49(1), (3), (4), (5)���������������  29.14 para 51(1), (2), (3)����������������������  29.15 para 52����������������������������������������  29.15 para 53���������������������������  29.16, 29.19 para 54����������������������������������������  29.19 para 55����������������������������������������  29.16 para 56����������������������������������������  29.16 para 59(1), (3)����������������������������  29.17 para 60(1), (2)����������������������������  29.17 para 60A, 61, 63, 64�������������������  29.17 para 64(1)�����������������������������������  29.17 para 65(3)�����������������������������������  29.18 para 66����������������������������������������  29.18 para 67����������������������������������������  29.19 para 68(1), (2)����������������������������  29.19 para 75����������������������������������������  34.1 para 76–78����������������������������������  29.20 para 79����������������������������������������  29.21 para 80����������������������������������������  29.22 para 81����������������������������������������  29.23 para 83����������������������������������������  29.24 para 84����������������������������������������  29.25 para 84(1)�����������������������������������  29.25 para 84(6)�����������������������������������  24.33 para 84(7)(b)������������������������������  29.25 Sch 1������������������������������������  29.17, 30.8 para 13����������������������������������������  29.18 Sch 4�����������������������������������������������  17.23 Sch 6������������������������������������  6.28, 33.14 para 1–7��������������������������������������  33.14 para 15D�������������������������������������  33.14 Insolvency Act 2000 s 2���������������������������������������������������  28.5 s 5–8�����������������������������������������������  37.1 Sch 2 para 1, 8��������������������������������������  28.5 Sch 4�����������������������������������������������  37.1 Interpretation Act 1978�����������������  2.2, 2.3 s 5���������������������������������������������������    2.2 Sch 1�����������������������������������������������    2.2 Landlord and Tenant Act 1954 s 29�������������������������������������������������  3.11 Law of Property Act 1925 s 82�����������������������������������������  9.4, 9.10, 9.11, 9.12 s 82(1)��������������������������������������������    9.4 Law of Property (Miscellaneous Provisions) Act 1989 s 1(2)(b)������������������������������������������  4.15 Legal Services Act 2007 Pt 3 (ss 12–26)����������������������  2.13, 2.33 Limitation Act 1980�������������������������  13.14 s 8�����������������������������  8.16, 34.19, 34.33 s 9��������������������������������������  34.19, 34.33 s 32(2)��������������������������������������������  34.33

Table of Statutes Limited Liability Partnerships Act 2000��������������������  1.7, 1.9, 1.10, 1.13, 1.15, 1.17, 1.18, 1.23, 1.26, 2.15, 2.33, 2.39, 3.1, 5.3, 5.4, 5.16, 5.24, 5.26, 8.9, 8.13, 8.38, 9.18, 9.25, 10.4, 11.1, 12.2, 12.26, 14.23, 14.26, 14.35, 18.1, 19.30, 23.95, 23.113, 23.125, 23.126, 23.132, 23.161, 24.44, 25.2, 25.22, 25.26, 25.32, 25.34, 26.1, 26.7, 27.2, 32.13, 34.8, 37.28 s 1–19�������������������������������������������    1.15 s 1�������������������������������������������������    1.2 s 1(1)��������������������������������������������    1.1 s 1(2)����������  1.2, 2.37, 3.1, 23.159, 26.7 s 1(2)(b)����������������������������������������    4.10 s 1(3)��������������������������������  1.2, 2.37, 3.7 s 1(4)��������������������������������������������    8.15 s 1(5)���������������������������  1.23, 10.6, 11.1 s 1(6)��������������������������������������������    2.17 s 2������������������������������������������  2.38, 8.13 s 2(1)���������������������������������������  2.1, 2.35 s 2(1)(a)���������������  1.9, 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.13, 2.15, 2.30, 2.32, 2.35, 2.36, 2.39, 2.40, 3.6, 3.19, 3.21, 8.3, 12.1, 32.19 s 2(1)(b)����������������������������������������    2.32 s 2(1)(c)�������������������  2.32, 2.33, 8.2, 8.3 s 2(1)(e)����������������������������������������    2.25 s 2(2)��������������������������������������������    2.16 s 2(2)(a)����������������������������������������    2.16 s 2(2)(e)����������������������������������������    8.6 s 2(2)(f)����������������������������������������    2.30 s 2(2ZA)���������������������������������������    2.24 s 2(3)�������������������������������������  2.34, 2.36 s 2(4)���������������������������������������������  2.34 s 3��������������������������������������������  3.19, 8.2 s 3(1)����������������������������  2.22, 2.35, 2.37 s 3(1A)�����������������������������������������    2.37 s 3(2)��������������������������������������������    2.35 s 3(3)��������������������������������������������    2.37 s 3(4)�����������������  2.37, 2.38, 2.40, 24.44 s 4��������������������  8.38, 10.41, 17.45, 32.9 s 4(1)�����������  2.2, 2.24, 8.2, 10.26, 32.9 s 4(2)������  8.5, 10.27, 10.28, 13.15, 32.9 s 4(3)������������������  2.15, 5.20, 8.28, 8.30, 8.32, 10.8, 10.9, 10.41, 10.44, 10.45, 10.46, 11.37, 14.1, 19.2, 19.5, 19.6, 19.9, 19.30, 19.31, 25.7, 25.9, 31.28, 32.11, 32.13, 32.25 s 4(3A)��������������������������������������������  8.3 s 4(4)��������������������  9.1, 9.10, 9.14, 9.15, 9.16, 9.17, 9.18, 9.19, 9.23, 9.25, 9.26, 9.30 s 4A�����������������������������  2.15, 3.19, 8.32

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Limited Liability Partnerships Act 2000 – contd s 5�����������������������������  5.10, 10.36, 10.44 s 5(1)��������������������  1.6, 10.1, 10.2, 10.3, 10.4, 10.7, 10.9, 10.15, 10.17, 10.34, 10.44, 11.1 s 5(1)(a)�����������������������������������  8.5, 8.28 s 5(1)(b)�������������  1.23, 8.5, 10.36, 10.43 s 5(2)�����������������������  4.19, 10.12, 10.13, 10.14, 10.15, 10.16 s 6�����������������������������  2.3, 3.4, 4.11, 5.2, 5.15, 5.17, 5.20, 10.4, 18.1, 25.7, 25.9, 25.12, 25.16 s 6(1)���������������  3.4, 5.2, 5.9, 5.10, 5.11, 5.12, 5.14, 5.15, 5.18, 5.20, 5.22, 11.15, 13.12, 14.19, 25.12 s 6(2)�����������  3.4, 5.10, 5.14, 5.15, 5.18, 5.20, 5.22, 25.7, 25.9, 25.10, 25.12, 25.16, 25.19 s 6(2)(a)������������������������  5.13, 5.14, 5.18 s 6(2)(b)�����������������������  5.14, 5.15, 5.16, 5.17, 5.18, 5.20, 8.30 s 6(3)���������������������������  5.20, 8.30, 25.9, 25.10, 25.12 s 6(3)(a)����������������������������������������    5.20 s 6(4)������������������  5.18, 5.19, 5.22, 5.23, 5.25, 14.31, 14.36, 18.5, 18.30, 25.9, 25.10, 25.12 s 7���������������  2.3, 8.21, 8.31, 14.41, 19.9 s 7(1)��������������������������  8.23, 19.9, 19.33 s 7(1)(a)���������������������������������  8.21, 19.9 s 7(1)(b)�������������  8.21, 8.23, 19.9, 19.33 s 7(1)(c)���������������������������������  8.23, 19.9 s 7(1)(d)�����������������  2.7, 8.18, 8.23, 19.9 s 7(2)���������������������������  8.21, 8.22, 8.23, 17.22, 19.9, 32.9 s 7(2)(a)���������������������������������  8.21, 19.9 s 7(2)(b)�����������������������  8.21, 8.23, 19.9, 19.10, 19.11 s 7(2)(c), (d)��������������������������  8.23, 19.9 s 7(3)�������������������������������������  8.21, 8.31 s 8�����������������������������������  2.3, 10.4, 12.2 s 8(1)����������������������������  2.31, 12.4, 12.5 s 8(1)(a)����������������������������������������    2.30 s 8(2)�������������������  2.30, 2.31, 12.1, 12.4 s 8(3)�������������������������������������  2.30, 2.31 s 8(4)�������������������������������������  1.11, 2.31 s 8(4)(b)����������������������������������������    2.31 s 8(6)��������������������������������������������    12.7 s 9�����������������������������  1.7, 1.9, 2.3, 5.20, 8.4, 8.13, 11.11, 11.12, 11.39, 12.2, 12.13, 12.26, 13.35, 14.23 s 9(1)�����������������������������  8.8, 8.12, 12.5, 12.6, 24.5 s 9(1)(a)��������������������������  8.6, 8.29, 12.5 s 9(1)(b)�����������������������������������  2.25, 8.7 s 9(2)��������������������������������������������    12.6

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Table of Statutes

Limited Liability Partnerships Act 2000 – contd s 9(3)���������������������������������������  8.6, 12.5 s 9(3ZA)�����������������������������������������    8.7 s 9(4), (5)�����������������������  8.6, 8.29, 8.30, 12.5, 12.13, 14.23, 14.35 s 9(6)������������������������������  8.6, 8.29, 8.30 s 11���������������������������������������������  23.132 s 12�����������������������������  1.15, 7.5, 23.125 s 12(1)����������������������������������������  23.125 s 12(2)(a), (b)�����������������������������  23.126 s 12(3)����������������������������������������  23.126 s 12(3)(a)����������������������������������������  8.18 s 12(5)(a)������������������������������������  23.126 s 13���������������������������������������������  23.113 s 14–17�������������������������������������������  11.52 s 14�������������������������������  1.16, 26.7, 27.1 s 14(1)��������������������������������������������  34.8 s 14(3)�����������������������������������  2.21, 26.7 s 15�������������������������������  1.16, 1.23, 26.7 s 15(c)��������������������������  8.24, 8.28, 10.1, 10.7, 10.8, 11.1, 14.1, 17.3, 17.5, 19.2 s 17����������������������������������������  1.23, 10.7 s 18������������������������������������  1.9, 2.2, 2.3, 2.6, 2.22, 26.7 s 19(4)��������������������������������������������  1.26 Sch��������������������������������������������������  1.15 para 2(1)�������������������������������������  2.17 para 2(2)����������������������������  2.17, 2.23 para 4������������������������������������������  17.9 para 4(1)����������������������������  4.22, 17.7 para 5(1), (3)������������������������������  4.25 para 5(4)����������������������������  4.24, 4.25 para 6������������������������������������������  4.26 para 7������������������������������������������  2.21 para 9(1)�������������������������������������  26.4 para 9(2) ������������������������������������  2.22 Limited Liability Partnerships Act (Northern Ireland) 2002�����������    1.2, 3.2, 26.7 Limited Partnerships Act 1907��������������������������  2.6, 2.17, 3.8, 14.6, 24.45, 25.19 s 6(1)����������������������������������������������  14.6 Local Government Act 1972��������������  2.19 Local Government etc (Scotland) Act 1994�����������������������������������  2.19 Lotteries Act 1823������������������������������  2.11 Magistrates’ Courts Act 1980�������������  1.25 s 32�������������������������������������������������  1.25 s 87A�����������������������������������  29.5, 31.16 Misrepresentation Act 1967 s 2(2)����������������������������������������������  10.23 Modern Slavery Act 2015 s 54(1)–(2)��������������������������������������  12.17 s 54(6)(b)����������������������������������������  12.17

National Minimum Wage Act 1998������������������������������  15.189 s 1, 23���������������������������������������������  9.28 Official Secrets Act 1989���������������  15.164 Partnership Act 1890�����������  1.1, 1.23, 2.5, 2.6, 3.8, 5.12, 5.16, 5.24, 8.24, 9.11, 9.13, 9.17, 9.21, 10.10, 10.33, 10.39, 13.10, 13.37, 14.10, 15.13, 15.82, 15.159, 25.24, 26.25, 26.26, 26.36 s 1(1)����������������������������������������������    2.5 s 2(3)����������������������������������������������  9.20 s 2(3)(b)������������������������������������������  13.16 s 4(2)����������������������������������������������  26.36 s 5�����������������������������������  1.3, 5.6, 5.12, 5.14, 5.22, 14.19, 18.1 s 6–8�����������������������������������������������    1.3 s 9�������������������������������������������  1.3, 18.1 s 10������������������������  1.3, 5.22, 5.23, 18.1 s 11, 12�������������������������������������������    1.3 s 14�������������������������������������������������    1.3 s 19�������������������������������������������������  10.6 s 24��������������������  9.21, 10.8, 19.23, 33.9 s 24(1)�����������������������  1.23, 10.8, 10.10, 14.5, 14.17, 14.23, 16.5, 16.10, 16.16, 16.18, 19.21, 19.23 s 24(2)������������������������  1.23, 10.8, 14.19 s 24(5)������  1.23, 10.8, 10.10, 17.3, 17.6 s 24(6)���������������  1.23, 10.8, 11.33, 17.3 s 24(7)�����������������������������������  1.23, 10.8 s 24(8)�����������������������  1.23, 10.8, 10.10, 10.19, 17.3, 17.5, 17.6 s 24(9)�������������������������  1.23, 10.8, 14.3, 14.6, 14.9, 14.17 s 25������������������������������  1.23, 9.21, 10.8, 11.41, 19.12 s 26–28�������������������������������������������  10.8 s 28����������������������������  1.23, 10.8, 13.38, 13.39, 14.18 s 29–30����������������������������������  9.21, 10.8 s 29(1)�����������������������  1.23, 10.8, 10.10, 13.9, 13.11 s 30���������  1.23, 10.8, 10.10, 13.9, 13.11 s 31������������������  8.21, 8.24, 11.30, 19.37 s 35��������������  10.32, 10.39, 25.32, 25.34 s 35(d)��������������������  10.32, 10.38, 10.39 s 35(f)������������������������������������  7.3, 32.28 s 41�������������������������������������������������  10.22 s 45�������������������������������������������������    2.6 Pension Schemes Act 2017 s 39(1)��������������������������������������������  21.12 Pensions Act 1995 s 47�������������������������������������������������  18.30 Pensions Act 2008 s 1���������������������������������������������������  9.28 s 3���������������������������������������������������  9.28

Table of Statutes Policing and Crime Act 2009�����������    33.1 Private International Law (Implementation of Agreements) Act 2020�����������    26.6 Proceeds of Crime Act 2002������������  20.21 s 426���������������������������������������������    33.1 Protection from Harassment Act 1997���������������������������������  15.61 Race Relations Act 1976������������������    15.2 Senior Courts Act 1981 s 37�����������������������������������������������    30.1 Sex Discrimination Act 1975������������  15.2, 15.33, 15.43 Small Business, Enterprise and Employment Act 2015�����  27.2, 31.30, 37.1, 34.4, 37.27, 37.29, 37.36 s 90(2)������������������������������������������  37.12 s 103���������������������������������������������  24.23 Pt 9 (ss 104–116)��������������������������    37.1 s 104�����������������������������������������������  37.1 s 105������������������������������������  37.1, 37.31 s 106���������������������������������������������  37.17 s 106(2)������������������������  37.1, 37.6, 37.7 s 108��������������������������������������  37.1, 37.6 s 110���������������������������������������������    37.1 s 117���������������������������������������������    34.3 s 122���������������������������������������������  29.15 s 127���������������������������������������������  29.20 s 128���������������������������������������������  29.18 s 129���������������������������������������������  29.17 s 164(3)(g)(iii)������������������������������  37.12 Sch 9���������������������������  31.6, 31.8, 31.30 para 19, 20��������������������������������    31.5 Social Security Contributions and Benefits Act 1992�������������������  15.119 s 15(3A)���������������������������������������  23.113 s 35�����������������������������������������������  15.120 s 164, 171�������������������������������������  15.119 Solicitors Act 1974 s 1�������������������������������������������������    2.13 s 20, 21�����������������������������������������    2.13

lxv

Taxation (International and Other Provisions) Act 2010 Pt 4 (ss 146–217)�������������������������  23.144 Taxation of Chargeable Gains Act 1992 s 59A���������������������������������  23.9, 23.115 s 59A(4)���������������������������������������  23.123 s 271���������������������������������������������  23.142 s 271(12)��������������������������������������  23.142 s 1695(4A)(b), (c)������������������������    23.5 Taxes Management Act 1970�������������  21.4 s 12AA�����������������������������������������  23.16 s 12AA(3)�������������������������������������  23.19 s 12AA(4A), (4B)������������������������  23.22 s 12AA(5)�������������������������������������  23.32 s 12AB�����������������������������������������  23.24 s 12ABZB(3)��������������������������������  23.21 s 12B��������������������������������  13.30, 23.20 s 12B(5)�����������������������������  23.20, 23.66 Trade Union and Labour Relations (Consolidation) Act 1992�����������������  21.25, 21.52, 21.53 s 146���������������������������������������������    9.28 Trustee Act 1925 s 61�����������������������������������������������  22.33 Unfair Contract Terms Act 1977������������������  7.15, 14.30, 14.33, 18.16, 18.18, 18.19, 18.20, 18.21, 18.22, 18.25, 18.26, 22.34, 26.15, 26.22 s 1(1)(b)�����������������������������  18.19, 18.20 s 1(3)��������������������������������������������  14.30 s 2�������������������������������������������������  18.20 s 2(1)��������������������������������������������  18.19 s 2(2)����������������������  14.30, 18.19, 22.34 s 2(3)��������������������������������������������  18.19 s 3(2)(a)����������������������������������������  22.34 s 11������������������������������������  18.22, 26.15 s 11(1), (3)������������������������������������  18.22 s 11(4)������������������������������������������  18.24 s 13(1)������������������������������������������  18.20 s 27(1), (2)������������������������������������  26.15 Sch 1 para 1(d)(ii)������������������������������  14.30

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TABLE OF STATUTORY INSTRUMENTS All references are to paragraph number

Accounts and Reports (Amendment) (EU Exit) Regulations 2019, SI 2019/145 reg 20�������������������������������������������  21.12 Alternative Investment Fund Managers Regulations 2013, SI 2013/1773�����������������  20.8, 20.37 reg 4���������������������������������������������  20.11 reg 26�������������������������������������������  20.11 reg 29–32�������������������������������������  20.12 Pt 5 (regs 34–44)��������������������������  20.12 Pt 6 (regs 45–64)��������������������������  20.12 Alternative Investment Fund Managers (Amendment) Regulations 2018, SI 2018/134����������������������������    20.8 Alternative Investment Fund Managers Order 2014, SI 2014/1292��������������������������    20.8 Alternative Investment Fund Managers (Amendment) Order 2014, SI 2014/1313�����    20.8 Alternative Investment Fund Managers (Amendment) Regulations 2013, SI 2013/1797��������������������������    20.8 Alternative Investment Fund Managers (Amendment etc) (EU Exit) Regulations 2019, SI 2019/328�������������������  20.8, 20.37 Civil Aviation (Air Travel Organisers’ Licensing) Regulations 2012, SI 2012/2017��������������������������    12.2 Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019, SI 2019/479������������������������������  26.6 Civil Jurisdiction and Judgments Order 2001, SI 2001/3929 Sch 1 para 10��������������������������������������    26.5 para 10(2)–(4)��������������������������    26.5 Civil Procedure Rules 1998, SI 1998/3132��������������������������    2.33 Pt 6 (r 6.1–6.52)����������������������������  3.12, 26.11, 26.12 r 6.2(d)������������������������������������������  26.12 r 6.2(e)������������������������������������������  26.12

Civil

Procedure Rules 1998, SI 1998/3132 – contd r 6.3(1)������������������������������������������  26.11 r 6.3(2)–(3)�����������������������������������  26.11 r 6.5�����������������������������������  26.11, 26.12 r 6.7�����������������������������������  26.11, 26.12 r 6.7(1), (2), (3)����������������������������  26.12 r 6.8������������������������������������  26.11, 2612 r 6.9����������������������������������������������  26.11 r 6.9(1)–(6)�����������������������������������  26.12 r 6.10��������������������������������������������  26.11 r 6.15���������������������������������  26.11, 26.12 r 6.15(1), (2)���������������������������������  26.12 r 6.16��������������������������������������������  26.12 r 6.33��������������������������������������������    26.6 r 6.33(2B)����������������������������  26.6, 26.13 r 6.36��������������������������������������������  26.13 r 6.37��������������������������������������������  26.13 r 6.40��������������������������������������������  26.13 PD 6A�������������������������������������������  26.11 PD 6B�������������������������������������������  26.13 para 3.1(6), (7), (9)–(11)����������  26.13 Pt 7 (rr 7.1–7.12)��������������������������  26.10 PD 7A para 5A, 5B����������������������  26.10 r 19.9���������������������������������  14.38, 14.39 r 19.9(2), (3)���������������������������������  14.39 r 19.9A(2), (4), (5), (7), (10)��������  14.39 r 19.9C�����������������������������������������  14.39, 14.40, 14.41 r 19.9C(2), (4), (5)������������������������  14.39 r 19.9E������������������������������������������  14.39 r 19.9F������������������������������������������  14.39 Pt 23����������������������������������  14.39, 26.13 r 24.1(6)����������������������������������������    2.33 PD 24.2����������������������������������������    2.33 r 42.2��������������������������������������������    7.10 Companies Act 1985 (Power to Enter and Remain on Premises: Procedural) Regulations 2005, SI 2005/684����������������������������  24.15 Companies Act 2006 (Amendment of Part 25) Regulations 2013, SI 2013/600����������������������������    6.3 Companies Act 2006 (Commencement No 8, Transitional Provisions and Savings) Order 2008, SI 2008/2860 Sch 2���������������������������������������������  24.34

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Table of Statutory Instruments

Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI 2009/1941 Sch 1 para 85�����������������������������  37.1, 37.37 para 179��������������������������������������  10.13 para 192(2)���������������������������������  37.1 Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI 2009/1802����������������������������  1.18 Schedule para 97����������������������������������������    1.9  Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012, SI 2012/2301�����  12.15 Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016, SI 2016/599������������������  12.13 reg 1��������������������  4.27, 4.28, 4.29, 12.9 reg 3�����������������������������  3.14, 4.28, 12.5 reg 3(2)–(4)���������������������������  4.28, 4.29 Sch 1�����������������������������������������������  4.27 para 3������������������������������������������  12.9 para 5������������������������  4.28, 4.29, 12.9 Companies (Company Records) Regulations 2008, SI 2008/3006 Pt 2 (reg 3)�������������������������������������  6.23 reg 4, 6�������������������������������������������  6.24 Pt 4 (regs 7–9)��������������������������������  21.45 reg 7�����������������������������������������������  6.17 reg 8(1)–(3)������������������������������������  6.17 reg 9�����������������������������������������������  6.17 Companies (Cross-Border Mergers) Regulations 2007, SI 2007/2974����������������������������  36.9 Companies (Cross-Border Mergers) (Amendment) Regulations 2008, SI 2008/583��������������������  36.9 Companies (Cross-Border Mergers) (Amendment) Regulations 2015, SI 2015/180��������������������  36.9 Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, SI 2018/1155 Pt 3�������������������������������������������������  13.31 reg 10���������������������������������������������  12.17 reg 13(2)�����������������������������������������  13.31 reg 14(2)�����������������������������������������  13.31 reg 15(2)�����������������������������������������  13.31 reg 18���������������������������������������������  12.17 reg 21(5)(e)(i)���������������������������������  13.29

Companies (Disclosure of Address) Regulations 2009, SI 2009/214���  8.13 reg 2�����������������������������������������������  8.10 reg 2(1)�������������������������������������������  8.10 Sch 1�����������������������������������������������  8.10 Sch 2 Pt 1 (paras 1–4) para 2��������������������������������������  8.10 Pt 2 (paras 5–10)�����������������������������������  para 6–10��������������������������������  8.10 para 9(2), (3), (6)��������������������  8.13 para 14������������������������������������  8.13 Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008, SI 2008/489������������������������������  21.36 Pt 3 (reg 8)�������������������������������������  21.36 Companies (Fees for Inspection and Copying of Company Records) (No 2) Regulations 2007, SI 2007/3535 reg 2, 3�������������������������������������������  6.17 reg 4�����������������������������������������������  6.27 Companies (Fees for Inspection of Company Records) Regulations 2008, SI 2008/3007 reg 2(a)�������������������������������������������  2.26 reg 2(c)�������������������������������������������  6.15 Companies (Late Filing Penalties) and Limited Liability Partnerships (Filing Periods and Late Filing Penalties) Regulations 2008, SI 2008/497 reg 4(2), (3)������������������������������������  21.43 Companies (Model Articles) Regulations 2008, SI 2008/3229 Sch 1 art 30������������������������������������������  17.15 art 49������������������������������������������  12.15 Sch 2 art 22������������������������������������������  19.35 Companies (Revision of Defective Accounts and Reports) Regulations 2008, SI 2008/373������������������������������  21.47 reg 4�����������������������������������������������  21.47 reg 4(2)�������������������������������������������  21.47 reg 7, 10, 12�����������������������������������  21.47 Companies (Reporting Requirements in Mergers and Divisions) Regulations 2011, SI 2011/1606 Pt 4�������������������������������������������������  36.9 Companies (Striking Off) (Electronic Communications) Order 2014, SI 2014/1602�������  24.23

Table of Statutory Instruments Companies (Tables A to F) Regulations 1985, SI 1985/805 Table A art 102��������������������������������������  17.15 Companies (Trading Disclosures) Regulations 2008, SI 2008/495����������������������������    4.1 Company and Business Names (Miscellaneous Provisions) Regulations 2009, SI 2009/1085��������������������������    4.2 reg 7, 8�����������������������������������������    2.18 Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015, SI 2015/17��������������������    4.1 reg 2���������������������������������������������    2.17 reg 20�������������������������������������������    4.2 reg 21(1)���������������������������������������    4.2 reg 22�������������������������������������������    4.2 reg 23(2), (3)��������������������������������    4.2 reg 24(1)���������������������������������������    4.5 reg 25(1)(c)����������������������������������    4.4 reg 26�������������������������������������������    4.6 reg 27�������������������������������������������    4.3 reg 28��������������������������������������  4.8, 12.9 reg 29(b)���������������������������������������    4.2 reg 29(d)���������������������������������������    4.5 Sch 5�����������������������������������������  4.4, 4.5, 4.6, 4.7 Companies, Limited Liability Partnerships and Partnerships (Amendment etc) (EU Exit) Regulations 2019, SI 2019/348 reg 3�����������������������������������������������  36.9 Compensation Orders (Disqualified Directors) Proceedings (England and Wales) Rules 2016, SI 2016/890������������������  37.36 Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020, SI 2020/1349�����������������    34.7 Electricity and Gas (Market Integrity and Transparency) (Enforcement etc) Regulations (Northern Ireland) 2013, SR 2013/208���������������������������    12.2 Employment Equality (Age) Regulations 2006, SI 2006/1031�������������������������  12.37, 15.83 reg 30�������������������������������������������  15.83

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Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013, SI 2013/1237 Sch 1 para 16(1)���������������������������������  15.37 para 20��������������������������������������  15.37 Employment Tribunals (Early Conciliation: Exemptions and Rules of Procedure) Regulations 2014, SI 2014/254 reg 3���������������������������������������������  15.38 Enterprise Act 2002 (Commencement No 4 and Transitional Provisions and Savings) Order 2003, SI 2003/2093�������������������  29.1, 30.4 art 3(3)������������������������������������������    29.1 Enterprise Act 2002 (Insolvency) Order 2003, SI 2003/2096 art 4����������������������������������������������    31.2 art 6����������������������������������������������    31.2 Sch para 8����������������������������������������    31.2 para 10��������������������������������������    31.2 Enterprise Act 2002 (Part 8 Request for Consultation) Order 2003, SI 2003/1375 art 6(c)������������������������������������������    12.2 Enterprise and Regulatory Reform Act 2013 (Competition) (Consequential, Transitional and Saving Provisions) Order 2014, SI 2014/892 Sch 1 para 53(c)���������������������������������    37.1 Equality Act 2010 (Disability) Regulations 2010, SI 2010/2128�����������  15.133, 15.134 Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, SI 2017/172 reg 2���������������������������������������������  12.17 reg 14�������������������������������������������  12.17 Financial Collateral Arrangements (No 2) Regulations 2003 (Amendment) Regulations 2009, SI 2009/2462����������������    6.4 Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001, SI 2001/1177�����������������  20.3, 20.29 Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001, SI 2001/1062��������������������������  20.23

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Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001, SI 2001/1062 – contd Schedule para 4�����������������������������  20.23, 20.29 para 9�����������������������������  20.23, 20.30 para 21����������������������������������������  20.23 para 21(2)�����������������������������������  20.23 Financial Services and Markets Act 2000 (Collective Investment Schemes) (Amendment) Order 2008, SI 2008/1641����������������������������  20.23 Financial Services and Markets Act 2000 (Collective Investment Schemes) (Amendment) (No 2) Order 2008, SI 2008/1813������������������  20.23 Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001, SI 2001/3649 art 305��������������������������������������������  31.26 Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, SI 2005/1529�������������������������  20.21, 20.22 Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001, SI 2001/1060������������������  20.21 Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, SI 2001/544���������  20.5 art 5������������������������������������������������  20.5 art 6–9G�����������������������������������������  20.5 art 10–12A��������������������������������������  20.5 art 14–22����������������������������������������  20.5 art 24–33A��������������������������������������  20.5 art 25(2)������������������������������������������  20.8 art 34, 35����������������������������������������  20.5 art 36–36IA������������������������������������  20.5 art 37–39K�������������������������������������  20.5 art 39L��������������������������������������������  20.5 art 40–50����������������������������������������  20.5 art 51ZA–51A��������������������������������  20.5 art 51ZC�����������������������������������������  20.8 art 52, 52B, 52C�����������������������������  20.5 art 53–53D�������������������������������������  20.5 art 54, 54B��������������������������������������  20.5 art 55–60H�������������������������������������  20.5 art 60I–60K������������������������������������  20.5 art 60N–60R�����������������������������������  20.5 art 61����������������������������������������������  20.5 art 62–63R �������������������������������������  20.5

Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, SI 2001/544 – contd art 66–72D�������������������������������������  20.5 art 72G, 72GA, 72H, 72I���������������  20.5 art 73–89����������������������������������������  20.8 art 89N–89W����������������������������������  20.5 Sch 5�����������������������������������������������  20.5 Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2009, SI 2009/1342 art 26, 31����������������������������������������  1.18 Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017, SI 2017/488����������������������������������  20.5 Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001, SI 2001/1420����������������������������  12.2 Flexible Working Regulations 2014, SI 2014/1398������������������������  15.129 Insolvency Act 1986 (Amendment) (No 2) Regulations 2002, SI 2002/1240 reg 3�����������������������������������������������  31.24 reg 8�����������������������������������������������  31.24 Insolvency Act 1986 (Prescribed Part) Order 2003, SI 2003/2097 art 2������������������������������������������������  33.16 art 3(1)(a), (b)���������������������������������  33.15 art 3(2)��������������������������������������������  33.15 Insolvency Act 1986 (Prescribed Part) (Amendment) Order 2020, SI 2020/211 art 2(2)��������������������������������������������  33.15 Insolvency Act 1986 Section 72A (Appointed Date) Order 2003, SI 2003/2095����������������������������  30.4 Insolvency Rules 1986, SI 1986/1925 r 4.218��������������������������������������������  34.18 Insolvency (Amendment) Rules 2010, SI 2010/686��������������������  27.1 Insolvency (England and Wales) Rules 2016, SI 2016/1024�������  27.2 r 1.42–1.44�������������������������������������  29.9 r 2.3�������������������������������������  28.8, 28.10 r 2.4������������������������������������������������  28.8 r 2.5������������������������������������������������  28.10 r 2.6������������������������������������������������  28.8 r 2.7������������������������������������������������  28.8 r 2.8������������������������������������������������  28.8 r 2.9������������������������������������������������  28.8 r 2.12����������������������������������������������  28.8 r 2.25–2.29�������������������������������������  28.10 r 2.36����������������������������������������������  28.6 r 3.16����������������������������������������������  29.8

Table of Statutory Instruments Insolvency (England and Wales) Rules 2016, SI 2016/1024 – contd r 3.23��������������������������������������������    29.9 r 4.5����������������������������������������������    30.9 r 4.6–4.11�������������������������������������  30.12 r 4.13��������������������������������������������  30.14 r 4.14��������������������������������������������  30.14 r 4.16��������������������������������������������  30.10 r 5.4����������������������������������������������    31.4 r 5.9����������������������������������������������    35.2 r 5.10��������������������������������������������    35.2 r 6.20��������������������������������������������    31.6 r 6.22��������������������������������������������    31.4 r 6.42(2)����������������������������������������  34.18 r 7.6����������������������������������������������  31.27 r 7.52��������������������������������������������  31.30 r 7.56��������������������������������������������    31.4 r 7.108(2)��������������������������������������  34.18 r 14.24������������������������������������������    33.5 r 14.25������������������������������������������    33.5 r 15.1�������������������������������������������  28.10, 29.15 r 15.2��������������������������������������������  31.30 r 18.14������������������������������������������    35.2 r 19.1–19.11���������������������������������  33.10 r 22.1–22.7����������������������������������  34.38, 34.41 r 22.4–22.5�����������������������������������  34.41 r 22.6��������������������������������������������  34.41 r 22.7��������������������������������������������  34.41 Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119��������  27.2, 34.3, 37.1 Sch 1 para 1����������������������������������������  34.18 para 5����������������������������������������  37.13 para 28��������������������������������������  12.20 Insolvent Partnerships Order 1986, SI 1986/2142��������������������������    27.1 Insolvent Partnerships Order 1994, SI 1994/2421���������������������������  27.1, 29.1, 37.2 art 6����������������������������������������������    29.1 Sch 2���������������������������������������������    29.1 Insolvent Partnerships (Amendment) Order 2001, SI 2001/767���������������������  27.1, 37.2 Insolvent Partnerships (Amendment) Order 2002, SI 2002/1308�����    27.1 Insolvent Partnerships (Amendment) (No 2) Order 2002, SI 2002/2708��������������������������    27.1 Insolvent Partnerships (Amendment) Order 2005, SI 2005/1516�������������������  27.1, 29.1 Insolvent Partnerships (Amendment) Order 2006, SI 2006/622�������    27.1

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International Accounting Standards and European Public Limited-Liability Company (Amendment etc) (EU Exit) Regulations 2019, SI 2019/685����������������������������    21.8 Land Registry Rules 2003, SI 2003/1417��������������������������    4.13 reg 206(3)�������������������������������������    4.13 Sch 9 Form F��������������������������������������    4.13 Large and Medium-sized Limited Liability Partnerships (Accounts) Regulations 2008, SI 2008/1913���������������������������  8.18, 16.2, 21.13 reg 5���������������������������������������������  21.18 Sch 1 Pt 1 (paras 1–9)������������������������  21.17 s A����������������������������������������  21.16 para 1–1A�����������������������������  21.16 para 2(1), (2)������������������������  21.16 para 3(1), (2)������������������������  21.17 para 4������������������������������������  21.15 para 4(1), (2)������������������������  21.17 para 45����������������������������������  21.15 s B����������������������������������������  21.16 s C����������������������������������������  21.16 Pt 2 (paras 10–41)��������������������  21.14 para 11–15A�������������������������  21.14 Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410 Sch 7 para 20A–20K��������������������  21.22 Law Applicable to Contractual Obligations and NonContractual Obligations (Amendment etc) (EU Exit) Regulations 2019, SI 2019/834���������������������������  26.22, 26.32 Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2010, SI 2010/18 art 5(1)������������������������������������������  30.12 art 12(4)����������������������������������������  30.12 Licensing (Northern Ireland) Order 1996, NI 1996/3158 art 2B��������������������������������������������    12.2 Limited Liability Partnerships Act 2000 (Commencement) Order 2000, SI 2000/3316�����    1.15 Limited Liability Partnerships (Application of Companies Act 2006) (Amendment) Regulations 2013, SI 2013/618����������������������������    6.3

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Limited Liability Partnerships (Application of Companies Act 2006) (Amendment) Regulations 2013, SI 2013/618 – contd reg 2���������������������������  6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.14, 6.15, 6.16 Sch 1 para 1������������������������������������������  13.31 Limited Liability Partnerships Regulations 2001, SI 2001/1090���������  1.16, 1.17, 1.18, 1.19, 1.20, 1.23, 1.26, 10.4, 10.5, 12.2, 13.18, 24.1, 26.7, 27.1, 27.2, 27.3, 29.1, 31.21, 32.25, 37.1, 37.2, 37.3, 37.9, 37.10, 37.13, 37.22, 37.24, 37.26, 37.28 reg 2��������������������������������������  10.5, 10.7 reg 2A������������������������������������  1.26, 3.12 reg 3��������������������������������������  8.18, 8.26 reg 4�������������������  1.18, 3.20, 3.21, 8.17, 8.21, 8.33, 8.34, 8.36, 8.38, 11.38, 13.30, 14.16, 14.24, 19.10, 24.1, 24.4, 24.5, 24.6, 24.7, 24.8, 24.9, 24.10, 24.11, 24.12, 24.13, 24.14, 24.15, 24.18 reg 4(1)(i)���������������������������������������  1.17 reg 4(2)����������������������  24.18, 27.1, 37.1, 37.2, 37.9, 37.11, 37.12, 37.13, 37.14, 37.15, 37.24, 37.26, 37.27, 37.29, 37.31, 37.33, 37.34, 37.35, 37.37, 37.38, 37.41 reg 4(2)(a)��������������������  37.1, 37.2, 37.9 reg 4(2)(b)������������������������������������  12.26 reg 4(2)(i)���������������������������������������  1.17 reg 5�������������������  3.19, 3.20, 3.21, 8.15, 8.16, 8.17, 8.18, 8.20, 8.33, 8.34, 8.38, 8.39, 11.48, 12.18, 13.30, 14.15, 14.17, 14.27, 14.28, 14.35, 17.9, 17.10, 19.10, 19.26, 24.17, 24.18, 27.1, 28.2, 28.3, 28.5, 28.8, 28.9, 28.10, 28.11, 28.12, 28.13, 29.1, 29.2, 29.3, 29.4, 29.5, 29.6, 29.7, 29.8, 29.9, 29.11, 29.12, 29.13, 29.14, 29.15, 29.16, 29.17, 29.18, 29.19, 29.20, 29.21, 29.22, 29.23, 29.25, 30.3, 30.4, 30.5, 30.6, 30.7, 30.8, 30.9, 30.10, 30.11, 30.12, 30.13, 30.14, 31.3, 31.4, 31.7, 31.8, 31.12, 31.13, 31.14, 31.16, 31.27, 31.29, 31.30, 31.31, 31.33, 31.34, 32.1, 32.3,

Limited Liability Partnerships Regulations 2001, SI 2001/1090 – contd 32.8, 33.1, 33.2, 33.8, 33.10, 33.11, 33.12, 33.15, 33.16, 34.1, 34.3, 34.4, 34.14, 34.15, 34.17, 34.20, 34.21, 34.22, 34.23, 34.25, 34.26, 34.29, 34.30, 34.31, 34.32, 34.33, 34.34, 34.37, 34.38, 34.39, 34.40, 34.42, 35.2, 35.3, 35.4, 35.5, 36.8 reg 5(1)��������������������������������  34.8, 34.39 reg 5(2)��������������������������������  34.8, 34.39 reg 5(2)(a)��������������������������������������  34.39 reg 5(2)(b)�������������������������  30.13, 31.16 reg 5(2)(f)���������������������������������������  34.8 reg 5(2)(g)���������������������������  1.17, 31.21 reg 5(3)�������������������������������������������  34.8 reg 6�����������������������������������������������    8.1 reg 7���������������������  1.6, 1.23, 8.28, 10.7, 10.8, 10.11, 10.33, 10.43, 10.44, 11.50, 13.12, 14.1, 14.3, 14.19, 17.12, 19.2, 32.17 reg 7 default rule (1)��������  13.17, 13.18, 14.1, 14.2, 14.3, 14.19, 16.2, 16.10, 16.11, 16.12, 16.13, 16.16, 16.18, 17.12, 19.19, 19.22, 19.24, 19.39, 33.8, 33.9 reg 7 default rule (2)������������  5.12, 12.3, 12.21, 14.3, 14.19, 14.21, 17.12 reg 7 default rule (3)����������  12.28, 14.1, 14.3, 14.19, 17.1, 17.2, 17.8, 17.12, 17.15, 17.19, 17.20, 32.20 reg 7 default rule (4)��������  12.33, 13.17, 14.3, 14.19, 17.2, 17.12 reg 7 default rule (5)�����  8.5, 8.18, 8.24, 12.30, 14.3, 14.4, 14.19, 17.12, 19.34 reg 7 default rule (6)���  4.22, 14.1, 14.3, 14.4, 14.19, 17.2, 17.5, 17.6, 17.8, 17.11, 17.12, 17.13, 17.17, 24.19, 28.7 reg 7 default rule (7)��������  12.18, 12.34, 13.31, 14.3, 14.4, 14.5, 14.6, 14.9, 14.15, 14.16, 14.17, 14.18, 14.19, 15.190, 17.9, 17.12, 21.4 reg 7 default rule (8)��������  12.18, 12.34, 13.30, 13.31, 14.3, 14.18, 14.19, 15.190, 17.12, 17.40

Table of Statutory Instruments Limited Liability Partnerships Regulations 2001, SI 2001/1090 – contd reg 7 default rule (9)��������  13.11, 13.18, 14.3, 14.19, 17.7, 17.9, 17.12 reg 7 default rule (10)��������  13.9, 13.11, 13.18, 14.3, 14.19, 17.9, 17.12 reg 7 default rule (11)���������  11.41, 14.3, 14.19, 19.13 reg 8���������������������  1.6, 1.23, 8.28, 10.5, 10.7, 10.8, 10.33, 10.43, 10.44, 11.50, 14.1, 19.2, 19.10, 32.17, 32.20 reg 9���������������������������  4.11, 10.4, 10.13 reg 10�������������������������������������������    27.1 reg 10(1)(b)���������  28.6, 28.8, 35.2, 35.4 Sch 1���������������������������������������������    1.21 Sch 2 Pt I����������������  3.20, 3.21, 8.26, 14.16, 14.24, 24.1, 24.4, 24.5, 24.6, 24.7, 24.8, 24.9, 24.10, 24.11, 24.12, 24.13, 24.14, 24.15, 24.18 Pt II������������������������  24.18, 27.1, 37.1, 37.13, 37.33 Sch 3������������  3.19, 3.20, 3.21, 8.1, 8.15, 8.16, 8.17, 8.18, 8.20, 8.33, 8.34, 8.38, 8.39, 12.18, 14.15, 14.17, 14.27, 14.28, 14.35, 27.2, 27.3, 28.1, 28.2, 28.3, 28.5, 29.1, 32.1, 32.3, 32.8, 33.6, 34.8 para 1�������������������  24.17, 24.18, 28.8, 28.9, 28.10, 28.11, 28.12, 28.13, 29.2, 29.5, 29.9, 29.10, 29.17, 29.24, 31.1, 31.2, 31.3, 31.4, 31.5, 31.6, 31.7, 31.9, 31.16, 31.17, 31.28, 33.1, 33.2, 33.4, 33.8, 33.10, 33.11, 33.12, 33.15, 33.16, 34.1, 34.3, 34.4, 34.14, 34.15, 34.17, 34.20, 34.21, 34.22, 34.23, 34.25, 34.26, 34.27, 34.29, 34.30, 34.31, 34.32, 34.33, 34.34, 34.37, 34.38, 34.40, 34.42, 36.1, 36.2, 36.4, 36.5, 36.6, 36.7, 36.8 para 12��������������������������������������    2.22 Sch 5��������������������  1.15, 1.20, 10.4, 12.2 para 3����������������������������������������    4.11 para 15���������������������  36.1, 36.4, 36.5, 36.6, 36.7 para 20��������������������������������������  10.13 Sch 6����������������������������  27.1, 28.6, 28.8, 35.2, 35.4 para 3����������������������������  33.10, 34.18, 34.38, 34.41

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Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911���������  1.16, 1.17, 1.18, 1.19, 8.19, 21.2 reg 2���������������������������������������������    21.2 reg 5���������������������������������  21.10, 21.11, 21.12, 21.21 reg 5A���������������������  21.10, 21.11, 21.12 reg 6���������������������������������  13.13, 13.30, 13.31, 14.3, 14.5, 14.14, 21.3, 21.4, 21.5 reg 7���������������������������������������������    21.7 reg 8������������������������������������  13.21, 21.9 reg 9��������������������������  13.21, 21.1, 21.8, 21.13, 21.24, 21.25, 21.31, 21.38 reg 10�����������������������  8.18, 21.26, 21.27 reg 11�������������������������  17.9, 21.8, 21.18, 21.28, 21.29, 21.30 reg 12������������  12.14, 13.21, 17.9, 21.38 reg 12A�����������������������������������������  12.21 reg 12B�����������������������������������������  12.22 reg 13�������������������������������  14.22, 21.45, 21.47, 22.3, 22.25 reg 14��������������������������������  13.31, 21.45 reg 15���������������������  13.31, 14.22, 21.45 reg 16����������  13.31, 21.38, 21.39, 21.46 reg 17���������  12.14, 13.31, 14.22, 14.23, 21.7, 21.19, 21.39, 21.40, 21.41, 21.44, 21.46, 21.47 reg 18��������������������������������  21.39, 21.40 reg 19��������������������������������  21.39, 21.40 reg 19A������������������������������  12.14, 21.25 reg 21�������������������������������������������    17.9 reg 22����������  12.14, 14.23, 21.42, 21.43 reg 23����������  13.21, 21.47, 21.48, 21.49 reg 24�������������������������������������������  21.48 reg 24A������������������������������  21.21, 21.22 reg 25�������������������������������������������  21.15 reg 26���������������������  21.10, 21.11, 21.12 reg 28�������������������������������������������  21.50 reg 29����������������������������������  21.1, 21.31 reg 32������������������������  8.19, 21.8, 21.10, 21.12, 21.21, 21.24, 21.26 reg 33������������  21.31, 21.52, 21.54, 22.1 reg 34������������  14.22, 21.51, 21.52, 22.1 reg 34A������������������������������  21.51, 21.53 reg 35�����������������������  21.51, 21.54, 22.1 reg 36�������������  12.9, 12.15, 13.21, 17.9, 22.2, 22.3, 22.4, 22.5, 22.6, 22.7, 22.8, 22.9, 22.10, 22.17 reg 37��������������������������������  12.15, 22.16 reg 38�������������������������������������������  21.36

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Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911 – contd reg 38A�������������������������������������������  22.8 reg 38B����������������������������������  22.7, 22.8 reg 39����������������������������������  21.31, 22.1 reg 40���������  13.30, 21.32, 21.33, 21.34, 21.35, 22.14, 22.21, 22.23 reg 41��������������  12.9, 17.9, 21.37, 22.15 reg 43����������������������  12.9, 14.22, 22.17, 22.18, 22.19, 22.20 reg 44�������������������������������������������  22.21 reg 45����������  12.16, 14.22, 22.22, 22.23 reg 46������������������������  12.9, 14.22, 22.7, 22.20, 22.23, 22.24, 22.25, 22.26, 22.27, 22.30, 22.31, 22.32 reg 48����������������������������������  7.19, 22.11 reg 49���������������������  12.10, 12.11, 22.29 reg 52��������������������������  8.19, 8.23, 8.27, 21.25, 22.25 reg 53�������������������������������������������  21.54 reg 55��������������  21.26, 21.37, 22.7, 22.8 reg 58���������������������������������������������  1.16 Limited Liability Partnerships (Amendment) Regulations 2005, SI 2005/1989���������  27.2, 31.2 reg 3�����������������������������  27.2, 29.1, 30.3 Sch 2�����������������������������  27.2, 29.1, 30.3 Limited Liability Partnerships (Amendment) Regulations 2007, SI 2007/2073��������  1.16, 1.18, 24.1, 24.15 Limited Liability Partnerships (Amendment) Regulations 2020, SI 2020/643����������  17.9, 27.3, 28.1 reg 2(2)�������������������������������������������  28.1 Sch 1���������������������������  12.18, 28.2, 28.3 para 2������������������������������������������  12.21 para 5������������������������������������������  12.21 para 6������������������������������������������  12.21 para 9������������������������������������������  12.21 para 11����������������������������������������  12.21 Limited Liability Partnerships (Amendment etc) Regulations 2021, SI 2021/60����������  12.21, 17.9, 27.3, 28.1 Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804�����������  1.5, 1.15, 1.16, 1.17, 1.18, 1.19, 1.21, 1.22, 1.26, 2.15, 3.19, 12.5, 12.17, 14.40, 14.41, 26.7, 27.1, 27.2, 36.9

Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804 – contd reg 2���������������������  2.3, 2.17, 2.18, 2.22, 2.23, 2.25, 2.26, 2.27, 2.29, 2.37, 2.41, 3.11, 3.12, 3.13, 3.14, 3.15, 3.17, 3.21, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.23, 4.24, 4.25, 4.28, 4.30, 6.17, 6.18, 6.19, 6.20, 6.21, 6.22, 6.24, 6.26, 6.27, 6.28, 6.29 reg 4�������������������   3.11, 4.11, 4.12, 4.13, 4.14, 4.15, 4.17, 13.30, 26.9 reg 6�����������������������������������������������  4.18 reg 7��������������������������������������  4.16, 4.19 reg 8�����������������������������������������������  2.49 reg 9�����������������������������������������������  2.17 reg 10���������������������������������������������  1.28 reg 11�������������������  2.17, 2.18, 4.23, 12.9 reg 12���������������������������������������������  4.24 reg 13������������������������������������  4.23, 12.9 reg 15�����������������������������������������������  4.2 reg 16��������������������������  1.10, 3.12, 3.15, 3.17, 17.9 reg 17������������������������������������  2.22, 2.23 reg 18���������������������  1.7, 2.3, 2.25, 2.26, 2.27, 3.13, 12.5, 12.9 reg 19����������������������������  8.9, 8.10, 8.11, 8.12, 8.14 reg 20���������������������������  6.2, 6.27, 13.31 reg 21��������������������������  3.13, 6.17, 6.18, 6.19, 6.20, 6.21, 13.31, 14.22 reg 22��������������  6.27, 6.29, 12.14, 13.31 reg 23��������������������  6.2, 6.26, 6.27, 6.28 reg 24���������������������������������������������  6.30 reg 25���������������������������������������������  13.31 reg 30��������������������������  3.14, 4.27, 4.28, 4.29, 12.5, 12.9 reg 31ZA����������������������������������������  12.9 reg 31C�������������������������������������������  12.9 reg 31E�������������������������������������������  12.9 reg 31F�������������������������������������������  12.9 reg 31JA�����������������������������������������  12.9 reg 32��������������������������������  13.31, 14.22 reg 45�������������������������������  13.30, 13.31, 14.22, 17.9 reg 45(1)�����������������������  8.18, 36.1, 36.2 reg 46���������������������������������������������  36.9 reg 48��������������������������  3.21, 8.18, 8.20, 8.26, 11.32, 22.21, 24.18, 32.3 reg 50��������������������  24.19, 24.20, 24.23, 24.27, 24.28, 24.30 reg 51��������������������  24.20, 24.24, 24.25, 24.26, 24.28 reg 52�����������������������  24.20, 24.21, 35.6

Table of Statutory Instruments Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804 – contd reg 53�������������������������  3.11, 24.21, 35.6 reg 56��������������������������������  24.30, 24.31 reg 57��������������������  24.32, 24.33, 24.34, 24.35, 24.36, 24.37 reg 58����������������������  12.9, 24.21, 24.22, 24.38, 24.39 reg 59����������������������������������  26.7, 26.35 Pt 15 (regs 60–69)������������������������    1.9 reg 60��������������������������������������  1.9, 1.18 reg 61������������������  1.11, 1.13, 2.41, 4.25 reg 62�������������������������������������������    2.37 reg 63�����������������������������  1.11, 3.15, 8.8 reg 64���������������������������  1.11, 1.12, 8.13 reg 65�������������������������������������������  24.20 reg 66������������������  1.13, 3.11, 8.13, 8.14 reg 67������������������  8.6, 8.7, 24.40, 24.42 reg 69������������������������������  4.30, 8.6, 8.7, 8.30, 14.23 reg 70���������������������  12.10, 12.11, 13.31 reg 74�����������������������������������  2.29, 6.17, 6.22, 6.24, 13.31, 21.6, 21.45 reg 75�������������������������  2.25, 3.12, 26.12 reg 77��������������������������������  13.26, 14.34 reg 81�������������������������������������������  11.52 reg 82�������������������������������������������    1.22 reg 83����������������������������  2.25, 4.17, 6.4, 8.14, 24.21 reg 84���������������������������������������������  1.26 reg 85�����������������������������������  1.16, 2.16, 12.11, 24.1 Sch 1 para 2(1), (2)����������������������������    4.17 Pt 3 (paras 3, 4)������������������������    2.19 para 5����������������������������������������    2.25 para 5(1)�����������������������������������    2.25 para 8(a)�����������������������������������    2.25 para 11��������������������������������������    8.14 Pt 6 (paras 16–21)��������������������    6.4 para 22��������������������������������������  24.21 para 24, 25��������������������������������  24.33 Pt 8 (para 27–33) para 27����������������������������������    1.9 para 28����������������������������������    1.13 para 32����������������������������������    1.10 Sch 2���������������������������������������������    1.26 Sch 3��������������������������������������  2.16, 27.3 Pt 1 (paras 1–11)����������������������    1.15 Pt 2 (paras 12–17)�������������  1.16, 24.1 para 12(1)(a)�������������������������    1.9 para 12(1)(b)������������������������    1.13 para 13����������������������������������    24.1 para 15(4)�����������������������������  12.11 Sch 5���������������������������������������������    1.15

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Limited Liability Partnerships (Application of Companies Act 2006) (Amendment) Regulations 2013, SI 2013/618����������������������������  14.22 reg 2���������������������������������������������    3.13 Limited Liability Partnerships (2002 Act) (Commencement) Order (Northern Ireland) 2004, SRNI 2004/306����������������������    1.26 Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016, SI 2016/340������������������������������  8.40 reg 1(3)����������������������������������  6.22, 6.24 Sch 1 para 1����������������������������������    12.9 Sch 3 para 7���������������������������  6.22, 6.24 Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017, SI 2017/425 reg 4���������������������������������������������    12.9 reg 5���������������������������������������������  12.17 reg 9���������������������������������������������    12.9 Limited Liability Partnerships, Partnerships and Groups (Accounts and Audit) Regulations 2016, SI 2016/575 Pt 2�����������������������������������������������  13.28 reg 7(2)�����������������������������������������  13.28 reg 12�������������������������������������������  12.14 Management of Health and Safety at Work Regulations 1999, SI 1999/3242 reg 3(1)(b)������������������������������������  15.108 reg 16�������������������������������������������  15.108 Maternity Allowance (Curtailment) Regulations 2014, SI 2014/3053��������������������������  15.127 Maternity and Parental Leave etc Regulations 1999, SI 1999/3312 reg 2������������������������������  15.112, 15.123 reg 4, 5�����������������������������������������  15.123 reg 8������������������������������  15.112, 15.122 Money Laundering Regulations 2007, SI 2007/2157����������������  20.21 Occupational and Personal Pension Schemes (Automatic Enrolment) (Miscellaneous Amendments) Regulations 2016, SI 2016/311 reg 4(3)�����������������������������������������  15.189 Official Feed and Food Controls (Wales) Regulations 2009, SI 2009/3376����������������������������  12.2

lxxvi

Table of Statutory Instruments

Operation of Air Services in the Community (Pricing etc) Regulations 2013, SI 2013/486������������������������������  12.2 Overseas Companies Regulations 2009, SI 2009/1801 reg 54���������������������������������������������  14.15 reg 58(2)�����������������������������������������  26.7 reg 61, 62���������������������������������������  26.7 reg 66���������������������������������������������  26.8 reg 67���������������������������������������������  26.7 Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, SI 2000/1551����������  15.176, 15.177, 15.178, 15.181, 15.184, 15.185, 15.188 reg 1(2)���������������������������������������  15.184 reg 2(1), (2)��������������������������������  15.176 reg 2(4)���������������������������������������  15.176 reg 2(4)(a)(i), (ii)������������������������  15.181 reg 2(4)(b)����������������������������������  15.181 reg 3(2)�������������  15.176, 15.180, 15.183 reg 4�������������������������������������������  15.183 reg 5���������������������������������  9.28, 15.176, 15.183, 15.187, 15.188 reg 5(1)��������������������������  15.176, 15.178 reg 5(2)���������������������������������������  15.179 reg 5(3)���������������������������������������  15.184 reg 6(1)��������������������������  15.176, 15.188 reg 6(3)���������������������������������������  15.188 reg 7�����������������������������������������������  9.28 reg 7(2)�������������������������  15.176, 15.185, 15.187 reg 8(2), (3)��������������������������������  15.186 reg 8(7)(a)–(c)����������������������������  15.186 reg 8(9)���������������������������������������  15.186 reg 8(9)(a), (b)����������������������������  15.186 reg 8(11)�������������������������������������  15.187 reg 8(12), (13), (14)(a)���������������  15.186 Payment Services Regulations 2009, SI 2009/209������������������������������  20.6 People with Significant Control (Amendment) Regulations 2017, SI 2017/693 reg 26���������������������������������������������  12.9 Public Interest Disclosure (Prescribed Persons) Order 2014, SI 2014/2418��������������  15.167 Registrar of Companies and Applications for Striking Off Regulations 2009, SI 2009/1803��������������������  2.24, 8.6, 8.7, 24.41 reg 3�����������������������������������������������  1.12 Register of People with Significant Control Regulations 2016, SI 2016/339������������������������������  8.40

Renewables Obligations Closure Order (Northern Ireland) 2015, SR 2015/346 art 9(9)��������������������������������������������  12.17 Reporting on Payment Practices and Performance Regulations 2017, SI 2017/395������������������������������  12.9 reg 5�����������������������������������������������  12.17 reg 8�����������������������������������������������  12.9 Rules of the Supreme Court 1965, SI 1965/1776 Order 2 r 1�����������������������������������������������  3.12 Shared Parental Leave Regulations 2014, SI 2014/3050�����������  15.127, 15.128 reg 3�������������������������������������������  15.128 reg 4(2)���������������������������������������  15.128 reg 5, 35, 36�������������������������������  15.128 Shared Parental Pay (General) Regulations 2014, SI 2014/3051 reg 5�������������������������������������������  15.128 Small Limited Liability Partnerships (Accounts) Regulations 2008, SI 2008/1912������������������  8.18, 16.2, 21.13, 21.15, 21.19, 21.24 reg 7�����������������������������������������������  21.18 Sch 1 Pt 1 (paras 1–9)��������������������������  21.17 s A������������������������������������������  21.16 para 1–1C�������������������������������  21.16 para 1A(1), (2)�����������������������  21.19 para 1B�����������������������������������  21.20 para 2A�����������������������������������  21.16 para 3(1A)������������������������������  21.24 para 5A�����������������������������������  21.24 s B�����������������������������  21.16, 21.19 s C�����������������������������  21.16, 21.24 Pt 2 (paras 10–41)����������������������  21.14 para 11–15A���������������������������  21.14 Pt 3 (paras 42–70) para 55������������������������������������  21.24 Social Security Contributions (Limited Liability Partnership) Regulations 2014, SI 2014/3159�������������  15.120, 15.128 Social Security Contributions (Limited Liability Partnership) (Amendment) Regulations 2015, SI 2015/607����������������  15.120 Stamp Duty Land Tax (Appointment of the Implementation Date) Order 2003, SI 2003/2899������������������������  23.127

Table of Statutory Instruments Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc) Order 2012, SI 2012/1741�����  22.12 Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/246����������  7.11, 9.29, 9.33, 15.189 reg 2���������������������������������������������    9.34 reg 2(1)���������������������������������  9.29, 9.31, 9.32 reg 4��������������������������������������  7.11, 9.29 reg 4(7), (8)����������������������������������    7.11

lxxvii

Tribunals, Courts and Enforcement Act 2007 (Consequential Amendments) Order 2012, SI 2012/2404 Sch 1 para 1����������������������������������������  37.34 Unfair Terms in Consumer Contracts Regulations 1999, SI 1999/2083����  14.30, 18.19, 18.25 Schedule Working Time Regulations 1998, SI 1998/1833���������������  9.28, 15.189 reg 4, 6, 7, 12, 13�������������������������    9.28

lxxviii

TABLE OF UNITED KINGDOM MATERIALS All references are to paragraph number

CODES OF PRACTICE ACAS Code of Practice on Disciplinary and Grievance Procedures�������������������  15.71, 15.72 Equality and Human Rights Commission Employment Statutory Code of Practice��������������������  15.24, 15.104, 15.117, 15.134, 15.145, 15.151, 15.154, 15.155, 15.156 para 6.10���������������������������������������  15.145 para 6.16���������������������������������������  15.149 para 6.28, 6.33������������������������������  15.151 para 8.6�����������������������������������������  15.115 para 8.22, 8.23������������������������������  15.117 para 10.25�������������������������������������  15.154 para 10.38�������������������������������������  15.156 para 10.39�������������������������������������  15.155 ICO Subject Access Code of Practice������������������  15.191, 15.194, 15.195 EQUALITY AND HUMAN RIGHTS COMMISSION GUIDANCE Technical Guidance to Sexual harassment and harassment at work���������������������������������������  para 2.15–2.18������������������������������  para 2.21���������������������������������������  para 5.4�����������������������������������������  para 5.34���������������������������������������  para 5.47–5.48������������������������������  para 5.70���������������������������������������  para 7.8����������������������������������������� 

15.72 15.67 15.67 15.70 15.70 15.73 15.74 15.66

FINANCIAL CONDUCT AUTHORITY GUIDANCE MANUALS General Prudential Sourcebook (GENPRU) ����������������������������  GENPRU 2.2.62���������������������������  GENPRU 2.2.83(2) ���������������������  GENPRU 2.2.93–2.2.100�������������  Investment Funds Sourcebook FUND 1.4�������������������������������������  FUND 3.2–3.9������������������������������  FUND 3.10�����������������������������������  FUND 3.11����������������������������������� 

20.19 20.19 20.19 20.19 20.12 20.12 20.11 20.12

Perimeter Guidance Manual PERG 2�����������������������������������������    20.5 PERG 2.4��������������������������������������    20.3 PERG 8.32������������������������������������    20.8 PERG 16��������������������������  20.10, 20.11, 20.33 PERG16.2������������������������  20.33, 20.34, 20.36 Principles for Business (PRIN)��������  20.18 Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU)����  20.19 Supervision SUP 10C���������������������������������������  20.17 SUP 10C.5.16�������������������������������  20.17 SUP 10C.5.18/19��������������������������  20.17 Senior Management Arrangements, Systems and Controls SYSC 6.3�������������������������������������  20.21 SYSC 19B������������������������������������  20.12 SYSC 23��������������������������������������  20.17 Annex 1 Pt 4���������������������������������  20.17 Threshold Conditions (COND)��������  20.16 FINANCIAL REPORTING STANDARDS FRS 8������������������������������������������������    8.34 para 2.5(b)�������������������������������������    8.34 FRS 102����������������������������������  21.15, 23.3 s 1A����������������������������������������������  21.15 FRS 105�������������������������������������������  21.15 HM REVENUE & CUSTOMS Business Brief No 3/2001 (February 2001)��������������������������  23.3, 23.134, 23.135 International Manual INTM180030�������������������������������  23.172 INTM412060�������������������������������  23.146 INTM412080�������������������������������  23.147 INTM412090�������������������������������  23.147 Revenue & Customs Brief 03/08�����  23.120 STATEMENTS OF PRACTICE HMRC D12����������������������   23.116, 23.117, 23.118, 23.119, 23.120 HMRC 9/86��������������������������������������  23.70 Land Registry Practice Guide 8 (July 2015) para 5.2�������������������������������������������  4.13

lxxx

Table of United Kingdom Materials

STATEMENTS OF RECOMMENDED PRACTICE FOR LLPS SORP (December 2018)�����������  7.18, 11.8, 16.8, 16.9, 23.3, 23.26, 23.117, 23.119 para BC8����������������������������������������  16.9 para 17��������������������������������������������  16.3 para 24��������������������������������������������  16.14 para 30–31��������������������������������������  21.23 para 32–34��������������������������������������  16.9 para 55��������������������������������������������  16.14 para 61����������������������  11.9, 16.14, 16.18 para 63��������������������������������������������  16.2 para 69���������������������������������  16.9, 16.15 para 75–94�����������������������������  7.17, 7.18 para 117–120����������������������������������  11.39 para 128–131����������������������������������  8.34 Appendix 5�������������������������������������  16.13 TAX BULLETINS Issue 50����������������������������������  23.3, 23.10, 23.15, 23.69, 23.70, 23.75, 23.76, 23.79, 23.96, 23.97, 23.113, 23.118, 23.123, 23.124, 23.126, 23.132, 23.160

Issue 83������������������������������������������  23.172 UK Generally Accepted Accounting Practice (GAAP)������������  21.2, 21.8, 21.15, 23.3, 23.26, 23.30 UK RETAINED EU LEGISLATION United Kingdom General Data Protection Regulation (UK GDPR)�������������������  15.190, 15.195, 15.196 Recital 65, 66�����������������������������  15.196 Art 4(1)���������������������������������������  15.191 Art 4(6)���������������������������������������  15.192 Art 12(3)�������������������������������������  15.194 Art 15����������������������������������������  15.191, 15.192 Art 15(1)�������������������������������������  15.191 Art 16, 17, 18(1)�������������������������  15.196 Art 77�����������������������������������������  15.195 Art 79�����������������������������������������  15.196 Art 82�����������������������������������������  15.196 Art 82(3)�������������������������������������  15.196 Art 83�����������������������������������������  15.196 Art 83(5)�������������������������������������  15.195

TABLE OF INTERNATIONAL MATERIALS All references are to paragraph number

BELIZE Limited Liability Partnership Act, Chapter 258����������������������������  25.33 s 3(2) �������������������������������������������  25.33 s 3(4)���������������������������������  25.33, 25.34 s 4(2) �������������������������������������������  25.34 s 5�������������������������������������������������  25.34 s 5(2) �������������������������������������������  25.34 s 6�������������������������������������������������  25.34 s 6(1) �������������������������������������������  25.34 s 7, 8���������������������������������������������  25.34 s 9�������������������������������������������������  25.33 s 10�����������������������������������������������  25.34 s 12(3) �����������������������������������������  25.34 s 16(1), (2), (3) ����������������������������  25.33 s 17(2), (3) �����������������������������������  25.34 s 21�����������������������������������������������  25.33 s 22(1) ������������������������������  25.33, 25.34 s 24�����������������������������������������������  25.34 s 26(4) �����������������������������������������  25.33 s 26(4)(d) �������������������������������������  25.34 s 47�����������������������������������������������  25.34 CAYMAN ISLANDS Citation of Acts of Parliament Act 2020���������������������������������  Constitution (Amendment) Order 2020���������������������������������������  Exempted Limited Partnership Law 2018���������������������������������������  Limited Liability Partnership Act (Act 13 of 2017)���������������������  s 4(1), (2), (4), (5), (7), (10) ��������  s 5 ������������������������������������������������  s 6�������������������������������������������������  s 7(1), (2) �������������������������������������  s 8(1) �������������������������������������������  s 9�������������������������������������������������  9(3)(a), (f), (4)(c), (5)�������������������  s 10�����������������������������������������������  s 11(1), (2), (6)�����������������������������  s 12(1), (2), (3) ����������������������������  s 15�����������������������������������������������  s 16�����������������������������������������������  s 18�����������������������������������������������  s 20�����������������������������������������������  s 24�����������������������������������������������  s 42�����������������������������������������������  s 44����������������������������������������������� 

25.35 25.35 13.38 25.35 25.35 25.35 25.35 25.35 25.35 25.36 25.36 25.36 25.36 25.35 25.35 25.35 25.35 25.36 25.35 25.36 25.35

Limited Liability Partnership Act (Act 13 of 2017) – contd s 49(1), (3)������������������������������������  25.36 s 55�����������������������������������������������  25.36 s 59�����������������������������������������������  25.36 s 67–71�����������������������������������������  25.36 Limited Liability Partnership (Amendment) Act 2018����������������������������  25.35, 25.36 Limited Liability Partnership (Amendment) Act 2019���������  25.35 s 2�������������������������������������������������  25.36 Limited Liability Partnership (Amendment) Act 2020����������������������������  25.35, 25.36 DUBAI Limited Liability Partnership Law (DIFC Law No 5 of 2004)�����    25.6 art 8(1), (2)�����������������������������������    25.6 art 8(3)(a)�������������������������������������    25.6 art 9����������������������������������������������    25.7 art 15��������������������������������������������    25.6 art 17(2), (3)���������������������������������    25.7 art 17(5)����������������������������������������    25.6 art 18–20��������������������������������������    25.7 art 23(2)����������������������������������������    25.6 art 23(7)����������������������������������������    25.6 art 25–34��������������������������������������    25.6 Limited Liability Partnership Regulations 2018�������������������    25.6 reg 2.2������������������������������������������    25.6 Operating Law (DIFC Law No 7 of 2018) art 13��������������������������������������������    25.6 Ultimate Beneficial Ownership Regulations 2018�������������������    25.6 EUROPE AGREEMENTS AND CONVENTIONS Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (Brussels, 9 September 1968)���    26.3 Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (Lugano, 16 September 1988)�������������������������������  26.3, 26.6

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Hague Convention on Choice of Court Agreements 2005����    26.6, 26.13 Art 6�����������������������������������������������  26.6 Rome Convention on the Law Applicable to Contractual Obligations 1980����������������������  10.51 DIRECTIVES Directive 68/151/EEC������������������������  2.25 Art 3�����������������������������������������������  2.25 Directive 91/674/EEC Art 2(1)�������������������������������������������  21.12 Directive 92/85/EEC���������  15.109, 15.118 Art 2�������������������������������������������  15.112 Art 8�������������������������������������������  15.112 Art 11�����������������������������������������  15.118 Directive 97/80/EEC��������������������������  15.45 Directive 2001/23/EC������������������������  9.32 Directive 2003/87/EC������������������������  20.5 Directive 2004/39/EC������������������������  20.37 Directive 2006/54/EC��������������������  15.109 Directive 2009/65/EC Art 5����������������������������������  20.10, 20.32 Directive 2010/41/EU��������������������  15.120 Art 2�������������������������������������������  15.120 Art 8(1)���������������������������������������  15.120 Directive 2011/61/EU������������������������  20.8 Ch VI����������������������������������������������  20.12 Art 4.1(z)����������������������������������������  20.9 Art 6�����������������������������������������������  20.12 Art 9�����������������������������������������������  20.12 Art 13–19���������������������������������������  20.12 Art 20���������������������������������������������  20.11 Art 21���������������������������������������������  20.12 Art 22–25���������������������������������������  20.12 Art 26–30���������������������������������������  20.12 Directive 2013/34/EU Art 2(14)–(15)��������������������������������  21.12 Directive 2014/65/EU�������������  20.5, 20.37 Directive (EU) 2015/2366������������������  20.6 REGULATIONS Regulation (EC) 1346/2000���������������  27.4 art 3(1)��������������������������������������������  31.24 art 52����������������������������������������������  31.24 Regulation (EC) 44/2001�������������������  26.3 Regulation (EC) 1606/2002���������������  21.8 Regulation (EC) 1287/2006���������������  20.37 Regulation (EC) 864/2007�����������������  10.51, 26.32 art 4.1���������������������������������������������  26.22 art 4.2���������������������������������������������  26.22 art 14����������������������������������������������  10.51 art 15����������������������������������������������  26.22 art 23.1�������������������������������������������  26.22 Regulation (EC) 593/2008��������������  10.51, 26.26, 26.32 art 1.2(f)����������������������������  26.26, 26.32

Regulation (EU) 236/2012�����������������  20.21 Regulation (EU) 1215/2012���������������  26.3 art 2(b)��������������������������������������������  26.5 art 4������������������������������������������������  26.4 art 24(1)������������������������������������������  26.10 art 24(2)������������������������������������������  26.5 art 25����������������������������������������������  26.10 art 29–34����������������������������������������  26.10 art 63����������������������������������������������  26.4 art 63(1), (2)�����������������������������������  26.4 Regulation (EU) 231/2013�����������������  20.8 Ch 4������������������������������������������������  20.12 Ch 5������������������������������������������������  20.12 Art 12–15���������������������������������������  20.12 Art 17–29���������������������������������������  20.12 Art 20���������������������������������������������  20.12 Art 22���������������������������������������������  20.12 Art 30–37���������������������������������������  20.12 Art 38–45���������������������������������������  20.12 Art 46–49���������������������������������������  20.12 Art 50–56���������������������������������������  20.12 Art 57–66���������������������������������������  20.12 Art 67–74���������������������������������������  20.12 Art 75–82���������������������������������������  20.11 Art 80���������������������������������������������  20.12 Art 82���������������������������������������������  20.11 Art 91���������������������������������������������  20.12 Regulation (EU) 575/2013 Art 4(1)(1)��������������������������������������  21.12 Regulation (EU) 537/2014�����������������  22.7 Regulation (EU) 600/2014����������������  20.5, 20.37 Regulation (EU) 848/2015�����������������  27.4 art 84(2)������������������������������������������  27.4 Regulation (EU) 2016/679�������������  15.190 GIBRALTAR Limited Liability Partnerships Act 2009�����������������������������������������  25.22 Limited Liability Partnerships (Application of Companies Act 2014 and Insolvency Act 2011) Regulations 2016�����������  25.22 GUERNSEY Beneficial Ownership of Legal Persons (Guernsey) Law 2017�����������������������������������������  25.21 Limited Liability Partnership (Guernsey) Law 2013��������������  25.20 s 1���������������������������������������������������  25.20 s 4 ��������������������������������������������������  25.20 s 7���������������������������������������������������  25.21 s 17�������������������������������������������������  25.20 s 21�������������������������������������������������  25.21 s 21(1)��������������������������������������������  25.21 s 22�������������������������������������������������  25.21 s 31�������������������������������������������������  25.21

Table of International Materials Limited Liability Partnership (Guernsey) Law 2013 – contd s 56–60�����������������������������������������  s 107–110�������������������������������������  s 114���������������������������������������������  Sch 2���������������������������������������������  para 1���������������������������������������� 

Legal 25.20 25.21 25.21 25.21 25.21

HONG KONG Legal Practitioners Ordinance����������  s 7AC(1)���������������������������������������  s 7AE��������������������������������������������  s 7AF��������������������������������������������  s 7AF(3)���������������������������������������  s 7AI���������������������������������������������  s 7AN�������������������������������������������  s 7AR������������������������������������������� 

25.29 25.29 25.29 25.29 25.29 25.29 25.29 25.29

INDIA Income Tax Act 1961�����������������������  Limited Liability Partnership Act 2008 (No 6 of 2009)��������  s 3�������������������������������������������������  s 6–8���������������������������������������������  s 11(1), (2)������������������������������������  s 11(2)(c)��������������������������������������  s 13�����������������������������������������������  s 13(2)������������������������������������������  s 14�����������������������������������������������  s 15(1)������������������������������������������  s 23�����������������������������������������������  s 23(2), (4)������������������������������������  s 24(1)������������������������������������������  s 26�����������������������������������������������  s 27�����������������������������������������������  s 27(1), (3), (4)�����������������������������  s 28�����������������������������������������������  s 28(2)������������������������������������������  s 30�����������������������������������������������  s 34�����������������������������������������������  s 38�����������������������������������������������  s 43�����������������������������������������������  Sch 1���������������������������������������������  Limited Liability Partnership Rules 2009���������������������������������������  r 16�����������������������������������������������  r 21�����������������������������������������������  r 24����������������������������������������������� 

25.15 25.15 25.15 25.15 25.15 25.17 25.15 25.15 25.15 25.15 25.16 25.16 25.16 25.16 25.16 25.16 25.16 25.16 25.16 25.15 25.17 25.17 25.16 25.15 25.15 25.15 25.15

IRELAND Legal Services Regulation Act 2015 s 50�����������������������������������������������  s 123(1), (2), (6)���������������������������  s 124(1)����������������������������������������  s 125���������������������������������������������  Pt 8 Ch 3������������������������������������������ 

25.29 25.29 25.29 25.29 25.29

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Services Regulation Act (Limited Liability Partnerships) (Section 130) Regulations 2019�������������������  25.29

JAPAN Law concerning Limited Liability Partnership (Law No 4 of 2005)���������������������������������������  25.4, 25.28 art 1������������������������������������������������  25.4 art 2, 3������������������������������������������  25.28 art 3.1, 3.2������������������������������������  25.28 art 4.3, 9.1������������������������������������  25.28 art 11, 13, 15��������������������������������  25.28 art 17, 18, 28��������������������������������  25.28 art 31, 37��������������������������������������  25.28 art 57–64��������������������������������������  25.28 Law concerning the Cost of Civil Procedure (Law No 87 of July 2005)��������������������������������������  25.28 JERSEY Limited Liability Partnerships (Dissolution and Winding Up) (Jersey) Regulations 2018������  25.31 art 4(1)������������������������������������������  25.32 art 6����������������������������������������������  25.32 Limited Liability Partnerships (Jersey) Law 1997��������  25.1, 25.12, 25.30, 25.32, 25.33 Limited Liability Partnerships (Jersey) Law 2017�������������������  25.1, 25.32 art 2����������������������������������������������  25.30 art 2(1)(b) ������������������������������������  25.31 art 2(4)������������������������������������������   25.30, 25.32 art 3(2)������������������������������������������  25.32 art 4����������������������������������������������  25.32 art 4(2)������������������������������������������  25.32 art 5����������������������������������������������  25.32 art 5(1)������������������������������������������  25.32 art 6����������������������������������������������  25.32 art 7����������������������������������������������  25.32 art 8����������������������������������������������  25.31 art 9�����������������������������������  25.31, 25.32 art 13(3)����������������������������������������  25.32 art 17(1), (3), (4)��������������������������  25.30 art 20��������������������������������������������  25.31 art 25(4)(d)�����������������������������������  25.32 art 42��������������������������������������������  25.32 JORDAN Companies Law (No 12 of 1964) s 19�����������������������������������������������  26.19

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KAZAKHSTAN

PAKISTAN

Civil Code����������������������������������������  25.19 Law Concerning Limited Liability and Additional Liability Partnerships (Law No 220–1 of 22 April 1998)��������  25.18, 25.19 art 2.1���������������������������������������������  25.19 art 2.2, 2.3, 4.1, 6���������������������������  25.18 art 13.1, 14, 15�������������������������������  25.18 art 16.1, 17, 19, 23�������������������������  25.18 art 23.2, 24�������������������������������������  25.18 art 31, 34, 41����������������������������������  25.19 art 43.2�������������������������������������������  25.19 art 51, 52����������������������������������������  25.19 art 52.2, 52.4����������������������������������  25.19

Limited Liability Partnership Act 2017�����������������������������������������  25.17 s 3(1)����������������������������������������������  25.17 s 5(1)(a), (b) ����������������������������������  25.17 s 5(2)(c), (d) ����������������������������������  25.17 s 6(1) ���������������������������������������������  25.17 s 10(1), (9) �������������������������������������  25.17 s 20�������������������������������������������������  25.17 s 43�������������������������������������������������  25.17 s 46�������������������������������������������������  25.17

LABUAN Business Activity Tax Act 1990���������  25.11 Limited Liability Partnerships Regulations 2001���������������������  25.10 Limited Partnerships and Limited Liability Partnerships Act 2010 (Laws of Malaysia Act 707)������������������������������������������  25.10 s 29(1)��������������������������������������������  25.10 s 30�������������������������������������������������  25.10 s 55(1), (3)��������������������������������������  25.10 s 56(1), (2), (3), (4) �����������������������  25.10 s 58�������������������������������������������������  25.10 s 63(1) �������������������������������������������  25.11 s 64(3) �������������������������������������������  25.11 s 65�������������������������������������������������  25.11 s 66(1) �������������������������������������������  25.11 s 70(1)–(3) �������������������������������������  25.11 MALAYSIA Limited Liability Partnerships Act 2012�����������������������������������������  25.14 s 8, 27���������������������������������������������  25.14 MAURITIUS Financial Services Act 2007���������������  25.23 Limited Liability Partnerships Act 2016�����������������������������������������  25.23 s 2���������������������������������������������������  25.23 s 3���������������������������������������������������  25.23 s 10(1) �������������������������������������������  25.23 s 11�������������������������������������������������  25.23 s 13(2), (3), (5), (6)������������������������  25.23 s 15(1) �������������������������������������������  25.23 s 23(2) �������������������������������������������  25.23 s 28�������������������������������������������������  25.23 s 30(2) �������������������������������������������  25.23 s 37(1), (2) �������������������������������������  25.23 s 38�������������������������������������������������  25.23 s 38(4) �������������������������������������������  25.23 s 40, 41, 42�������������������������������������  25.23

QATAR Financial Centre Limited Liability Partnerships Regulations (Regulation No 7 of 2005)�������  art 6, 7��������������������������������������������  art 9(1)��������������������������������������������  art 11(3)������������������������������������������  art 12����������������������������������������������  art 13(1)–(4)�����������������������������������  art 15(2)������������������������������������������  art 18����������������������������������������������  art 19����������������������������������������������  art 25(1)������������������������������������������  art 27, 34����������������������������������������  Qatar Financial Centre Limited Liability Partnerships Regulations (Amended) 2012���  QFC Law (Law No 7 of 2005)����������� 

25.8 25.8 25.8 25.9 25.9 25.9 25.8 25.9 25.8 25.8 25.8 25.8 25.8

SINGAPORE Income Tax Act (Cap 134) s 36A����������������������������������������������  25.12 Limited Liability Partnerships Act (No 5 of 2005) ������������������������  24.12 s 2���������������������������������������������������  25.12 s 4(1)����������������������������������������������  25.12 s 5(1)����������������������������������������������  25.12 s 8(1)–(4)����������������������������������������  25.12 s 9���������������������������������������������������  25.12 s 10�������������������������������������������������  25.13 s 11(1)��������������������������������������������  25.13 s 13�������������������������������������������������  25.13 s 14�������������������������������������������������  25.12 s 15(1)(b)����������������������������������������  25.12 s 17�������������������������������������������������  25.12 s 18(1)��������������������������������������������  25.12 s 22�������������������������������������������������  25.12 s 23(1), (3)��������������������������������������  25.12 s 24������������������������������������  25.12, 25.13 s 24(5)��������������������������������������������  25.13 s 25�������������������������������������������������  25.13 s 26–28�������������������������������������������  25.12 Sch 1�����������������������������������������������  25.13 Sch 5 para 3(1)(f)���������������������������������  25.12

Table of International Materials Limited Liability Partnerships (Amendment) Act 2017 (No 16 of 2007)���������������������  24.12 UNITED STATES California Corporations Code s 16101�����������������������������������������  25.24 s 16951�����������������������������������������  25.24

lxxxv

Delaware RUPA s 15–201(a)�����������������������������������  25.24 Uniform Partnership Act 1997 (‘RUPA’)���������������������  25.24, 25.27 s 201(a), (b)����������������������������������  25.24 s 306(a)�����������������������������������������  25.24 s 901���������������������������������������������  25.24

lxxxvi

Chapter 1 OVERVIEW AND INTRODUCTORY MATTERS

THE BUSINESS ENTITY 1.1 Section 1(1) of the Limited Liability Partnerships Act 2000 (LLP Act 2000) provides: ‘There shall be a new form of legal entity to be known as a limited liability partnership’. The entity (henceforth referred to as an LLP) is brought into existence by two or more persons (the first ‘members’) incorporating themselves as an LLP for the purpose of carrying on a business. Thereafter, and as in the case of a traditional partnership,1 members are able to join and leave in accordance with whatever contractual terms they agree. 1.2 The key characteristics of an LLP, set out in s 1 of the LLP Act 2000, are that it is a body corporate and that it has unlimited capacity.2 The ‘limited liability’ aspect of an LLP relates to the individual members: their liability to contribute to the funds of the corporate entity, and specifically to a shortfall on a winding up of the LLP, will be limited to whatever they have agreed with the other members or with the LLP to contribute.3 1.3 An LLP is, therefore, a corporate entity with its own legal personality separate from that of its members, and with its own rights and liabilities distinct from those of its members. It is in these respects that an LLP differs from a traditional partnership. A partnership in English law has no separate legal personality, but is simply the relationship between a group of persons bound by agreement to each other. The essential characteristic of an English partnership is that the business is carried on by each partner acting as agent for all the partners, with the result that each partner is jointly and severally liable for the obligations and actions of any of them.4 In the case of an LLP, it will be the separate corporate entity (as opposed to its members) which carries on the business; and it will be for this entity that each member will be acting as agent. As a result, it will generally be the corporate entity (to the exclusion of the individual members) which is the subject of the duties and liabilities of the business. 1.4 In broad terms, therefore, the existence of an LLP serves to shield the individual members from personal liability for the acts of another member (or employee) carried out in the course of the business, as well as from personal liability for the general commercial obligations of the business. Subject to taking certain precautions, it should also shield an individual member from personal liability for his own acts carried out in the course of the business.5 1 2 3 4 5

Ie a partnership governed by the provisions of the Partnership Act 1890. LLP Act 2000, s 1(2) and (3). As to unlimited capacity, see further 3.7–3.8. See further 8.15–8.17. Undertaken in the normal course of the partnership’s business: Partnership Act 1890, ss 5–12. The possible liabilities of individual members to third parties are discussed in Chapter 18.

2

The Law of Limited Liability Partnerships

1.5 An LLP may have a decision-making and profit-sharing structure written uniquely for its business and participants. Whilst an LLP, as a corporate entity, is subject to various provisions of the Companies Act 2006 (CA 2006) and other legislation as modified,6 it differs fundamentally from a company in that there is no distinction in the internal structure of an LLP between the roles of owners of the business (shareholders) and managers (directors). There are no publicly available articles of association for an LLP. The decision-making structure and the terms of the association between the participants (ie the members) are purely matters of private agreement. This agreement (which we will call ‘the LLP agreement’), like a traditional partnership agreement, is not required to be disclosed to the outside world. 1.6 The LLP agreement, subject to certain overriding statutory provisions,7 will govern the rights and duties of the members as between themselves, and will govern also the rights and duties existing as between the members and the LLP as a separate entity.8 In addition to the overriding statutory provisions, there are certain default provisions (‘default rules’) which will have effect to govern these mutual rights and duties to the extent that such provisions are not written out or varied by the LLP agreement actually made.9

DISCLOSURE AND REGULATION 1.7 The bearing of the liabilities of the business by the separate corporate entity that is the LLP, and the corresponding limitation of liability on the part of its members, is the key commercial element in LLPs. This protective shield for the members (and corresponding limitation of rights of recourse for those doing business with the LLP) carries with it obligations for the LLP to observe various regulatory requirements, and to provide information about itself for public scrutiny. In particular, it will be obliged (like a company) to file annual accounts (with an auditors’ report) and an annual confirmation statement.10 Additionally, it will need to keep a register of its members, which is open to inspection,11 and file notices of any changes in its membership.12 These (and other) disclosure requirements are part of the price which the members pay for the liabilities of the business being borne by the separate entity, and for their own personal liabilities being limited. The outside world is entitled to know the financial state, and composition, of the limited liability business with which it is dealing. In pursuit of this, the LLP Act 2000 requires that there must always be a minimum of two ‘designated members’, whose essential role 6 7 8 9 10

11 12

By the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 (the LLP Regulations 2009) (SI 2009/1804). See further 1.16–1.20. Ie in the CA 2006 and the IA 1986. LLP Act 2000, s 5(1). The LLP agreement is discussed in Chapters 10 and 11. The default rules are contained in regs 7 and 8 of the Limited Liability Partnerships Regulations 2001, SI 2001/1090 (the LLP Regulations 2001), referred to at 1.23. Annual accounts are discussed in Chapter 21. The obligations as to auditing and filing accounts are subject to the same exemptions as for ‘small companies’. The annual confirmation statement is discussed at 4.28–4.30. CA 2006, s 162, as modified and applied to LLPs by SI 2009/1804, reg 18. LLP Act 2000, s 9. The LLP will need to have a registered office, and notice of any change in this will also need to be filed. The registered office is discussed at 2.22–2.23 and 3.12–3.18.

Overview and Introductory Matters

3

is to carry responsibility for the principal regulatory and disclosure requirements being met.13 1.8 The other part of the price to be paid for limited liability is that LLPs, and individual members, will be subject to the ‘policing’ regime of the companies and insolvency legislation.14 LLPs will be subject, like companies, to the power of the Secretary of State to investigate them and to require information.15 Members will be subject to the Company Directors Disqualification Act 1986 (CDDA 1986) in the same way as company directors;16 and, in the event of the LLP going into liquidation, will be subject to the ‘wrongful trading’ and similar provisions of the Insolvency Act 1986 (IA 1986).17

THE REGISTRAR 1.9 Reference has been made in 1.7 to the obligation on an LLP to file annual accounts, and other information. This filing is with the Registrar of Companies, who takes on the same role in relation to LLPs as he has in relation to companies.18 With certain modifications, Part 35 of the CA 2006,19 setting out the Registrar’s functions, is adopted for LLPs.20 LLPs are included amongst the bodies whose names are kept on the Registrar’s index of names of companies and other bodies;21 and the provisions of Part 35 relating to the delivery (and requirements for proper delivery) of documents to the Registrar22 apply in relation to LLPs, as (with modifications) do the provisions relating to the keeping of records by the Registrar.23 Under CA 2006, s 1068,24 the Registrar may impose requirements as to the form, authentication25 and manner of

13 14

15 16 17 18

19 20

21 22 23 24

25

Designated members are discussed in Chapter 12. ‘The concept of limited liability and the sophistication of our corporate law offers great privileges and great opportunities for those who wish to trade under that regime. But the corporate environment carries with it the discipline that those who avail themselves of those privileges must accept the standards laid down and abide by the regulatory rules and disciplines in place to protect creditors and shareholders’: Henry LJ in Re Grayan Building Services Ltd [1995] Ch 241 at 257 (a director’s disqualification case). This is discussed in Chapter 24. The application of the CDDA 1986 is considered in Chapter 37. Considered in Chapter 34. See LLP Act 2000, s 18 (with LLP Regulations 2009, Sch 3, Pt 2, para 12(1)(a)) and CA 2006, s 1061(1); and, for instance, CA 2006, s 441 (filing of annual accounts) as applying to LLPs. As to the power of the Registrar and the court to rectify the register, see Grupo Mexico SAB de CV v Registrar of Companies [2018] Bus LR 1863 (Henry Carr J), [2020] Bus LR 567 (CA) and 24.40–24.47. Sections 1060–1120. Part 15 of the LLP Regulations 2009. And see reg 60 of the LLP Regulations 2009, referring to the general application in relation to LLPs (without specific modifications) of ss 1060(1) and (2), 1061–1063, 1068–1071, 1072–1076, 1080(1), (4) and (5) with 1092, 1083, 1108–1110, 1111 and 1114–1119. CA 2006, s 1099(1) and (3)(b). CA 2006, ss 1068–1076 CA 2006, ss 1080–1098. In relation to documents where the obligation to deliver arose after 1 October 2009. See LLP Regulations 2009, Sch 1, Pt 8, para 27, and Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009 (SI 2009/1802), Sch, para 97, in relation to both s 1068 and the possible delivery of documents by electronic means next referred to. Eg authentication by a person of a particular description, such as a designated member.

4

The Law of Limited Liability Partnerships

delivery of documents required or authorised to be delivered to him under the LLP Act 2000, or the CA 2006 or any other Act. The Registrar has exercised this power in order to specify forms to be used by LLPs, including the form of the incorporation document required under s 2(1)(a) of the LLP Act, and forms for the notification of a change in the membership of the LLP, or of members’ particulars, required under s 9 of the LLP Act.26 Although the Registrar cannot require documents to be delivered by electronic means without regulations made by the Secretary of State, he may agree with an LLP that documents (or a particular category of documents) relating to the LLP that are required or authorised to be delivered to him (a) will be delivered by electronic means, except as provided for in the agreement, and (b) will conform to such requirements as may be specified in the agreement, or specified by him in accordance with the agreement.27 1.10 If an LLP defaults in complying with any provision of the LLP Act 2000 or the CA 2006 which requires it to deliver a document to the Registrar, or to give notice to him of any matter, the Registrar may serve a notice on the LLP requiring it to deliver the document or give the notice.28 If the LLP then fails to do so within 14 days after service of the notice on it, the Registrar may apply to court for an order directing the LLP, or any specified member of it, to make good the default within a specified time.29 It is an offence for a person knowingly or recklessly to deliver or cause to be delivered to the Registrar, for any purpose of the LLP Act 2000 or the CA 2006, a document that is misleading, false or deceptive in a material particular; and it is similarly an offence knowingly or recklessly to make a statement to the Registrar for any such purpose that is misleading, false or deceptive in a material particular.30 1.11 Notice of the issue of the certificate of incorporation of an LLP, and of the receipt by the Registrar of any of the following documents, will be published by the Registrar in the London Gazette:31 (a)

26 27 28 29

30

31

Constitutional documents (i) the LLP’s incorporation document; The forms specified by the Registrar for use by LLPs can be found at www.gov.uk/government/ collections/companies-house-forms-for-limited-liability-partnerships. CA 2006, ss 1068(6), 1069 and 1070. CA 2006, s 1113(1)–(2), as modified and applied to LLPs by SI 2009/1804, reg 16. Any member or creditor may also give notice to the LLP requiring it to comply with its obligation: ibid. CA 2006, s 1113(3), as modified and applied to LLPs by SI 2009/1804, reg 16. Any member or creditor may similarly apply to the court for an order: ibid. Such an application and order is without prejudice to any penalties contained in the legislation in respect of the default: CA 2006, s 1113(5), as modified and applied to LLPs by SI 2009/1804, Pt 15, reg 16. CA 2006, s 1112, as modified and applied to LLPs by SI 2009/1804, reg 16. The penalty is possible imprisonment for up to two years and/or a fine on conviction on indictment, and possible imprisonment for up to 12 months and/or a fine on summary conviction: ibid. This is a new provision in the Companies Act, and applies to all documents delivered, and statements made, on or after 1 October 2009: LLP Regulations 2009, Sch 1, Pt 8, para 32. CA 2006, s 1064, as modified and applied to LLPs by SI 2009/1804, reg 61, (issue of certificate of incorporation) and ss 1077–1078, as modified and applied to LLPs by SI 2009/1804, reg 63, (receipt of other documents). There is provision in the CA 2006 (s 1116) for the Secretary of State to provide by regulations for an alternative method of publication (including, in particular, electronic) to publication in the London Gazette. The London Gazette is available online at www.thegazette.co.uk, including searchable archives.

Overview and Introductory Matters

5

(ii)

any notice delivered under LLP Act 2000, s 8(4) (change in the method of determining the designated members); and (iii) any notice of the change of the LLP’s name. (b) Members (i) notification of any change in the membership of the LLP; and (ii) notification of any change in the particulars of members required to be delivered to the Registrar. (c) Accounts and returns (i) documents required to be delivered to the Registrar under CA 2006, s 441 (annual accounts); and (ii) the LLP’s annual return. (d) Registered office (i) notification of any change of the LLP’s registered office. (e) Winding up (i) copy of any winding-up order in respect of the LLP; (ii) notice of the appointment of liquidators; (iii) order for the dissolution of an LLP on a winding up; and (iv) return by a liquidator of the final meeting of an LLP on a winding up. What is published in the London Gazette is not the substance or contents of the document, but notification that the document has either been issued (in the case of the certificate of incorporation) or received by the Registrar. Anyone wishing to see the document can inspect it, or obtain a copy, under CA 2006, s 1085, as discussed in 1.13. The purpose of the publication of these notices in the London Gazette is to enable persons dealing, or considering dealing, with the LLP, and indeed any third parties, to be aware that such events have occurred, and to be given the opportunity of ascertaining the substance of them by inspecting the relevant document.32 The Registrar must place a note in the register recording the date on which a document is delivered to him.33 1.12 The requirements for the proper delivery to the Registrar of documents are set out in CA 2006, s 1072. These are, essentially, that the relevant statutory requirements as to content, form, manner of delivery and authentication (including any requirements as to these matters imposed by the Registrar under s 1068) must be met.34 A document that is not properly delivered is treated for the purposes of the provision requiring or authorising it to be delivered as not having been delivered. This is subject, however, to the power of the Registrar under s 1073 (which itself contains various provisos) to accept (and register) a document that does not comply with the requirements for proper delivery.35 If it appears to the Registrar that a document which has been delivered to him is incomplete or internally inconsistent, he may, on instructions given in response to an enquiry by him,36 and if the LLP

32 See 33 34 35 36

Official Custodian for Charities v Parway Estates Developments Ltd [1985] Ch 151 (CA), considering s 9(3) of the European Communities Act 1972. CA 2006, s 1081(1), as modified and applied to LLPs by SI 2009/1804, reg 64. The document should not contain material which is not necessary in order to comply with the statutory obligation and is not specifically authorised to be delivered to the Registrar: s 1074. CA 2006, s 1072(2). And subject to him being satisfied as to the authority of the instructions.

6

The Law of Limited Liability Partnerships

has (with notification to the Registrar) given its consent (which has not been withdrawn) to such instructions, correct the document.37 The Registrar may also accept a replacement (which complies with the requirements for proper delivery) for a document previously delivered to him that did not comply with the requirements for proper delivery, or which contained unnecessary material.38

‘LLP SEARCH’ 1.13 There are the same rights for any person to carry out an ‘LLP search’ as there are to carry out a ‘company search’. That is to say, any person may inspect ‘the register’, namely the records in relation to an LLP kept by the Registrar of the information contained in documents delivered to him under the LLP Act 2000 or the CA 2006 or any other enactment, and of any certificates issued by him (eg a certificate of incorporation, or certificate of registration of a charge), and may obtain a copy of any material on the register.39 The right of inspection extends to the original of a document delivered to the Registrar in hard copy form if, and only if, the record kept by the Registrar of the contents of the document is illegible or unavailable.40 The Registrar may determine the form and manner in which copies are to be provided.41 Copies provided in hard copy form must be certified as true copies unless the applicant dispenses with such certification, and copies provided in electronic form must not be certified as true copies unless the applicant expressly requests such certification.42 A copy provided which is certified by the Registrar to be an accurate record of the contents of the original document is in all legal proceedings admissible in evidence as of equal validity with the original document.43 Any person may also inspect the Registrar’s index of names of companies and other bodies, on which the names of LLPs appear.44

37

38

39

40 41 42 43 44

CA 2006, s 1075. The Registrar must place a note in the register recording the nature and date of any correction (and general description of any material removed), subject to the power of the court to direct the removal of the note: s 1081(1) and (5), as modified and applied to LLPs by SI 2009/1804, reg 64. CA 2006, s 1076. The Registrar must place a note in the register recording the fact that it has been replaced, and the date of delivery of the replacement, subject to the power of the court to direct the removal of a note: s 1081(1) and (5). Where it appears to the Registrar that material in the register is misleading or confusing, he may place a note in the register, containing such information as appears to him to be necessary to remedy, as far as possible, the misleading or confusing nature of the material, subject to the power of the court to direct the removal of a note: s 1081(3) and (5) and the Registrar of Companies and Applications for Striking Off Regulations 2009 (SI 2009/1803), reg 3. CA 2006, ss 1080(1) and (4)–(5), 1085–1086 and 1092, as modified and applied to LLPs by SI 2009/1804, reg 66, and LLP Regulations 2009, Sch 3, Pt 2, para 12(1)(b) (meaning of ‘the register’ for LLPs). Any person may require the Registrar to provide him with a copy of any certificate of incorporation of an LLP, signed by the Registrar or authenticated by his seal: s 1065, as modified and applied to LLPs by SI 2009/1804, reg 61. This applies to a certificate whenever issued: LLP Regulations 2009, Sch 1, Pt 8, para 28. CA 2006, s 1085(2), as modified and applied to LLPs by SI 2009/1804, reg 66. CA 2006, s 1090, as modified and applied to LLPs by SI 2009/1804, reg 66. CA 2006, s 1091(1) and (2), as modified and applied to LLPs by SI 2009/1804, reg 66. CA 2006, s 1091(3), as modified and applied to LLPs by SI 2009/1804, reg 66. It is unnecessary to prove the official position of the Registrar: ibid. CA 2006, s 1100.

Overview and Introductory Matters

7

1.14 There are, however, certain categories of information which are not to be made available for public inspection. These are set out in CA 2006, s 1087, and include, in particular, ‘protected information’ as to a member, namely the member’s usual residential address and the information that his service address is (if it is) his usual residential address. Protection of members’ residential addresses, and the circumstances in which they may be put on the public record or otherwise disclosed, are considered in 8.9–8.14.

SCHEME OF THE LEGISLATION 1.15 The LLP Act 2000 came into force on 6 April 2001.45 Some substantial amendments were made to it, with effect from 1 October 2009, by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 (which we will refer to as the LLP Regulations 2009).46 The Act itself is fairly short (19 sections and a schedule), and is concerned with setting out the core principles of the new form of legal entity, and creating the framework of legislation by which LLPs are to be governed. Section 1 establishes the form of entity and its key characteristics.47 Sections 2 and 3 set out the requirements for incorporation.48 Sections 4 to 9 are concerned with membership, including becoming and ceasing to be a member,49 the making of an LLP agreement50 and the position of members as agents of the LLP.51 Sections 10 to 13 are concerned with taxation of LLPs, mostly by inserting new provisions into existing tax statutes.52 The broad intention of the tax provisions is that, for tax purposes, the LLP is to be treated as a partnership, and the members as partners.53 For so long as the business of the LLP is being carried on with a view to profit, its existence as an entity separate from its members is (for tax purposes) ignored: it is ‘pass-through’ for tax purposes.54 Section 14 provides that regulations are to be made about the insolvency and winding up of LLPs by applying or incorporating, with such modifications as appear appropriate, Parts 1 to 4, 6 and 7 of the IA 1986. Section 15 provides that regulations may be made about LLPs (not being about insolvency or winding up) by applying or incorporating, with such modifications as appear appropriate, inter alia, any law relating to companies or relating to partnerships. Under s 16, regulations may be made to amend or repeal other enactments as appear appropriate in consequence of the LLP Act.55 All regulations made under the Act are to be made by the Secretary of State by statutory instrument (s 17). Sections 18 and 19 are concerned with definitions, commencement 45

Limited Liability Partnerships Act 2000 (Commencement) Order 2000 (SI 2000/3316). SI 2009/1804. The amendments to the LLP Act 2000 are made by reg 85 and Sch 3 Pt 1. 47 See 1.2. 48 Discussed in Chapter 2. 49 Discussed in Chapter 8. 50 Discussed in Chapters 10 and 11. 51 Discussed in Chapter 5. 52 Ie in relation to income and corporation tax, capital gains tax, inheritance tax and national insurance contributions. Stamp duty is dealt with substantively by provisions in the LLP Act 2000 itself (s 12). 53 But see 23.83–23.94 in relation to the circumstances in which LLP members are taxed on an employed basis. 54 Taxation of LLPs and their members is discussed in Chapter 23. 55 Such consequential amendments are contained in Sch 5 to the LLP Regulations 2001: see 1.20. 46

8

The Law of Limited Liability Partnerships

and application. The schedule contains provisions regulating the name and registered office of an LLP. 1.16 Regulations which have been made by statutory instrument under ss 14 and 15 of the LLP Act 2000 are a fundamental part of the LLP legislation. These regulations apply – with modifications – particular parts of the CA 1985, the IA 1986 and the CA 2006, and all of the CDDA 1986, to the entity and its members. They also apply certain sections of the Financial Services and Markets Act 2000 (FSMA 2000) to LLPs. A grasp of the modified provisions of these other Acts is essential to a full understanding of how LLPs work. The principal regulations made under ss 14 and 15 are the Limited Liability Partnerships Regulations 2001 (which we will refer to as the LLP Regulations 2001),56 the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (which we will refer to as the LLP Accounts Regulations 2008)57 and the LLP Regulations 2009.58 The LLP Regulations 2001 applied (as mentioned above, with modifications) certain provisions of the CA 1985 and of the IA 1986, and the provisions of the CDDA 1986. With the repeal of most (although not all) of the CA 1985, those parts of the LLP Regulations 2001 which applied the now repealed provisions of the CA 1985 have themselves been revoked: in relation to accounts and the appointment of auditors, by the LLP Accounts Regulations 2008 (for financial years beginning on or after 1 October 2008),59 and, otherwise, by the LLP Regulations 2009 (with effect from 1 October 2009).60 The result is that the LLP Regulations 2001 now apply to LLPs (with modifications) Part 14 of the CA 1985 (ss 431–452, concerned with investigations by government appointed inspectors and the requisition of documents),61 and provisions of the IA 1986 and the CDDA 1986; and the LLP Accounts Regulations 2008 and the LLP Regulations 2009 apply to LLPs (with modifications) substantial parts of the CA 2006. 1.17 The basic technique of the LLP Regulations 2001 in applying these other Acts to LLPs is, generally speaking, to set out specific additions, omissions or substitutions in the provisions of the other Acts for application to LLPs, and otherwise to say that (except where the context otherwise requires) references to a company include references to an LLP, references to a director or officer of a company include references to a member of an LLP, and references to the 1985 or 1986 Acts include references to those Acts as they apply to LLPs. The application of provisions of the CA 1985, the IA 1986 and the CDDA 1986 to LLPs is also stated in the LLP Regulations 2001 to be subject to the general modification of ‘such further modifications as the context requires for the purpose of giving effect to that legislation 56 57 58 59 60 61

SI 2001/1090. SI 2008/1911. SI 2009/1804. Regulation 58. Regulation 85 and Sch 3, Pt 2. Part 14 has not been repealed for either companies or LLPs. It has been amended by the Companies (Audit, Investigations and Community Enterprise) Act 2004 (inserting new ss 447A, 448A and 453A–453C, together with Schs 15C and 15D) and by CA 2006, ss 1035–1038 (inter alia, inserting new ss 446A–446E) and ss 1124, 1176 and 1295. These insertions have been applied to LLPs by amendments to the LLP Regulations 2001 made by SI 2007/2073 and by the LLP Regulations 2009, reg 85 and Sch 3 Pt 2.

Overview and Introductory Matters

9

as applied by these Regulations.’62 The LLP Regulations 2001 do not set out the resulting modified version of the legislation as it applies to LLPs. This is left to the reader of the regulations to do, by applying both the specific additions, omissions and substitutions, and the general modifications of references. The technique of the LLP Accounts Regulations 2008, and of the LLP Regulations 2009, is, however, different. These 2008 and 2009 regulations are considerably more user-friendly, in that (save for certain generally applicable provisions of the CA 2006 mentioned in 1.18) they themselves set out in full the modified text of the provisions of the CA 2006 which are to apply to LLPs. 1.18 There is, however, it appears to the authors, an important consequence of this more user-friendly approach of the 2008 and 2009 regulations. The statutory provisions in the companies and insolvency legislation applied to LLPs by the LLP Regulations 2001 have been considerably amended since 2001 without any positive reference in the amending legislation (whether statute or statutory instrument) to the provisions in their amended form applying to LLPs; and without there being any new regulations made under the LLP Act 2000 expressly applying the amended provisions to LLPs. The authors’ view is that, in providing that certain statutory provisions ‘shall apply’ to LLPs (with the stated modifications), it was the intention and effect of the LLP Regulations 2001 that the statutory provisions being applied should apply as amended from time to time. We believe that this is accepted as being the position.63 In relation to the modified text of sections of the CA 2006 set out in full for application to LLPs in the LLP Accounts Regulations 2008, and in the LLP Regulations 2009, a general amendment of those sections as they are in the CA 2006 (ie for the purposes of their application to companies) will not, it is suggested, automatically translate into an amendment of the text applying to LLPs. For this latter purpose, there will need to be an amendment made to the sections as set out in the 2008 or 2009 Regulations (as the case may be).64 There are some provisions in Part 35 of the CA 2006 (concerning the Registrar of Companies, discussed in 1.9–1.12) which are of general application to companies and other bodies, and which the LLP Regulations 2009 make clear apply in relation to LLPs.65 These provisions of general application will, it is suggested, apply in relation to LLPs as amended from time to time for such general application.66

62 63

64

65

66

LLP Regulations 2001, regs 4(1)(i), 4(2)(i) and 5(2)(g). See, for instance, Feetum v Levy [2006] Ch 585 (CA) at [27]–[28]. New sections inserted into Part 14 of the CA 1985 will not, however, be automatically applied to LLPs. Regulation 4 of the LLP Regulations 2001 is applying specified sections only of the CA 1985 to LLPs. It is for this reason that references to new sections in Part 14 were expressly inserted into the LLP Regulations 2001 by the LLP (Amendment) Regulations 2007 (SI 2007/2073), and by the LLP Regulations 2009 as mentioned in fn 61 above. As, for instance, by the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2009 (SI 2009/1342), art 31 (amending s 474 of the CA 2006, as applied to LLPs by the LLP Accounts Regulations 2008: compare the general amendment of s 474 in art 26). Regulation 60, referring to ss 1060(1) and (2), 1061–1063, 1068–1071, 1072–1076, 1080(1), (4) and (5) with 1092, 1083, 1108–1110, 1111 and 1114–1119. Sections 1099 and 1100 (index of company names) also apply in relation to LLPs. So that, for instance, the relevant provisions of Part 35 of the CA 2006 will apply as amended by the Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009 (SI 2009/1802).

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The Law of Limited Liability Partnerships

1.19 References in this work to the CA 1985, the IA 1986, the CDDA 1986, the CA 2006 and the FSMA 2000 are references, unless otherwise stated, to those Acts as modified for the time being to apply to LLPs by the LLP Regulations 2001, the LLP Accounts Regulations 2008 or the LLP Regulations 2009 (as the case may be) in accordance with what is said in 1.17–1.18. 1.20 There are a number of amendments made by the LLP Regulations 2001 to other Acts. These amendments are set out in Sch 5 to those regulations.

TRANSITIONAL PROVISIONS AND CONTINUITY OF THE LAW 1.21 Provisions covering the transition from the application of provisions in the CA 1985 to LLPs to the application of the corresponding (and new) provisions in the CA 2006 are contained in the LLP Regulations 2009. These transitional provisions are referred to in the subsequent chapters of this work where appropriate, but they can be found in Sch 1 to the regulations. 1.22 The LLP Regulations 2009 also apply s 1297 of the CA 2006 (continuity of the law) to LLPs.67 This section applies where any provision of the CA 2006 that is applied to LLPs re-enacts (with or without modification) an enactment repealed by the Act which was previously applied to LLPs, and provides (subject to any specific transitional provision or saving) that: (a) the repeal and re-enactment does not affect the continuity of the law; (b) anything done (including subordinate legislation made and applied to LLPs), or having effect as if done, under or for the purposes of the repealed provision as applied to LLPs that could have been done under or for the purposes of the corresponding provision of the CA 2006 as applied to LLPs, if in force or effective immediately before the commencement of that corresponding provision, has effect thereafter as if done under or for the purposes of that corresponding provision; (c) any express or implied reference in the CA 2006 or in any other enactment, instrument or document to a provision of the CA 2006 as applied to LLPs is to be construed, so far as the context permits, as including, as respects times, circumstances or purposes in relation to which the corresponding repealed provision had effect, a reference to that corresponding provision; and (d) any express or implied reference in any enactment, instrument or document to a repealed provision which was applied to LLPs is to be construed, so far as the context permits, as respects times, circumstances and purposes in relation to which the corresponding provision of the CA 2006 applied to LLPs has effect, as being or (according to the context) including a reference to the corresponding provision of the CA 2006.

PARTNERSHIP LAW 1.23 Although the new business entity is called a limited liability partnership, it is not the position that, in default of any other governing provision, partnership

67

As applied to LLPs by SI 2009/1804, reg 82.

Overview and Introductory Matters

11

law applies. The LLP Act 2000 expressly states that the law relating to partnerships does not apply to an LLP except so far as the LLP Act 2000 itself (or any other enactment) provides otherwise.68 Section 15, together with s 17, of the LLP Act 2000 provides that regulations made by the Secretary of State by statutory instrument may make provision about LLPs (not being about insolvency or winding up) by applying or incorporating, with such modifications as appear appropriate, ‘any law relating to partnerships’.69 This power has been exercised in the LLP Regulations 200170 to incorporate (albeit not by express reference) certain provisions of the Partnership Act 1890 as the default provisions for LLP agreements as mentioned in 1.6. The provisions of the Partnership Act 1890 which are incorporated, with modifications, as LLP agreement default provisions are ss 24(1), (2), (5), (6), (7), (8) and (9), 25, 28, 29(1) and 30. Although there is no express reference in the LLP Regulations 2001 to the 1890 Act, it is clear from s 5(1)(b) of the LLP Act (as well as from the terms of the default provisions themselves) that the default provisions were made in exercise of the power to apply any law relating to partnerships. There appears also to be no other statutory power under which the default provisions could have been made. Beyond this specific application by way of introduction of the default rules, partnership law as such does not apply to LLPs.71 In Hilton v D IV LLP,72 HH Judge Pelling QC cautioned against the extrapolation of principles from the Partnership Act 1890 and partnership cases that can be applied to LLPs. This was on the basis that the law relating to partnerships does not apply to LLPs unless otherwise provided. In the authors’ view, this statement must itself be treated with some caution. Whilst partnership law does not apply automatically to LLPs, it is likely to be of assistance, by analogy, in resolving many issues of construction concerning the LLP legislation; although, in assessing the closeness of the analogy, the court will clearly need to take into account the similarities between LLPs and companies. In cases concerning statutory provisions that have their origin in partnership law, partnership principles and case law are likely to be highly instructive. 1.24 The absence of any general application to LLPs of partnership law leads to the position in relation to LLPs differing in a number of significant respects from the position in relation to partnerships. Two examples may be given here: first, there is no automatic duty of utmost good faith owed by the members to each other, as there is between traditional partners;73 and, secondly, since the relationship between members is purely a contractual one (without the partnership overlay of the relationship being also a personal relationship subject to the jurisdiction of the court of equity), a member may have a cause of action at law against another member (or against the LLP) that can be pursued without the necessity of the taking of an account

68 69 70 71 72 73

LLP Act 2000, s 1(5). This is in addition to the power of the Secretary of State under LLP Act 2000, ss 15 and 17, discussed in 1.15–1.16, to apply any law relating to companies to LLPs. LLP Regulations 2001, regs 7 and 8. The default rules generally, and their relationship with the law relating to partnerships, are discussed at 10.7–10.11. [2015] EWHC 2 (Ch) at [21]. F&C Alternative Investments v Barthelemy [2012] Ch 613 at [207]–[216]; Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch) at [187].

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The Law of Limited Liability Partnerships

in equity.74 These, and other differences, between the LLP and partnership positions are discussed as they arise in subsequent chapters.

PUNISHMENT OF OFFENCES 1.25 Various duties and responsibilities are laid on members, and on the designated members, of an LLP by the legislation. These are discussed subsequently, in particular, in Chapters 12 and 13. Transgression or, in some cases, knowingly and wilfully permitting a default, or failing to take reasonable steps to prevent one, usually leads, on conviction, to a fine, or to possible imprisonment. There are references in the legislation to fines of ‘the statutory maximum’, and to fines not exceeding a certain level ‘on the standard scale’. The statutory maximum means the prescribed sum within the meaning of the Magistrates’ Courts Act 1980. That sum is currently £5,000.75 The standard scale is a scale of 5 levels, ranging from £200 (level 1) to £5,000 (level 5).76

THE UNITED KINGDOM 1.26 Prior to 1 October 2009, the LLP Act 2000 did not apply to Northern Ireland, apart from the provisions relating to taxation of LLPs.77 Northern Ireland had its own LLP Act, namely the Limited Liability Partnerships Act (Northern Ireland) 2002,78 which essentially re-enacted for Northern Ireland the provisions of the LLP Act 2000. With effect from 1 October 2009, the LLP Act 2000 applies to the whole of the UK,79 and the Limited Liability Partnerships Act (Northern Ireland) 2002 ceases to have effect accordingly.80 An LLP that immediately before 1 October 2009 was registered and incorporated under the Limited Liability Partnerships Act (Northern Ireland) 2002 is treated on and after that date as registered and incorporated under the LLP Act 2000.81 Accordingly, one may now properly speak of a UK LLP. Transitional provisions relating to Northern Ireland LLPs are contained in reg 84 of, and Sch 2 to, the LLP Regulations 2009. It should be noted, in relation to Northern Ireland, that the LLP Regulations 2001, as amended by the LLP Regulations 2009, provide in reg 2A that the provisions in the 2001 regulations applying the CDDA 1986, and provisions of the IA 1986, have effect only in relation to LLPs registered in Great Britain (ie not Northern Ireland).

74

75 76 77 78 79 80 81

But the doctrine of discharge by acceptance of repudiatory breach does not apply to LLP agreements (at least in respect of LLPs with more than two members): Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch) at [218]–[243]. Repudiation of an LLP agreement is discussed at 10.32–10.46. See Magistrates Courts’ Act 1980, s 32. See Criminal Justice Act 1982, s 37. LLP Act 2000, s 19(4) before amendment by the LLP Regulations 2009. This Act was brought fully into operation on 13 September 2004 by SRNI 2004/306. LLP Act 2000, s 19(4) as amended by the LLP Regulations 2009, and CA 2006, s 1286(1)(a). CA 2006, s 1286(2)(a). LLP Regulations 2009, reg 84 and Sch 2.

Overview and Introductory Matters

13

FINANCIAL SERVICES 1.27 An LLP is capable of being an ‘authorised person’ for the purposes of the Financial Services and Markets Act 2000 (FSMA), and is capable, therefore, of being permitted to carry on regulated activities. What constitutes regulated activities, and the possibility of an LLP itself amounting to a collective investment scheme or alternative investment fund for regulatory purposes, is discussed in Chapter 20.

GROUPS AND SUBSIDIARIES 1.28 As is mentioned in 2.2, the members of an LLP do not need to be individuals. The members may all be, or include, companies, other LLPs, or other corporate entities. Equally, an LLP, as a separate entity able to own property and assets,82 is able to own shares in a company. It follows that LLPs may be ‘parent’ entities with wholly (or partly) owned subsidiaries, and also that, depending on the terms of the particular LLP agreement, they may be controlled by, and be ‘subsidiaries’ of, another LLP or company. The legislation recognises this, applying to LLPs the provisions of Pt 15 of the CA 2006 regarding group accounts and related or subsidiary undertakings, and defining the circumstances in which an LLP is a ‘parent LLP’ or is a subsidiary or a ‘wholly owned subsidiary’ of a parent undertaking.83

82 83

See further 3.1–3.3 and 3.7–3.8. CA 2006, ss 399–410 and 1163 (together with Sch 7), as modified and applied to LLPs by SI 2009/1804, reg 10.

14

Chapter 2 INCORPORATION

THE REQUIREMENTS 2.1 In order for an LLP to be incorporated, there are three primary requirements which must be satisfied (set out as paras (a), (b) and (c) in s 2(1) of the LLP Act 2000), namely: (a)

two or more persons associated for carrying on a lawful business with a view to profit subscribe their names to an ‘incorporation document’; (b) the incorporation document or a copy of it has been delivered to the Registrar; and (c) there is also delivered to the Registrar a statement made by either a solicitor engaged in the formation of the LLP or by one of the subscribers to the incorporation document, that the requirement imposed by para (a) has been complied with. It is convenient to deal with these three requirements in turn.

(a)  Two or more persons subscribe ‘Persons’ 2.2 The associated persons need not be individuals. The Interpretation Act 1978 provides that, in any Act, unless the contrary intention appears, ‘person’ includes a body of persons corporate or unincorporate.1 The LLP Act 2000 expressly envisages the possibility of a subscribing person, or subsequent member, being a corporate body. This appears from the reference in s 4(1) to a subscribing person having been dissolved, and also from the references in s 18 to the address and name of a corporation which is a member of an LLP. The associated persons may therefore comprise or include, in addition to individuals, a company, another LLP, or some other recognised form of corporate entity.2 There is no requirement that there be at least one natural person. 2.3 Whether or not ‘person’ in the LLP Act 2000 also includes an unincorporated body of persons is not so clear. In the authors’ view, it is at least arguable that an unincorporated body can constitute a ‘person’ for the purposes of the Act, and be a subscriber to an incorporation document or a subsequent member of an LLP, and that

1 2

1978 Act, s 5, and Sch 1. For this purpose, whether an overseas entity is to be treated as an entity is likely to be determined by reference to the law of the place of incorporation or formation: see Investec Trust (Guernsey) Limited v Glenalla Properties Limited [2019] AC 271 and see 26.25–26.36.

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The Law of Limited Liability Partnerships

there is no intention in the Act to the contrary. It is at least arguable, therefore, that, for example, a partnership, a members’ club which is an unincorporated association, all the executors or trustees of an estate or trust, or any other unincorporated body, can be registered as a single member of an LLP in a firm or association name.3 The Registrar, however, does not accept this and takes the view that a member of an LLP must either be an individual, or a body which the law recognises as having its own legal personality.4 This view is now reflected in the provisions of the CA 2006 applying to LLPs.5 As a result, the Registrar will not accept registration of an unincorporated body as a member. If, therefore, a partnership or estate wishes to subscribe to an incorporation document, or become a subsequent member of an LLP, it will be necessary for all the partners or executors, or for some of them on behalf of all, to be individual members of the LLP.6 2.4 In practice, most LLPs are likely to be made up of individuals. There is no requirement that the subscribers to the incorporation document, or persons becoming members subsequently, should be British nationals or resident in the UK. They may all (individuals or corporations) be foreigners resident offshore.7 There is no upper limit on the permissible number of subscribers or subsequent members, so there can be as many subscribers or subsequent members as desired. There is no reason in principle why a company (or an LLP) in liquidation should not be a subscriber.8 An undischarged bankrupt may not, however, be a subscriber without the leave of the court. It is an offence for a person who is an undischarged bankrupt, or in relation to whom a moratorium period under a debt relief order applies (or in respect of whom a bankruptcy restrictions order, or a debt relief restrictions order, is in force), directly or indirectly to take part in or be concerned in the promotion or formation of an LLP or subsequently act as a member without such leave.9

3

4

5

6 7 8 9

This argument is rejected in Lindley & Banks on Partnership (20th edn), para 3–06 and footnote 23, on the basis that it does not take into account the difficulties of applying the provisions of the LLP Act, ss 6–9, if the registered member is an unincorporated association. The authors accept that the argument is not at all straightforward but suggest that a possible answer to the objection is that the effect of the 1978 Act is, for some purposes, to give a partnership personality and a personality that continues, notwithstanding changes in membership. This will permit a Scottish partnership (which has a legal personality distinct from the partners) to be a member (as LLP Act 2000 clearly envisages in the definitions of ‘name’ and ‘address’ in s 18), but not an English partnership, or estates or trusts. The express reference in the definitions of ‘address’ and ‘name’ in s 18 to a corporation or Scottish firm does lend support to the Registrar’s view. But it is, perhaps, a slight basis on which to show a contrary intention from the general meaning in the Interpretation Act 1978. In relation to companies, it was held in Re Vagliano Anthracite Collieries Ltd [1910] WN 187 that a partnership was not a ‘person’ and could not be required to be entered on the share register in the firm name. But in previous cases the court appears to have accepted that a firm could (at least with the agreement of the company) be entered as such on the share register: see Weikersheim’s Case (1873) 8 Ch App 831 and Dunster’s Case [1894] 3 Ch 473. See CA 2006, s 164, as modified and applied to LLPs by SI 2009/1804, regs 2, 18, setting out the particulars of a corporation or firm (‘that is a legal person under the law by which it is governed’) to be contained in the LLP’s register of members. As to fiduciaries as members of an LLP, see 8.27. And the business of the LLP can be carried on outside the UK: see 2.12. Although the compliance statement, discussed at 2.32–2.36, would have to be very carefully considered. CDDA 1986, s 11. See further Chapter 37.

Incorporation

17

‘Associated’ 2.5 Section 2(1)(a) of the LLP Act 2000 has clear echoes of s 1(1) of the Partnership Act 1890 (‘Partnership is the relation which subsists between persons carrying on a business in common with a view of profit’), providing that there must be a business which is intended to be carried on with a view to10 profit. The words ‘in common’, which appear in the phrase ‘carrying on a business in common with a view of profit’ in the Partnership Act 1890, are not carried over into the LLP Act 2000,11 but two or more persons have to be ‘associated’ for carrying on a lawful business before the LLP can be incorporated. ‘Associated’ can be taken to mean ‘joined in a common purpose’.12 The effect of the ‘association’ requirement is that the intended business, however wide, must be an identifiable business for the carrying on of which all the subscribers to the incorporation document are intending that the LLP should be incorporated with them as members. It follows also from the requirement for a minimum of two persons to be associated for carrying on the business that at least two subscribers must be intended to contribute in at least some way to carrying on the business.13 It is arguable that it is implicit in s 2(1)(a) that it must be the common intention of the subscribers that each of them (not simply a minimum of two out of a larger number of subscribers) will contribute in at least some way to the carrying on of the business; but the authors suggest that this is too narrow a view and that, provided there is an intention that the LLP will carry on a lawful business, it is not necessary for each subscriber to intend to contribute in some way. An issue which arises is whether a membership made up exclusively of two or more persons who are the existing trustees of a settlement (or executors of an estate), incorporating an LLP in order to carry on the trust or estate business, are ‘associated’ for the purposes of s 2(1)(a). It might be contended that, since for the purposes of the business they already constitute one body, they cannot be said to be ‘[separate] persons associated’ for the purposes of s 2(1)(a). In the authors’ view, however, it should follow from each trustee or executor being a separate ‘person’ for the purposes of membership (at least in the view of the Registrar) as discussed in 2.3, that they are to be treated as ‘two or more persons associated’ within s 2(1)(a).

‘Business with a view to profit’ 2.6 The association of the subscribers must be for the purpose of carrying on a business with a view to profit. ‘Business’ is defined as including every trade,

10

There is no material difference between ‘view of profit’ and ‘view to profit’. In Blackpool Marton Rotary Club v Martin [1988] STC 823, Hoffmann J (at 830j) treated the two expressions as interchangeable. 11 In M Young Legal Associates Ltd v Lees [2006] 1 WLR 2562 (CA), these words were said to mean (in the 1890 Act) carrying on the business in such manner as to make each partner the agent of the others for all acts done in the course of the business (at [41]). On this basis, ‘in common’ would clearly be inappropriate in the context of an LLP, where the members are agents of the LLP, not each other: see 3.1–3.4. 12 See the Oxford English Dictionary. 13 It also follows, in the authors’ view, that it must at least be doubtful whether ‘off the shelf’ LLPs can be created for sale to, and subsequent use by, entirely new members; see also 2.32–2.36 as to the compliance statement. As to the possibility of an LLP constituting a collective investment scheme, see 20.22–20.30; and for the possibility of an LLP constituting an alternative investment fund, see 20.31–20.37.

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The Law of Limited Liability Partnerships

profession or occupation.14 It is undoubtedly a word of wide meaning in the context of s 2(1)(a).15 ‘Profit’ is not defined, but means essentially excess of receipts over expenditure of the business.16 Whether or not the intended activity constitutes a business to be carried on with a view to profit (ie with the aim of making a profit) will turn ultimately, the authors suggest, on whether what is intended would ordinarily be seen and described as carrying on a business for profit.17 In other words, the test is essentially objective, involving a consideration of the whole picture. The subjective intention of the subscribers is relevant, but only as part of a consideration of all the circumstances.18 Investment can constitute carrying on a business,19 but it may be difficult to see the mere passive holding of investments, or of the freehold reversion in tenanted land, without more, as constituting ‘carrying on a business’.20 Actively speculating or trading, or exploiting a property, on the other hand, probably would do so.21 It has been said (in the context of the statutory provision which became CA 1985, s 716, repealed in 2002) that for a business to be carried on, there must be a series or repetition of acts.22

14

LLP Act 2000, s 18. This is, in substance, the same meaning as ‘business’ has in Partnership Act 1890, s 45. 15 There are many reported cases which consider the ambit of the word ‘business’ in different contexts: see, in particular, Customs & Excise v Lord Fisher [1981] 2 All ER 147 and Institute of Chartered Accountants in England and Wales v Customs & Excise [1999] 1 WLR 701 (both VAT cases concerned with the issue whether a taxable supply was being made in the course of a business), and more recently, for instance, Customs & Excise v Yarburgh Children’s Trust [2002] STC 207. 16 See, for instance, Beauchamp v Woolworth Plc [1990] 1 AC 478 at 489. 17 See Armour v Liverpool Corporation [1939] Ch 422 at 437, concerned with Companies Act 1929, s 357 (subsequently CA 1985, s 716, now repealed); and see also In re Arthur Average Association for British, Foreign and Colonial Ships [1875] LR 10 Ch App 542 (on Companies Act 1862, s 4) at 548 (col 2): is the association for a commercial undertaking? See, in relation to the carrying on of a trade, Eclipse Film Partners No 35 LLP v HMRC [2015] EWCA Civ 95 and Samarkand Film Partnership No 3 v Revenue and Customs Commissioners [2017] EWCA Civ 77. 18 See Iswera v Commissioners of Inland Revenue [1965] 1 WLR 663 (PC), a tax case on profits from a ‘trade’, and Messenger Leisure Developments Ltd v Commissioners of Customs & Excise [2005] STC 1078 (esp at [83]–[93]), a VAT case. 19 The view of the Inland Revenue (expressed in the context of 1890 Act and 1907 Act partnerships) is that investment carried on as a commercial venture comes within the definition of business: see the Law Commission Report on Partnership Law (Law Com No 283) of November 2003, para 4.34. And see, for instance, the definition of an ‘investment LLP’ in ITA 2007, s 399, referred to in 23.140. As to the regulatory position of LLPs carrying on certain investment activities, see 20.3–20.8. 20 As to letting out premises for rent, see American Leaf Blending Co v Director-General of Inland Revenue [1979] AC 676 (PC). In a VAT context, the ECJ has held that a holding company whose sole purpose is to acquire and hold shares in other companies, without involving itself directly or indirectly in the management of those companies, is not engaged in ‘economic activity’: Polysar Investments Netherlands BV [1993] STC 222. In ICAEW v Customs & Excise above, it was said that ‘business’ in its ordinary sense needs to be given an ‘economic’ content: [1999] 1 WLR at 707E. 21 See, for instance, Smith v Anderson (1880) 15 Ch D 247 (CA) at 276, 279 and 283 (concerned with trustees), Wigfield v Potter (1882) 45 LT (NS) 612 at 615 and Crowther v Thorley [1884] 33 WR 330, all cases on Companies Act 1862, s 4 (forerunner of CA 1985, s 716). See also Simmons v IRC [1980] 1 WLR 1196 (HL), a tax case on ‘trade’ for the purposes of Schedule D Case 1, at 1199. 22 See Smith v Anderson above at 277–8, and Crowther v Thorley above at 332; and see also Kirkwood v Gadd [1910] AC 422 at 431. In American Leaf Blending above, it was said (p 684): ‘The carrying on of “business”, no doubt, usually calls for some activity on the part of whoever carries it on, though, depending on the nature of the business, the activity may be intermittent with long intervals of quiescence in between’.

Incorporation

19

2.7 The intended profit required by s 2(1)(a) must derive from the business for the carrying on of which the subscribers are associated, and must be a profit for the LLP. There is, however, no requirement that every member must be entitled to some share of the profit. There is no doubt, for instance, that there can be members of an LLP remunerated by fixed salary only.23 But one issue which does arise is whether the profits of the business must be divisible (and divisible only) amongst at least some of the members: is s 2(1)(a) satisfied if some or all of the profits of the business are to be distributed to a non-member?24 The authors suggest that there is no requirement that the profits of the business must (all or in part) be divisible amongst some or all of the members, and that there is no objection in principle to the LLP agreement providing for a person to have a right to share in the profits otherwise than as a member. All that s 2(1)(a) is requiring, it is suggested, is an intention that a profit will accrue to the LLP from the carrying on (by the LLP, acting through its members) of the business.25 2.8 A related issue which arises is whether, if the profits are to be shared amongst some only (or none) of the members, s 2(1)(a) will be satisfied if one or more members are not only not to receive a share of profits but are not to receive any remuneration or financial benefit at all. The authors suggest that, in principle, and consistent with what has been said above as to the possibility of all the profits going to non-members, there is no objection to a member not receiving any remuneration or financial benefit from the carrying on of the business. 2.9 Another issue which arises is whether s 2(1)(a) (and the phrase ‘with a view to profit’) is satisfied if the intention is that the LLP – the separate entity – shows a profit, but this profit is in truth derived from the members of the LLP, ie any profit shares which are divisible amongst members are in reality constituted by their

23 24

25

See Chapter 9 in relation to whether members of an LLP can be employed by it. Put another way, is s 2(1)(a) concerned solely with there being an intended profit for the LLP as an entity? This question is similar to the question which arose in the mid-19th century as to whether land allotment societies and mutual lending societies were required to be registered under s 2 of the Companies Act 1844 (which required the registration of any company, association or partnership ‘established … for any purpose of profit’): see R v Whitmarsh (1850) 15 QB 600 and Bear v Bromley (1852) 18 QB 101, which decided that one looked solely to see whether the company, association or partnership as such was established for such purpose. Subsequently, express reference to gain by the individual members of the company, association or partnership was inserted into Companies Act 1862, s 4 (later CA 1985, s 716) in order to reverse the effect of these decisions: see In re Padstow Total Loss and Collision Assurance Association (1882) 20 Ch D 137 (a case on s 4 of the 1862 Act) at 149. See in this connection IA 1986, s 110(4), which appears to contemplate the possibility of a person participating in the profits of an LLP although not a member, and LLP Act 2000, s 7(1)(d), contemplating the assignment by a member of his share in the LLP (discussed at 8.21). This will also accord with what appears to be the partnership position (see Lindley & Banks on Partnership (20th edn) (2017, with 2020 supplement), paras 2–08 to 2–11, and M Young Associates Ltd v Lees [2006] 1 WLR 2562, esp at [25] and [41]), despite a possible indication to the contrary by Hoffmann J in Blackpool Marton Rotary Club v Martin [1988] STC 823 at 830. And note that CA 2006, s 37 (formerly CA 1985, s 15(2)), making void any provision in the articles of a company limited by guarantee purporting to give a person a right to participate in the divisible profits of the company otherwise than as a member, is not adopted or re-enacted for LLPs.

20

The Law of Limited Liability Partnerships

own money.26 It might be said that if (as suggested in 2.7) s 2(1)(a) is concerned solely with there being an intended profit for the LLP as an entity, and there is no requirement that the profits must be divisible amongst at least some of the members, it would not matter that the money to come into the LLP as trading income was to come from the members. There is, in the view of the authors, no single answer to this question. The answer in any particular case will turn on the nature of the business venture. The essence of s 2(1)(a) is that the LLP must be a commercial venture: the subscribers are incorporating a commercial venture. The question will be: looking at the matter in an ordinary common sense way,27 are the subscribers associated for carrying on a business with a view to profit? The fact that the trading income comes from the members will not automatically prevent s 2(1)(a) being satisfied;28 but it may in such circumstances be difficult to see s 2(1)(a) being satisfied where it is the members’ own money which is intended to go round, and there is no intended outside source of trading income for the LLP. 2.10 The requirements of s 2(1)(a) preclude a charitable body from being an LLP. Whilst it is possible in principle that a charity could be a member of an LLP if its investment powers permit, or if being associated with others for carrying on the business for profit is a proper part of fulfilling its charitable purposes, in the light of the exclusive and independent focus which a charity must have on its own particular charitable purposes, the circumstances where it could be a member of an LLP will be very limited. Equally, the requirements of s 2(1)(a) preclude a non-profit making body that does not have charitable status from being an LLP. Clubs and societies are unlikely, therefore, to be able to become LLPs, and an LLP is unlikely to be useable in the role occupied by, for instance, a property owners’ service company.

Legality of business 2.11 It is, strictly speaking, the business which must be lawful, not the means of carrying it on. The latter may be subject to a separate regulatory regime. But a business which necessarily involves carrying out criminal acts or acts otherwise made illegal by statute will clearly not be a lawful business.29 A business which will necessarily involve, or whose principal purpose is, carrying on a trade involving illegal contracts or the committing of a tort against a third party will also

26

27 28

29

For instance, the members pay the LLP a fee for carrying out a business activity which the members desire, and then – as members – receive the net profits of the LLP from carrying out that activity. See the discussion in 2.6. See, for instance, In re Arthur Average Association for British, Foreign and Colonial Ships [1875] LR 10 Ch App 542 (on Companies Act 1862, s 4) at 547–8. Compare Bear v Bromley above at 276: ‘In fact, by profit [in the Companies Act 1844, s 2] is meant profit arising from others, not profits or advantages raised from, and accruing to, only the members of the company’. See, for instance, the Charity Commission’s model articles of association for a charitable company, clause 5 (Powers) esp (6) and (7), and Tudor on Charities (10th edn and supplement) (2018) at [1–058] and [1–185/9]. See, for instance, R v Registrar of Joint Stock Companies, ex parte More [1931] 2 KB 197, refusing registration to a company formed to sell Irish Sweepstake tickets in England in breach of the Lotteries Act 1823. It may be that an LLP could be more useful as a joint venture for trading subsidiaries of two or more charities.

Incorporation

21

be unlawful.30 Equally, a business which could be carried on in a perfectly lawful manner, but which the subscribers in fact intend to carry on in an unlawful manner, is not a lawful business.31 A business unacceptably offensive to public morals would also be unlawful.32 Generally, it is probably correct to say that the business to be carried on would be unlawful if it were intended to be carried on in a manner which deceived the public as to the service or expertise on offer.33 If an LLP did manage to be registered for the purpose of carrying on an unlawful business, that registration could subsequently be quashed by the court on an application by the Attorney-General on behalf of the Crown.34 2.12 There is no requirement that the business be carried on in the UK: it can be carried on abroad. Complicated questions as to lawfulness may arise where the business is one which will necessarily involve, or the principal purpose of which is, acting in a foreign country in breach of that country’s law.35 2.13 The definition of ‘business’ includes every profession. In the case of many professions it is unlawful, and a criminal offence, to practise or hold oneself out as 30

31

32

33 34

35

As to a trade involving illegal contracts, see R v Registrar of Companies, ex parte Attorney-General [1991] BCLC 476. An example of a business involving a tort against a third party would be passing off the LLP’s goods for sale as those of another trader. For a discussion relevant for present purposes as to illegality and contracts, see Chitty on Contracts (33rd edn and 2nd supplement) (2020), chapter 16. See, for example, Dungate v Lee [1969] 1 Ch 545. (The issue was whether a partnership of two individuals running a betting office was unlawful. Only one of the partners had a bookmaker’s permit under the Betting and Gaming Act 1960 (then the applicable Act). The answer turned on the construction of the Act, and on the intention as to their respective functions in the conduct of the business with which the two individuals entered into the partnership.) Where the intention is that the business should not be commenced until the required licence or permit has been obtained, the incorporation will not be for an unlawful business. Such a business might well be unlawful on the ground discussed earlier that it involves contracts which are illegal, the illegality here being on the grounds of public policy. This was the position in R v Registrar of Companies ex p A-G, referred to in fn 30 above. The courts recognise that the notions of what is acceptable or unacceptable change with the times: see, for example Viscount Simonds in Shaw v DPP [1962] AC 220 at 268. For a more recent decision on whether or not a contract was so immoral as to be unenforceable see Armhouse Lee Ltd v Chappell (1996) The Times, August 7 (CA) (payment for advertisements for telephone sex lines enforced). As to restrictions on the use of certain words and expressions in the name of an LLP, see 2.18–2.19. As in R v Registrar of Companies, ex p A-G, referred to in fns 30 and 32 above, where the registration of Lindi St Claire (Personal Services) Ltd was quashed. See also Bank of Beirut SAL v Prince El-Hashemite [2015] EWHC 1451 (Ch), [2016] Ch 1. The application would be by way of judicial review to quash (ie declare completely invalid) the decision of the Registrar to register the LLP and issue a certificate of incorporation. In the event of such a quashing order being made, the position as to liabilities and assets of the now non-existent LLP will be as follows. As to liabilities incurred purportedly on behalf of the LLP, the individual acting will be personally liable under CA 2006, s 51 and/or for breach of warranty of authority. As to any assets, the LLP never having been incorporated, CA 2006, s 1012 (bona vacantia on dissolution) will not apply and the assets will revert to their pre-incorporation ownership. See, further, the discussion as to the conclusiveness of the certificate of incorporation at 2.37–2.40. If an LLP, having been incorporated for the purposes of a lawful business, subsequently carries on an unlawful business, the Secretary of State can appoint inspectors under CA 1985, s 432(2) (see 24.5(2)), or apply to the court for a winding-up order. See, in relation to the powers to rectify the register, 24.40–24.48. See, for instance, the discussion in relation to contracts in Chitty on Contracts (33rd edn and 2nd supplement) (2020), paras 16–059 to 16–062.

22

The Law of Limited Liability Partnerships

qualified to practise as the specified professional without the necessary qualification (and current registration).36 An intention on the part of the subscribers that the LLP should trade as, for example, ‘solicitors’ without all its members being qualified to act as solicitors37 would constitute an unlawful business for the purposes of LLP Act 2000, s 2(1)(a). Any professionals considering incorporation as an LLP will clearly need to consider their own particular legislation (and professional rules).

Subscribing 2.14 In the case of a subscriber who is an individual, the subscription does not need to be in his own hand. It can be done on his behalf by an agent duly authorised by him.38 The name of the principal (ie the subscriber) should, however, be made clear.

Members reduced below two 2.15 The LLP Act 2000 requires that there be two or more subscribers for incorporation, and envisages that the corporate entity which is the LLP will continue to have a minimum of two members.39 However, if subsequently there is only one member of the LLP left, the legislation does not require the LLP to cease business, and there is no automatic liquidation.40 Further members may be appointed to bring the number of members back to two or more. The legislation expressly envisages that the LLP can continue to carry on business although it only has one member.41 If, however, it does carry on business with only one member for more than six months, that single member, if he knows that he is the only member, is liable, jointly and severally with the LLP, for payment of the LLP’s debts contracted after the six months have passed and while he is a member.42

(b)  The incorporation document 2.16 The incorporation document of the LLP may be seen as the equivalent of the memorandum of association for a company. The incorporation document must:43 (a) be in a form required by the Registrar under CA 2006, s 1068; (b) state the name of the LLP; (c) state whether the registered office of the LLP is to be situated in England and Wales,44 in Wales, in Scotland or in Northern Ireland; (d) state the address of that registered office; 36

See, for instance, Solicitors Act 1974, ss 1, 20 and 21. In accordance with s 1 of the 1974 Act and Part 3 of the Legal Services Act 2007. 38 See Re Whitley Partners Ltd (1886) 32 Ch D 337 as to subscribers signing the memorandum of association of a company. 39 In addition to s 2(1)(a), see the requirement for two designated members, discussed at 2.30. 40 In Grupo Mexico SAB de CV v Registrar of Companies [2018] Bus LR 1863, Henry Carr J rejected the argument (at [101]) that, on a proper interpretation of LLP Act 2000, s 4(3), members cannot agree to cease to be members of an LLP and cannot cease to be members by giving notices to that effect to each other, if, in either case, the LLP would be left with no members. 41 LLP Act 2000, s 4A (inserted by the LLP Regulations 2009). There only being one member of the LLP is a ground on which the LLP may be wound up by the court: see IA 1986, s 122(1)(c). 42 Ibid. 43 LLP Act 2000, s 2(2). 44 See further 2.22–2.23. 37

Incorporation

(e) (f)

23

give the ‘required particulars’ of each of the persons who are to be members of the LLP on incorporation; and either specify which of those persons are to be designated members, or state that every person who from time to time is a member of the LLP is a designated member.

It is convenient to consider each of these requirements in turn. The LLP Act previously provided (in s 2(2)(a)) that the incorporation document must be in a form approved by the Registrar, or as near to such a form as circumstances allowed. This provision has been repealed by the LLP Regulations 2009.45 There is, however, a general power in CA 2006, s 1068 for the Registrar to specify requirements as to the form, authentication and manner of delivery of documents required to be delivered to him under the LLP Act.46 The Registrar has specified the required form of the incorporation document.

Name of the LLP 2.17 The name must end with ‘limited liability partnership’ or ‘llp’ or ‘LLP’.47 If, however, the incorporation document states that the registered office is to be situated in Wales,48 the name may end either with one of the above endings or with one of the specified Welsh equivalents.49 Registration will not be permitted with a name which is the same as the name of a company or LLP or other body appearing in the index of names of companies and other bodies kept by the Registrar under CA 2006, s 1099.50 The name must use ‘permitted characters’ only,51 and must not include in any part of the name certain prohibited expressions or abbreviations.52 2.18 In determining whether one name is the same as another (both for the purposes of initial incorporation53 and on a change by the LLP of its name54) certain common words, expressions, signs and symbols are to be disregarded.55 An LLP may be registered under the LLP Act by a proposed same name if: (a) the LLP or other body whose name already appears in the Registrar’s index of company names (‘Body X’) consents to the proposed same name being the name of an LLP (‘LLP Y’); 45

Reg 85 and Sch 3. As to s 1068, see further 1.9. 47 LLP Act 2000, Schedule (introduced by s 1(6) of the Act), Pt 1, para 2(1). 48 See 2.23. 49 LLP Act 2000, Schedule, Pt 1, para 2(2). 50 CA 2006, s 66(1), as modified and applied to LLPs by SI 2009/1804, regs 2, 11. The index includes limited partnerships registered under the Limited Partnerships Act 1907 Act and LLPs. 51 Ie the characters set out or referred to as permitted in reg 2 of the Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015 (SI 2015/17): CA 2006, s 57, as modified and applied to LLPs by SI 2009/1804, reg 9. 52 CA 2006, s 65, as modified and applied to LLPs by SI 2009/1804, regs 2, 11, referring to expressions and abbreviations set out in the Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015. 53 See 2.17. 54 See 4.22 et seq. 55 CA 2006, s 66(3)(a), as modified and applied to LLPs by SI 2009/1804, regs 2, 11, and Company and Business Names (Miscellaneous Provisions) Regulations 2009, reg 7. 46

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The Law of Limited Liability Partnerships

(b) LLP Y forms, or is to form, part of the same group as Body X; and (c) LLP Y provides to the Registrar a copy of a statement made by Body X indicating the consent of Body X as referred to in (a) above, and LLP Y forms, or is to form, part of the same group as Body X.56 2.19 Registration will not be permitted with a name if, in the opinion of the Secretary of State, its use by the LLP would constitute an offence, or it is offensive.57 The approval of the Secretary of State will be required for an LLP to be registered with a name: (i)

that would be likely to give the impression that the LLP is connected with the Government or with any local authority, or with any public authority which the Secretary of State specifies for these purposes in regulations;58 or (ii) that includes a word or expression for the time being specified in regulations made by the Secretary of State.59 These restrictions will apply on both an application for incorporation, and on an application for approval of a name received by the Secretary of State on or after 1 October 2009.60 In regulations for either of the above purposes, the Secretary of State may require that, in connection with an application for his approval, the applicant must seek the view of a specified Government department or other body.61 2.20 The ability for an LLP to change its name after it has been incorporated, and the circumstances in which it may be required to change its name after incorporation, are considered at 4.22–4.26. 2.21 If any person (ie individual or corporate body) carries on a business under a name or title which includes as the last words ‘limited liability partnership’ or their Welsh equivalent, or any contraction or imitation of such expression or its Welsh equivalent, then, unless that person is indeed an LLP (ie incorporated as such under the LLP Act 2000) or an ‘oversea limited liability partnership’,62 he or it commits an offence, and is liable on summary conviction to a fine not exceeding level 3 on the standard scale.63 56 57 58

59 60

61 62 63

CA 2006, s 66(4), as modified and applied to LLPs by SI 2009/1804, regs 2, 11, and Company and Business Names (Miscellaneous Provisions) Regulations 2009, reg 8. CA 2006, s 53, as modified and applied to LLPs by SI 2009/1804, reg 8. CA 2006, s 54, as modified and applied to LLPs by SI 2009/1804, reg 8. ‘Local authority’ means any local authority within the meaning of the Local Government Act 1972, the Common Council of the City of London or the Council of the Isles of Scilly, a council under the Local Government etc (Scotland) Act 1994 or a District Council in Northern Ireland. A ‘public authority’ includes any person or body having functions of a public nature: ibid. An updated list of sensitive words and expressions may be found at www.gov.uk/government/publications/incorporation-andnames/annex-a-sensitive-words-and-expressions-or-words-that-could-imply-a-connection-withgovernment. CA 2006, s 55, as modified and applied to LLPs by SI 2009/1804, reg 8. LLP Regulations 2009, Sch 1, Pt 3. The restrictions set out in 2.19 do not affect the continued registration of an LLP by a name by which it was duly registered immediately before 1 October 2009: ibid. CA 2006, s 56, as modified and applied to LLPs by SI 2009/1804, reg 8. As defined in LLP Act 2000, s 14(3): see further Chapter 26. LLP Act 2000, Schedule, para 7.

Incorporation

25

Situation and address of registered office 2.22 An LLP must at all times have a registered office, to which communications and notices may be sent.64 As appears from 2.16(c), the registered office must at all times be situated in England and Wales, in Wales, in Scotland, or in Northern Ireland. The effect of this requirement is that, on incorporation, the subscribers must choose forever thereafter whether the LLP’s registered office is to be in England and Wales (or alternatively Wales), or in Scotland or in Northern Ireland. The relevance of this choice is that it will determine where the LLP is to be registered (and whether by the Registrar of Companies for England and Wales, for Scotland or for Northern Ireland)65 and which is to be the legal system having jurisdiction over it. On incorporation, the situation of the registered office is that stated in the incorporation document.66 2.23 Where the incorporation document states that the registered office of an LLP is to be situated in Wales (as opposed to England and Wales), the LLP’s name may end with ‘partneriaeth atebolrwydd cyfyngedig’ in place of ‘limited liability partnership’, or ‘pac’ or ‘PAC’ in place of ‘llp’ or ‘LLP’.67 Where the registered office is situated in Wales, but it is stated in the register that it is to be situated in England and Wales, the LLP may at any time after incorporation determine that the register be amended so that it states that the registered office is to be situated in Wales.68 Conversely, where the registered office is situated in Wales, and it is stated in the register that it is to be situated in Wales, the LLP may at any time after incorporation determine that the register be amended so that it states that the registered office is to be situated in England and Wales.69 Where the LLP makes one of these determinations, it must give notice to the Registrar, who is to issue a new certificate of incorporation altered to meet the new circumstances.70

‘Required particulars’ of members 2.24 The members of the LLP on incorporation are the two or more persons associated for carrying on a lawful business with a view to profit who have subscribed their names to the incorporation document (and who have not died or been dissolved between subscribing and incorporation).71 The persons to be named in the incorporation document, therefore, are the persons who have subscribed their names to it. The ‘required particulars’ are the particulars required to be stated in the LLP’s register of members and register of members’ residential addresses.72

64 65 66 67 68 69 70 71 72

CA 2006, s 86(1), as modified and applied to LLPs by SI 2009/1804, regs 2, 16. A document may be served on an LLP by leaving it at, or sending it by post to, the LLP’s registered office: CA 2006, s 1139(1). See LLP Act 2000, s 3(1) with s 18 (meaning of ‘the registrar’) and LLP Regulations 2009, Sch 3, Pt 2, para 12. LLP Act 2000, Schedule, para 9(2). Changing the location of the registered office of an LLP after incorporation is considered at 3.15–3.18. LLP Act 2000, Schedule, para 2(2). CA 2006, s 88(1), as modified and applied to LLPs by SI 2009/1804, regs 2, 17. CA 2006, s 88(2), as modified and applied to LLPs by SI 2009/1804, regs 2, 17. CA 2006, s 88(3), as modified and applied to LLPs by SI 2009/1804, regs 2, 17. LLP Act 2000, s 4(1), discussed further in Chapter 8. As to the meaning of ‘persons’, see 2.2–2.3. LLP Act 2000, s 2(2ZA). As to the possibility of factually inaccurate material as to members’ particulars on an incorporation document being removed from the register, see CA 2006, ss 1095 and 1098 and the Registrar of Companies and Applications for Striking Off Regulations 2009 (SI 2009/1803).

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The Law of Limited Liability Partnerships

2.25 With effect from 1 October 2009, every LLP (including an LLP existing at that date) has been required to keep a register of members.73 The particulars which the register must contain are as follows:

(a)  Individual members74 In the case of individual members (i) the member’s name and any former name, (ii) a service address, (iii) the country or state (or part of the UK) in which he is usually resident, (iv) his date of birth, and (v) whether he is a designated member. The ‘name’ of a member who is an individual is his forename and surname (or, in the case of a peer or other person usually known by a title, his title may be used instead of his forename and surname or in addition to either or both of them).75 A ‘former name’ means a name by which the individual was formerly known for business purposes.76 A ‘service address’ must be a place where the service of documents can be effected by physical delivery, and the delivery of documents is capable of being recorded by the obtaining of an acknowledgment of delivery.77 A member’s service address may be stated to be ‘The LLP’s registered office’.78 In the case of an LLP which was registered immediately before 1 October 2009, the address of a member which was notified to the Registrar before that date under LLP Act 2000, s 2(1)(e) (requiring the incorporation document to state the name and address of the members on incorporation) or s 9(1)(b) (notice of new member or change of address) is to be treated, after 1 October 2009, as a service address, and any entry in the LLP’s register of members stating that address is treated as complying with the obligation under CA 2006, s 163 to state a service address.79 Where, by virtue of the above transitional provisions, a member’s usual residential address appears as a service address in the LLP’s register of members after 1 October 2009, that address is not protected information for the purposes of CA 2006, ss 240–246.80

(b)  Corporate members and firms81 In the case of a member which is a corporation or a firm (namely a firm that is a legal person under the law by which it is governed) (i) its corporate or firm name, 73 74 75

76

77 78 79 80 81

CA 2006, s 162, as modified and applied to LLPs by SI 2009/1804, regs 2, 18, and LLP Regulations 2009, reg 83 and Sch 1, Pt 4, para 5(1). CA 2006, s 163, as modified and applied to LLPs by SI 2009/1804, regs 2, 18. Clearly, an individual must subscribe, and have stated in the incorporation document, his true name, whether original or properly assumed. A name taken for a wrongful purpose will not be his true name: see generally, on change of name, Halsbury’s Laws of England (5th edn) 2012 re-issue, Vol 88, para 326. Where a person is or was formerly known by more than one such name, each of them must be stated. It is not necessary for the register to contain particulars of a former name (a) in the case of a peer or an individual normally known by a British title, where the name is one by which the person was known previous to the adoption of or succession to the title; (b) in the case of any person, where the former name: (i) was changed or disused before the person attained the age of 16 years; or (ii) has been changed or disused for 20 years or more: s 163(4). CA 2006, s 1141, as modified and applied to LLPs by SI 2009/1804, regs 2, 75. CA 2006, s 163(5), as modified and applied to LLPs by SI 2009/1804, regs 2, 18. LLP Regulations 2009, reg 83 and Sch 1, Pt 4, para 5. No obligation arises to notify the Registrar under s 9(1)(b) of the LLP Act: ibid. LLP Regulations 2009, reg 83 and Sch 1, Pt 4, para 8(a). CA 2006, s 164, as modified and applied to LLPs by SI 2009/1804, regs 2, 18.

Incorporation

27

(ii) its registered or principal office, (iii) in the case of an EEA company to which the First Company Law Directive (68/151/EEC) applies, particulars of the register in which the company file mentioned in art 3 of that Directive is kept (including details of the relevant state), and the registration number in that register, (iv) in any other case, particulars of the legal form of the company or firm and the law by which it is governed and, if applicable, the register in which it is entered (including details of the state) and its registration number in that register, and (v) whether it is a designated member. 2.26 The register of members must be kept available for inspection at the LLP’s registered office, or at the LLP’s ‘alternative inspection location’ as mentioned in 6.23.82 The LLP must give notice to the Registrar of the place at which the register is kept available for inspection, and of any change in that place, unless the register has at all times been kept at the LLP’s registered office.83 The register must be open to inspection by any member of the LLP without charge, and by any other person on payment of a fee.84 The details of the right of inspection are the same as for the right of inspection of the LLP’s charges register, and are set out in 6.24–6.25. If default is made in keeping the register with the required particulars, or keeping it available for inspection, or if default is made for 14 days in giving notice to the Registrar of the place at which the register is kept available for inspection, or if an inspection is refused, an offence is committed by the LLP, and by every designated member of the LLP who is in default.85 As is mentioned in 6.16 in relation to the LLP’s charges register, the right of inspection of the members’ register is probably not wholly unfettered.86 2.27 Every LLP must also keep a register of the residential addresses of members who are individuals.87 The register must state the usual residential address of each of the LLP’s members. If a member’s usual residential address is the same as his service address (as stated in the LLP’s register of members), the register need only contain an entry to that effect.88 If default is made in keeping the register of residential addresses, an offence is committed by the LLP and by every designated member of the LLP who is in default.89 There are no requirements to make the register available for inspection. 2.28 The registers may be kept in hard copy or electronic form, and may be arranged in such manner as the members think fit (provided that the information in

82 83 84 85 86

87 88 89

CA 2006, s 162, as modified and applied to LLPs by SI 2009/1804, regs 2, 18. Ibid, s 162(4), as modified and applied to LLPs by SI 2009/1804, regs 2, 18. As prescribed by reg 2(a) of the Companies (Fees for Inspection of Company Records) Regulations 2008 (SI 2008/3007). The penalty on summary conviction is a fine: s 162(7). As to designated members being ‘in default’, see 12.9–12.12. CA 2006, s 162(8), as modified and applied to LLPs by SI 2009/1804, regs 2, 18, provides that, in the case of a refusal of inspection of the register, the court ‘may’ by order compel an immediate inspection of it. CA 2006, s 165, as modified and applied to LLPs by SI 2009/1804, regs 2, 18. This does not apply if his service address is stated to be ‘The LLP’s registered office’ (see 2.25(a)): s 165(3). The penalty on summary conviction is to a fine: s 165(5), as modified and applied to LLPs by SI 2009/1804, regs 2, 18.

28

The Law of Limited Liability Partnerships

question is adequately recorded for future reference);90 but if kept in electronic form, they must be capable of being reproduced in hard copy form.91 If a register is kept otherwise than in bound books, adequate precautions must be taken to guard against falsification, and to facilitate the discovery of falsification.92

Specifying the designated members 2.29 The role of designated members is discussed in Chapter 12. In brief, they may be seen principally as the members of the LLP charged by the legislation with ensuring that the requirements of the legislation as to disclosure and notification to the Registrar are satisfied: they are, in effect, LLP compliance officers. 2.30 So long as it has two or more members,93 an LLP must always have at least two designated members.94 As stated in 2.1, there must be a minimum of two subscribers to the incorporation document. This document must adopt one of two courses for the purpose of identifying who the designated members are to be. It must either (i) name those of the first members of the LLP who are to be the designated members,95 in which case only the specified members become on incorporation the designated members;96 or (ii) state that every person who from time to time is a member of the LLP is a designated member,97 in which case every member (including everyone who subsequently becomes a member) is automatically a designated member.98 Whichever course is adopted in the incorporation document, the document must provide for at least two designated members.99 2.31 At any time after incorporation, an LLP can switch from one of the above options (some members only are designated members, or all are) to the other. Having originally chosen option (a), the LLP may at any time deliver to the Registrar a notice that every person who from time to time is a member of the LLP is a designated member.100 Such a notice has the same effect as if this had been stated in the incorporation document, with the result that with effect from delivery of the notice every member of the LLP for the time being is automatically a designated member.101

90

CA 2006, s 1134(a) (‘any register’ required to be kept) and (b) (register of debenture holders) and s 1135, as modified and applied to LLPs by SI 2009/1804, regs 2, 74. 91 Ibid. If the records are not capable of being reproduced in hard copy form, or the information is not adequately recorded for future reference, an offence is committed by every member of the LLP who is in default. The penalty, on summary conviction, is a fine. 92 CA 2006, s 1138, as modified and applied to LLPs by SI 2009/1804, regs. 2, 74. If an LLP fails to take such precautions, an offence is committed by every member who is in default: ibid. As to the meaning of ‘in default’, see 22.29. 93 As to the possibility of an LLP having one member only, see 2.15. 94 This follows from LLP Act 2000, ss 2(1)(a) and 8(2). 95 LLP Act 2000, s 2(2)(f). 96 LLP Act 2000, s 8(1)(a). 97 LLP Act 2000, s 2(2)(f). 98 LLP Act 2000, s 8(3). 99 Note that LLP Act 2000, s 2(2)(f) refers to designated members in the plural. 100 LLP Act 2000, s 8(4)(b). The notice will need to be in the form specified by the Registrar under CA 2006, s 1068. 101 LLP Act 2000, s 8(4), final part, with s 8(3). Presumably the intention is that the change has effect from delivery of the notice to the Registrar, and not that there should be a backdated effect.

Incorporation

29

Likewise, having originally chosen option (b), the LLP may at any time deliver to the Registrar a notice specifying named members as the designated members,102 in which case thereafter103 change will be by agreement amongst the members (and the notice requirements on any change will apply).104 On receipt of the notice, the Registrar is required by CA 2006, s 1078 to publish notice of it in the London Gazette.

(c)  Statement of compliance 2.32 The third condition for an LLP to be incorporated is that there be delivered to the Registrar not only a duly completed incorporation document as referred to in LLP Act 2000, s 2(1)(b), but also a statement, made either by a solicitor engaged in the formation of the LLP or by one of the subscribers to the incorporation document, to the effect that the (two or more) subscribers to the incorporation document are associated for carrying on a lawful business with a view to profit, ie that the requirement for incorporation as an LLP imposed by LLP Act 2000, s 2(1)(a) has been complied with.105 2.33 Prior to the implementation of the CA 2006, the need for this statement of compliance was particular to LLPs. The CA 2006 now requires, as part of the application for registration of a company, a statement that the requirements of the Act as to registration have been complied with.106 The statement required by the LLP Act 2000, s 2(1)(c) is the means of seeking to ensure that the proposed business of the LLP is a lawful business, and also that it is to be carried on with a view to profit by two or more persons associated for that purpose. The option of the statement being made either by a subscriber (ie by one of the persons associated for carrying on the proposed business) or by the solicitor engaged in the formation of the LLP is perhaps reminiscent of the option given by the Civil Procedure Rules for the statement of truth verifying a pleading to be made either by the party to the action or by his legal representative on his behalf.107 It is to be noted, however, that whilst a CPR statement of truth is a statement of belief that the facts stated in the pleading are true,108 the compliance statement under the LLP Act 2000 is a statement (by the maker of it) that the facts are true and that the business to be carried on is a lawful business, carried on with a view to profit. Whilst the LLP Act 2000 only provides for a sanction on the maker of the statement in the absence of belief by him as to its truth,109 it is as well to bear in mind the absolute character of the compliance statement. Whether or not it is the solicitor who actually makes the statement, there is almost certainly going to be a duty on him to advise as to the accuracy of the statement. The compliance statement may well be made by the subscriber in reliance on that advice.

102

LLP Act 2000, s 8(4)(b). Presumably, see fn 101 above. 104 Section 8(4), final part, with s 8(1) and (2). See further 12.4. 105 LLP Act 2000, s 2(1)(c). 106 CA 2006, ss 9(1) and 13(1), applying only to companies. 107 CPR, r 22.1(6)(a). 108 CPR PD 22.2.1, and Part 3 of the Legal Services Act 2007. 109 See 2.34. 103

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The Law of Limited Liability Partnerships

2.34 There is a substantial criminal sanction if a false compliance statement is made and the person who makes it either knows it to be false or does not believe it to be true. The maker of the false statement is guilty of an offence and liable (a) on summary conviction, to imprisonment for a period not exceeding six months or a fine not exceeding the statutory maximum, or to both, or (b) on conviction on indictment, to imprisonment for a period not exceeding two years or a fine, or to both.110 2.35 As stated in 2.32, it is a pre-condition to incorporation of an LLP that the compliance statement be delivered to the Registrar. But it is also a pre-condition to incorporation that the requirements imposed by LLP Act 2000, s 2(1)(a) are complied with.111 The Registrar is not obliged to accept the compliance statement as true and accurate, and as sufficient evidence that the requirement for incorporation imposed by s 2(1)(a) has been complied with. LLP Act 2000, s 3(2) makes it clear that he may do so; but the decision as to whether to be satisfied with the compliance statement, and that s 2(1)(a) has in fact been complied with, is his.112 The Registrar can, therefore, reject the compliance statement, on the ground that he is not satisfied that it provides sufficient evidence of compliance with s 2(1)(a); and he can take into account information which comes to him otherwise than through the incorporation document, albeit the incorporation document is apparently verified by the compliance statement. 2.36 In the authors’ view, it would be wise for the maker of the compliance statement to proceed on the assumption that if for any reason an event occurs between delivery of the incorporation document and issue of the certificate of incorporation which causes continuing compliance with the requirements of s 2(1)(a) to cease,113 the maker of the statement is under an obligation to notify the Registrar of this fact. The existence of such a continuing obligation (and of an offence under s 2(3) if belief in the continuing accuracy of the statement is no longer held by the maker of it) is not clear; but at least until the position is established it would be wise to assume that such an obligation exists.114

CERTIFICATE AND REGISTRATION 2.37 LLP Act 2000, s 3(1) provides that, if the Registrar is satisfied that the requirements for incorporation are satisfied, he is (a) to register the documents

110

LLP Act 2000, s 2(3) and (4). See the opening words of LLP Act 2000, s 2(1), and s 3(1). 112 LLP Act 2000, s 3(2). In deciding whether or not to accept the compliance statement as sufficient evidence, the Registrar is fulfilling a quasi-judicial function, with a duty to determine whether the association of subscribers applying for registration is qualified to be registered: see Bowman v Secular Society Ltd [1917] AC 406 at 439 (in relation to registration of a company), adopted in R v Registrar of Companies ex p A-G [1991] BCLC 476. 113 For instance, the subscribers are reduced by death to one only, or the intended business becomes unlawful. 114 Such an obligation would be analogous to the civil law obligation to correct a representation which, whilst true when made, has become untrue: see, for example, the discussion in Chitty on Contracts (33rd edn and 1st supplement) (2019), paras 7–022 and 7–023, and the criminal case of Ray v Sempers [1974] AC 370 (dishonestly obtaining by deception, where a continuing representation of an intention to pay for a restaurant meal changed from being honest at the beginning of the meal to being dishonest). 111

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31

delivered to him, and (b) to give a certificate that the LLP is incorporated. The certificate is to state (i) the name and the registered number of the LLP, (ii) the date of its incorporation, and (iii) whether its registered office is situated in England and Wales (or in Wales), in Scotland or in Northern Ireland.115 The certificate is either to be signed by the Registrar or to be authenticated by his official seal.116 On the issue of the certificate, the Registrar is to cause to be published in the London Gazette117 notice of its issue, with a statement of the name and registered number of the LLP and date of issue of the certificate.118 When given, the certificate is conclusive evidence that the LLP is incorporated by the name specified in the incorporation document.119 It is, therefore, the issue of the certificate which constitutes the LLP a body corporate, with its own legal personality separate from that of its members.120 Thereafter the LLP can carry on business as a separate legal entity, with no restrictions as against the outside world on its capacity to do so.121 2.38 The certificate is also stated in LLP Act 2000, s 3(4) to be conclusive evidence ‘that the requirements of section 2 are complied with and that the limited liability partnership is incorporated by the name specified in the incorporation document’. This provision will prevent anyone (other than the Crown),122 after issue of the certificate, challenging the validity of the incorporation and alleging that the LLP does not exist as such. In this respect, the effect is similar to that of CA 2006, s 15(4) for companies.123 The question which arises is whether LLP Act 2000, s 3(4) has any effect beyond this. It might be said, at first glance, that the use of the present tense in s 3(4) is intended to make the certificate conclusive evidence, on an ongoing basis, that the requirements of s 2 are complied with: namely, that there are at any time two or more members of the LLP who are associated for carrying on a lawful business with a view to profit. This, however, cannot have been intended; and would be inconsistent with the fact that the LLP continues to exist, and can continue to trade, if its membership is reduced to one person only,124 and inconsistent also with the power for the Secretary of State to appoint inspectors to investigate the affairs of the LLP if he suspects that those affairs are being conducted for an unlawful purpose.125

115

LLP Act 2000, s 3(1A). LLP Act 2000, s 3(3). As to the Registrar’s official seal, see CA 2006, s 1062. 117 Or in accordance with alternative means of giving public notice in accordance with CA 2006, s 1116: see 1.11. 118 CA 2006, s 1064, as modified and applied to LLPs by SI 2009/1804, regs 2, 61. As to the registered numbers of LLPs, see CA 2006, s 1066, as modified and applied to LLPs by SI 2009/1804, regs 2, 62, which provides that the Registrar shall allocate to every LLP a registered number. 119 LLP Act 2000, s 3(4). See, in relation to a limited partnership, Bank of Beirut SAL v HRH Prince Adel El-Hashemite [2015] EWHC 1451 (Ch). 120 LLP Act 2000, s 1(2). 121 LLP Act 2000, s 1(3). As to the LLP’s ‘unlimited capacity’, see further 3.7–3.8. 122 See 2.39. 123 See, for instance, Bowman v Secular Society Ltd [1917] AC 406 at 421, 435 and 452 and Cotman v Brougham [1918] AC 514 at 523. For a still relevant statement of the importance of the conclusiveness of the certificate as to the validity of incorporation, see Lord Cairns in Peel’s Case [1867] LR 2 Ch App 674 at 681–682. CA 2006, s 15(4) provides: ‘The certificate [of incorporation] is conclusive evidence that the requirements of this Act as to registration have been complied with, and that the company is duly registered under this Act’. 124 See 2.15. 125 CA 1985, s 432(2)(a). The grounds for Government investigation are discussed in Chapter 24. 116

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The Law of Limited Liability Partnerships

2.39 Although the analogy between the requirement in LLP Act 2000, s 2(1)(a) that the subscribers be associated for a lawful purpose and the previous requirement in the Companies Acts that a company’s objects stated in its memorandum of association be lawful is not exact,126 there seems no reason why the comments of the House of Lords in Bowman v Secular Society Ltd127 as to the non-conclusiveness of a company’s certificate of incorporation in relation to an issue as to the legality of its objects clause should not be equally applicable in relation to the question of the conclusiveness of an LLP’s certificate of incorporation in relation to an issue as to the lawfulness of its business, or whether its business is to be carried on with a view to profit. In Bowman, the House of Lords made clear that, despite its stated conclusiveness,128 the certificate does not prove that all the objects and powers in the memorandum are lawful.129 Like the CA 2006 (and its statutory predecessor being considered in Bowman), the LLP Act 2000 is not expressed to bind the Crown. The authors suggest that, as in the case of a company which manages to be registered under CA 2006 and obtain a certificate of incorporation when formed for an illegal purpose, so in the case of an LLP it will be open to the Crown (acting through the Attorney-General) to apply to the court for judicial review of the Registrar’s decision to give registration, and for an order quashing that registration,130 where it transpires that the requirements of LLP Act 2000, s 2(1)(a) were not in fact complied with. 2.40 Thus, s 3(4) is not as far-reaching as might at first be thought. Probably, the use of the present tense in s 3(4) of the Act has no greater significance, as between the incorporated LLP and third parties, than to indicate that, for the purposes of valid and effective incorporation, the requirements of the Act in respect of registration and incorporation, and of all matters up to that moment, are to be assumed to have been complied with. This is an assumption which (subject to the right of the Crown referred to in 2.38) the court must also make.131 The position where the requirements of LLP Act 2000, s 2(1)(a) have been complied with on incorporation, but the LLP subsequently carries on business for an unlawful purpose, or otherwise than with a view to profit, is considered at 3.19–3.21.

INSPECTION 2.41 After the LLP has been incorporated, any person may inspect the incorporation document and the statement of compliance statement, and also the

126 127 128 129 130 131

The CA 2006 now merely states that a company may not be formed for an unlawful purpose: s 7(2). Above. See, in relation to limited partnerships, Bank of Beirut SAL v HRH Prince Adel El-Hashemite [2015] EWHC 1451 (Ch). As stated by s 1 of the Companies Act 1900, essentially the same as CA 2006, s 15(4) quoted in fn 123 above. See [1917] AC 406 at 421, and at 439–40 and 452. ‘Revoke the incorporation’ in the words of Lord Buckmaster in Bowman at 478. This is what was done in R v Registrar of Companies ex p A-G [1991] BCLC 476, referred to in fn 30 above. See the references to Bowman v Secular Society Ltd and Cotman v Brougham in fn 123 above. But note also the reference by Lord Parker in Bowman at 439 to it being open to the court (in normal inter-partes litigation) to stay its hand until an opportunity has been given for taking the appropriate steps (ie the Attorney-General seeking judicial review) for the cancellation of the certificate of registration.

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33

certificate of incorporation, and take copies of them.132 Any person can also require the Registrar to provide him with a copy of the certificate of incorporation signed, by the Registrar or authenticated by his official seal.133

TRADING NOT COMMENCED 2.42 If the LLP does not start carrying on business within a year from its incorporation, it may be wound up by the court.134 Winding up by the court on this and other grounds is discussed in Chapter 31.

132

Under the general right contained in CA 2006, ss 1080 and 1085–1086 to inspect, and take copies of, any records kept by the Registrar. 133 CA 2006, s 1065, as modified and applied to LLPs by SI 2009/1804, regs 2, 61. As to the Registrar’s seal, see s 1062. 134 See IA 1986, s 122(1)(b).

34

Chapter 3 THE CORPORATE ENTITY

SEPARATE LEGAL PERSONALITY 3.1 Once incorporated (ie on the issue of the certificate of incorporation), the LLP, as a body corporate, is an entity with legal personality separate from that of its members,1 and with its own rights and its own duties (whether statutory duties, or duties in tort or under the criminal law).2 It will be the separate legal entity (as opposed to the individual members) which will carry on the business for which the first members have become associated. 3.2 It will also be the LLP, rather than its members, that will have rights of recovery from third parties on contractual claims or for loss suffered by it as a result of breaches of duty owed to it. In this respect, the position of the members will be similar to that of the shareholders in a company.3 An individual member will have a claim in respect of loss to him caused by the breach of a duty owed independently to him or arising in a capacity other than as a member (eg as a creditor), but not if his loss is merely reflective of the LLP’s recoverable loss.4 ‘[In] cases where claims are brought by a shareholder in respect of loss which he has suffered in that capacity, in the form of a diminution in share value or in distributions, which is the consequence of loss sustained by the company, in respect of which the company has a cause of action against the same wrongdoer … the shareholder cannot bring proceedings in respect of the company’s loss, since he has no legal or equitable interest in the company’s assets … It is only the company which has a cause of action in respect of its loss … There may, however, be circumstances where the company’s right of action is not sufficient to ensure that the value of the shares is fully replenished. One example is where the market’s valuation of the shares is not a simple reflection of the company’s net assets … Another is where the company fails to pursue a right of action which, in the

1 2

3

4

LLP Act 2000, s 1(2): and see also, for instance, Salomon v Salomon [1897] AC 22 at 31. For example, under both the LLP Act 2000 and the CA 2006, an LLP has various obligations as to filing information with the Registrar, and itself commits an offence in the event of such obligations not being met. See, as to companies and shareholders, Foss v Harbottle (1843) 2 Hare 461, Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 (CA) at 222–223, Johnson v Gore Wood & Co [2002] 2 AC 1 and Sevilleja v Marex Financial Ltd [2020] UKSC 31. As to the rule in Foss v Harbottle, see further 14.37. Ibid. There is a full discussion of the ‘no reflective loss’ principle in Joffe and others, Minority Shareholders Law, Practice and Procedure (6th edn) (2018) at paras 3.85–3.227. And see also Lord Millett NPJ in Waddington Ltd v Chan Chun Hoo Thomas, in Hong Kong, [2009] 2 BCLC 82 (HKCFA), at [81]–[88]. Those discussions, however, must now be read in light of the judgment of the Supreme Court in Sevilleja v Marex Financial Ltd above.

36

The Law of Limited Liability Partnerships opinion of a shareholder, ought to have been pursued, or compromises its claim for an amount which, in the opinion of a shareholder, is less than its full value. But the effect of the rule in Foss v Harbottle is that the shareholder has entrusted the management of the company’s right of action to its decision-making organs, including, ultimately, the majority of members voting in general meeting … The critical point is that the shareholder has not suffered a loss which is regarded by the law as being separate and distinct from the company’s loss, and therefore has no claim to recover it …’5

‘LLP member’ may be substituted for ‘shareholder’, and ‘LLP’ for ‘company’, in this statement. 3.3 It will also be the LLP that (generally speaking) will own the property and assets of the business, which will be the employer of the staff of the business and which will be the covenantee of restrictive covenants. The LLP will have its own rights under the Human Rights Act 1998. The LLP will continue to exist as a separate legal entity until it is wound up and dissolved under the IA 1986.6 3.4 Like any corporate entity, the LLP can ultimately only act through human agents. It will have the acts of others attributed to it in accordance with the general principles of attribution. These will be, principally, the rules of agency, through which the LLP may acquire rights and, also, liabilities for the acts and faults of its members and others. In certain circumstances, usually where the state of mind or knowledge of the LLP itself falls to be determined (for instance, in relation to possible criminal liability for a statutory offence, or as regards knowledge of a fraud), a state of mind or knowledge may be attributed to the LLP on the basis of the state of mind or knowledge of the individual or individuals who are considered to be the directing mind and will of the LLP for the relevant purpose.7 As to the general principles of attribution, s 6(1) of the LLP Act 2000 expressly provides that every member of an

5

6 7

Sevilleja v Marex Financial Ltd above at [79]–[83]. The majority of the Supreme Court held that the prevention of double recovery was not alone a sufficient jurisdiction for the rule against reflective loss: see, eg, [51] and [55]. Winding up is considered in Chapters 31 to 35. As to the effect of the members being reduced below two, see 2.15. See generally, on attribution, Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 (PC); Bilta (UK) Limited v Nazir (No 2) [2015] UKSC 23, [2016] AC 1; and Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2019] UKSC 50; [2019] 3 WLR 997. But, where a company has been the victim of wrongdoing by its directors, or of which its directors had notice, the wrongdoing, or knowledge, of the directors is not necessarily attributed to the company as a defence to a claim brought against the directors by the company’s liquidator, in the name of the company and/or on behalf of its creditors, for the loss suffered by the company as a result of the wrongdoing, even where the directors were the only directors and shareholders of the company, and even though the wrongdoing or knowledge of the directors may be attributed to the company in many other types of proceedings. The question whether to attribute knowledge is to be answered by consideration of the context and purpose for which the attribution is relevant: Singularis per Lady Hale at [34]. This would also hold true for members of an LLP.

The Corporate Entity

37

LLP is the agent of the LLP.8 Subject to the impact of s 6(2), the acts of the LLP’s members will be attributed to it in accordance with the general principles of agency. The provisions of s 6, and the degree to which an LLP is bound by the acts of its members and others in dealings with third parties, are considered in Chapter 5. As a corollary to establishing the agency role of the members of an LLP, s 6(1) establishes the internal relationship between the LLP and its members. It is on the basis of the relationship of principal and agent created by s 6(1) that members owe to the LLP fiduciary and other obligations. These obligations, and the other responsibilities and rights existing as between the members and the LLP, are considered in Chapters 13 and 14.

PIERCING THE CORPORATE VEIL 3.5 As has been mentioned in 3.1, once incorporated, the LLP, as a body corporate, will be a legally recognised entity having an existence separate from its members. In this respect, its position will be similar to that of a limited company. In relation to companies, there are circumstances in which the court will disregard the company’s separate existence, that is to say where the court will pierce the ‘corporate veil’, or lift the veil of incorporation. Where the corporate veil is pierced, the company is treated as a mere vehicle for the person actually controlling it, and the company and that person are treated as one. The circumstances in which the corporate veil is pierced are not fully developed,9 but it has been said that the court will only do so where special circumstances exist which indicate that the company is a mere façade concealing the true facts.10 A key factor will be the motive with which the corporate veil has been interposed in the first place, ie why is the company there? Does it have any true independent rationale of its own, or is it a mere device that has

8

Broadly speaking, the position of the members will be similar to that of the directors of a company, for whose position the classic statement is that of Cairns LJ in Ferguson v Wilson (1866) 2 Ch App 77 at 89–90: ‘What is the position of directors of a public company? They are merely agents of a company. The company itself cannot act in its own person, for it has no person; it can only act through directors, and the case is, as regards those directors, merely the ordinary case of principal and agent. Wherever an agent is liable those directors would be liable; where the liability would attach to the principal, and the principal only, the liability is the liability of the company’. 9 ‘Piercing the corporate veil’ has been described as ‘the vivid but imprecise metaphor which is sometimes used’: Robert Walker J in International Credit and Investment Co (Overseas) Ltd v Adham [1998] BCC 134 at 137. 10 See Woolfson v Strathclyde Regional Council 1978 SC (HL) 90 at 96. It has also been said that it is correct to lift the corporate veil only in order to provide a remedy for the wrong which those controlling the company have done: see Dadourian Group International Inc v Simms [2006] EWHC 2973 (Ch) at [683] (Warren J). Compare (perhaps) Conway v Ratiu [2006] 1 All ER 571 (CA) at 573d (referring to ‘the readiness of the courts, regardless of the precise issue involved, to draw back the corporate veil to do justice when common sense and reality demand it’), where the corporate veil said to be lifted was that covering the person who was in reality the wronged party, the real victim of a breach of fiduciary duty. (The case may, perhaps, be better seen as one of agency on the part of the corporate body for the individual behind it: see Diamantides v J P Morgan Chase Bank [2005] EWCA Civ 1612 at [35].).

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The Law of Limited Liability Partnerships

been interposed in order to conceal liability on the part of others, or to evade some legal obligation?11 In Prest v Petrodel Resources Ltd,12 Lord Sumption said: ‘I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.’

In Trustor AB v Smallbone in 2001,13 the court held that the receipt by a company of moneys improperly taken from another company’s bank account was the receipt personally of the wrongdoer who had engineered the taking, and whose vehicle the receiving company was (so that an order for repayment was made against the wrongdoer personally). In Kensington International Ltd v Republic of Congo in 2005,14 the court held that the sale price of goods was to be treated as money owed to the real (corporate) seller (and so money liable to attachment for the real seller’s debts) in circumstances where the price was payable by the purchaser to a company which was the nominal seller of the goods, but which was in fact merely a vehicle of the real seller, interposed in the chain by the real seller for the purpose of concealing the latter’s identity so that it could evade enforcement against its assets. In these cases, the result of piercing the corporate veil was that an order was made directly against the person controlling the company, whose vehicle the company was. Equally, the veil of a company which is a mere device may be lifted to identify the individual controlling it, so that an order may be made against the vehicle in order to remedy or preclude a wrong by that individual. In Jones v Lipman in 1962,15 the owner of some land who had contracted to sell it, in order to avoid having to complete the contract of sale, sold the land to a £100 company which was controlled by him, and which was merely a vehicle for the purpose of him avoiding legal recognition as the owner. The court treated the company and the landowner as one and, in addition to an order against the individual landowner on the ground that he had the power to compel performance by the company, an order was made directly against the company requiring specific performance of the contract.16

11 See 12 13 14 15 16

Prest v Petrodel Resources Ltd [2013] 2 AC 415, as well as Adams v Cape Industries Plc in the Court of Appeal [1990] Ch 433 and Trustor AB v Smallbone [2001] 1 WLR 1177. [2013] 2 AC 415 at [35]. Above. Lord Sumption doubted that this was an example of ‘piercing’: Prest v Petrodel Resources Ltd at [32]–[33]. [2006] 2 BCLC 296, concerned with the sale by the Congo and its state-owned oil company, through interposed companies owned and controlled by it, of oil to a legitimate end-purchaser. [1962] 1 WLR 832. Lord Sumption explained this decision on the basis of his ‘evasion’ principle and as being properly understood as an example of piercing the corporate veil: Prest v Petrodel Resources Ltd at [30]. And see also Gilford Motor Co Ltd v Horne [1933] Ch 935, where an individual under a restraint of trade covenant carried out activities in breach of the covenant through a company incorporated

The Corporate Entity

39

3.6 The authors suggest that, if an LLP is used in circumstances where the use of a company would lead to its corporate veil being pierced, there is no reason in principle why the court should not similarly pierce the corporate veil of the LLP. However, given the requirement for the incorporation of an LLP that two or more persons must be associated for carrying on a business with a view to profit,17 it is probable that an LLP will lend itself much less than a company to being used as a device to conceal the true facts.

‘UNLIMITED CAPACITY’ 3.7 Section 1(3) of the LLP Act 2000 provides that an LLP has ‘unlimited capacity’. As against the outside world, therefore, an LLP has the same capacity and freedom to enter into any contract or other transaction as a private individual. In this respect the position of an LLP is similar to that of a company,18 namely the validity of an act done by it cannot be called into question on the ground of lack of capacity by reason of anything in the LLP agreement as to the precise or limited nature of the business for the carrying on of which it was formed.19 3.8 In addition, therefore, to having the same capacity to enter into contracts as a private individual, the LLP will be able to own the assets of the business that it is carrying on, ranging from intellectual property rights to freehold or leasehold land; and not only will it be able to hold shares in a company, but it may be a member of another LLP, or be a partner in a partnership under the Partnership Act 1890 or the Limited Partnerships Act 1907, whatever business that other LLP, or those partnerships, may be carrying on.

BANKS AND LANDLORDS 3.9 It follows from the LLP being the entity that is carrying on the business that the primary banking relationship will ordinarily be between the LLP and the bank. Any property and other assets owned by the LLP can be used by it as security. There is no limitation on the LLP’s capacity to borrow, and an LLP can give fixed and floating charges in the same way as a company.20 To what extent the bank will see its relationship as being with the LLP to the exclusion of the individual members (and the requirement for guarantees from them) will no doubt depend on the particular circumstances.

17 18 19

20

by him. The court granted an injunction against the company as well as against the individual. This case was an example of both the ‘evasion’ and ‘concealment’ principles: Prest v Petrodel Resources Ltd at [29]. LLP Act 2000, s 2(1)(a). CA 2006, s 39(1). This is without prejudice, however, to possible issues as to the actual or ostensible authority of a member of the LLP to commit the LLP to a particular transaction on behalf of the LLP. Authority is discussed in Chapter 5. Charging the LLP’s property is considered in Chapter 6.

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The Law of Limited Liability Partnerships

3.10 The position will be similar in relation to leases. The LLP as a corporate entity will be able to enter into a lease (or take an assignment of a lease) as the tenant. But the extent to which a landlord will require individual members of the LLP to join in as sureties will no doubt depend on the landlord’s perception of the LLP’s financial stability, and on prevailing market conditions.

EFFECT OF FAILURE TO NOTIFY THE REGISTRAR 3.11 Reference has been made in 1.9–1.14 to the role of the Registrar in relation to LLPs, to the requirements for information relating to the LLP to be delivered to him, to notice of the receipt by the Registrar of the relevant documentation being published in the London Gazette, and to that documentation thereafter being available for inspection by any person.21 An LLP is not entitled to rely against other persons on (a) a change in its registered office (as regards service of any document on it), (b) the making of a winding-up order in respect of it, or (c) the appointment of a liquidator in its voluntary winding up, unless it shows that at the material time either the person concerned knew of the event or the event has been officially notified, that is to say notice of receipt by the Registrar of the relevant notifying document has been published in the London Gazette and (in the case of (c) above) notification of the appointment of the liquidator has been published in accordance with s 109 of the IA 1986.22 If the material time falls on or before the fifteenth day after23 the date of official notification (or, where the fifteenth day was not a working day,24 on or before the next day that was) the LLP is not entitled to rely on the happening of the event against a person who shows that he was unavoidably prevented from knowing of the event at that time.25 The provision that the LLP cannot rely on any of the specified events in the circumstances mentioned in s 1079 does not have the result that, when notification in relation to that event has been published in the Gazette, knowledge or notice of the relevant event is thereby imputed to any third party.26

THE REGISTERED OFFICE 3.12 As has been mentioned in 2.22, an LLP must at all times have a registered office, to which communications and notices may be sent,27 and an irrevocable 21

Under CA 2006, ss 1081(1) and (4)–(5), as modified and applied to LLPs by SI 2009/1804, regs 2, 64, and 1085–1086, as modified and applied to LLPs by SI 2009/1804, regs 2, 66. 22 CA 2006, s 1079, as modified and applied to LLPs by SI 2009/1804, regs 2, 63. 23 In calculating ‘the fifteenth day after’, the date of the official notification is excluded: see Dodds v Walker [1981] 1 WLR 1027 (HL) (on s 29 of the Landlord and Tenant Act 1954) at 1029B–C. 24 Ie not a Saturday or Sunday, Christmas Day, Good Friday or any day that is a bank holiday in the part of the UK where the LLP is registered: CA 2006, s 1173. 25 CA 2006, s 1079, as modified and applied to LLPs by SI 2009/1804, regs 2, 63. 26 See Official Custodian for Charities v Parway Estates Ltd [1985] Ch 151 (CA), concerned with the question whether a landlord who accepted rent after notification of the receipt by the Registrar of a winding-up order in respect of the tenant had been published in the Gazette had waived his right to forfeit by reason of that publication, although he was not actually aware of the liquidation. 27 CA 2006, s 86, as modified and applied to LLPs by SI 2009/1804, regs 2, 16. The registered office is also the location for the holding of a creditors’ meeting if the LLP has no actual place of business

The Corporate Entity

41

choice must be made at incorporation as to whether the registered office is to be situated in England and Wales (or in Wales), in Scotland or in Northern Ireland.28 A document which is required to be served on an LLP may be served on it by leaving the document at, or sending it by post to, the registered office.29 Where an LLP which is registered in Scotland or Northern Ireland carries on business in England and Wales, any court process in England and Wales may be served on that LLP by leaving it at, or sending it by post to the Scottish LLP’s principal place of business in England and Wales, addressed to the manager or a designated member in England and Wales of the LLP.30 Where this latter course is followed, a copy of the document is to be sent by post to the LLP’s registered office in Scotland.31 3.13 The following documents must be kept at the LLP’s registered office (or, in the case of (b) to (d) below) at the LLP’s ‘alternative inspection location’:32 (a) the LLP’s accounting records;33 (b) the LLP’s register of members;34 (c) a copy of every instrument creating a charge which is required to be registered;35 and (d) any register of holders of debentures of the LLP.36 3.14 The address of the LLP’s registered office must be mentioned on all its business letters and order forms,37 and on its websites.38 The former requirement to provide an annual return which included the registered office has now been replaced by the requirement to file a confirmation statement.39 3.15 An LLP may change its registered office at any time, though only within the jurisdiction originally chosen at incorporation. This is done by giving notice to the Registrar in a form specified by him under CA 2006, s 1068.40 The change takes

in Great Britain: see IA 1986, ss 95(6) and 98(4). For insolvency purposes, it is still correct to refer to ‘Great Britain’: see LLP Regulations 2001, reg 2A. 28 Ibid. 29 CA 2006, s 1139(1), as modified and applied to LLPs by SI 2009/1804, reg 75. A failure by a third party to comply with this provision in the service of court proceedings on an LLP, by serving such proceedings at an address other than the registered office, does not automatically render the proceedings a nullity, but is an irregularity which the court can deal with on its merits: see Singh v Atombrook Ltd [1989] 1 WLR 810 (on RSC Ord 2, r 1). For methods of service on an LLP, see CPR Pt 6. Service is discussed further at 26.10–26.13. 30 CA 2006, s 1139(4), as modified and applied to LLPs by SI 2009/1804, reg 75. 31 Ibid. 32 See 6.23. 33 CA 2006, s 388(1), as modified and applied to LLPs by SI 2008/1911, reg 6: see 21.4. The alternative is ‘such other place as the members think fit’. 34 CA 2006, s 162, as modified and applied to LLPs by SI 2009/1804, reg 18: see 2.26. 35 CA 2006, s 859P, as modified and applied to LLPs by SI 2013/618, reg 2: see 6.14. 36 CA 2006, s 743, as modified and applied to LLPs by SI 2009/1804, regs 2, 21: see 6.17. 37 See 4.5. 38 See 4.4. 39 CA 2006, ss 853A–853L, as modified and applied to LLPs by SI 2009/1804, regs 2, 30 and Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016, reg 3. See 4.28. 40 CA 2006, s 87(1), as modified and applied to LLPs by SI 2009/1804, regs 2, 16.

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The Law of Limited Liability Partnerships

effect on the notice being registered by the Registrar, but until the end of the period of 14 days beginning with the date on which it is registered a third party may validly serve any document on the LLP at the previous registered office.41 On receipt of the notice, the Registrar is to publish notice of receipt in the London Gazette.42 3.16 An LLP has a duty to notify the Registrar of certain events, including a change of the LLP’s registered office or, if any LLP records are kept at a place other than the LLP’s registered office, the address of that place and the records that are kept there. Notification must be given no later than 14 days after the end of the ‘review period’, ie a period of 12 months beginning with (i) the date of the LLP’s incorporation, or (ii) the day after the last review period. This requirement is in addition to filing a confirmation statement: see 4.27–4.30. 3.17 For the purposes of the duty of an LLP to keep registers or other documents available for inspection at its registered office,43 or to mention the address of its registered office in documents,44 an LLP which has given notice to the Registrar of a change in the address of its registered office must act on the change not later than 14 days after the notice of change is given to the Registrar.45 Where an LLP unavoidably ceases to perform its obligation to keep any register or other document available for inspection at its registered office, in circumstances in which it was not practicable to give prior notice to the Registrar of a change of registered office, but (a) resumes performance of that obligation at other premises as soon as practicable, and (b) gives notice accordingly to the Registrar of a change in its registered office within 14 days of doing so, it is not to be treated as having failed to comply with that duty.46 This would deal with a situation where, for instance, the registered office burns down. 3.18 The legislation does not specify any particular internal procedure by which an LLP can decide to change its registered office. As with a change of name (and other matters mentioned in 17.9(a)), the power is simply given to the LLP as a body. It is arguable that, in the absence of a specific or general decision-making provision in the LLP agreement, the decision could only be made with the consent of all the members. However, the decision is that of ‘the limited liability partnership’, and the authors suggest that, as discussed in 17.11–17.14, the answer as to how a valid decision is to be made by the LLP (in this, and in other situations requiring a decision by ‘the limited liability partnership’) is to be found in the common law on decisionmaking by corporate bodies. If this suggestion is right, the matter will be decided by a (simple) majority of members attending a meeting of the members at which more than half of all the members are present.

41

CA 2006, s 87(2), as modified and applied to LLPs by SI 2009/1804, regs 2, 16. CA 2006, ss 1077–1078, as modified and applied to LLPs by SI 2009/1804, regs 2, 63. As to the circumstances in which an LLP is not entitled to rely against other persons on a change in the LLP’s registered office, see 3.11. 43 See 3.13. 44 See 3.14. 45 CA 2006, s 87(3), as modified and applied to LLPs by SI 2009/1804, regs 2, 16. 46 CA 2006, s 87(4), as modified and applied to LLPs by SI 2009/1804, regs 2, 16. 42

The Corporate Entity

43

LLP CEASING TO SATISFY SECTION 2(1)(a) 3.19 The requirements of LLP Act 2000, s 2(1)(a) on incorporation are discussed in Chapter 2. These requirements are that there must be two or more persons associated for carrying on a lawful business with a view to profit. If the Registrar is satisfied that these requirements have been complied with (and the formalities of LLP Act 2000, s 2 are also complied with), he will issue a certificate of incorporation under s 3. As is discussed in 2.37–2.40, the certificate will be conclusive evidence of the existence of the LLP, and will prevent anyone other than the Crown from challenging the validity of the LLP’s incorporation. It may be, however, that after incorporation – and although s 2(1)(a) was complied with at the time of incorporation – the provisions of s 2(1)(a) cease to be met. It may be, for instance, that the LLP ceases to have two members, or the business being carried on by it becomes unlawful, or the business is no longer being carried on with a view to profit. The question arises as to where this state of affairs leads. The application of s 2(1)(a) is limited to the initial incorporation of the LLP. The legislation does not impose an explicit ongoing requirement that s 2(1)(a) be complied with during the life of the LLP. For instance (and to answer the first possibility mentioned above), the legislation recognises that the LLP can function quite validly with one member only, albeit that the limited liability of that one member for the continuing business may be lost after six months.47 The number of members being reduced below two is, however, a ground for winding up by the court.48 A creditor may, therefore, present a winding up petition on this ground alone. 3.20 If the LLP carries on an unlawful business, there will be a number of possible or actual consequences. It is a ground for the Secretary of State to appoint inspectors to investigate the affairs of an LLP that it appears to him that there are circumstances suggesting that those affairs are being conducted for a fraudulent or unlawful purpose.49 The ‘affairs’ of an LLP clearly include the business it is carrying on. The Secretary of State can, at any time, require an LLP to produce specified documents if he thinks that there is good reason to do so.50 A report by inspectors, or information obtained under a requirement to produce documents, may lead to the Secretary of State applying to the court for the LLP to be wound up under IA 1986, s 124A51 (ie on the ground that winding up is expedient in the public interest). Individual members who apply money or assets of the LLP for unlawful purposes will almost certainly be acting in breach of their fiduciary duty to the LLP.52

47

See LLP Act 2000, s 4A, considered at 2.15. The side note to this section is perhaps misleading: ‘Minimum membership for carrying on business’. The Consultation Draft of the LLP Regulations 2009 (published in November 2008) contained a provision in CA 2006, s 156 empowering the Secretary of State, where the number of members of an LLP fell below two, to give a direction to the LLP that further members be appointed. This provision was not, however, included in the final form of the Regulations. 48 IA 1986, s 122(1)(c), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. 49 CA 1985, s 432(2)(a), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 50 CA 1985, s 447, as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. The provisions of CA 1985, ss 431–452 (ie Part XIV) are discussed more fully in Chapter 24. 51 As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. 52 See 13.9(g). It must be unlikely that a duty to apply the money or assets of the LLP for lawful purposes only will be excluded by the LLP agreement: see 13.13.

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The Law of Limited Liability Partnerships

3.21 If the LLP ceases to carry on its business with a view to profit, a suspicion of this is not an express ground on which the Secretary of State may appoint inspectors to investigate the LLP’s affairs. However, such a suspicion could perhaps be made to fit one of the grounds for appointing inspectors set out in CA 1985, s 432(2).53 As has been mentioned in 3.20, the Secretary of State can require an LLP to produce specified documents. Whether the Secretary of State would consider the fact that an LLP is no longer carrying on business with a view to profit to be a basis for presenting a winding-up petition under IA 1986, s 124A is unclear, but the authors suggest that, given the policy behind the introduction of LLPs (as appearing from LLP Act 2000, s 2(1)(a)), he may well do so. If the new course of business or other activity being followed by the LLP is against the wishes of some of the members, those members (at least, if they are ‘contributories’) will probably themselves be able to apply to the court for the LLP to be wound up on the ‘just and equitable’ ground,54 or alternatively for relief on the ground of ‘unfair prejudice’ under CA 2006, s 994 (if the right contained in that section is not excluded by agreement under s 994(3)).55 If members’ rights to apply to the court under s 994 are excluded, it will still be open to the Secretary of State (if he has received a report from inspectors, or required documents to be provided under CA 1985, s 447)56 to make an application to the court under CA 2006, s 99557 on the ground of ‘unfair prejudice’ to the non-consenting members. 3.22 There may, however, be more immediate and tangible dangers for an LLP and its members in the event of it ceasing to carry on business with a view to profit. If the LLP runs the danger of trading into insolvency, the members will need to bear in mind the provisions of IA 1986, s 214 (wrongful trading)58 and s 214A (adjustment of withdrawals),59 and also the CDDA 1986.60 It is also the case that the continuing transparency for tax purposes of an LLP is dependent on its business being carried on with a view to profit.61 Where the LLP ceases to carry on business with a view to profit, an end to its tax transparency may have little impact in relation to income of the business, but it may have a substantial impact in relation to any unrealised capital gains.

53

54

55 56 57 58 59 60 61

Eg, possibly, a suspicion that persons concerned with the management of the LLP’s affairs have been guilty of misconduct towards the LLP or its members: CA 1985, s 432(2)(c), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. Ie under IA 1986, s 122(1)(e), as modified and applied to LLPs by SI 2001/1090 reg 5 and Sch 3, discussed in Chapter 32. As to ‘contributories’, and the right of members and/or contributories to present a winding-up petition, see the discussion at 31.17–31.23. As modified and applied to LLPs by SI 2009/1804, regs 2, 48. ‘Unfair prejudice’ petitions are discussed in Chapter 32. As modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. As modified and applied to LLPs by SI 2009/1804, regs 2, 48. Discussed at 34.4–34.7. Discussed at 34.8–34.13. Discussed in Chapter 37. See further 23.123–23.124.

Chapter 4 FORMALITIES AND REQUIREMENTS AFTER INCORPORATION

REQUIREMENTS AS TO DISPLAY AND DISCLOSURE 4.1 Since 31 January 2015, requirements as to registered names and trading disclosures have been governed by the Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015 (‘the Names and Trading Disclosures Regulations 2015’).1 These regulations were intended to consolidate various statutory provisions relating to company, LLP and business names and trading disclosures into a single instrument. By virtue of these new regulations, the Companies (Trading Disclosures) Regulations 2008 (as amended by the Companies (Trading Disclosures) (Amendment) Regulations 2009), which previously governed names and trading disclosures with regard to LLPs, have been revoked.

Display of name at registered office and other locations 4.2 An LLP must display its registered name at (1) its registered office, (2) any ‘inspection place’2 and (3) any other location at which it carries on business.3 The display must be in characters that can be read with the naked eye,4 and in a position so that it may be easily seen by any visitor.5 This requirement to display its registered name does not, however, apply: (a)

in the case of the registered office or any inspection place of an LLP, where the LLP has at all times since its incorporation been dormant; (b) to any office, place or location as above where a liquidator, administrator or administrative receiver has been appointed in respect of the LLP, and the registered office, or inspection place or other location at which it carries on business is also a place of business of that liquidator, administrator or administrative receiver; (c) to a location at which the LLP carries on business, other than its registered office or inspection place, which is primarily used for living accommodation; or (d) in circumstances where every member of the LLP who is an individual is a ‘relevant member’, namely an individual in respect of whom the Registrar

1 2

3 4 5

SI 2015/17. Ie any location, other than the LLP’s registered office, at which the LLP keeps available for inspection any record which it is required under the CA 2006 to keep available for inspection: Names and Trading Disclosures Regulations 2015, reg 29(b). See further 6.23. Names and Trading Disclosures Regulations 2015, regs 21(1) and 22. Names and Trading Disclosures Regulations 2015, reg 20. Names and Trading Disclosures Regulations 2015, reg 23(2).

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is required by regulations made under CA 2006, s 243(4) to refrain from disclosing protected information to a credit reference agency. Where display of the LLP’s registered name is required as set out above, the display must be continuous, save that, where the office, place or location is shared by six or more LLPs and/or companies, each such LLP and/or company is only required to display its registered name for at least 15 continuous seconds once in every three minutes, or alternatively make its registered name available for inspection on a register by any visitor.6

Disclosure of information 4.3 An LLP must disclose to any person it deals with in the course of business, and who makes a written request to it, the address of its registered office and/or any inspection place,7 and the type of LLP records which are kept at that office or inspection place. The information is to be supplied by written response within five working days of the LLP receiving the request.8 4.4 An LLP must disclose on its websites (i) its registered name (ii) its registered number, (iii) the address of its registered office, (iv) the part of the UK in which it is registered; and (v) in the case of an LLP whose name ends with the abbreviation ‘llp’ or ‘LLP’, the fact that it is an LLP.9 ‘Websites’ includes any part of a website relating to the LLP which the LLP has caused or authorised to appear.10 4.5

An LLP must disclose its registered name on:

(a) (b) (c) (d)

business letters, notices and other official publications; bills of exchange, promissory notes, endorsements and order forms; cheques purporting to be signed by it or on its behalf; orders for money, goods or services purporting to be signed by it or on its behalf; (e) bills of parcels, invoices and other demands for payment, receipts and letters of credit; (f) applications for licences to carry on a trade or activity; and (g) all other forms of its business correspondence and documentation.

6

7 8 9 10

Names and Trading Disclosures Regulations 2015, reg 23(3). In considering the LLP’s name for these purposes, no account is to be taken of whether: (a) upper or lower case characters (or a combination of the two) are used; or (b) diacritical marks or punctuation are present or absent, provided that there is no real likelihood of names differing only in those respects being taken to be different names (but without prejudice to the operation of the Company and Business Names (Miscellaneous Provisions) Regulations 2008 (SI 2008/1085) permitting only specified characters, diacritical marks or punctuation): CA 2006, s 85, as modified and applied to LLPs by SI 2009/1804, Pt 3(4) reg 15. See fn 2 above. Names and Trading Disclosures Regulations 2015, reg 27. Names and Trading Disclosures Regulations 2015, reg 25(1)(c) and (2), and Sch 5, Pt 5. Names and Trading Disclosures Regulations 2015, reg 29(d).

Formalities and Requirements after Incorporation

47

In addition, on its business letters and its order forms, it must disclose its registered number, the address of the registered office, the part of the UK in which it is registered, and in the case of an LLP whose name ends with the abbreviation ‘llp’ or ‘LLP’, the fact that it is an LLP.11 4.6 Where the LLP’s business letter includes the name of any member, other than in the text or as a signatory, the letter must disclose the name of every member of the LLP. This requirement does not apply, however, where (i) the LLP has more than 20 members, (ii) it maintains at its principal place of business a list of the names of all the members, and (iii) the business letter states in legible characters the address of the principal place of business of the LLP and that the list of members’ names is open to inspection at that place.12 4.7 Where an LLP maintains a list of the members’ names for the purposes of a statement in its business letter that the list may be inspected at its principal place of business, any person may inspect the list during office hours.13

Effect of breach of requirements 4.8 If an LLP fails, without reasonable excuse, to comply with any of the requirements set out in 4.2–4.7, it commits an offence and is liable to a fine (and for continued contravention, to a daily default fine), and every designated member who is in default is equally liable to a fine.14 4.9 Where an LLP brings legal proceedings to enforce a right arising out of a contract which was made at a time when it was in breach of any of the requirements set out in 4.2–4.7, the proceedings are to be dismissed if the defendant shows that: (a) he has a claim against the LLP arising out of the contract which he has been unable to pursue by reason of the LLP’s breach of the requirements, or (b) he has suffered some financial loss in connection with the contract by reason of the LLP’s breach. In either case, the court before which the proceedings are brought may permit the proceedings to continue if satisfied that it is just and equitable to do so.15

11 12

13 14 15

Names and Trading Disclosures Regulations 2015, reg 24(1), and Sch 5, Pt 5. Names and Trading Disclosures Regulations 2015, reg 26 and Sch 5, Pt 5. In the case of a member who is an individual, ‘name’ has the meaning given in CA 2006, s 163(2); and in the case of a member which is a body corporate, or a firm (ie any entity, whether or not a legal person, that is not an individual and including a body corporate, a corporation sole and a partnership or other unincorporated association: see CA 2006, s 1173), ‘name’ means corporate name or firm name. Names and Trading Disclosures Regulations 2015, Sch 5, Pt 5. Names and Trading Disclosures Regulations 2015, reg 28. As to designated members being ‘in default’, see 12.9–12.12. CA 2006, s 84.

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The Law of Limited Liability Partnerships

FORMALITIES FOR CONTRACTS, DEEDS AND OTHER DOCUMENTS Generally 4.10 The formalities for making contracts and executing other documents are essentially the same for LLPs as for companies.16 With some omissions and modifications, CA 2006, ss 43–49 are adopted for LLPs. 4.11 A contract may be made by an LLP in writing under its common seal.17 A contract may also be made on behalf of an LLP by any person acting with its express or implied authority.18 This is without prejudice to the effect of s 6 of the LLP Act 2000 (discussed in Chapter 5).19 Any formalities required by law in the case of a contract made by an individual also apply, unless a contrary intention appears,20 to a contract made by or on behalf of an LLP.21 There is no requirement that the LLP must contract in its registered name. If it does not contract in its registered name, whether or not it is the contracting party is to be gathered from the available evidence.22 4.12 An LLP does not need to have a common seal,23 but if it does have one, the seal must have the LLP’s name engraved on it in legible characters.24 If the name is not so engraved, the LLP and every member of it who is in default, commits an offence and is liable to a fine,25 and if a member of the LLP, or a person on its behalf, uses or authorises the use of any seal purporting to be a seal of the LLP on which the name is not properly engraved, he commits an offence and is liable to a fine.26 Nevertheless, the use of a seal which does not have the LLP’s name engraved on it for the purpose of the LLP entering into a document will not necessarily make the document void or unenforceable.27 4.13 A document is validly executed by an LLP either (a) by its common seal (if it has one) being affixed to the document, or (b) by the document being signed on 16

Ie the position is essentially the same for UK LLPs as for companies incorporated in the UK. ‘Limited liability partnerships’ in the CA 2006 means an LLP incorporated under the LLP Act 2000 (see LLP Act 2000, s 1(2)(b)). 17 CA 2006, s 43(1)(a), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. 18 CA 2006, s 43(1)(b), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. The Corporate Bodies’ Contracts Act 1960 does not apply to an LLP: see s 2 of the 1960 Act, as amended by LLP Regulations 2001, reg 9 and Sch 5, para 3. 19 CA 2006, s 43(2), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. 20 Ie under some common law rule or statutory provision. 21 CA 2006, s 43(3), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. 22 See OTV Birwelco Ltd v Technical and General Guarantee Co Ltd [2002] 2 BCLC 723, considering the effect of CA 1985, ss 36 and 36A (now CA 2006, ss 43 and 44), where a company contracted in its trading name. 23 CA 2006, s 45(1), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. 24 CA 2006, s 45(2), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. 25 CA 2006, s 45(3) and (5), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. As to the meaning of ‘in default’, see 12.9–12.12 and 22.29. 26 CA 2006, s 45(4) and (5), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. 27 See OTV Birwelco Ltd v Technical and General Guarantee Co Ltd above, where the seal had the contracting company’s trading name engraved on it.

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49

behalf of the LLP by two members, or by one member in the presence of a witness who attests the signature.28 Where a member signing is not an individual but a ‘firm’ (namely any entity, whether or not a legal person, that is not an individual and includes a body corporate, a corporation sole and a partnership or other unincorporated association), the signature is to be that of an individual authorised by the firm to sign on its behalf.29 A document signed as set out under (b) above and expressed, in whatever words, to be executed by the LLP has the same effect as if executed under the common seal of the LLP.30 In favour of a purchaser in good faith for valuable consideration31 (including a lessee, mortgagee or other person who for valuable consideration acquires an interest in property) a document is to be deemed to have been duly executed by an LLP if it purports to be signed as set out under (b) above.32 The methods of execution of a document by an LLP set out in this paragraph also apply to a document that is (or purports to be) executed by an LLP in the name of or on behalf of another person, whether or not that other person is also an LLP.33 4.14 Where a document is to be signed by a person on behalf of more than one LLP, or on behalf of an LLP and a company, it is not duly signed by that person for the purposes of valid execution of the document by the LLP unless he signs it separately in each capacity.34 4.15 For the purposes of s 1(2)(b) of the Law of Property (Miscellaneous Provisions) Act 1989,35 a document is validly executed by an LLP as a deed if, and only if, it is duly executed by the LLP as set out in 4.13 and it is delivered as a deed. Such delivery is presumed unless a contrary intention is proved.36 This presumption appears to be one of unconditional delivery. Delivery (ie the party executing the document showing an intention to be bound by it) may, however, be unconditional or

28

29 30 31 32

33 34

35

36

CA 2006, s 44(1) and (2), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. The Land Registry Rules 2003 (SI 2003/1417) contain a form of execution to be used for land registration instruments executed by an LLP without using a common seal: see reg 206(3) and Sch 9, form F. Land Registry Practice Guide 8 (updated September 2020), para 5.2 provides guidance as to what attestation clauses in a deed executed by an LLP the Land Registry will accept. CA 2006, s 44(6), as modified and applied to LLPs by SI 2009/1804, regs 2, 4, together with s 1173 (definition of ‘firm’). CA 2006, s 44(3), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. This can include a nominal sum: see Midland Bank Trust Co Ltd v Green [1981] AC 513. CA 2006, s 44(4), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. See, on this subsection, In re Carson Country Homes Ltd [2009] 2 BCLC 196 (director forging another’s signature on debenture given to bank: note that s 44(4) is the equivalent of s 44(5) of the CA 2006 for companies). CA 2006, s 44(7), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. CA 2006, s 44(5), as modified and applied to LLPs by SI 2009/1804, regs 2, 4. It would appear, however, that if there is a (single) company involved, the document will be duly signed on the company’s behalf by the person signing: compare CA 2006, s 44(6) (the equivalent provision) as enacted for companies. ‘(2) An instrument shall not be a deed unless– … (b) it is validly executed as a deed– (i) by [the person making it] or a person authorised to execute it in the name or on behalf of that person, or (ii) by one or more of [the parties to it] or a person authorised to execute it in the name or on behalf of one or more of those parties’. CA 2006, s 46, as modified and applied to LLPs by SI 2009/1804, regs 2, 4.

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in escrow. If delivery in escrow is what is intended, it will be necessary to establish proof of the intention. As a general rule, in order for the LLP to be able to sue or be sued on a deed made inter partes, the LLP will need to be described as a party to the deed, and the deed will need to be executed in its name.37 4.16 A bill of exchange or promissory note is deemed to have been made, accepted or endorsed on behalf of an LLP if made, accepted or endorsed in the name of, or by or on behalf or on account of, the LLP by a person acting under its authority.38 4.17 An LLP may, by instrument executed on or after 1 October 2009 as a deed, empower any person, either generally or in respect of any specified matters, as its attorney, to execute deeds or other documents on its behalf; and a deed or other document so executed, whether in the UK or elsewhere, has effect as if executed by the LLP.39 4.18 An LLP which has a common seal may also have an official seal for use outside the UK. This is to be a facsimile of its common seal, with the addition on its face of the place or places where it is to be used.40 The official seal, when duly affixed to a document, has the same effect as the LLP’s common seal.41 An LLP which has an official seal for use outside the UK may, by writing under its common seal, authorise any person appointed for the purpose to affix the official seal to any deed or other document to which the LLP is party.42 As between the LLP and a person dealing with such an agent, the agent’s authority continues during the period (if any) mentioned in the instrument conferring the authority or, if no period is mentioned, until notice of the revocation or determination of the agent’s authority has been given to the person dealing with him.43 The person affixing the official seal must certify in writing on the deed or other instrument to which the seal is affixed the date on which, and the place at which, it is affixed.44

Pre-incorporation contracts 4.19 There are two provisions in the LLP legislation relating to contracts entered into before the LLP has been incorporated, namely s 51 of the CA 200645 and 37 38

39

40 41 42 43 44 45

See, for instance, Bowstead & Reynolds on Agency (20th edn) (2014), art 77. CA 2006, s 52, as modified and applied to LLPs by SI 2009/1804, regs 2, 7. ‘Authority’ will include ostensible authority: see Dey v Pullinger Engineering Co [1921] 1 KB 77 and Kreditbank Cassel GmbH v Schenkers [1927] 1 KB 826. CA 2006, s 47, as modified and applied to LLPs by SI 2009/1804, regs 2, 4, together with reg 83 and Sch 1, para 2(1) of the LLP Regulations 2009. CA 1985, s 38 (LLP could by writing under its common seal empower an attorney to execute deeds outside the UK) continues to have effect where the power to act as an LLP’s attorney was conferred before 1 October 2009 (including in relation to instruments executed by the attorney on behalf of the LLP on or after 1 October 2009): Sch 1, para 2(2). CA 2006, s 49(1)–(2), as modified and applied to LLPs by SI 2009/1804, regs 2, 6. CA 2006, s 49(3), as modified and applied to LLPs by SI 2009/1804, regs 2, 6. This does not apply in relation to affixing the official seal in Scotland: ibid. CA 2006, s 49(4), as modified and applied to LLPs by SI 2009/1804, regs 2, 6. CA 2006, s 49(5), as modified and applied to LLPs by SI 2009/1804, regs 2, 6. CA 2006, s 49(6), as modified and applied to LLPs by SI 2009/1804, regs 2, 6. Modified and applied to LLPs by SI 2009/1804, regs 2, 7.

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s 5(2) of the LLP Act 2000. The latter section relates to a pre-incorporation LLP agreement and is considered in Chapter 10, dealing with the general principles of LLP agreements. 4.20 Section 51 of the CA 2006 provides that a contract or a deed which purports to be made by or on behalf of an LLP at a time when the LLP has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the LLP or as agent for it, and he is personally liable on the contract or under the deed accordingly. In order for the person purporting to act for the LLP46 or as its agent47 in making the contract or deed (‘contract’) to avoid personal liability by relying on there being an ‘agreement to the contrary’, that agreement48 must be a clear exclusion of such personal liability: there will be no inference drawn of such an agreement for the purposes of the section simply from the contract being signed ‘on behalf of’ or ‘as agent for’ the LLP.49 Although s 51(1) refers expressly only to liability under the contract for the person purporting to act, since the subsection also refers to the contract as having effect as one made with that person (ie treats him as the contracting party), that person can also enforce the contract.50 4.21 In order for the LLP, when it comes into existence, to have the benefit and be subject to the liabilities of the contract (and for the original person acting to be released from liability where such liability has not been excluded), there must be a new contract entered into by the LLP with the other party after incorporation.51

CHANGE OF NAME 4.22 An LLP may change its name at any time.52 The requirements and restrictions as to name set out in 2.17–2.19 will apply in relation to a change of name as they apply in relation to an LLP’s name on incorporation. As with a change of registered office (and other matters mentioned in 17.9(a)), the power is given to the LLP as a body, and the legislation does not specify any particular internal procedure by which

46 47 48 49 50

51 52

Ie where the contract or deed purports to be made by the LLP. Ie where the contract or deed purports to be made on behalf of the LLP. Made between the person purporting to act for the LLP and the other party to the contract. Phonogram Ltd v Lane [1982] QB 938. Subject, as with any contract, to the ordinary common law rules as to the enforceability of contracts. See Braymist Ltd v Wise Finance Co Ltd [2002] Ch 273 (CA), a company case on CA 1985, s 36C (predecessor to CA 2006, s 51). The text above reflects the views of the majority of the Court of Appeal. The view of Arden LJ (differing in this respect) was that the right of the person purporting to act for the company to enforce the contract does not follow automatically from what is now s 51(1), providing that the contract has effect as if made with that person, but that the intention of this provision is that whether that person can enforce the contract turns on the application of the common law rules to the facts of the particular case as to whether a person (and, in particular, an agent contracting as such) can enforce a contract personally: see esp [59] and [62]–[63]. See, for example, Halsbury’s Laws of England (5th edn) (2016), Vol 14, para 279; Vol 17, para 646. LLP Act 2000, Sch, para 4(1).

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the LLP can decide to make the change.53 The determination is a decision of ‘the limited liability partnership’, and the authors suggest that, as discussed in 17.12, the answer as to how a valid decision is to be made by the LLP (in this, and in other situations requiring a decision by ‘the limited liability partnership’) is to be found in the common law on decision-making by corporate bodies. If this suggestion is right, the matter will be decided by a (simple) majority of members attending a meeting of the members at which more than half of all the members are present.54 4.23 An LLP may also, in certain circumstances, be directed by the Secretary of State to change its name. (a) Where the LLP has been registered with a name which is (i) the same as or, in the opinion of the Secretary of State, too like a name appearing at the time of registration in the index of company names,55 or (ii) the same as or, in the opinion of the Secretary of State, too like a name which should have appeared in the index at that time, the Secretary of State may, within 12 months of the LLP’s registration by that name, direct the LLP in writing to change its name within such period as he may specify.56 If the LLP fails to comply with the Secretary of State’s direction, an offence is committed by the LLP and by every designated member who is in default.57 (b) If it appears to the Secretary of State (i) that misleading information has been given for the purpose of the registration of an LLP by a particular name, or (ii) that an undertaking or assurance has been given for that purpose and has not been fulfilled, he may direct the LLP to change its name.58 Any such direction must be in writing and given within five years of the LLP’s registration by that name, and must specify the period within which the LLP is to change its name.59 If an LLP fails to comply with such a direction, an offence is committed by the LLP, and by every designated member of the LLP who is in default.60 (c) If in the opinion of the Secretary of State the name by which an LLP is registered gives so misleading an indication of the nature of its activities as to be likely to cause harm to the public, the Secretary of State may, by direction in writing, direct the LLP to change its name.61 The direction must be complied with within a period of six weeks from the date of the direction, or such longer period as the Secretary of State may allow. This does not apply, however, if

53

54

55 56 57 58 59 60 61

CA 2006, s 77, which governs a change of name by a company, but which is not adopted for LLPs, provides for a company’s change of name to be effected by special resolution or by other means provided for by the articles. As to the possibility of it being argued that the decision to change the LLP’s name is a non-ordinary matter connected with the business of the LLP, and so requiring the consent of all the members under default rule (6), see 17.6. Kept by the Registrar under CA 2006, s 1099. CA 2006, ss 67–68, as modified and applied to LLPs by SI 2009/1804, regs 2, 11. The period can be extended by the Secretary of State before the end of the original period specified: s 68(3). CA 2006, s 68(5), as modified and applied to LLPs by SI 2009/1804, regs 2, 11. The penalty on summary conviction is a fine. As to the meaning of ‘in default’, see 12.9–12.12 and 22.29. CA 2006, 75, as modified and applied to LLPs by SI 2009/1804, regs 2, 13. The period can be extended by the Secretary of State before the end of the original period specified: s 75(3). The penalty on summary conviction is a fine: s 75(6). CA 2006, s 76. as modified and applied to LLPs by SI 2009/1804, regs 2, 13.

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53

(as it may) the LLP applies to the court within three weeks from the date of the direction to set the direction aside. The court may set the direction aside or confirm it. If the direction is confirmed, the court is to specify the period within which the direction is to be complied with. If an LLP fails to comply with a direction, an offence is committed by it, and by every designated member who is in default.62 4.24 An LLP may also be required to change its name as a result of an objection made to its name by another person. A person may object to an LLP’s registered name on the ground that it is the name associated with the objector in which he has goodwill (including reputation of any description), or that it is sufficiently similar to such a name that its use in the UK would be likely to mislead by suggesting a connection between the LLP and the objector. Any such objection is made to a company names adjudicator appointed by the Secretary of State. If one of the grounds of objection is established, it will be for the LLP (or any of its members joined as respondents to the application) to show that: (a)

the name was registered before the commencement of the activities on which the objector relies to show goodwill; (b) the LLP: (i) is operating under the name, or (ii) is proposing to do so and has incurred substantial start-up costs in preparation; or (iii) was formerly operating under the name and is now dormant; (c) the name was registered in the ordinary course of an LLP formation business and the LLP is available for sale to the applicant on the standard terms of that business; (d) that the name was adopted in good faith; or (e) that the interests of the applicant are not adversely affected to any significant extent. If none of these is shown, the objection will be upheld. If the LLP establishes facts mentioned in (a), (b) or (c) above, the objection will nevertheless be upheld if the objector shows that the main purpose of the LLP or its members in registering the name was to obtain money (or other consideration) from the objector or to prevent him from registering the name. If the objection is upheld, the adjudicator is to make an order requiring the LLP to change its name, by a specified date, to one that is not likely, by reason of its similarity to the name associated with the applicant objector in which he claims goodwill, to be the subject of a direction by the Secretary of State as mentioned in 4.23(a), or to give rise to a further objection made to a company names adjudicator.63 If the LLP’s name is

62 63

The penalty on summary conviction is a fine: s 76(7), as modified and applied to LLPs by SI 2009/1804, regs 2, 13. CA 2006, ss 69 and 73, as modified and applied to LLPs by SI 2009/1804, regs 2, 12. Sections 70–74 provide, in addition, for the appointment of names adjudicators, procedural rules, and the adjudicator’s decision and reasons being made public. There is also provision for an appeal to the court from an adjudicator’s decision, and for the court to have a similar power to the adjudicator to determine a new name for the LLP: s 74(4). If the court does determine a new name for the LLP, it must give notice of the determination to the parties to the appeal and the Registrar: s 74(5).

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not changed by the specified date in accordance with the adjudicator’s order, the adjudicator may himself determine a new name for the LLP.64 Whether made by the LLP itself, or by determination of the adjudicator, the change of name takes place on the issue by the Registrar of the certificate of the change of name.65 4.25 Where an LLP does change its name (whether by its own decision, or as a result of a direction of the Secretary of State or an order of a company names adjudicator), it must deliver a notice of the change to the Registrar.66 When the Registrar receives a notice of change of name, and unless the new name is one by which the LLP may not be registered, he is required to enter the new name on the register in place of the former name, and to issue a certificate of the change of name.67 The change of name has effect from the date on which the certificate is issued.68 Finally, the Registrar is to publish in the London Gazette69 notice of the issue of the certificate of the change of name.70 4.26 A change of name by an LLP does not affect any of its rights or duties or render defective any legal proceedings by it or against it, and any legal proceedings that might have been commenced by its former name, or continued against it by its former name, may be commenced or continued against it by its new name.71

DUTY TO NOTIFY CHANGES 4.27 An LLP has a duty to notify the Registrar of certain relevant events.72 Pursuant to CA 2006, s 853B,73 notification must be given of the following no later than 14 days after the end of each ‘review period’: (a) a change in the address of the LLP’s registered office; (b) particulars of the members,74 namely: (i) where the member is an individual, the particulars required by s 163 to be entered on the register of members; and

64

65 66 67 68 69 70 71 72 73 74

CA 2006, s 73, as modified and applied to LLPs by SI 2009/1804, regs 2, 12. If the adjudicator does this, he must give notice of his determination to the applicant objector, the LLP (and any other respondents) and the Registrar: s 73(5). CA 2006, s 73 and LLP Act 2000, Sch, para 5(4). LLP Act 2000, Sch, para 5(1). LLP Act 2000, Sch, para 5(3). LLP Act 2000, Sch, para 5(4). Or publish by alternative means specified by the Secretary of State under CA 2006, s 1116. CA 2006, s 1064(3)(a), as modified and applied to LLPs by SI 2009/1804, regs 2, 61. LLP Act 2000, Sch, para 6. CA 2006, ss 853A–853L, as modified and applied to LLPs by SI 2009/1804, regs 2, 30 and Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016, reg 3. Applied (with modifications) by SI 2009/1804, reg 30 by Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016 (SI 2016/599), reg 1, Sch 1. The particulars required to be entered on the register of members are discussed at 2.25. They include whether the member is a designated member.

Formalities and Requirements after Incorporation

(c)

55

(ii) where the member is a body corporate or a firm75 that is a legal person under the law by which it is governed,76 the particulars required by s 164 to be entered in the register of members; and if any LLP records77 are kept at a place other than the LLP’s registered office, the address of that place and the records that are kept there.78

The ‘review period’ means a period of 12 months beginning (i) with the day of the LLP’s incorporation or (ii) the day after the last review period, as appropriate: s 853A(5).

CONFIRMATION STATEMENT 4.28 An LLP must also deliver a confirmation statement to the Registrar each year confirming that all information required to be delivered by the LLP pursuant to CA 2006, s 853A(1)(a) is up to date.79 The statement will need to be in the form specified by the Registrar under CA 2006, s 1068 and (as required by the form) signed by a designated member. It must be delivered to the Registrar within 14 days of the end of the review period.80 4.29 If the LLP fails to deliver a confirmation statement within 14 days after the review period, the LLP is guilty of an offence and liable on summary conviction to a fine.81 The contravention continues until a confirmation statement, satisfying the requirements set out in 4.28 and specifying a confirmation date no later than the last day of the review period concerned, is delivered by the LLP to the Registrar.82 In addition to the LLP, every designated member is similarly liable unless he proves that he took all reasonable steps to avoid the failure to deliver the confirmation statement,

75

76 77 78 79

80

81

82

Ie any entity, whether or not a legal person under English law, that is not an individual, including a body corporate, a corporation sole and a partnership or other unincorporated association: see CA 2006, s 1173. An English partnership is not a legal person under its governing law, and so is not covered. As to what persons can be members of an LLP, see 2.2–2.3. Eg any accounting records or other documents required by the CA 2006 to be kept by an LLP, and any register kept by the LLP of its debenture holders: see CA 2006, s 1134. As to an alternative inspection location for registers to be kept available for public inspection, see further 6.23. CA 2006, ss 853A–853L, as modified and applied to LLPs by SI 2009/1804, regs 2, 30 and Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016, reg 3. The previous requirement to file an annual return under CA 2006, ss 854–855A ceased on 29 June 2016. CA 2006, s 853A(1)(b), as modified and applied to LLPs by SI 2009/1804, reg 30 (as substituted, with effect from 30 June 2016, by Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016 (SI 2016/599), reg 1, Sch 1, para 5 (with reg 3(2)–(4))). CA 2006, s 853L(1), as modified and applied to LLPs by SI 2009/1804, reg 30 (as substituted, with effect from 30 June 2016, by Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016 (SI 2016/599), reg 1, Sch 1, para 5 (with reg 3(2)–(4))). CA 2006, s 853L(3), as modified and applied to LLPs by SI 2009/1804, reg 30 (as substituted, with effect from 30 June 2016, by Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016 (SI 2016/599), reg 1, Sch 1, para 5 (with reg 3(2)–(4))).

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or the continuance of the failure.83 In the case of continued contravention, an offence is also committed by every designated member of the LLP who did not commit an offence as part of the initial failure, but who is in default in relation to the continued contravention.84 4.30 In addition to this criminal sanction, if the LLP fails to deliver the confirmation statement within the 28-day period, the Registrar, or any member or creditor of the LLP, may give notice to the LLP requiring it to do so. If the LLP fails to make good the failure within 14 days after service of the notice on it, the court may, on an application made to it by the Registrar, or by any member or creditor of the LLP, make an order directing the LLP or any specified member of it to make good the default within a specified time.85 The court’s order may also provide that all costs of and incidental to the application are to be borne by the LLP or by any of its members responsible for the default.86

83

84

85 86

CA 2006, s 853L(4), as modified and applied to LLPs by SI 2009/1804, reg 30 (as substituted, with effect from 30 June 2016, by Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016 (SI 2016/599), reg 1, Sch 1, para 5 (with reg 3(2)–(4))). CA 2006, s 853L(5), as modified and applied to LLPs by SI 2009/1804, reg 30 (as substituted, with effect from 30 June 2016, by Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016 (SI 2016/599), reg 1, Sch 1, para,. 5 (with reg 3(2)–(4))). As to designated members being ‘in default’, see 12.9–12.12 and 22.29. CA 2006, s 1113(1)–(3), as modified and applied to LLPs by SI 2009/1804, regs 2, 69. CA 2006, s 1113(4), as modified and applied to LLPs by SI 2009/1804, regs 2, 69.

Chapter 5 THE LLP AND THE OUTSIDE WORLD

AGENCY 5.1 As has been mentioned in 3.4, an LLP can only act through others as its agents. This is not the place to set out extensively the law as to an agent’s authority.1 It suffices to say that an agent’s authority to bind his principal may be actual or apparent (often termed ‘ostensible’).2 Actual authority is the authority actually conferred by the principal (here, the LLP), either expressly or impliedly, on its agent. An agent will generally have implied authority from his principal to do whatever is ordinarily or necessarily incidental to the carrying out of the specific or general function for which he has express authority and, where he has a general authority as to a class of business or activity, to do what is usual in the ordinary course of carrying out that business or activity.3 Apparent, or ostensible, authority is ‘the authority of an agent as it appears to others’.4 It often coincides with actual authority, but can frequently be wider.5 Apparent authority is, in brief, created by a representation made by the principal by words or by conduct, either expressly or impliedly, that the agent has certain authority. The representation may be as to authority in relation to specific matters, or it may be of a far more general nature, to the world at large and not limited as to matters or transactions. For the principal to be bound by the act of the agent falling within the apparent authority, the third party must have acted in reliance on the representation, and such reliance must have been reasonable.6 The principal

1

For a fuller discussion, see Bowstead & Reynolds on Agency (21st edn) (2019) or Chitty on Contracts (33rd edn) (2019), Chapter 31. 2 See Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502–503. 3 See, for example, Bowstead & Reynolds above, articles 27, 29 and 30. 4 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583. 5 For an example of drawing a clear distinction between actual authority and apparent authority, see Waugh v H B Clifford & Sons [1982] Ch 374 (CA), concerned with a solicitor’s authority to compromise litigation, especially at 383E–G and 387D–388A. Other examples of apparent authority exceeding actual authority but nevertheless binding the principal are Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 (company secretary hiring cars) and Gurtner v Beaton [1993] 2 Lloyd’s Rep 369, in particular at 378–380 (aviation manager of a company which owned aircraft, with his office at an airport, having apparent authority to use aircraft under his control for air taxi work notwithstanding that that work was not part of the company’s business). 6 See Freeman & Lockyer above, at 505–506; and, for a fuller discussion, Bowstead & Reynolds above, article 72, or Chitty on Contracts above, para 31–056. As to the reliance having to be reasonable, see Egyptian Intl Foreign Trade Co v Soplex Wholesale Supplies Ltd (‘The Raffaella’) [1985] 2 Lloyd’s Rep 36 at 41. The third party must, of course, believe that the agent has the relevant authority: see, for instance, Criterion Properties Plc v Stratford Properties LLC [2004] 1 WLR 1846 (HL) at [31]. See also Acute Property Developments Limited v Apostolou and Ors [2013] EWHC 200 (Ch), in which it was affirmed that a party cannot rely on apparent authority as a defence unless it would reasonably have believed in the authority. Dishonesty will undermine a reliance argument. Even where it is reasonable for the third party to have assumed that the agent

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is estopped from denying that the agent had actual authority coinciding with the apparent authority which the principal has represented the agent as having.7 The actual authority conferred on an agent will, therefore, be a matter of what has been agreed (expressly or impliedly) as to authority between the principal and the agent. An agent’s apparent authority, if wider than that agreed as his actual authority, will be a matter of what appearance has been given by the principal to the outside world. 5.2 LLP Act 2000, s 6(1) expressly provides that every member of an LLP is the agent of the LLP. The LLP Act 2000 makes no reference to the agency of employees. It cannot have been the intention of the Act, however, that non-members should not be able to act as the agents of an LLP. Section 6 merely establishes expressly the position regarding the agency of its members.

MEMBERS AND OTHER AGENTS ACTING WITHIN THEIR AUTHORITY 5.3 Whenever an issue arises as to whether an LLP is bound by the acts of a member or employee (or other agent) in any dealing with a third party, the first question will be: what is the actual authority of the member or employee or other agent in question to act on behalf of the LLP? Where the agent of the LLP, whether member or otherwise, acts within his actual authority, the LLP Act 2000 leaves the general law of agency to apply, and there is no doubt that the LLP is bound by the agent’s acts. The LLP will, therefore, be liable under any contract made on its behalf by a member or employee (or other agent) acting within the scope of his actual authority, and will equally be able to enforce any such contract.8 Similarly, the LLP will be liable for any wrong committed by a member or employee (or other agent) acting within the scope of his actual authority.9

MEMBERS AND OTHER AGENTS ACTING OUTSIDE THEIR AUTHORITY 5.4 Where an employee of the LLP (or other non-member agent) acts outside his actual authority, whether or not the LLP is bound by his acts as its agent will be determined by the general rules as to apparent authority outlined in 5.1.10 In the case of acts by a member, however, the position will not be so straightforward. The relationship between the provisions of the LLP Act 2000 regarding the agency of

7 8 9 10

had the usual authority accompanying his position, suspicious circumstances should put him on notice as to that authority and he should make enquiries: see Hopkins v TL Dallas Group [2004] EWHC 1379 (Ch). See, for instance, Armagas Ltd v Mundogas SA (The Ocean Frost) [1986] AC 717 at 777A–C. See, for instance, Bowstead & Reynolds above, article 71, or Chitty on Contracts above, para 31–054. See, for instance, Bowstead & Reynolds above, article 90. Considered further at 5.5–5.8.

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members and the general rules as to apparent authority is not wholly clear.11 It is convenient to consider first the application of the general rules to employees (and other non-member agents), before considering the position of members, and the effect of the LLP Act 2000 in relation to their agency.

Employees (and other non-member agents) 5.5 The scope of the apparent authority of an employee of an LLP12 (and ‘employee’ is used hereafter to include other non-member agents) will depend greatly upon the nature of, and the normal course of conducting, the business in which the LLP is engaged. Dealing first with the nature of the business, the position may perhaps be put as follows. There is a working presumption that an employee, as the agent of ‘a business’ (which is how a third party would normally see an LLP), is not being held out as having authority to engage in a different business. But this is a working presumption only. In particular, it leaves open issues which may arise from the way in which the LLP describes or represents its business. The business as it appears to the outside world may include an activity which is not part of the actual business of the LLP as agreed and understood between the members. The result of this may be that an employee of the LLP has apparent authority to enter into a transaction relating to a particular activity which falls within the ambit of the business as it appears to the outside world, although he has no actual authority to do so.13 It may be wise for the LLP in its representations to its customers and the public (eg in its letterheads and marketing literature) to make as clear as possible what its business is. Even if the business is clearly and accurately described to the outside world, issues could, of course, still arise as to what precisely that stated business covers.14 5.6 Turning to issues of apparent authority where an employee is, indeed, acting broadly within the ambit of the LLP’s actual business, it is clear from the decided cases that the extent of an agent’s apparent authority owes much to the actual authority which a person in such a position as the agent holds in relation to such a business usually has. When considering the scope of the apparent authority of an officer of a company (eg a managing director or company secretary), the issue is traditionally considered in terms of what actual authority an officer in such a position usually has.15 This approach is not easily followed when one is considering the apparent authority of an employee of an entity with no traditional tiers of corporate officer,

11 12 13 14

15

See further 5.5–5.8. See Chapter 9 in relation to the question whether a member of an LLP can also be employed by it. See, for example, Gurtner v Beaton [1993] 2 Lloyd’s Rep 369 referred to in fn 5 above. See, for example, the comments as to changes in the ordinary course of solicitors’ work of Staughton LJ in United Bank of Kuwait v Hammoud [1988] 1 WLR 1051 (concerned with the issue, in two separate cases, of a solicitor’s apparent authority to give an undertaking binding on his firm) at 1063E–G. See Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503–504 and Bowstead & Reynolds on Agency above, para 8–015. But this approach is not to be slavishly and unrealistically followed in all situations: see the comments of Neill LJ in Gurtner v Beaton above, at 379, col 2, to 380, col 1.

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and with a number of apparently equal principals. In the case of a professional firm, the issue tends to be considered in terms of what is done in the ordinary course of that profession. For the purpose of considering the apparent authority of an employee of an LLP, it is probably a fair working presumption that he has apparent authority to do (and apparent authority only to do) any act for carrying on in the usual way business of the kind carried on by the LLP.16 But, as with the working presumption mentioned in 5.5, it must be appreciated that this is a working presumption only. 5.7 In deciding in any particular case whether or not an agent had apparent authority, the court may well be influenced by ‘policy’ considerations and err on the side of wide rather than narrow apparent authority.17 In Gurtner v Beaton, Neill LJ said:18 ‘The development of the doctrine [of apparent authority] has been based in part upon the principle that where the Court has to decide which of two innocent parties is to suffer from the wrong-doing of a third party the Court will incline towards placing the burden upon the party who was responsible for putting the wrongdoer in the position in which he could commit the wrong.’

The scope of an agent’s apparent authority is not uncontrollable by the principal, and can be made to coincide with the actual authority. There is no reason in principle why an LLP should not draw to the attention of third parties limits to the authority which an employee (or indeed a member) has, and which can therefore be attributed to him.19 5.8 It is worth bearing in mind in relation to apparent authority that there is, or may on particular facts be, a distinction to be drawn between, on the one hand, authority to enter into transactions and, on the other hand, authority to communicate on behalf of the principal (ie the LLP) in relation to transactions. The latter authority (actual or apparent) may be considerably wider than the former. This is illustrated by First Energy v Hungarian International Bank,20 where the relevant manager of the bank did not have the authority (actual or apparent) to grant a loan facility, but he did have apparent (although not actual) authority to communicate that head office approved the facility. This accorded with the ‘commercial realities of the situation’.21 16 17

18 19 20

21

Ie a working presumption in the same terms as are used in the second part of s 5 of the Partnership Act 1890. See, for example, the approach of Brightman LJ in Waugh v H B Clifford & Sons [1982] Ch 374 at 388D–H as to the scope of the apparent authority of solicitors to bind their clients to a compromise. The narration by Brightman LJ in the same case at 383G–387C of the history of the courts’ decisions as to the authority of solicitors to compromise on their clients’ behalf illustrates how policy can change. [1993] 2 LLR 369 at 379. See, for instance, Russo-Chinese Bank v Li Yau Sam (PC) [1910] AC 174 at 184 and Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 WLR 1335 at 1341C–D. [1993] 2 Lloyd’s Rep 194 (CA). And see also Ing Re (UK) Ltd v R&V Versicherung AG [2006] EWHC 1544 (Comm), [2007] 1 BCLC 108 at [99]–[101] and In re Carson Country Homes Ltd [2009] 2 BCLC 196 (ostensible authority to represent that company document executed in accordance with correct procedures and that signatures genuine). Per Evans LJ at 206, col 1. There can also be apparent authority to receive communications: see El Ajou v Dollar Holdings Plc [1994] 2 All ER 685 at 703c–e (Hoffmann LJ).

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Where a company organises its affairs in such a fashion that an agent has authority to communicate decisions, but not to approve them, and such an agent communicates a decision which has not in fact been taken, this may give rise to an estoppel preventing the company from denying that the decisions had been properly approved.22

Members 5.9 LLP Act 2000, s 6(1) states simply that every member of an LLP is the agent of the LLP. The subsection is addressing the position (i) as between the LLP and its members, and (ii) as between the LLP and third parties.

(i)  The position as between the LLP and its members: actual authority 5.10 Section 6(1) does not state any limitation on the scope of the authority as agent of a member. Section 6(2), however, expressly envisages that there may be limits on a member’s actual authority; and it is clear from this that s 6(1) is not intending to provide that every member of an LLP has, by force of statute, unalterable and unlimited actual authority to act on behalf of, and to bind, the LLP. As between the LLP and the member, s 6(1) establishes the agency status of a member, but the members and the LLP are free to agree amongst themselves what actual authority to act on behalf of the LLP individual members will have. It will, therefore, be open to the members of an LLP, and probably as equally desirable as at present with traditional partnerships, to provide in the LLP agreement23 for limits on the authority of members to act on behalf of the LLP. 5.11 The principal issue which arises out of the wide wording of s 6(1) is the extent of the actual authority which a member has to bind the LLP, in the absence of a provision in the LLP agreement limiting the authority of members.24 The starting position under s 6(1), it is suggested, is that every member has unlimited actual authority to bind the LLP in any respect, but that this is subject to certain qualifications implied by the law, and may be further negated or qualified (expressly or impliedly) by the LLP agreement. The qualifications implied by the law are that, subject to any agreement to the contrary, the member has no actual authority to act on behalf of the LLP dishonestly or otherwise in breach of his fiduciary obligations to the LLP.25 The extent to which the starting position of unlimited actual authority is further negated or qualified by the LLP agreement will essentially be a matter of construction of that agreement in its surrounding circumstances. It is important to appreciate two points in relation to a consideration of the LLP agreement for this purpose. First, in the absence of express parameters as to authority being set out in the LLP agreement, the base point for such consideration is not to see what implied authority a person in the member’s position would have by the normal criteria of implied authority,26 22 23 24 25

26

Kelly v Fraser [2013] 1 AC 450. Ie in the agreement provided for by LLP Act 2000, s 5, discussed in Chapter 10. References in 5.11 to the LLP agreement include references to any relevant agreement between the members and the LLP. Hopkins v T L Dallas Group Ltd [2005] 1 BCLC 543 at [88]–[89]; and Bowstead & Reynolds above, article 23 (‘Unless otherwise agreed, authority to act as agent includes only authority to act for the benefit of the principal’). As to a member’s fiduciary obligations to the LLP, see 13.8–13.9. Eg as set out in Bowstead & Reynolds above, articles 27, 29 and 30.

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and to see that as the outer limit of the member’s authority, but rather to see what implications cut down the starting position under s 6(1). The second point is that there is a distinction (albeit a distinction which may only be material in a limited number of situations) between the authority which a member has to act on behalf of the LLP and the authority which the LLP (acting by the member) has to act on behalf of the client or customer of the LLP. The issue of construction now being discussed will be essentially concerned with the former authority only. 5.12 LLP Act s 6(1) does not follow the formula of the first limb of s 5 of the Partnership Act 1890 in stating that a member is the agent of the LLP ‘for the purpose of the business of the LLP’. Perhaps the most important question of construction of an LLP agreement in this context which is likely to arise is whether a limitation to this effect on the actual authority of members to bind the LLP is nevertheless to be implied (assuming that there is no express provision to this effect).27 Such an implication will clearly be easier if there is in the LLP agreement a statement as to what the business is that is to be carried on by the LLP, and so by the members on behalf of the LLP. If there is such a statement (and perhaps even if there is not), some support for concluding that a member’s actual authority is limited to acting for the purpose of the business being carried on by the LLP may be derived from default rule (2) for LLP agreements (if applicable in the particular case), or from an equivalent express provision in the particular LLP agreement being considered. Default rule (2)28 provides for the LLP to indemnify each member in respect of payments made and personal liabilities incurred by him ‘in the ordinary and proper conduct of the business’ of the LLP. The argument will be that such an indemnity is clearly intended to cover a member acting within his authority, and so indicates what the LLP agreement intends the scope of that authority to be (ie acting in the ordinary and proper course of the business). Default rule (2) is discussed at 14.19–14.21. Support for this argument may further, perhaps, be derived from the position established by the common law in relation to partnerships before the Partnership Act 1890 was passed. This was to the effect as enacted in the first part of s 5 of the 1890 Act (ie the authority of a partner was for the purpose of the business of the partnership).29 5.13 If a member is acting on behalf of the LLP within his actual authority, the LLP will be bound by his acts, whatever the appearance of his authority may be to the outside world. This is made clear by LLP Act 2000, s 6(2)(a), which establishes as a requirement for the LLP not being bound by the action of a member that the member in fact had no authority to act for the LLP in taking that action.

27

It is in this context that the distinction mentioned in 5.11 between a member’s authority to act on behalf of the LLP and the LLP’s authority to act on behalf of its customer or client may be material. 28 Contained in reg 7(2) of the LLP Regulations 2001. 29 See Lindley on Partnership (6th edn) (1893) at 133, and also Sandilands v Marsh (1819) 2 B & Ald 673 (considered in Bank of Scotland v Henry Butcher & Co [2003] 1 BCLC 575) and Cassels v Stewart (1881) 6 App Cas 64 at 79. The section also reflected the position established by the common law in relation to the apparent authority of partners before the 1890 Act was passed: see Lindley (6th edn) above.

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(ii)  The position as between the LLP and third parties: apparent authority 5.14 Section 6(1) also addresses the agency position of members as between the LLP and third parties. It states that every member is to be taken by third parties to be the agent of the LLP, and to have authority to act on behalf of the LLP: every member has apparent authority to bind the LLP. Unlike s 5 of the Partnership Act 1890, s 6(1) does not state any limitation on the scope of the authority of a member. Taken on its own, the subsection establishes the prima facie position that every member has unlimited apparent authority to bind the LLP in any respect. This prima facie position is, however, expressly qualified by s 6(2), which provides that an LLP is not bound by anything done by a member in dealing with a third party if (a) the member in fact has no authority to act for the LLP by doing that thing, and (b) the third party either knows this,30 or does not know or believe the person with whom he is dealing to be a member of the LLP.31 We will consider each of the elements of (b) in turn.

Third party ‘knowing’ that no authority 5.15 Assuming that the third party knows that he is dealing with a member of an LLP, for the circumstances to fall within s 6(2), so that the LLP escapes being bound, the third party must ‘know’ that the member does not have the relevant authority. Proceeding on the basis (as set out in 5.14) that the effect of s 6(1), together with s 6(2), is to establish a universal liability on the part of the LLP for the acts of its members subject only to the exonerating circumstances set out in subs (2),32 the ambit of the word ‘knows’ in subs (2) is of great importance. The more restricted the concept of ‘knowledge’ used in the first part of subs (2)(b), the greater the potential for the LLP to be liable for the acts of its members. 5.16 It is probably correct to say that knowledge here will include, in any event, the first three of the five categories of knowledge accepted by Peter Gibson J in Baden v Société Generale,33 namely: (i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; and (iii) wilfully and recklessly failing to make such enquiries as an honest and reasonable man would make. These three categories have been said to constitute actual knowledge or its equivalent.34 Put in the terms of an alternative

30 31

32

33 34

Ie that the member has no authority. The reference in s 6(2)(b) ‘no authority’ must be to ‘authority to act for the limited liability partnership by doing that thing’ as referred to in s 6(2)(a). Section 6(2) is similar to the second part of the second limb of s 5 of the Partnership Act 1890: ‘… unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner’. It omits the first part of the second limb of s 5 of the 1890 Act: ‘and the acts of every partner who does any act for carrying on in the usual way business of a kind carried on by the firm of which he is a member bind the firm and his partners …’. This understanding of s 6 is consistent with the approach of the Government Minister (Lord McIntosh of Haringey) in the House of Lords at Committee stage and at Report stage on the bill; but the Minister’s statements are not clear on this point: see Hansard HL 24 January 2000 columns 1376–1379 and 6 March 2000 columns 868–869. [1993] 1 WLR 509 at 575–576. See, for instance, BCCI v Akindele [2001] Ch 437 at 454E–F (CA).

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categorisation, knowledge here will probably include ‘blind-eye knowledge’, ie knowledge which exists when a person deliberately refrains from inquiring further lest his firmly grounded suspicion of wrongdoing be confirmed.35 Therefore, where a third party has this level of knowledge as to the member’s lack of authority, it is probably the case that the LLP will not be bound under the Act by the member’s actions.36 The remaining two Baden categories of knowledge are: (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; and (v) knowledge of circumstances which would put an honest and reasonable man on inquiry. These two categories have been said to constitute – broadly speaking, and not as a rigid rule – constructive knowledge.37 Whether knowledge of these kinds – or some other category of knowledge, however described, which is short of actual knowledge or its equivalent – would be considered as knowledge for the purposes of s 6(2)(b), leading to the LLP not being bound, is unclear.38 There is, however, much to be said (both in principle and on common law judicial authority) for knowledge for the purposes of the first part of subs (2)(b) being given a broader meaning than Baden categories (i), (ii) and (iii) only. If knowledge for the purposes of the first part of subs (2)(b) is confined to actual knowledge in the sense of these categories, the liability of an LLP for the acts of its members is potentially substantially wider than that of a company or other principal for the acts of its agents. In particular, the liability of an LLP for the acts of its members may be significantly wider than for the acts of its employees. The common law as to apparent authority takes a broader approach.39

No ‘knowledge or belief’ by third party as to membership 5.17 Where the member is acting beyond his actual authority, but the third party does not know this, the third party will not be able to attribute the member’s acts 35

36

37 38

39

See, for instance, Manifest Shipping Co Ltd v Uni-Polaris Co Ltd [2003] 1 AC 469 at [112]–[116] and White v White [2001] 1 WLR 481 (HL). In White, it was said that even on a strict and narrow interpretation of what constituted knowledge for the purposes of the EC directive there being construed, blind-eye knowledge was included: see [14]–[16]. Since this degree of knowledge would almost certainly negate any apparent authority which would otherwise exist, there would not be liability under the general law of agency either. As to the possible application of the general law of agency, see 5.18. See, for instance, BCCI v Akindele above at 454E–H (CA). At least in the context of normal commercial transactions, and ‘knowing receipt’ cases, the court is generally setting its face against Baden categories (iv) and (v) constituting knowledge: see, for instance, Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 All ER 700 at 759g–760c and the discussion in BCCI v Akindele above. The House of Lords has rejected a ‘conscionability’ approach to knowledge in the context of apparent authority: see Criterion Properties Plc v Stratford Properties LLC [2004] 1 WLR 1846. See generally, for instance, Bowstead & Reynolds above, article 73; and AL Underwood Ltd v Bank of Liverpool [1924] 1 KB 93, especially at 788–9 (Bankes LJ) and 797–8 (Atkin LJ) referring to the ‘obvious inquiry’ which the bank should have made; and also Ing Re (UK) Ltd v R&V Versicherung AG [2007] 1 BCLC 108 at [106]–[116] (would a reasonable underwriter in the position of the claimant have been justified in regarding the document as a statement of authority?). For references to ‘knowing’ in the context of apparent authority, see Hawken v Bourne (1841) 8 M&W 703 at 710 (a pre-1890 Act partnership case) and Criterion Properties Plc v Stratford Properties LLC [2004] 1 WLR 1846 (HL) at [31]. And see also Millett LJ in Agip (Africa) Ltd v Jackson [1990] Ch 265 at 293 warning against over-refinement or a too-ready assumption that Baden categories (iv) and (v) are necessarily cases of constructive knowledge only.

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to the LLP, and the LLP will be absolved from liability, if the third party does not know or believe that the person with whom he is dealing is a member of the LLP. In relation to this part of subs (2)(b), the more restricted the concept of ‘knowledge’, the greater the potential for the LLP not to be liable for the acts of its members: unlike the circumstances being covered by the first part of s 6(2)(b), a more restricted concept of ‘knowledge’ is to the advantage of the LLP. There is much to be said for the concept in the present context being confined to actual knowledge. It would seem to be broadly correct to say that, for the LLP to be absolved from liability under s 6, the section assumes that the third party has not been placing reliance on the person he was dealing with being a member of the LLP. Proceeding on this basis, and bearing in mind that s 6(2)(b) is referring to the third party not knowing or believing, it seems logical to interpret knowledge here as actual knowledge, and belief as actual belief. 5.18 Circumstances may possibly arise, however, where a member of an LLP is dealing with a third party who does not know or believe that the person with whom he is dealing is a member, but he does know that this person is acting on behalf of the LLP (albeit he has no knowledge that the person is acting outside his authority). An example would be a client dealing with a member of an LLP of solicitors: the client knows that he is dealing with a solicitor of the LLP, but believes that the solicitor is an associate, not a member. It would be a strange, and surely unintended, result of s 6(2)(b) if in these circumstances, and if the member is acting within the apparent authority of an employee, the LLP were not bound by the actions of the member. If the member had in fact been the employee he was believed to be, the LLP would be bound in accordance with the normal principles of apparent authority.40 But the route to the LLP being bound in the circumstances now under consideration is not clear. The answer may be that the concept of knowledge in the second part of subs (2)(b) is, in fact, wider than actual knowledge, and embraces constructive knowledge, interpreted for the third party’s benefit. This approach to knowledge for the purposes of the second part of subs (2)(b) would have the merit of being consistent with the broader approach to knowledge for the purposes of the first part of subs (2)(b) advocated in 5.16. Alternatively, the answer may be that whilst, as suggested in 5.14, s 6(1) creates an unlimited liability on the LLP for the acts of its members (subject only to the exonerating circumstances set out in subs (2)), this unlimited liability with its exoneration carve-out is supplementing, rather than usurping, any liability to be attributed to the LLP under the general law of agency or otherwise. On this basis, subss (1) and (2) of s 6 are effectively stating for present purposes as follows: without prejudice to any liability under the general law of agency or otherwise, the LLP is liable under this Act for the acts of its members, but in the circumstances specified in subs (2)(a) and (b) it is not liable under this Act. The possibility of liability outside the subsections is not closed off. In addition, and on particular facts, there may be a duty on the member to tell the third party that he is a member (which duty will have been breached when he does not do so), or there may in any event be personal liability to the third party on the part of the member for a wrong done,41 leading to vicarious liability on the part of the LLP under LLP Act, s 6(4).42 40 See 41 42

5.5–5.6. Ie as a result of an assumption of personal responsibility by the member: see the discussion of personal liability of members in Chapter 18. Section 6(4) is considered below.

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5.19 If the member has committed a wrongful act or omission (in the course of the business of the LLP or with its authority) for which he is personally liable, the LLP will, in any event, be liable under LLP Act 2000, s 6(4).43

CESSATION OF MEMBERSHIP 5.20 Subsections (1) and (2) of s 6 are, on the face of it, concerned solely with the actual and apparent authority of a person who is a current member of the LLP. Where a person ceases to be a member, he will (subject to any agreement to the contrary between him and the LLP) cease to be the agent of the LLP, and will cease to have actual authority to bind the LLP. The effective date of a person ceasing to be a member is the date when he ceases to be a member in accordance with an agreement with the other members (or by notice under LLP Act 2000, s 4(3))44 rather than the date of notification to the Registrar of his ceasing to be a member.45 LLP Act, s 6(3) provides that the former member will, however, continue to be regarded in relation to anyone dealing with the LLP as still being a member unless either (a) the person dealing with the LLP has notice that the (now former) member has ceased to be a member, or (b) notice that the (now former) member has ceased to be a member has been delivered to the Registrar.46 The effect of s 6(3) is to continue the application of the apparent authority provisions of subss (1) and (2) of s 6 to former members of an LLP for a limited period. The effect of this continuation is that every person who was, but has now ceased to be, a member of the LLP is, as regards third parties who continue to believe him to be a member, still to be taken as the agent of the LLP under s 6(1), with unlimited authority if the third parties do not know of any relevant limitation on it,47 until notice of him ceasing to be a member has been delivered to the Registrar under LLP Act, s 9 unless in the meantime the third party has notice of the erstwhile member having ceased to be a member. ‘Notice’ in s 6(3)(a) is presumably intended to be a concept distinct from ‘knowledge’ in s 6(2)(b). ‘A man may have actual notice of a fact and yet not know it. … So also by statute a man may be deemed to have actual notice of a fact which is clearly not within his knowledge. Constructive and imputed notice are most frequently, though not invariably, used in contrast to knowledge to describe a situation in which a man is treated for some purposes as if he had knowledge of facts which were clearly not known to him.’48

A third party would, presumably, be deemed to have had notice for the purposes of s 6(3)(a) of a person ceasing to be a member if he received a circular from the LLP so informing him, but he failed to read it.

43

Considered at 5.22–5.24. Discussed in 19.2–19.3 and 19.6–19.8. 45 See 8.29–8.30. 46 Ie under LLP Act, s 9, which provides that notice in approved form of a person ceasing to be a member of an LLP must be delivered to the Registrar within 14 days of that person ceasing to be a member: see further 8.29. 47 See 5.17–5.18. 48 Vinelott J in Eagle Trust Plc v SBC Securities Ltd [1992] 4 All ER 488 at 497j–498d. 44

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VICARIOUS LIABILITY FOR TORTS AND OTHER WRONGS 5.21 In addition to being liable for breaches of its own duties, the LLP will be vicariously liable to third parties for the torts or other wrongs of its members and employees.

Acts of members 5.22 LLP Act 2000, s 6(4) expressly provides for the LLP to be vicariously liable for the torts or other wrongs of its members. Section 6(4) states that where a member is liable to any person (other than another member of the LLP) as a result of a wrongful act or omission of his in the course of the business of the LLP or with its authority, the LLP is liable to the same extent as the member. This provision is clearly based on s 10 of the Partnership Act 1890. The wrongful act or omission must have been done ‘in the course of the business’ of the LLP, or with its authority. The broad issue will be whether the wrongful conduct was so closely connected with acts which the member was authorised (in accordance with subss (1) and (2) of s 6) to do in the course of the business that, for the purpose of liability of the LLP to the relevant third party, that conduct may fairly and properly be regarded as having been done by the member in the course of the LLP’s business.49 It is to be noted that s 6(4) does not refer to the ‘ordinary’ course of the LLP’s business (as s 10 of the 1890 Act does in the context of partnerships), but simply to the course of the business. The relevant act of the member may, therefore, be one done out of the usual or regular course of that business. What the nature and scope of the business of the LLP is will be a question of fact.50 Once the LLP has treated a particular transaction as part of its business then, whether or not that transaction is part of the regular business of the LLP, the transaction will become part of its business for the purposes of s 6(4).51 The decision as to whether or not an act is within the course of the LLP’s business will be a decision made by the court on the basis of the primary facts, taking into account the policy behind the principle of vicarious liability.52 That policy is based ‘on the recognition that carrying on a business enterprise necessarily involves risks to others. It involves the risk that others will be harmed by wrongful acts committed by the agents through whom the business is carried on. When those risks ripen into loss, it is just that the business should be responsible for compensating the person who has been wronged.’53 If the third party knows that the member in question is acting

49 See

Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at [23]. In the subsequent Court of Appeal case of JJ Coughlan Ltd v Ruparelia [2004] PNLR 4, where a solicitor was party to a fraudulent investment scheme, and gave a dishonest assurance to the investor, the issue (for the purposes of s 10 of the 1890 Act) was framed in terms of whether, viewed fairly and properly, the transaction was the kind of transaction which formed part of the firm’s business: see [30]. 50 See Dubai Aluminium Co Ltd v Salaam above, at [18]. 51 See Bank of Scotland v Henry Butcher & Co [2003] 1 BCLC 575 (a case on s 5 of the Partnership Act 1890), esp at [43]. 52 Lord Nicholls in Dubai Aluminium Co Ltd v Salaam above, at [24] (‘The conclusion is a conclusion of law, based on primary facts, rather than a simple question of fact’). 53 Lord Nicholls in Dubai Aluminium Co Ltd v Salaam above, at [21]. See also Various Claimants v Catholic Child Welfare Society [2013] 2 AC 1 and The Northampton Regional Livestock Centre Company Limited v Cowling [2015] EWCA Civ 651.

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outside his authority as a member, or that the act is not being done in any way in the course of the business of the LLP, the LLP will not be liable.54 5.23 A ‘wrongful act or omission’ in s 6(4) will include not only a common law wrong (such as negligence or deceit), but also an equitable wrong (such as dishonest participation in a breach of trust) and probably any act leading to faultbased liability.55 It will include fraudulent actions (for his own benefit) on the part of a member. In this respect, in providing for the LLP to be liable for any such actions done by a member ‘in the course of the business’ of the LLP, s 6(4) places a wider vicarious liability upon the LLP in respect of members than in respect of employees. In the latter case, as discussed further in 5.26, liability of the LLP will depend upon whether the employee’s conduct falls within the scope of his actual or apparent authority. 5.24 Reference is made in 18.30 to professional positions which can only be occupied by individuals. Such positions include actuaries of occupational pension schemes and insolvency practitioners. Individuals acting in these positions will, in any event (and subject to the effect of any exoneration clause), have personal liability for their own negligence or other wrongdoing when so acting. Issues may arise in some circumstances as to whether, although acting in an individual capacity, a person acting in such a position who is a member of an LLP is also to be regarded as acting in the course of the business of the LLP. All will depend upon the particular facts. The reality is likely to be, in many cases, that the individual has been chosen to hold the position because of his membership of a particular LLP. In such cases, it is suggested that – depending upon the detailed facts – the court may well conclude that the negligent or other wrongful conduct may fairly and properly be regarded as done by the individual while acting in the course of the LLP’s business. Similar issues may arise in relation to individual members of an LLP who act as trustees or company directors. These also are personal positions; but in many cases it may be unrealistic to see them as not undertaken in the course of the business of the LLP.56 5.25 By the words ‘(other than another member of the limited liability partnership)’, s 6(4) excludes from the vicarious liability of the LLP the wrongful act of a member done in the course of the business of the LLP, or with its authority, where the personal liability of the wrongdoing member is to another member.57 An issue which may arise in this context is whether the reference in the words quoted above to ‘another member’ is to another member in any circumstances or capacity,

54 See

JJ Coughlan Ltd v Ruparelia above (concerned with s 10 of the 1890 Act), at [31]. Dubai Aluminium Co Ltd v Salaam above, at [10] and [103], considering the same words in Partnership Act 1890, s 10. These words embrace every kind of wrong capable of causing damage to non-members: ibid, at [108]. See, for instance, as to trusteeships, Walker v Stones [2001] 1 QB 902 (CA) at 950F. The statutory presumption arising under the Partnership Act 1890 referred to in that case that individual trusteeships which a partner undertakes are not undertaken in the ordinary course of business of a firm (see 949E–951A) is not carried into the LLP Act 2000. It seems probable that s 6(4) is intended positively to exclude such liability; but this must always be without prejudice to any direct cause of action which the wronged member may have against the LLP (possibly as the result of the action of another member acting as the LLP’s agent).

55 See

56

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The LLP and the Outside World

69

or is only to another member qua member. It may be, for instance, that a member of an LLP, assuming a personal responsibility, carries out work for another member in the same manner as he would for a normal customer. If the work is carried out negligently, the other member in such circumstances may be said not to suffer loss qua member, but as a customer. It is not clear whether the intention of s 6(4) is to exclude vicarious liability on the part of the LLP in such circumstances. The issue may, however, prove to be of little practical importance. In the example above, it is probable that the personal responsibility of the member carrying out the work was not assumed by him to the exclusion of the LLP’s responsibility.58

Acts of employees 5.26 As in the context of agency, the LLP Act 2000 makes no reference to employees, but the LLP will be liable for the torts and other wrongs of its employees committed in the course of their employment on the normal principles of vicarious liability.59 The issue will be whether, looking at the matter in the round, the employee’s act was so closely connected with his employment (namely, with what he was authorised or expected to do in his employment) that it would be fair and just to hold the employer vicariously liable:60 ‘The authorities show that it will ordinarily be fair and just to hold the employer liable where the wrongful conduct may fairly and properly be regarded as done while acting in the ordinary course of the employee’s employment …. This is because an employer ought to be liable for a tort which can fairly be regarded as a reasonably incidental risk to the type of business being carried on ….’61

Where, however, the employee commits a fraud on a third party in the course of his employment, with no intention of benefitting the LLP but solely for his own personal benefit, the test for determining whether his employer is vicariously liable for his fraudulent conduct is closer to that for determining a principal’s liability for the acts of his agent. The liability of an LLP for the fraudulent conduct of an employee will depend not upon whether the employee was acting in the course of his employment, but upon whether his conduct falls within the scope of the employee’s authority, actual or ostensible (as determined by the common law).62 In the case of fraudulent

58

And if it was, it may not be unreasonable that there should be no liability on the part of the LLP. Whatever the precise ambit of the exclusion of the LLP from vicarious liability to one member for the acts of another, the LLP can be vicariously liable to a member in respect of the tort or other wrong of an employee committed in the course of his employment: this is not excluded by LLP Act 2000, s 6(4). As to vicarious liability for the acts of employees, see 5.26. 59 On vicarious liability generally, see Clerk & Lindsell on Torts (23rd edn) (2020), chapter 6; Mohamud v Wm Morrison Supermarkets Plc [2016] AC 677 and Wm Morrison Supermarkets Plc v Various Claimants [2020] UKSC 12. 60 See Lister v Hesley Hall Ltd [2002] 1 AC 215 (in particular Lord Steyn at [28]), Dubai Aluminium Co Ltd v Salaam above and Gravil v Carroll [2008] ICR 1222. The fact that the wrongdoing was intentional or criminal, or done for the benefit of the employee alone, or contrary to express instructions to him, is not of itself a defence for the employer (see Lister at [79]). 61 Gravil v Carroll above, at [21]. 62 See Clerk & Lindsell on Torts above, paras 6–44 to 6–46, and Armagas Ltd v Mundogas SA (The Ocean Frost) [1986] AC 717 at 779H–784A.

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conduct on the part of an employee: ‘The essential feature for creating liability in the employer is that the party contracting with the fraudulent servant should have altered his position to his detriment in reliance on the belief that the servant’s activities were within his authority, or, to put it another way, were part of his job, this belief having been induced by the master’s representations by way of words or conduct.’63

63

Lord Keith in Armagas Ltd v Mundogas SA above at 781E–F.

Chapter 6 CHARGES AND DEBENTURES

INTRODUCTION 6.1 As has been mentioned previously,1 an LLP is able to own property and assets; and it has the same capacity and freedom to enter into transactions in relation to its property and assets as a private individual. In addition, there is no limitation on its capacity to borrow.2 6.2 An LLP is therefore able to charge its property as security for borrowing, and give fixed or floating charges.3 It will be able to raise funds by the issue of debentures. The term ‘debentures’ in the CA 2006 does not have a finite meaning, but it includes debenture stock, bonds, and any other securities of an LLP, whether constituting a charge on its assets or not.4 The ability to issue debentures includes the ability to issue ‘perpetual debentures’ (ie debentures which are irredeemable, or which are redeemable only on the happening of a certain event or on the expiration of a fixed period)5 and to re-issue debentures previously redeemed.6 Debentures are discussed further at 6.26–6.30. 6.3 Like a company, an LLP may register particulars of charges with the Registrar, and is, in addition, itself obliged to maintain copies of its charges, available for inspection. The provisions of the CA 2006 dealing with charges7 were repealed and replaced by the Companies Act 2006 (Amendment of Part 25) Regulations 2013.8 These provisions, with regard to charges created on or after 6 April 2013, are adopted for LLPs by virtue of the Limited Liability Partnerships (Application of Companies Act 2006) (Amendment) Regulations 2013.9

1 See 2 3

4 5 6 7 8 9

3.7–3.8. Although, of course, the LLP agreement may restrict the level of borrowings as a matter of internal management. There is no reason in principle why an LLP cannot give a floating charge, and the legislation proceeds on the basis that it can: see, for instance, CA 2006, s 754, as modified and applied to LLPs by SI 2009/1804, reg 23 (discussed at 6.28) and s 859A, as modified and applied to LLPs by SI 2013/618, reg 2 (referred to at 6.8(c)(ii)). See further, as to floating charges, 34.30–34.31. CA 2006, s 738, as modified and applied to LLPs by SI 2009/1804, reg 20. CA 2006, s 739, as modified and applied to LLPs by SI 2009/1804, reg 20. CA 2006, s 752, as modified and applied to LLPs by SI 2009/1804, reg 23. The statutory provisions on registration refer to ‘charges’ of the LLP. This includes mortgages: CA 2006, s 859A, as modified and applied to LLPs by SI 2013/618, reg 2. SI 2013/600. SI 2013/618.

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REGISTRATION OF CHARGES Duty to register 6.4 With certain exceptions,10 any charge created by an LLP must be registered or the charge will be void as against a liquidator or administrator, or any creditor, of the LLP, and the money secured by it will be payable immediately.11 The purpose of registration is to enable those dealing with an LLP, or considering doing so, to find out, by inspecting the copies of charges, whether the LLP has encumbered its property.12 Unlike under previous provisions, it is now solely the LLP which must keep available for inspection a copy of all instruments creating or varying a registrable charge.13 The charge documents must be kept available at the LLP’s registered office or a place specified in regulations under CA 2006, s 1136, for inspection by any creditor or member of the LLP free of charge, and any other person upon payment of a fee. The LLP is required to inform the Registrar where the documents are kept if it is a location different from the LLP’s registered address.14 The requirement for registration applies to both legal and equitable charges. 6.5 An LLP that creates a charge requiring registration must deliver to the Registrar a statement of particulars of the charge as set out in CA 2006, s 859D, in order for the charge to be registered.15 The requirement applies whether the charge is created in writing or otherwise (for instance, by deposit).16 The requirement to register charges created by the LLP does not apply, however, in respect of a charge or lien arising solely by operation of law, such as an unpaid vendor’s lien.17 Where the LLP acquires property which is already subject to a charge of a kind which, if it had been created by the LLP after the acquisition of the property, would have been required to be registered, the LLP must in this case also deliver to the Registrar the statement of particulars of the charge (and also deliver a certified copy of the instrument by which the charge was created or is evidenced, if such instrument exists) before the end of the period allowed for registration.18 The period allowed for registration is, in the case of a charge created by the LLP, 21 days beginning with the

10

By CA 2006, s 859A, as modified and applied to LLPs by SI 2013/618, reg 2, the only exempt charges are cash deposits securing rent under a lease of land, charges created by a member of Lloyd’s as security for its underwriting obligations, or charges excluded from registration under CA 2006 by any other Act. This will include the exceptions from registration under the Banking Act 2009 and the Financial Collateral Arrangements (No 2) Regulations 2003. 11 CA 2008, s 859H, as modified and applied to LLPs by SI 2013/618, reg 2. 12 See Re Jackson and Bassford Ltd [1906] 2 Ch 467 at 476. 13 CA 2006, s 859P, as modified and applied to LLPs by SI 2013/618, reg 2. 14 CA 2006, s 859Q, as modified and applied to LLPs by SI 2013/618, reg 2. 15 CA 2006, s 859A, as modified and applied to LLPs by SI 2013/618, reg 2. As to the prescribed particulars, see 6.8. 16 Re Wallis & Simmonds (Builders) Ltd [1974] 1 WLR 391 (equitable charge arising by deposit of title deeds requires registration). 17 See the reference in CA 2006, s 859A to ‘where a company creates a charge’, and the similar reference in s 859B, and see London and Cheshire Insurance Co Ltd v Laplagrene Property Co Ltd [1971] Ch 499. Compare Re Wallis & Simmonds (Builders) Ltd above. 18 CA 2006, 859C, as modified and applied to LLPs by SI 2013/618, reg 2.

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day after the date on which the charge is created.19 For a charge created in a series of debentures (where debenture holders are entitled to the benefit of the charge pari passu), the time period will be 21 days from the day after the deed containing the charge is created, or, if there is no deed containing the charge, 21 days from the day after the date on which the first debenture of the series is executed.20 The possibility of the court extending this period under CA 2006, s 859F is discussed in 6.13. 6.6 An LLP does not commit an offence if it fails to register most charges. However, if a registrable charge which has been created by the LLP is not registered (by sending to the Registrar the prescribed particulars) within the 21-day period (or extended period allowed by the court under CA 2006, s 859F), then so far as any security on the LLP’s property or undertaking is conferred by the charge, the charge is void as against a liquidator or administrator, or any creditor, of the LLP.21 It is, however, only the security which is void. The contract or obligation for repayment of the money secured by the charge remains valid, and when a charge becomes void for non-registration, the money secured by it becomes immediately payable.22 It is therefore in the LLP’s interest to register any registrable charges within the prescribed time period. The charge may also be registered by any person interested in it.23 6.7 Although provision is made in CA 2006, s 859C for a charge existing on property or undertakings acquired by the LLP to be registered, it would appear that there is no obligation to do so, and failure to register does not appear to result in the charge becoming void against liquidators, administrators or creditors.24

Particulars, and instrument of charge, to be sent to the Registrar 6.8 CA 2006, s 859D sets out the requirement for the ‘statement of particulars’ of charges created by the LLP (or charges to the benefit of which the holders of a series of debentures are entitled pari passu), which must be delivered to the Registrar (a ‘section 859D statement of particulars’).25 The particulars must state: (a) (b)

19 20 21

22 23 24 25

the registered name and number of the LLP; the date of the creation of the charge and, if it is a charge which was existing on property when the property was acquired by the LLP, the date of the acquisition of the property;

CA 2006, 859A(4), as modified and applied to LLPs by SI 2013/618, reg 2. The date of creation of the charge is defined in s 859E. CA 2006, s859B(6), as modified and applied to LLPs by SI 2013/618, reg 2. See CA 2006, s 859H(3), as modified and applied to LLPs by SI 2013/618, reg 2, which does not refer to s 859C. And see Smith v Bridgend County BC [2002] 1 AC 336 as to an unregistered charge being void against an administrator. CA 2006, s 859H(4), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s 859A(2), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s 859H(1), as modified and applied to LLPs by SI 2013/618, reg 2. Certified copies of instruments or debentures need not include any personal information relating to an individual (other than his or her name), the number or other identifier of a bank or securities account of a company or individual, or a signature: CA 2006, s 859G, as modified and applied to LLPs by SI 2013/618, reg 2.

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(c)

where the charge is created by an instrument: (i) the name of the person(s) in whose favour the charge has been created or who hold(s) the charge as security agent or trustee (if there are more than four, only four need be listed); (ii) whether the instrument is expressed to contain a floating charge and, if so, whether the charge covers all the property and undertakings of the LLP; (iii) whether any land, ship, aircraft, or intellectual property that is registered (or required to be registered) in the United Kingdom is subject to a nonfloating charge or fixed security in the instrument; (iv) whether the instrument includes a non-floating charge or fixed security over any other property; (d) where the charge is not created by an instrument: (i) a statement that there is no instrument evidencing the charge; (ii) the name(s) of the person(s) in whose favour the charge has been created or who hold the charge as security agent or trustee; (iii) a short description of the property or undertaking charged; (iv) the obligations secured by the charge.26 6.9 In the case of a charge created by an LLP which is contained in a series of debentures, or which is given in a series of debentures by reference to another instrument, and to the benefit of which debenture holders of that series are entitled pari passu, the section 859D statement of particulars must also contain:27 (a) the name of each of the trustees for the debenture holders (if there are more than four, only four need be listed); (b) the dates of the resolutions governing the issue of the series; and (c) the date of the covering instrument (if any) by which the security is created or defined.

Post-registration 6.10 The Registrar must allocate to each charge a unique reference code, recorded on the register, and include any documents delivered with the charge.28 When a charge has been registered, the Registrar must give to the person who delivered the section 859D statement of particulars a certificate of the registration, either signed by him or authenticated by his official seal.29 The certificate must state the registered name and number of the LLP and the unique reference code assigned to the charge.30 For charges which fall within the mandatory 21-day registration period, the certificate is conclusive evidence that the required documents were delivered to the Registrar within the required time period (or within an extended period allowed by the court under CA 2006, s 859F).31

26 27 28 29 30 31

CA 2006, s 859H(1), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s 859B(2), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s 859I(2), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s 859I(3) and (5), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s 859I(4), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s 859I(6), as modified and applied to LLPs by SI 2013/618, reg 2.

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6.11 If the chargee, or any other person, obtains an order for the appointment of a receiver or manager of an LLP’s property, or appoints such a receiver or manager under powers contained in an instrument, he must, within seven days of the order or of the appointment, give notice of the fact to the Registrar. If the order or appointment was obtained by virtue of a registered charge held by the chargee etc, the requirements will differ according to whether the charge was created before, or on or after, 6 April 2013.32 If before, the notice must contain the date of registration of the charge, a description of the relevant instrument, and short particulars of the property or undertaking charged.33 If on or after 6 April 2013, the notice must only state the unique reference code.34 The same requirements will apply when giving notice that a person who has been appointed as receiver or manager of an LLP’s property under powers contained in an instrument has ceased to act as such receiver or manager.35 6.12 Where the debt secured by the charge has been paid or satisfied in whole or in part, or the property charged has been released from the security (or has ceased to form part of the LLP’s property or undertaking), the Registrar must, on receipt of a statement verifying this, include in the register a statement of satisfaction in whole or in part, or a statement that all or part of the property has been released from the charge or has ceased to form part of the company’s property or undertaking.36 Under CA 2006, s 859K(6)–(7), a person who makes default in giving notice of the appointment (or of ceasing to act) of a receiver or manager commits an offence, and is liable on conviction to a fine. Note that these provisions only apply to receivers and managers appointed by a court in England and Wales or Northern Ireland, or by an instrument governed by the laws of those jurisdictions.37

Power of the court to extend time and rectify 6.13 There is power for the court under CA 2006, s 859F, on the application of the LLP or of a person interested, and on such terms and conditions as the court thinks just and expedient, to order that the period allowed for delivery of the required documents to register a charge be extended. Under s 859M, the court may also order that an omission or misstatement in any statement or notice delivered to the Registrar be rectified. The power of rectification given to the court does not extend to mistakes otherwise than in such statement or notice.38 In any event, before making an order extending the allowed period for registration, or rectifying the register, the court will need to be satisfied that the failure to register a charge within the period, or 32

CA 2006, s 859K(2), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s 859K(4), as modified and applied to LLPs by SI 2013/618, reg 2. 34 CA 2006, s 859K(2)(ii), as modified and applied to LLPs by SI 2013/618, reg 2. 35 CA 2006, s 859K(3), as modified and applied to LLPs by SI 2013/618, reg 2. 36 CA 2006, s 859L, as modified and applied to LLPs by SI 2013/618, reg 2. 37 CA 2006, s 859K(8), as modified and applied to LLPs by SI 2013/618, reg 2. 38 See igroup Ltd v Ocwen [2004] 1 WLR 451, where the court was asked (unsuccessfully) to rectify prescribed forms which had been filed relating to deeds of discharge and to new charges, in order to delete unnecessary information which had been attached to the forms. See now, however, CA 2006 ss 1074 and 1076 (applied to LLPs by the LLP Regulations 2009, reg 60) as to the power of the Registrar to omit ‘unnecessary material’, or to accept a replacement document that contains such material. 33

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the omission or misstatement in the register or memorandum of satisfaction, was accidental, or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors of the LLP, or will need to be satisfied on other grounds that it is just and equitable to grant relief.39 There is no wider or other inherent general jurisdiction, beyond that given by CA 2006, s 859M, for the court to order rectification of the register.40

THE LLP’S REGISTERS AND COPIES Copies of charges 6.14 Every LLP must keep available for inspection at its registered office, or at an alternative inspection location as mentioned in 6.23 a copy of every instrument creating a registrable charge or varying or amending such a charge.41 In the case of a series of uniform debentures, a copy of one debenture of the series is sufficient.42 If the particulars referred to in the s 859D statement of particulars are not contained in the instrument, but are contained in other documents, these documents must also be available for inspection.43 The copy will be sufficient if it is in the form delivered to the Registrar.44 If the documents are not kept at the LLP’s registered office, the LLP must give notice to the Registrar of the location where documents are available for inspection, and update the Registrar if this location changes. If default is made for 14 days with regard to giving notice of the location for inspection, the LLP and every member of the LLP who is in default commits an offence and is liable to a fine.45 6.15 The copies of instruments creating and amending charges are to be open for inspection by any creditor or member of the LLP without charge, and by any other person on payment of the prescribed fee.46 If the LLP refuses to allow a request for inspection of copies of charges, within 14 days of the request, every member of the LLP who is in default, as well as the LLP itself, commits an offence and is liable to a fine;47 and the court may make an order compelling an immediate inspection of the register or the copies.48 Provided the LLP and the person wishing to carry out the inspection agree, the inspection may be done electronically.49 39 Ibid. 40 41 42 43 44

45 46

47 48 49

Exeter Trust Ltd v Screenways Ltd [1991] BCLC 888. See, in relation to the court’s general power of rectification, 24.40–24.48. CA 2006, s 859P and s 859Q(2), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s 859P(2), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s s 859P(3), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s s 859P(4), as modified and applied to LLPs by SI 2013/618, reg 2. If a translation of the instrument has been delivered under s 1105, a copy of the translation must also be available for inspection. CA 2006, s s 859Q(5), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s 859Q(4), as modified and applied to LLPs by SI 2013/618, reg 2. The fee is that prescribed by reg 2(c) of the Companies (Fees for Inspection of Company Records) Regulations 2008 (SI 2008/3007), namely £3.50 for each hour or part hour during which the right of inspection is exercised. As to the details of inspection, see 6.24–6.25. CA 2006, s 859Q(5) and (6), as modified and applied to LLPs by SI 2013/618, reg 2. As to the meaning of ‘in default’, see 13.23. CA 2006, s 859Q(7), as modified and applied to LLPs by SI 2013/618, reg 2. CA 2006, s 859Q(8), as modified and applied to LLPs by SI 2013/618, reg 2.

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6.16 The rights of inspection are probably not, however, wholly unfettered rights. In relation to inspecting the charges register, or copies of charges, it is probably the position that under CA 2006, s 859Q(7) the court has a residual discretion to refuse an order for inspection, despite the mandatory terms of subss (2) and (4) of s 859Q (‘The documents must be kept available for inspection ….’ and ‘The documents must be open to the inspection ….’). Subsection (7) provides that if an inspection is refused, ‘the court may by order compel an immediate inspection.’ Despite the criminal sanctions specified in subss (5) and (6), the word ‘may’ in subs (7) probably confers on the court a discretion or power as to whether or not to make an order compelling inspection.50 The circumstances in which an order will be refused, at least for a member, are, however, likely to be exceptional.

Register of debenture holders 6.17 Although an LLP is obliged to keep a register of charges, and the prescribed particulars of most charges are required to be registered with the Registrar, there is no statutory obligation to keep a separate register of holders of charges or other debentures51 (although in practice a charge or other debenture actually issued may well contain a condition that such a register will be kept by the LLP). Where, however, a register of debenture holders is kept, certain statutory obligations are imposed. The register (or a duplicate, if the register itself is kept outside the UK) must be kept available for inspection either at the LLP’s registered office or at an alternative inspection location as mentioned in 6.23.52 Save where the register (or the duplicate) has, at all times since it came into existence, been kept available for inspection at the LLP’s registered office, the LLP must give notice to the Registrar of the place where the register (or duplicate) is kept available for inspection, and of any change in that place.53 The register (or duplicate) is, except when ‘duly closed’,54 to be open to inspection by the registered holder of any debenture (or any member of the LLP) without fee, and by any other person on payment of the prescribed fee.55 The person inspecting (or, indeed, a person without actually inspecting, but as a separate right) is given a statutory right to require a copy of the register or any part of it, on payment of

50 See 51 52 53

54

55

Pelling v Families Need Fathers Ltd [2002] 1 BCLC 645 (CA), considering (and refusing) an application to compel inspection of the register of company members under CA 1985, s 356. As to the meaning of ‘debenture’, see 6.2. CA 2006, s 743(1) and (6), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. CA 2006, s 743(2) and (3), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. If the LLP makes default for 14 days in giving notice, an offence is committed by it and by every member who is in default: s 743(4). As to the meaning of ‘in default’, see 12.9–12.12 and 22.29. The penalty, on summary conviction, is a fine: s 743(5). The register is ‘duly closed’ if it is closed in accordance with provisions contained: (a) in the debentures; (b) in the case of debenture stock, in the stock certificates; or (c) in the trust deed or other document securing the debentures or debenture stock. The total period for which a register is closed in any year must not exceed 30 days: s 744(5). CA 2006, s 744(1), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. The prescribed fee is the fee prescribed by reg 2 of the Companies (Fees for Inspection and Copying of Company Records) (No 2) Regulations 2007 (SI 2007/3535), namely £3.50 for each hour or part hour during which the right of inspection is exercised: see s 744(1)(b).

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the prescribed fee.56 Where a copy of the register is requested in hard copy form, the LLP is to provide the copy in that form.57 Where the copy is requested in electronic form, the LLP may provide it in such electronic form as it decides; if the LLP keeps a register in hard copy form only, it cannot be required to provide a copy in electronic form.58 The LLP is not required to present information in a copy provided by it in a different order, structure or form from that set out in the record being copied.59 6.18 A person seeking to exercise rights to inspect, or to have a copy of, the register must make a request to the LLP to that effect.60 The request must contain the following information: (a) (b)

in the case of an individual, his name and address; in the case of an organisation, the name and address of an individual responsible for making the request on behalf of the organisation; (c) the purpose for which the information is to be used; and (d) whether the information will be disclosed to any other person, and, if so: (i) where that person is an individual, his name and address; (ii) where that person is an organisation, the name and address of an individual responsible for receiving the information on its behalf; and (iii) the purpose for which the information is to be used by that person.61 It is an offence for a person knowingly or recklessly to make a statement in a request that is misleading, false or deceptive in a material particular.62 6.19 Where an LLP receives a request for inspection of the register, or for a copy of the register, it must, within five working days, either comply with the request, or apply to the court.63 If it applies to the court it must notify the person making the request. If on the application the court is satisfied that the inspection or copy is not sought for a proper purpose, the court is to direct the LLP not to comply with the request, and it may further order that the LLP’s costs on the application be paid in

56

57 58

59 60 61 62

63

CA 2006, s 744(2), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. As to the prescribed fee, see reg 3 of SI 2007/3535 above. As to the details of inspection, see 6.24–6.25. This will be without prejudice to the common law right to make notes and copy out extracts of the register: see 6.24. CA 2006, ss 1134(b) and 1137(1)(b), as modified and applied to LLPs by SI 2009/1804, regs 2, 74, along with the Companies (Company Records) Regulations 2008 (SI 2008/3006), Pt 4, reg 7. Ibid, reg 8(1) and (2). Regulation 8(3) (which is applied to LLPs) states that, where the LLP provides a copy of a record in electronic form to a member of the LLP or to a holder of the LLP’s debentures, the LLP is not required to provide a hard copy of that record in accordance with CA 2006, s 1145. Section 1145 is, in fact, not applied to LLPs. Ibid, reg 9. CA 2006, s 744(3), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. CA 2006, s 744(4), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. CA 2006, s 747(1), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. The penalty on conviction on indictment is imprisonment for a term not exceeding two years or a fine (or both); and, on summary conviction, imprisonment for a term not exceeding 12 months (in Northern Ireland, six months) or a fine not exceeding the statutory maximum (or both): s 747(3). CA 2006, s 745(1), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. ‘Working day’ means a day that is not a Saturday or Sunday, Christmas Day, Good Friday or any day that is a bank holiday in the part of the UK where the LLP is registered: CA 2006, s 1173.

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whole or in part by the person who made the request, even if he is not a party to the application. If the court makes such a direction, and it appears to the court that the LLP is or may be subject to other requests made for a similar purpose (whether made by the same person or different persons), it may direct that the LLP is not to comply with any such request. The order must contain such provision as appears to the court appropriate to identify the requests to which it applies.64 If on an application the court does not direct the LLP not to comply with the request, the LLP must comply with the request immediately upon the court giving its decision or, as the case may be, the proceedings being discontinued.65 6.20 If (otherwise than in accordance with an order of the court) a request for an inspection is refused by the LLP, or there is default in providing a requested copy, an offence is committed by the LLP, and every member of the LLP who is in default.66 In the case of any such refusal or default the court may by order compel an immediate inspection or, as the case may be, direct that the copy required be sent to the person requesting it.67 It is an offence for a person in possession of information obtained by exercise of the right to inspect the register, or to take a copy, to do anything that results in the information being disclosed to another person, or to fail to do anything with the result that the information is disclosed to another person, knowing, or having reason to suspect, that that person may use the information for a purpose that is not a proper purpose.68 6.21 Without prejudice to any lesser applicable limitation period, liability incurred by an LLP from the making or deletion of an entry in its register of debenture holders, or from a failure to make or delete any entry, is not enforceable more than 10 years after the date on which the entry was made or deleted or, as the case may be, the failure to make or delete the entry first occurred.69

Form of registers 6.22 The registers may be kept in hard copy or electronic form, and may be arranged in such manner as the members think fit (provided that the information in question is adequately recorded for future reference);70 but if kept in electronic form, they must be capable of being reproduced in hard copy form.71 If a register is kept

64 65 66 67 68

69 70 71

CA 2006, s 745(2)–(4), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. CA 2006, s 745(5), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. CA 2006, s 746, as modified and applied to LLPs by SI 2009/1804, regs 2, 21. The penalty, on summary conviction, is a fine: ibid. CA 2006, s 746(3), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. CA 2006, s 747(2), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. The penalty is the same as stated in fn 62 above: s 747(3), as modified and applied to LLPs by SI 2009/1804, regs 2, 21. CA 2006, s 748, as modified and applied to LLPs by SI 2009/1804, regs 2, 21. CA 2006, s 1134(a) (‘any register’ required to be kept) and (b) (register of debenture holders) and s 1135, as modified and applied to LLPs by SI 2009/1804, regs 2, 74. Ibid. If the records are not capable of being reproduced in hard copy form, or the information is not adequately recorded for future reference, an offence is committed by every member of the LLP who is in default. The penalty, on summary conviction, is a fine.

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otherwise than in bound books, adequate precautions must be taken to guard against falsification, and to facilitate the discovery of falsification.72

Alternative inspection location 6.23 As an alternative to keeping its copies of charges available for inspection at its registered office, an LLP may keep any or each of these items, and also the register of members required by CA 2006, s 162, available for inspection at a place which is situated in the part of the UK in which it is registered and which it has notified to the Registrar as being its ‘alternative inspection location’. An LLP may only have one alternative inspection location at which (as an alternative to its registered office, and upon notification to the Registrar) any or each of the above-mentioned items is kept available for inspection.73

Details of right of inspection 6.24 If a request to the LLP for inspection of copies of charges, or of a register of debenture holders, is made (and is not refused), the LLP is to make the relevant register, or copy charges, available for inspection by the person making the request on the day specified by that person, provided that such day is a working day, and that at least 10 working days’ notice of the specified day is given. When the person making the request gives notice of the specified day, he must also give notice of the time on that day at which he wishes to start the inspection (any time between 9 am and 3 pm), and the LLP is to make the relevant record available for inspection by that person for a period of at least two hours beginning at that time.74 An LLP is not required for the purposes of an inspection to present information in the relevant record in a different order, structure or form from that set out in the record. As a matter of interpretation, there is most probably included in the right of inspection stated in the CA 200675 the right to make notes and copy out extracts of the register in question or copy charges (rather than having to memorise the information).76

72

73

74

75 76

CA 2006, s 1138, as modified and applied to LLPs by SI 2009/1804, regs 2, 74, and as amended by the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 (SI 2016/340), reg 1(3), Sch 3, para 7. If an LLP fails to take such precautions, an offence is committed by every member who is in default: ibid. CA 2006, ss 162(3), 743(1) and 859Q(2), together with s 1136 and the Companies (Company Records) Regulations 2008 (SI 2008/3006), Pt 2. The authors interpret Part 2 of these regulations as providing that, if a place is notified to the Registrar by an LLP as being the alternative inspection location for a particular register, then an alternative inspection location notified for any other register must be the same place. The authors do not interpret Part 2 as providing that all the registers must in any event be kept available for inspection at the same location, being (for all of them) either the LLP’s registered office or the (single) alternative inspection location. The authors’ interpretation appears also to be that of the Registrar: see, for instance, the forms of change of location of records specified under CA 2006, s 1068. CA 2006, s 1137, as modified and applied to LLPs by SI 2009/1804, regs 2, 74, and as amended by the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 (SI 2016/340), reg 1(3), Sch 3, para 7. with the Companies (Company Records) Regulations 2008 (SI 2008/3006), Pt 3, reg 4. Ie s 162(5) (members’ register: see 2.26), s 744(1) (register of debenture holders) and s 859Q(4) (register of charges, and copy charges). Nelson v Anglo-American Land Mortgage Agency Co [1897] 1 Ch 130.

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It is expressly provided in the relevant statutory instrument that the LLP is required to permit a person to make a copy of the whole or any part of a record in the course of inspection at the location where the record is available for inspection, and at any time during which the record is made available for inspection, but the LLP is not obliged to assist that person in making his copy of the record.77 The rights of inspection may be exercised through an agent.78 6.25 Although the registers of debentures and the copy charges may be inspected, a person inspecting is not given the right to remove the material from where it is kept so that it can be more conveniently examined elsewhere. The rights of inspection will cease to exist if the LLP goes into compulsory or voluntary liquidation.79 Creditors and contributories are enabled by the IA 1986 to apply for orders that they be entitled to inspect the LLP’s ‘books and papers’,80 and these will, it is apprehended, include the register of debenture holders and copy charges.

DEBENTURES Re-issue of redeemed debentures 6.26 As has been mentioned in 6.2, an LLP can re-issue debentures which have previously been redeemed. Redeemed debentures cannot be reissued, however, if the LLP has contracted otherwise or it has, by a determination to such effect or by some other act, manifested its intention that the debentures are to be cancelled.81 On a re-issue of redeemed debentures, the person entitled to the debentures has (and is deemed always to have had) the same priorities as if the debentures had never been redeemed.82 Where an LLP has deposited any of its debentures to secure advances from time to time on current account or otherwise, the debentures are not treated as redeemed by reason only of the LLP’s account having ceased to be in debit while the debentures remained so deposited.83

Rights and position of debenture holders 6.27 Holders of the LLP’s debentures84 will be entitled to receive copies of its accounts (together with a copy of the auditors’ report) at the same time as those accounts are filed with the Registrar (or the end of the period for filing the accounts, if earlier); and will be entitled to receive, also, on request, a copy of the LLP’s last annual accounts (and auditors’ report).85 They will also be entitled, on request and

77

Companies (Company Records) Regulations 2008 (SI 2008/3006), Pt 3, reg 6. In re Credit Company (1879) 11 Ch D 256. Somerset v Land Securities Co [1897] WN 29 (compulsory liquidation) and In re Kent Coalfields Syndicate Ltd [1898] 1 QB 754 (voluntary liquidation). IA 1986, s 155 (winding up by the court) and s 112 (reference of questions to the court). CA 2006, s 752(1), as modified and applied to LLPs by SI 2009/1804, regs 2, 23. CA 2006, s 752(2), as modified and applied to LLPs by SI 2009/1804, regs 2, 23. CA 2006, s 753, as modified and applied to LLPs by SI 2009/1804, regs 2, 23. As to the meaning of ‘debentures’, see 6.2. CA 2006, ss 423 and 431, discussed further at 21.45.

78 See 79 80 81 82 83 84 85

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on payment of the prescribed fee86 to be provided with a copy of any trust deed for securing the debentures.87 Where there is a contract between the LLP and another person for that person to take up and pay for debentures of the LLP, the contract may be enforced by an order for specific performance.88 6.28 If the holders of debentures which are secured by a charge that, as created, was a floating charge, take possession of any property comprised in or subject to the charge, and the LLP is not, at the time possession is taken, in the course of being wound up, the LLP’s preferential debts are to be paid out of assets coming to the hands of the debenture holders taking possession in priority to any claims for principal or interest in respect of the debentures.89 The payments of preferential debts out of the charged assets are to be recouped, as far as may be, out of the assets of the LLP available for payment of general creditors.90

Liability of trustees of debentures 6.29 Insofar as any provision contained in a trust deed for securing an issue of debentures, or in any contract with the holders of debentures secured by a trust deed would have the effect of exempting a trustee of the deed from, or indemnifying him against, liability for breach of trust where he fails to show the degree of care and diligence required of him as trustee, having regard to the provisions of the trust deed conferring on him any powers, authorities or discretions, the provision is void.91 This does not, however, invalidate a release otherwise validly given in respect of anything done or omitted to be done by a trustee before the giving of the release, nor invalidate any provision enabling such a release to be given (a) on being agreed to by a majority of not less than 75 per cent in value of the debenture holders,92 and (b) either with respect to specific acts or omissions or on the trustee dying or ceasing to act.93

86

87

88 89 90

91 92 93

Ie 10 pence per 500 words or part copied, and the reasonable costs incurred by the LLP in delivering the copy to the person entitled to be provided with it: Companies (Fees for Inspection and Copying of Company Records) (No 2) Regulations 2007 (SI 2007/3535), reg 4. CA 2006, s 749, as modified and applied to LLPs by SI 2009/1804, regs 2, 22. If default is made in complying a request, an offence is committed by every member of the LLP who is in default. The penalty, on conviction, is a fine. In the case of any such default the court may direct that the copy required be sent to the person requiring it: ibid. CA 2006, s 740, as modified and applied to LLPs by SI 2009/1804, regs 2, 20. As to looking at the substance of a situation to see whether a debenture holder has taken possession, see In re Oval 1742 Ltd (in creditors’ voluntary liquidation) [2008] 1 BCLC 204. CA 2006, s 754, as modified and applied to LLPs by SI 2009/1804, regs 2, 23. ‘Preferential debts’ means the categories of debts listed in Sch 6 to the IA 1986. The ‘relevant date’ for the purpose of Sch 6 is the date of possession being taken: s 754(3). CA 2006, s 750(1), as modified and applied to LLPs by SI 2009/1804, regs 2, 22. Present and voting in person or, where proxies are permitted, by proxy at a meeting summoned for the purpose. CA 2006, s 750, as modified and applied to LLPs by SI 2009/1804, regs 2, 22. There are savings in s 751 from this invalidity in respect of pre-1 July 1948 debentures (1961 where Northern Ireland applied).

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Duty of LLP to issue debentures or certificates on allotment 6.30 Save where the conditions of issue of the debentures or debenture stock provide otherwise, or in the case of allotment to a financial institution, an LLP must, within two months after the allotment of any of its debentures or debenture stock, complete and have ready for delivery the debentures allotted, or the certificates of the debenture stock allotted.94 As to the registration of a transfer of debentures of the LLP, and the issue by the LLP of certificates of transfer, reference can conveniently be made direct to CA 2006, ss 770–771, 774–776, 778 and 782.

Floating charges 6.31 Where an LLP which has created a floating charge subsequently gets into financial difficulties, there are a number of situations where what would otherwise be the full benefit of the charge for its holder is diminished or negated. These situations, and their effect on the floating charge, are discussed more fully elsewhere. In brief: (a) In the event of there being a moratorium in relation to the LLP’s debts while a proposal for a voluntary arrangement between the LLP and its creditors is being considered by the creditors, the rights of the holder of an uncrystallised floating charge over the LLP’s property are put on hold. A moratorium is discussed at 28.1–28.3. (b) In the event of an LLP going into insolvent liquidation, the claims of an LLP’s preferential creditors will have priority over the claims of the holder of a floating charge. Crown debts are no longer preferential debts. However, the benefit of this freeing up of assets for non-preferential creditors does not all accrue to the holder of a floating charge over all the assets of the LLP. There are ‘top-slicing’ rules, under which a prescribed part of the LLP’s net property is available for the payment of unsecured creditors, regardless of the floating charge. Preferential debts are discussed at 33.14–33.16. (c) A floating charge granted by an LLP will be partially or wholly invalid in certain circumstances if the LLP subsequently has an administration order made, or goes into liquidation, within 12 months (in some cases) or 2 years (in other cases) of the creation of the charge. The avoidance of floating charges is discussed at 34.30–34.31.

94

CA 2006, s 769, as modified and applied to LLPs by SI 2009/1804, reg 24. If default is made, every member of the LLP who is in default commits an offence. As to the meaning of ‘in default’, see 12.9–12.12 and 22.29. The penalty, on conviction, is a fine. For the meaning of ‘financial institution’, see s 778(2).

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Chapter 7 CONVERSION FROM A PARTNERSHIP

INTRODUCTION 7.1 Many LLPs have been formed for the purpose of incorporating existing partnerships. The issues facing a firm contemplating conversion will be similar to those arising on any business transfer. Much will depend, of course, upon the circumstances of the particular partnership; and many of the issues will raise tax questions. The purpose of this chapter is to identify the kind of issues that may arise.

THE DECISION TO CONVERT 7.2 The decision to transfer the business and assets of the partnership to an LLP, and (at the same time or subsequently) to dissolve and wind up the partnership, will fall to be made by the partners. Unless the partnership agreement provides for the relevant decisions as to transfer and dissolution to be made by majority resolution, unanimity amongst the partners is likely to be required. There may, however, be an existing power for the majority to amend the agreement; and this power may be wide enough to introduce a power for the majority to decide on a transfer and dissolution.1 Where unanimity is required, and one or more partners refuse to agree to the necessary transfer and dissolution, it is difficult to see how such a refusal can of itself per se be characterised as ‘bad faith’ (possibly giving rise to a liability to expulsion), however desirable the majority of partners may consider conversion to be. Like any other action on the part of a partner, however, a refusal may be capable of being so characterised if actual bad faith can be positively shown as the motive for the refusal. 7.3 A stalemate amongst the partners as to whether or not to convert into an LLP may give rise to a situation where it is just and equitable for the partnership to be dissolved by the court under s 35(f) of the Partnership Act 1890, so that those partners wishing to incorporate as an LLP may do so. It may also be possible for a majority of partners who wish to transfer the business and assets of the partnership to an LLP to obtain a ‘Syers v Syers order’ that, in a dissolution of the partnership, they may buy out the shares in the partnership of the opposing minority, so that they are in a position to transfer all interest in the business and assets of the partnership to the LLP.2

1 2

A variation has to be distinguished from a substitution of a new contract: see, generally, Halsbury’s Laws of England (5th edn) (2019), Vol 22, paras 373–377. In relation to Syers v Syers orders, see Lindley & Banks on Partnership (20th edn) (2017), paras 23–188 to 23–198 and Mullins v Laughton [2003] Ch 250, at [107]–[111].

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7.4 Where a partnership deed is being drafted to provide for the partnership to be able to convert into an LLP at some time in the future on the vote of a specified majority, it may be wise to provide for the senior partner, or some other member of the firm, to have a power of attorney to execute any necessary documents on behalf of all partners. Provision should also be made in the deed as to whether dissenters are to be obliged to join the LLP on conversion or whether they are to be permitted (or required) to retire at (or prior to) conversion.3 If the deed makes no provision for the retirement of dissenters, and they do not join the LLP, they will continue to be partners for the purposes of the dissolution and winding up of the partnership. This can cause difficulties. For instance, the dissenters are likely to be entitled to insist on being paid out their share of the partnership assets at market value rather than simply the balances on their current and capital accounts. Where the book value of the assets of the partnership represents an undervalue (because, for instance, certain assets are shown at cost) the difference may be significant.

STAMP DUTY AND STAMP DUTY LAND TAX 7.5 Consideration needs to be given to securing the exemption from stamp duty, and from stamp duty land tax, on transfers of property from the partners to the LLP contained in LLP Act 2000, s 12 (stamp duty) and Finance Act 2003, s 65 (stamp duty land tax). The conditions for this exemption relate to the persons who are the partners in the existing partnership, and are to be the first members of the LLP, and to the shares of the existing partners in the property, and their shares in the property of the LLP. These conditions are discussed at 23.125–23.127.

TRANSFER OF THE PARTNERSHIP BUSINESS AND ASSETS 7.6 In most cases, the partners will wish to transfer the whole of the business and assets of the partnership to the LLP as a going concern. Indeed, partial incorporation may give rise to a number of significant tax issues.4 Where liabilities are ‘transferred’, the LLP will, in practice, discharge the partnership’s liabilities whether or not they have been formally novated to the LLP. The consideration for the transfer by the partners of their shares in the partnership assets will be the shares or interests in the LLP which they take on the transfer. Thought will obviously need to be given to whether particular assets or liabilities ought to remain in the partnership, and whether the transfers which are to be made will require compliance with any formalities. In particular, a decision will need to be made as to whether the benefit of work in progress and receivables as at the date of incorporation is to be assigned to the LLP. There may be reason to retain part in the partnership in order to fund any liabilities from which it is desired to insulate the LLP. Issues arising in relation to particular categories of assets and liabilities are discussed in the following paragraphs.

3

Perhaps immediately before incorporation of the LLP: see 23.126. 23.110–23.112.

4 See

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CUSTOMER/CLIENT CONTRACTS 7.7 At the effective date of the transfer, there will be a number of ‘live’ client or customer matters. A decision will need to be made as to how to manage the transition so far as such matters are concerned. Obviously, at the very least, clients will need to be informed of the conversion, and of its consequences for them. Some professional service firms that plan ahead for conversion into an LLP provide in the terms of engagement agreed between the firm and the client that the client will accept that, when conversion takes place, the professional service will be provided by the LLP in place of the partnership. In the absence of such a provision in the terms of engagement, the burden of a client contract (ie the obligation to provide the services) cannot be assigned (or, more accurately, novated) to the LLP without the agreement of the client.5 However, in the absence of contractual prohibitions, the benefit of a retainer, or at least the ‘fruits’ of the retainer, can be assigned to the LLP, or to a trust declared for the benefit of the LLP.6 7.8 There are, broadly speaking, four possible approaches that an existing partnership may take to current client retainers: (a)

attempt to persuade clients to agree to a full novation of retainers that are ‘live’ as at the conversion date, ie in relation to work which has already been carried out and work which is yet to be carried out; (b) attempt to persuade clients to agree to a full novation of retainers that are ‘live’ as at the conversion date, but only as to future performance of work; (c) not to attempt a novation of the retainers, but merely inform clients of the conversion and that their work will be undertaken by the LLP after the conversion date; or (d) not to attempt a novation of the retainers, and provide for the partnership to complete the matters after the conversion. 7.9 The authors’ experience is that approach (a) above is rarely attempted in practice. Indeed, in some situations an attempt to do so may well be (in the case of a firm of solicitors) contrary to the SRA Code of Conduct and unenforceable unless the client obtains independent advice. A solicitor who enters into a transaction with a client, or on whom a client confers a substantial benefit other than the solicitor’s proper remuneration, will not be able to uphold the transaction or will not be permitted to retain the benefit, if the transaction is called in question by the client, unless the solicitor can prove to the satisfaction of the court that he disclosed all material facts within his knowledge to the client, and that the transaction was effected by the client in the free exercise of his will and unaffected by any influence which the solicitor either in fact possessed or in law was deemed to possess.7 The authors’ view is that asking a client to agree to give up accrued (albeit contingent) rights against partners and to agree to the replacement of those rights with (on the face of it) less valuable rights against the LLP falls squarely within this rule. This having been said, it should also be said that the possibility cannot be ruled out of a 5 See

Chitty on Contracts (33rd edn) (2018), paras 19–087 to 19–090. Don King Productions Inc v Warren [2000] Ch 291 at 318–320 (Lightman J at first instance). 7 See Halsbury’s Laws of England (5th edn) (2020), Vol 66 (Legal Professions), para 551. 6

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limitation as to future performance only (ie approach (b) above) being impugned on this basis: the client is being asked to release the partners from their commitment to personal liability in relation to the remainder of the retainer. 7.10 The authors’ experience is that existing partnerships attempt either a novation as to future performance only (ie approach (b) above) or merely inform clients that their work will be undertaken by the LLP after the conversion date (ie approach (c) above). If this latter approach is taken, and all that happens is that the clients are given notice of the conversion, the partners will continue to be personally liable for work done post-conversion on matters live at the conversion date. In litigation matters, notices of change (replacing the partnership with the LLP) ought only to be filed if there has been a novation: unless there has been a novation, the client will not have consented to the change, that is to say, it cannot be said that the client ‘wants to change his solicitor’ for the purposes of CPR, r 42.2.

EMPLOYEES 7.11 The Transfer of Undertakings (Protection of Employment) Regulations 20068 will apply on a conversion. The contracts of the employees of the partnership will, therefore, not be terminated by the transfer of the business (and the dissolution of the partnership) but will be treated as having been made with the LLP (subject to the right of any employee to object to becoming employed by the LLP).9 For firms where staff are employed by a service company, no change is necessary unless it is desired to move the employees to the LLP.

LEASES 7.12 In many cases, leases of premises used by the firm will have been taken in the names of up to four of the partners, who will hold the premises on trust for all the partners. The consent of the landlord may well be required to the assignment of a lease to the LLP; and a personal guarantee from the members may be required by the landlord as a condition of giving consent. Whether such a requirement is reasonable will depend upon the financial position of the LLP.10 Consideration will also need to be given to whether (and if so, what) provision ought to be made for contingent liabilities accruing under leases which are assigned.

BANKING 7.13 New banking facilities will need to be negotiated. As with leases, a key issue will be whether banks insist on personal guarantees from members in respect of borrowings. It is of the essence of an LLP that, where money is lent to the entity, 8 9

10

SI 2006/246. For the position in relation to members, see 9.29–9.34. Regulation 4. See generally Harvey on Industrial Relations and Employment Law, Division F. If an employee does object to becoming employed by the LLP, his objection will operate so as to terminate his employment with the partnership, but he will not be treated as having been dismissed by the partnership: reg 4(7) and (8). See, for instance, Woodfall, Landlord and Tenant, vol 1, para 11.143.

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the lender will (generally speaking) have no recourse against the individual members unless personal liability is expressly placed on the members. In addition (or as alternatives) to guarantees, banks may require covenants from members as to the level of members’ capital to be maintained,11 or to the effect that LLP indebtedness to members is subordinated to indebtedness to the bank. As is mentioned at 6.2, an LLP is able to give floating, as well as fixed, charges over its assets; and banks may require one or other of such forms of charge. The transfer of an existing partnership overdraft to the LLP may well require continuing personal liability.

INVESTMENTS 7.14 Some firms will have acquired assets (such as shares taken in lieu of fees, or interests in offshore trust companies) which are held on trust for the partners. Consideration will need to be given to whether such assets are to be transferred to the LLP or whether fresh declarations of trust should be executed.

PROFESSIONAL INDEMNITY INSURANCE 7.15 Professional indemnity cover will be required both for the LLP and, on a runoff basis, for the partnership. LLPs are unlikely to wish to reduce the level of cover from that previously taken by the partnership merely because of the limitation on liability resulting from incorporation, at least until there is some judicial clarification as to the circumstances in which an individual member who is responsible for a wrong committed by the LLP (eg negligence) may himself be personally liable, in addition to the LLP, and as to the circumstances in which it is reasonable under UCTA 1977 for an individual member’s personal liability (if otherwise existing) to be excluded.12 In this latter respect, care will be needed to ensure that the individual members, as well as the LLP itself, are covered by the insurance. In some professions, despite incorporation as an LLP, the responsibility for the work is by statute that of the individual professional.13 A decision will need to be made as to whether the LLP should give the partners in the superseded partnership an indemnity against professional negligence claims made against them in that capacity (to the extent that it is not covered by the partnership run-off cover). If the LLP gives the previous partners a general indemnity against professional negligence claims it will become exposed to claims that overtop the partnership’s run-off indemnity insurance limit. It may be thought preferable to keep the LLP insulated from any ‘mega’ claim which is made against the previous partners.

INDEMNITIES 7.16 It will usually be appropriate for the LLP to give the partners an indemnity against liabilities taken over by the LLP.14 11 12 13 14

Capital, and the unrestricted ability under the legislation to reduce it, is discussed at 16.1–16.11. This issue is discussed in Chapter 18. Examples are actuaries of occupational pension schemes and insolvency practitioners, discussed further at 18.31. Although see 7.15 in relation to professional negligence claims.

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ANNUITIES 7.17 Annuities payable to retired partners (and/or their dependants) are likely to provide one of the greatest difficulties on incorporation. Careful consideration will need to be given to the terms of any annuities, and to the effect of incorporation in relation to them. For example, some annuity provisions stipulate that incorporation is to act as a capitalisation trigger in favour of the annuitants. A decision will need to be made as to whether the liability to pay annuities is to be transferred to the LLP and, if not, how the annuity payments are to be funded. A transfer of the liability would require a formal novation (ie agreement with all those who are beneficiaries or potential beneficiaries of the annuity provisions). If liability to pay the annuities is novated to the LLP, or the LLP assumes the responsibility for discharging the annuities (for instance, by agreeing in the business transfer agreement to indemnify the partners against the liability to pay the annuities), this will have an impact on the LLP’s balance sheet. The liability will need to be recognised in the balance sheet.15 This consequence can be avoided by all the members, including all future members (who will need to execute deeds of adherence), but not the LLP, entering into an agreement under which they agree to discharge the annuity liability pro rata to their profit shares in the LLP.

‘TRUE AND FAIR’ ACCOUNTS 7.18 The LLP will need to prepare an annual balance sheet and profit and loss account, giving a ‘true and fair view’ of the position in accordance with CA 2006, s 393. This will involve (as a general rule) complying with the applicable accounting standards issued by the Accounting Standards Board, and with the Statement of Recommended Practice (SORP) for LLPs.16 It is generally considered advisable for partnerships which are contemplating converting into an LLP to go through the exercise, well before actual conversion, of producing a balance sheet and profit and loss account in the formats required for LLPs by the CA 2006, and in accordance with the applicable accounting standards and the SORP for LLPs. This will give an early indication of how individual items will now fall to be treated for accounting purposes. Particular accounting issues may arise in relation to annuities. As mentioned in 7.17, where a partnership has obligations to pay annuities to past members or employees, and the liability is to be transferred to the LLP (or assumed by the LLP), this liability will need to be recognised in the LLP’s balance sheet. Where retirement benefits will be accruing (as payable by the LLP) to current members or employees, this also will need to be reflected in the LLP’s balance sheet.17

15 16 17

See SORP for LLPs (14 December 2018), paras 75–94. As to the SORP generally, see 21.15. Accounts, and audit requirements, are considered in Chapter 21. SORP for LLPs (14 December 2018), paras 75–94.

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PARTNERSHIPS OF ACCOUNTANTS 7.19 An existing partnership of accountants which, as a firm, has been appointed as the statutory auditor of a company or an LLP18 will need to consider how that appointment is going to be transferred to the LLP. The LLP, provided that it is eligible for appointment as a statutory auditor, will be capable of holding the appointment in the same way as the partnership.19 CA 2006, s 1216(5) provides that, where a partnership ceases (ie either on a technical or a full dissolution), and its appointment as a statutory auditor does not devolve automatically under s 1216(3), then that appointment may – with the consent of the audited entity – be treated as transferred (‘extending’) to a person eligible for the appointment who succeeds to the business of the former partnership or who succeeds to such part of that business as the audited entity agrees is to be treated as comprising the appointment. ‘Person’ here will include an LLP. Section 1216(5) provides a route, therefore, to the partnership’s appointment as a statutory auditor being transferred to the LLP. But s 1216(5) only applies if s 1216(3) does not apply. On a partnership ceasing, s 1216(3), with s 1216(4), causes the partnership’s appointment as a statutory auditor to devolve automatically on a successor partnership where the whole, or substantially the whole, of the business of the ceasing partnership passes to that successor partnership, provided that the successor partnership is itself eligible for appointment as an auditor and that it comprises substantially the same members as the ceasing partnership.20 If the business of the ceasing partnership does not pass to a successor partnership, but rather passes to an individual or a body corporate who or which (as well as being eligible for appointment) previously carried on the partnership practice as a partner in the ceasing partnership, then s 1216(3)(b), with s 1216(4)(b), causes the ceasing partnership’s appointment to devolve automatically on that successor individual or body corporate. If there is any automatic transfer of the ceasing partnership’s appointment under s 1216(3) as set out above, s 1216(5) will not be available. The authors suggest that the easiest way to bring s 1216(5) into operation will be for the partnership to go into full dissolution, and for its business to be transferred from the partnership in dissolution to the LLP. In these circumstances, the partnership will have ‘ceased’, but there will be no automatic transfer of the appointment as auditor under s 1216(3). If a full dissolution of the partnership on transfer of its business to the LLP is not convenient, the easiest alternative will probably be for the partnership to resign as company (or other entity) auditor immediately prior to dissolution21 and for the LLP to be appointed in its place under the appropriate provisions of the CA 2006.22 18

19 20 21 22

As permitted by CA 2006, Pt 42, applied to the auditing of LLPs by reg 48 of the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (SI 2008/1911). See CA 2006, s 1212 and the definition of ‘firm’ in s 1261 (includes a body corporate and a partnership). This covers the normal coming and going of partners in a firm of auditors. The notice of resignation will need to be accompanied by a statement under CA 2006, s 519. As with any resignation of a company auditor, this will have to be in accordance with CA 2006, s 516. It might be possible to devise a scheme making use of s 1216(3), under which the LLP became a member of the partnership and then ‘succeeded’ to the appointment under subs (3)(b), or a scheme under which, on the retirement of a partner (and, therefore, the partnership ‘ceasing’), the business of the partnership (or the audit business) falls to be automatically transferred to the LLP.

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Chapter 8 MEMBERSHIP: GENERAL MATTERS

INTRODUCTION 8.1 Whilst, as has been seen earlier,1 an LLP has an existence separate and distinct from that of its members, it is nevertheless of the essence of an LLP that it has members.2 An individual member is part of a triangle, made up of (i) himself, (ii) the other members and (iii) the LLP. He has a legal relationship with each of the other two, each relationship being a bundle of rights and obligations. These legal relationships are considered in the following chapters. The purpose of this chapter is to consider a number of general matters relating to membership.

FIRST MEMBERS 8.2 An LLP does not exist as an entity, and there are no members of it, until it has been incorporated.3 On incorporation, those persons4 who subscribed their names to the incorporation document become the LLP’s first members, save for any individuals who have died between subscribing and incorporation, and save also for any bodies of persons which have been dissolved between subscribing and incorporation.5 It is to be noted, in relation to bodies of persons, that it is only dissolution which causes a subscribing body not to become a member. A company (or another LLP) which subscribes to an incorporation document and then goes into voluntary or compulsory winding up, but which has not been dissolved before the certificate of incorporation is issued, will, therefore, still become a member of the LLP on the issue of the certificate.6 8.3 The legislation gives no express guidance as to what happens if the death before incorporation of an individual who has subscribed his name to the incorporation document (or the dissolution of a body of persons which is a subscriber) reduces the number of future first members to one only (or none). An LLP can exist, and continue to trade with limited liability (for a six-month period), with one member only.7 In practice, a sole surviving subscriber, or the personal representatives of a deceased

1

Chapter 3. One of the grounds on which an LLP may be wound up by the court is that the number of members is reduced below two: IA 1986, s 122(1)(c), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. 3 Ie the certificate of incorporation has been issued under LLP Act 2000, s 3. 4 As to the meaning of ‘persons’, see 2.2–2.4. 5 LLP Act 2000, s 4(1). 6 But if the company or the other LLP is one of only two subscribers to the incorporation document, an issue may arise as to whether the compliance statement under LLP Act 2000, s 2(1)(c) remains true: see further the discussion in 8.3. 7 See 2.15. 2

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sole surviving subscriber, will probably wish to inform the Registrar of the position, and to withdraw the incorporation document and what is, in effect, the application for incorporation.8 The Registrar would accede to this because the compliance statement delivered to him under LLP Act 2000, s 2(1)(c) would no longer be accurate.9 In the absence of the Registrar becoming aware of the altered position after receiving the compliance statement, he will, obviously, simply issue the certificate of incorporation. There may well, however, in any event (and as discussed at 2.36), be an obligation on the maker of the compliance statement, between delivery of that statement and issue of the certificate of incorporation, to inform the Registrar of any event of which he has become aware which has caused continuing compliance with the requirements of s 2(1)(a) to cease. 8.4 If an individual who subscribed his name to the incorporation document dies (or, in the case of a body of persons which subscribed, has been dissolved) before incorporation, but the Registrar has not, for whatever reason, been notified of this fact before issuing the certificate of incorporation, LLP Act 2000, s 9 is likely to be interpreted as requiring that (within 14 days after the certificate of incorporation) notice of that death or dissolution is to be notified to the Registrar as discussed in 8.28.

NEW MEMBERS 8.5 After the LLP has been incorporated with its first members, the membership may, of course, change. Section 4(2) of the LLP Act 2000 provides that any other person may become a member by and in accordance with an agreement with the existing members.10 In other words, and as with a traditional partnership, becoming a member of an LLP is a matter of contract.11 There are no statutory provisions for automatic membership (for instance, for the personal representatives of a deceased member to take such member’s place). In practice, written LLP agreements usually contain provisions governing the admission of new members. In Reinhard v Ondra LLP,12 Warren J held that the purported admission of a new member by an LLP with the consent of the existing members would be effective, notwithstanding that there may not be a separate agreement between the new member, on the one hand, and the existing members on the other hand. This was on the basis that the LLP agreement

8

Given that at best the LLP could only trade with one member for six months before that member became personally liable for the LLP’s debts (see LLP Act 2000, s 4A(2), discussed at 2.15), there would in most cases be little incentive for a sole surviving subscriber to proceed to incorporation. 9 See 2.35. 10 As to the meaning of any ‘person’ who may become a member, see 2.2–2.4. 11 The law would appear to be that an individual cannot be both a member and an employee of an LLP: see 9.2–9.13. Although the question whether a person has become a member is a matter of contract, an issue may arise as to whether the agreement reflects the reality of the position and whether, in fact, the individual is an employee rather than a member: see Uber BV v Aslam [2021] UKSC 5 at [58]–[78] (a case concerning worker rather than employment status). As to the LLP agreement, see Chapter 10. 12 [2015] EWHC 26 (Ch) at [29].

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was an agreement between existing members and, by authorising an LLP itself to admit a new member and by consenting to such admission, there would be sufficient agreement for the purposes of s 4(2). In the absence of such provisions, rule (5) of the ‘default rules’ for LLP agreements made by statutory instrument pursuant to LLP Act 2000, s 5(1)(b) will apply.13 Default rule (5) provides that no person may be introduced as a member without the consent of all existing members. It is implicit in default rule (5) that such consent is obtained from the members at the time of the agreement with the new member to admit him.14 A new member may be taken to have agreed to the terms of an existing LLP agreement, subject to (i) any express agreement to the contrary, (ii) any implied term which can be established, and (iii) the terms being capable of application to the new member (although this may simply be part of (ii)).15 8.6 As has been discussed in 2.24–2.27, the names, service addresses, countries of residence and dates of birth, and also usual residential address, of the first members of the LLP who are individuals must be stated in the incorporation document, and the corporate name of a corporate member, together with the address of its registered principal office must be stated.16 Where, after incorporation, a person becomes a member of the LLP, notice of his joining must be given to the Registrar within 14 days of his becoming a member.17 The notice will need to be in the form specified by the Registrar,18 and (as required by the form) signed by both the new member, indicating his consent to act as a member, and by a designated member of the LLP. The giving of this notice is the responsibility of the LLP; but if it is not given, both it and every designated member is guilty of an offence.19 The notice must contain a statement that the new member consents to acting as a member and be signed by him, and must contain also the particulars that are required to be included in the LLP’s register of members and register of residential addresses.20 If notice of the new member is not given to the Registrar, that member (or any other member, or a creditor, or the Registrar himself) may operate the procedure of CA 2006, s 111321 to enforce the giving of the notice.

13

The default rules are discussed at 10.7–10.11. Reinhard v Ondra LLP above at [353]. 15 Reinhard v Ondra LLP above at [317]–[321]. 16 LLP Act 2000, s 2(2)(e). 17 LLP Act 2000, s 9(1)(a). As to the possibility of factually inaccurate material as to a new member’s particulars in a notice under s 9(1)(a) being removed from the register, see CA 2006, ss 1093–1098 and the Registrar of Companies and Applications for Striking Off Regulations 2009 (SI 2009/1803), as modified and applied to LLPs by SI 2009/1804, reg 67. For an example of a case where the court considered the application of these provisions, see Grupo Mexico SAB De CV v Registrar of Companies [2018] EWHC 1306 (Ch) and [2019] EWCA Civ 1673, referred to further at fn 113 below. 18 See 1.9. 19 LLP Act 2000, s 9(4)–(6). It is a defence for a designated member to prove that he took all reasonable steps for securing that the notice was given: see further 12.13. The penalty on summary conviction is a fine: s 9(6). 20 LLP Act 2000, s 9(3). 21 As modified and applied to LLPs by SI 2009/1804, reg 69. Ie notice to the LLP requiring the default to be made good within 14 days, and if it is not, an application to the court. And see also 14.23. 14 See

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CHANGES IN A MEMBER’S NAME OR ADDRESS 8.7 Where there is any change in the particulars contained in the LLP’s register of members (discussed at 2.25–2.26) or register of members’ residential addresses (discussed at 2.27), notice of the change must be given to the Registrar within 14 days.22 This applies in relation both to a first member and to any subsequent member. Where, in relation to an existing member, the LLP gives notice of a change of a member’s service address as stated in the LLP’s register of members, and the notice is not accompanied by notice of any resulting change in the particulars contained in its register of members’ residential addresses, the notice must be accompanied by a statement that no such change is required.23 As with notice to the Registrar of a person becoming a member of an LLP, the responsibility for giving notice of a change in membership particulars lies with the LLP; but, as with a new member joining, if the notice is not given, both the LLP and every designated member is guilty of an offence.24 And as also with the requirement that notice of a new member be given to the Registrar, if notice of a change in a member’s particulars is not given to the Registrar, the member concerned (or any other member, or a creditor, or the Registrar himself) may operate the procedure of CA 2006, s 111325 to enforce the giving of the notice.

NOTICE IN THE LONDON GAZETTE 8.8 On receipt by him of a notification of ‘any change in the membership of the LLP’, or of ‘any change in the particulars of members required to be delivered’ to him, the Registrar is required under CA 2006, ss 1077 and 107826 to publish a notice in the London Gazette27 that he has received such notification. The effect of this provision is that, when any changes in the composition of the membership of the LLP, or in the name or address (or other details) of a member, have been notified to the Registrar as required by LLP Act 2000, s 9(1), details of the actual change are not published in the Gazette; but what is published is notice that a change has been notified to the Registrar. An interested party can then inspect the register under the right of inspection given by CA 2006, s 1080 in order to see the publicly available details.28

22

LLP Act 2000, s 9(1)(b). As to the possibility of factually inaccurate material in a notice under s 9(1)(b) being removed from the register, see CA 2006, ss 1093–1098 and the Registrar of Companies and Applications for Striking Off Regulations 2009 above, as modified and applied to LLPs by SI 2009/1804, reg 67. As in the case of notice to the Registrar of a new member, the notice of change of particulars will need to be in the form specified by the Registrar, and (as required by the form) signed by a designated member of the LLP. 23 LLP Act 2000, s 9(3ZA). 24 See fn 19 above. 25 As modified and applied to LLPs by SI 2009/1804, reg 69. Ie notice to the LLP requiring the default to be made good within 14 days, and if it is not, an application to the court. And see also 14.23. 26 As modified and applied to LLPs by SI 2009/1804, reg 63 27 See 1.11. 28 On inspection of the register, see further 1.13–1.14.

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PROTECTION OF RESIDENTIAL ADDRESSES FROM DISCLOSURE 8.9 The CA 2006 makes provision for protecting from public disclosure a member’s usual residential address, and the fact that his service address is (if it is) his usual residential address. These two pieces of information are ‘protected information’.29 The information does not cease to be protected information on the individual ceasing to be a member of the LLP.30 It is protected in the following manner: (a)

(b)

Under CA 2006, s 241,31 an LLP must not use or disclose protected information about any of its members, except for (i) communicating with the member concerned, (ii) in order to comply with any requirement of the CA 2006 or the LLP Act 2000 as to particulars to be sent to the Registrar, or (iii) disclosure in accordance with a court order.32 There can, however, be use or disclosure of protected information with the consent of the member concerned.33 The Registrar must omit protected information from the material on the register that is available for inspection where (i) it is contained in a document delivered to him in which such information is required to be stated (eg the incorporation document), and (ii) in the case of a document having more than one part, it is contained in a part of the document in which such information is required to be stated.34 The Registrar must not use or disclose protected information except as permitted by CA 2006, s 243,35 or in accordance with a court order.36

8.10 Under CA 2006, s 243,37 the Registrar may use protected information for communicating with the member in question. He may also disclose protected information (a) to a public authority specified for the purposes of the statutory provisions by statutory instrument, or (b) to a credit reference agency.38 The specified public authorities include some 43 named office-holders or bodies and a number of other possible office holders, including an insolvency practitioner, and an inspector appointed under Pt 14 of the CA 1985.39 Before the Registrar discloses protected information to a public authority,40 the public authority must deliver to him a statement

29

CA 2006, s 240(2), as modified and applied to LLPs by SI 2009/1804, reg 19. CA 2006, s 240(3), as modified and applied to LLPs by SI 2009/1804, reg 19. 31 As modified and applied to LLPs by SI 2009/1804, reg 19. 32 Under CA 2006, s 244, as modified and applied to LLPs by SI 2009/1804, reg 19. 33 CA 2006, s 241(2), as modified and applied to LLPs by SI 2009/1804, reg 19. 34 CA 2006, s 242, as modified and applied to LLPs by SI 2009/1804, reg 19. The Registrar is not obliged: (a) to check other documents or (as the case may be) other parts of the document to ensure the absence of protected information; or (b) to omit from the material that is available for public inspection anything registered before 1 October 2009. 35 As modified and applied to LLPs by SI 2009/1804, reg 19. 36 Ibid. 37 As modified and applied to LLPs by SI 2009/1804, reg 19. 38 CA 2006, s 243(2), as modified and applied to LLPs by SI 2009/1804, reg 19. 39 Companies (Disclosure of Address) Regulations 2009 (SI 2009/214), reg 2 and Sch 1, applied to LLPs by CA 2006, s 243, as itself modified and applied to LLPs by SI 2009/1804, reg 19. 40 It appears that the Registrar has a discretion as to whether or not he does so: reg 2(1) of the Companies (Disclosure of Address) Regulations 2009 provides that he ‘may’ disclose protected information as stated. 30

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that it intends to use the information only for a purpose of facilitating the carrying out by it of a public function.41 Before the Registrar discloses protected information to a credit reference agency, the agency must deliver to him a statement that, inter alia (i) it intends to use the information only for the purpose of providing an assessment of the financial standing of a person, or certain other purposes (including checks for the prevention and detection of crime and fraud), (ii) it intends to take delivery of and use the information only in the UK or in another EEA State, and (iii) it is carrying on in the UK or in another EEA State a business comprising the furnishing of information relevant to the financial standing of individuals (being information collected by the agency for that purpose), and that it maintains appropriate procedures for certain purposes and has not been found guilty of certain fraud or data-related offences.42 8.11 The court may make an order for the disclosure of protected information by the LLP, or by the Registrar, if there is evidence that service of documents at a service address other than the member’s usual residential address is not effective to bring the documents to the member’s notice or if it is necessary or expedient for the information to be provided in connection with the enforcement of an order or decree of the court, and (in either situation) if the court is otherwise satisfied that it is appropriate to make the order. An order for disclosure by the Registrar is to be made only if the LLP does not have the member’s usual residential address, or the LLP has been dissolved. The order must specify the persons to whom, and purposes for which, disclosure is authorised. It may be made on the application of a liquidator, creditor or member of the LLP, or of any other person appearing to the court to have a sufficient interest.43 8.12 The Registrar may put a member’s usual residential address on the public record if communications sent by the Registrar to the member and requiring a response within a specified period remain unanswered, or there is evidence that service of documents at a service address provided in place of the member’s usual residential address is not effective to bring the documents to the member’s notice. Before putting a member’s address on the public record, the Registrar must give notice of what he is proposing to do to the member, and every LLP of which the Registrar has been notified that the individual is a member. The notice must be sent to the member at his usual residential address,44 and must state the grounds on which the Registrar is proposing to put the member’s usual residential address on the public record, and specify a period within which representations may be made before this is done. The Registrar must take account of any representations received by him within the period specified. If the Registrar does decide to put a member’s usual residential address on the public record, he proceeds as if notice of a change of registered particulars had been given (ie under LLP Act 2000, s 9(1)) giving that address as the member’s service address, and stating that the member’s usual address for a period

41 42 43 44

Companies (Disclosure of Address) Regulations 2009, Sch 2, Pt 1, para 2. Ibid, Sch 2, Pt 2, paras 6–10. CA 2006, s 244, as modified and applied to LLPs by SI 2009/1804, reg 19. Unless it appears to the Registrar that service at that address may be ineffective to bring it to the individual’s notice, in which case it may be sent to any service address provided in place of that address.

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of five years from the date of the Registrar’s decision. Residential address is the same as his service address. When the Registrar has put the address on the public record, he must give notice of having done so to the member, and to the LLP. On receiving this notice, the LLP must enter the member’s usual residential address in its register of members as his service address, and state in its register of members’ residential addresses that his usual residential address is the same as his service address. If the LLP has been notified by the member in question of a more recent address as his usual residential address, it must enter this latter address in its register of members as the member’s service address, and give notice to the Registrar as on a change of registered particulars. If an LLP fails to comply with these obligations, an offence is committed by it, by every designated member of the LLP who is in default.45 A member whose usual residential address has been put on the public record by the Registrar under these provisions may not register a service address other than his usual residential address for a period of five years from the date of the Registrar’s decision.46 8.13 A member whose usual residential address has been placed on the register (on or after 1 January 2003, and whether before or after 1 October 2009), as result of being included in the incorporation document under s 2 of the LLP Act, or in a notice of membership change under s 9 of the LLP Act, or in an annual return, may make an application to the Registrar for the address to be made unavailable for public inspection.47 The principal ground on which an application may be made is that the individual making it considers that there is a serious risk that he, or a person who lives with him, will be subjected to violence or intimidation as a result of the activities of at least one of the LLPs of which he is, or proposes to become, a member; or of which he is not a director but of which he has been at any time a member.48 The application is to contain the following (i) a statement of the grounds on which it is made, (ii) the name and any former name49 of the applicant, (iii) the usual residential address of the applicant that is to be made unavailable for public inspection, (iv) an address for correspondence in respect of the application, (v) the name and registered number of each LLP of which the applicant is or has been at any time since 1 January 2003 a member, (vi) the service address which is to replace that usual residential address on the register, and (vii) the date of birth of the applicant, the name of each LLP of which the applicant proposes to become a member and, where the Registrar has allotted a unique identifier to the applicant, that unique identifier.50 An application on the above ground must be accompanied by evidence

45 46 47

48 49 50

The penalty on summary conviction is a fine: CA 2006, s 246(6), as modified and applied to LLPs by SI 2009/1804, reg 19. CA 2006, s 246, as modified and applied to LLPs by SI 2009/1804, reg 19. CA 2006, s 1088, as modified and applied to LLPs by SI 2009/1804, reg 66, together with the Companies (Disclosure of Address) Regulations 2009, SI 2009/214, as modified for LLPs by s 1088. Companies (Disclosure of Address) Regulations 2009, Pt 3, para 9(2). Ie a name by which the individual was formerly known and which has been notified to the Registrar under s 2 or s 9 of the LLP Act. Companies (Disclosure of Address) Regulations 2009, Pt 3, para 9(3). CA 2006, s 1082, as modified and applied to LLPs by SI 2009/1804, reg 64, empowers the Secretary of State to make regulations for the use, in connection with the register, of ‘unique identifiers’ to identify each person who is a member of an LLP.

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which supports the applicant’s assertion that his application falls within that ground. The Registrar is required to determine the application, and send to the applicant at the address for correspondence stated in his application, notice of it within five working days of the determination being made.51 Where the Registrar determines the application in the applicant’s favour, he is then to make the address unavailable for public inspection.52 In the event of the application being unsuccessful, the applicant may, within a limited period, and with the leave of the court, apply to the High Court against the Registrar’s decision on the grounds that it is unlawful, or irrational or unreasonable, or has been made on the basis of a procedural impropriety or otherwise contravenes the rules of natural justice.53 8.14 Prior to 1 October 2009, a member may have obtained a ‘confidentiality order’ from the Secretary of State under CA 1985, s 723B as applied to LLPs.54 A member in relation to whom a confidentiality order under s 723B was in force immediately before 1 October 2009 is treated on and after that date as if: he had made an application under CA 2006, s 108855 in respect of any address that immediately before that date was contained in the ‘confidential records’ kept by the Registrar under s 723C of the CA 1985, and that application had been determined by the Registrar in his favour; and (b) he had made an application under CA 2006, s 243(5)56 to prevent disclosure of protected information by Registrar to a credit reference agency, and that application had been determined by the Registrar in his favour. (a)

Where a confidentiality order under s 723B was in force immediately before 1 October 2009 in relation to a member, CA 2006, s 162(5) and (8)57 does not apply in relation to the part of the LLP’s register containing particulars of the usual residential address of the individual that before that date were protected from disclosure.58

LIMITED LIABILITY 8.15 As discussed in 3.3, generally speaking it will be the corporate entity, distinct from the individual members, which carries on the business, and which (to the exclusion of the individual members) carries the liabilities and obligations of the business. Issues as to possible personal liability on the part of a member in relation to the business of the LLP are discussed in Chapter 18. There is no minimum capital or other financial contribution which a member must make to the funds of the LLP, either as a going concern or in a liquidation. The amount (if any) of a member’s financial contribution is determined by agreement. The funding of an LLP

51 52 53 54 55 56 57 58

Ibid, para 9(6). Ibid, para 13. Companies (Disclosure of Address) Regulations 2009, Pt 4, para 14. Confidentiality orders were discussed in the 2nd edition of this work at 8.9–8.13. As modified and applied to LLPs by SI 2009/1804, reg 66. As modified and applied to LLPs by SI 2009/1804, reg 19. As modified and applied to LLPs by SI 2009/1804, reg 18. LLP Regulations 2009, reg 83 and Sch 1, Pt 4, para 11.

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as a going concern is discussed in Chapter 16. In the event of a winding up (and without prejudice to any outstanding and continuing obligation on the member to pay sums, such as a capital contribution, to the LLP), the liability of an individual member to the outside world for the debts and liabilities of the LLP is (subject to what is said in 8.17) limited to the sum (if any) which he has agreed with the other members or with the LLP that he will, in the circumstances which have arisen, be liable to contribute on a winding up towards what is sufficient for the payment of the LLP’s debts and liabilities (and the expenses of the winding up).59 This sum may be nominal only (as is commonly the case for members of a company limited by guarantee). An agreement to contribute (and the sum to be contributed) will most probably be contained in the LLP agreement.60 8.16 If a member does agree that, in the event of a winding up, he will be liable to contribute a sum towards the payment of the LLP’s debts and liabilities (and expenses of the winding up), he will be a ‘contributory’ for the purposes of the IA 1986.61 His liability will create a debt accruing from him ‘at the time when his liability commenced’ (ie from the date of his agreeing to be a contributory),62 but payable at the times when calls are made for enforcing the liability.63 The debt is in the nature of a specialty,64 with the result that, under Limitation Act 1980, s 8, the limitation period in respect of any call will be 12 years from the date of the call. The liability of a contributory to pay a call passes to his estate in the event of him dying or becoming bankrupt.65 8.17 In the event of the LLP being wound up, it and its members will be subject to the regime of the IA 1986 in relation to the winding up of companies (as modified to apply to LLPs).66 This regime includes the possibility of a member being required under s 212 (misfeasance), s 213 (fraudulent trading) or s 214 (wrongful trading),67 if any of these sections68 are applicable to him, to make such a contribution to the assets of the LLP in the winding up as the court thinks fit. The regime also includes a provision69 under which a member can be required to put back into the LLP any sums70 which he withdrew from it during the two years prior to the winding up if,

59

LLP Act 2000, s 1(4) with IA 1986, s 74, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. 60 The contents of the LLP agreement are discussed in Chapter 11. 61 IA 1986, s 79, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. The rights of contributories in a winding up are discussed in 14.27–14.28. 62 Williams v Harding (1866) LR 1 HL 9 at 22 and 27–29, In re West of England Bank, ex p Hatcher (1879) 12 Ch D 284 and Re Lehman Brothers International (Europe) (in administration) No 4 [2018] AC 465 at [153]. 63 IA 1986, s 80, as modified and applied to LLPs by SI 2001/1090, reg 5. 64 Ibid. 65 IA 1986, s 81 (death) and s 82 (bankruptcy), as modified and applied to LLPs by SI 2001/1090, reg 5. 66 The IA 1986 being applied (with modifications) to LLPs on the basis that ‘company’ includes LLP, and ‘director’ or ‘officer’ includes member. 67 These sections are considered in Chapter 34. 68 As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. 69 IA 1986, s 214A (adjustment of withdrawals), as inserted in relation to LLPs by SI 2001/1090, reg 5 and Sch 3. 70 Ie a share of profits, salary, repayment of a loan (or interest on it) or otherwise: s 214A(2)(a).

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in brief, at the time of the withdrawal: (a) he knew (or had reasonable grounds for believing) that the LLP was unable to pay its debts or would be unable to pay its debts by reason of his and any other contemplated withdrawals; and (b) he knew or ought to have concluded that there was no reasonable prospect that the LLP would avoid going into insolvent liquidation.71 It is relevant to mention here also that members of an LLP will be subject to the CDDA 198672 in the same way as company directors. Under this Act, a person may in certain circumstances be disqualified from being a member of, or taking part in the formation or management of, an LLP (or from being a director of, or taking part in the formation or management of, a company).73

A MEMBER’S SHARE AND INTERESTS 8.18 The legislation proceeds on the basis that a member of an LLP has a ‘share’, and ‘interests’, in the LLP,74 and it contemplates that the share, or an interest, of a member is (potentially)75 transferable. There is, however, no definition of a ‘share’ or ‘interest’; nor is there any explicit guidance given as to what a share or interest comprises. Broadly speaking, a member of an LLP will have financial rights and obligations (for instance, a right to share in the profits, and an obligation to contribute capital), and governance rights and obligations (for instance, the right to vote on various LLP business and administrative affairs, and the obligation to comply with certain contractual and statutory duties). Put another way, a member will have an economic interest and a governance interest in the LLP. The nature and extent of these interests for any one member may well vary, depending upon the point in time at which, and the context in which, they are being considered. The authors suggest, however, that the ‘share’ of a member is the totality of the contractual or statutory rights and obligations of that member which attach to his membership; and that an

71 72 73

74

75

Section 214A is considered further at 34.8–34.13. As modified and applied to LLPs by SI 2001/1090, reg 4. The CDDA 1986, as modified and applied to LLPs by SI 2001/1090, reg 4, is considered in Chapter 37. Also, under the CDDA 1986 (s 15), a member who is an undischarged bankrupt will be (jointly and severally with the LLP) personally liable for the debts of the LLP incurred while he is a member, unless he has the leave of the court to be a member. See the references to a member’s ‘share’ in LLP Act 2000, s 7(1)(d), CA 1985, ss 432(2)(a) and (4), as modified and applied to LLPs by SI 2001/1090, reg 3 and Sch 2, and CA 2006, ss 400(1)(b) and 401(1)(b), as modified and applied to LLPs by SI 2008/1911, reg 10, CA 2006, s 996(2), as modified and applied to LLPs by SI 2009/1804, reg 48, and to ‘shares’ and ‘interests’ in the LLP in CA 2006, s 900(2)(b), as modified and applied to LLPs by SI 2009/1804, reg 45(1), and IA 1986, s 110(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3; and see the references to a member’s ‘interest’ or ‘interests’ in the LLP (Accounts) Regulations 2008 (SI 2008/1912) and (SI 2008/1913) (balance sheet formats requiring ‘Members’ other interests’ to be shown), IA 1986, s 107 (distribution in a voluntary winding up of the LLP’s property), as modified and applied to LLPs by SI 2001/1090, reg 5, IA 1986, s 111(2) (purchase of a member’s interest by the liquidator), as modified and applied to LLPs by SI 2001/1090, reg 5, and LLP Regulations 2001, reg 7(5) (default rule as to assigning an interest in an LLP). One may note also the references in IA1986, ss 88 and 127, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, to a transfer of a member’s interest in the property of an LLP, and that LLP Act 2000, s 12(3)(a) is worded as if members have a direct interest in property transferred to the LLP for the purposes of stamp duty. See further 8.21.

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‘interest’ of a member is one or more of the components of his share.76 ‘Accordingly, it is not right to view a share in an LLP as something existing in abstract: it is a function of the contractual and statutory rights governing the relationship between the members amongst themselves and between the members and the LLP.’77 It follows from this that (absent a contrary agreement) the rights of a member, such as the right to share in the profits of the LLP, come to an end when he ceases to be a member; and this cessation of rights applies just as much to the right to share in capital profits, or a member’s ‘equity’, as it does to the right to share in annual trading profits. 8.19 There is no reason why individual members, or groups of members, should not have shares and interests in the LLP, whether economic interests or governance interests, which differ from those of other members or groups of members (but subject always to the irreducible statutory rights and obligations which all members have).78 Given that there are no statutory restrictions on dividing an LLP’s undertaking into shares or interests,79 and that there are no statutory restrictions on reduction of an LLP’s capital,80 and also that shares or interests can be made transferable, an LLP may, for instance, have a class of members who subscribe for participating units in the LLP (‘shares’) upon terms that these units are redeemable (whether by the member or by the LLP), and/or are transferable,81 in specified circumstances. Similarly, there could be a class of members to whom participating units are allocated in accordance with specified criteria (eg a form of incentive equity participation plan for members). Given also that there are no statutory requirements as to subscription of capital, an LLP may, for instance, have a class of members whose shares and interests do not include capital invested in the business. The legislation envisages that voting rights and control can be distributed amongst the members in any manner which is desired.82 In a wide-ranging manner, therefore, and in relation to both economic interests and governance interests, there can be different classes of ‘shares’ and ‘share participation’.83

76

77 78 79 80 81 82

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This statement was cited with approval by Morgan J in Hailes v Hood [2007] EWHC 1616 (Ch) at [56], Warren J in Reinhard v Ondra LLP [2015] EWHC 26 (Ch) at [57] and JSC VTB Bank v Skurikhin [2019] EWHC 1407 (Comm) at [256]. See also Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch) at [59]. Reinhard above at [57]. See generally Chapters 8, 13, 14 and 15. Compare the position for companies limited by guarantee in CA 2006, s 5. See further the discussion as to capital in 16.2–16.11. As to transfers, see 8.21–8.26. CA 2006, Part 15 for LLPs (Accounts and Reports), as modified and applied to LLPs by SI 2008/1911, envisages that an LLP may be a subsidiary, of a company or of another LLP, in that the ‘parent’ holds under the LLP agreement (through itself and/or other subsidiaries) a majority of the voting rights in the LLP, or the right to exercise a dominant influence over the LLP: see s 1162 with Sch 7, as modified and applied to LLPs by SI 2008/1911, reg 52; and see, to similar effect, s 1159 and Sch 6 (as enacted for companies and all bodies corporate) for the meaning of ‘subsidiary’ and ‘wholly owned subsidiary’ (applied to LLPs by s 474 (for LLPs), as modified and applied to LLPs by SI 2008/1911, reg 32, and s 1159(4)). And see the reference in CA 2006, ss 895–900 (arrangements and reconstructions) to ‘any class’ of members.

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8.20 A consideration of the nature and extent of the share or interests of a member in an LLP is likely to be relevant in the following contexts: (a)

while the LLP is a going concern, in the context of (i) an assignment (or other alienation) by a member of the whole or any part of his share or interests (considered in 8.18), (ii) an application by a member for a ‘buy-out’ order under CA 2006, ss 994–99684 (considered in Chapter 32), and (iii) an outgoing member’s financial entitlement (considered in Chapter 19); and (b) when the LLP has gone into liquidation, in the context of (i) the possible purchase of a member’s interest under IA 1986, s 11085 (considered in Chapter 36), and (ii) the distribution of the LLP’s surplus assets on dissolution (considered in Chapter 33).

ALIENATION OF A SHARE OR INTEREST 8.21 As mentioned in 8.18, the legislation contemplates that the share, or an interest, of a member in the LLP is potentially transferable. LLP Act 2001, s 7 expressly contemplates (and effectively declares) that a member may assign the whole or any part of his share in the LLP (absolutely or by way of charge or security).86 There is also no reason why an LLP agreement may not provide that a share should automatically pass to the remaining members or third parties (with or without payment) on the occurrence of certain events.87 Section 7 also contemplates that a member’s share may be transferred to non-members by operation of law, specifically to his trustee in bankruptcy or his personal representatives.88 Where there is such a voluntary assignment or transfer by operation of law, s 7(2) provides that the assignee or transferee may not interfere in the management or administration of any business or affairs of the LLP (but that this does not affect any right to receive an amount

84

CA 2006, s 996(2)(d), as modified and applied to LLPs by SI 2009/1804, reg 48, enables the court to order that the shares of any members in the LLP shall be purchased by other members or by the LLP itself. 85 As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. 86 Note IA 1986, s 127, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, which provides that, in a winding up by the court, any transfer by a member of the LLP of his interest in the property of the LLP made after the commencement of the winding up is, unless the court orders otherwise, void. The LLP’s property is, of course, owned by the LLP and not by the members. Query whether s 127 is to be interpreted as rendering an assignment of a member’s share in the LLP after the commencement of compulsory winding up void. In relation to a voluntary winding up, see IA 1986, s 88, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. See further 31.28. 87 See Reinhard v Ondra LLP above at [57]. This is presumably subject to the provision being struck down in certain circumstances as being void because it is a penalty clause or to the court granting relief from forfeiture (as to which, see Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67 and Chitty on Contracts (33rd edn) (2018), Chapter 26, section 10). 88 See LLP Act 2000, s 7(1)(a), (b), (2)(a), (b). A share will vest in a member’s trustee in bankruptcy under IA 1986, s 306. As to a member who becomes bankrupt, see further 19.10 referring to CDDA 1986, ss 11 and 15, as modified and applied to LLPs by SI 2001/1090, reg 4. The share, or an interest, of a member in the LLP is not capable of being the subject matter of a charging order under the Charging Orders Act 1979, as it does not fall within the categories of property set out in s 2 of that Act (although a debenture or security of the LLP held by a member would be).

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from the LLP).89 Effectively, therefore, and subject always to the provisions of the LLP agreement,90 the economic interest of a member in the LLP can be assigned or transferred, but the assignment or transfer will not carry the member’s governance interest; nor, perhaps more fundamentally, does it give the assignee a right to become or be registered as a member.91 The management and administration of the LLP’s business and affairs may be carried on (provided that they are carried on bona fide in the interests of the LLP) without any acknowledgment of, or reference to, the assignee or transferee.92 8.22 Although LLP Act 2000, s 7(2) provides that an assignee or transferee of a member’s share (and also a retired member) ‘may not interfere’ in the management or administration of the LLP’s business and affairs, this is, the authors suggest, subject to any contrary agreement. The effect of s 7(2) is that, however wide the assignment or transfer, it cannot of itself carry a right for an assignee or transferee to interfere; but this does not preclude the members from agreeing to the assignee or transferee or retiree (or any other third party) taking part in the conduct of the LLP’s affairs. Such an agreement may be made generally and in advance of an assignment, or on an ad hoc basis following an assignment. Where there is such an assignment, the assignee or other third party taking part in the conduct of the LLP’s affairs may, by reason of so doing, become a ‘de facto’ member of the LLP. The position of ‘de facto’ members is discussed in 8.37–8.39. 8.23 In the case of a voluntary assignment, and assuming that the assignor does not cease under the terms of the LLP agreement to be a member on making the assignment (and subject in any event to the effect of any provisions in the LLP agreement), s 7(2) does not prohibit the assignor/member from validly agreeing with the assignee that he (the assignor) will act in relation to governance issues as, in effect, the assignee’s nominee.93 For present purposes, governance issues will, or may, include both issues relating to the management of the business and affairs of the LLP and issues relating to the ownership by the members of the LLP. By agreeing to become, in effect, a nominee member, the assignor may, therefore, become akin to both a ‘nominee director’ and a ‘nominee shareholder’ of a company. As he will be continuing as a member, the assignor himself will continue to be subject to the statutory duties imposed on members,94 and to the obligations to comply

89

Section 7(2) and (3). ‘An amount from’ the LLP would clearly cover, for instance, a distribution of a profit share or return of capital (if the LLP agreement so provides). 90 See 8.24. 91 Compare the assignee of a share in a company (subject to the provisions of the articles of association). 92 This may include, for instance, alteration to the remuneration of members and the sums received by the assignee or transferee: see In re Garwood’s Trusts [1903] 1 Ch 236 (a case on Partnership Act 1890, s 31). 93 CA 2006, Sch 7, para 7, as modified and applied to LLPs by SI 2008/1911, reg 52, envisages the possibility of what is, in effect, a nominee member. As is discussed in 19.9, the wording of subss (1) and (2) of s 7 is clumsy. The word ‘his’ in paras (b), (c) and (d) of subs (2) is clearly intended to be a reference to a current member who has done one of the acts referred to in paras (b), (c) and (d) of sub-s (1). 94 See 13.29–13.31.

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with the standards of probity and competence imposed by the CDDA 1986.95 Most importantly, the assignor will continue to be subject to the fiduciary and other duties discussed in Chapter 13, including in particular the overriding duty to act in the conduct and management of the LLP’s business and affairs in what he believes to be the best interests of the LLP.96 It will be essential to the assignor, if he wishes to avoid potential liability for breach of duty to the LLP, that any such agreement does not fetter his ability and discretion to consider what is in the best interests of the LLP, or require him to subordinate the interests of the LLP to the interest of the assignee.97 Equally, the assignee may wish to avoid the possibility of becoming a ‘shadow member’ and, as a result, inter alia, subject to liabilities in a winding up.98 8.24 The discussion in 8.21–8.23 needs to be seen in the context of default rule (5) of the LLP agreement99 which provides that no person may voluntarily assign an interest in an LLP without the consent of all existing members.100 Like all the default rules, this provision may be altered by agreement. Given, however, the existence of the default rule and the fact that, if there is a provision in the LLP agreement permitting the assignment, that provision will have been expressly considered, the chances of controversy within the LLP in relation to assignments of members’ shares or interests will be lessened. The consequence of the restriction in default rule (5) being on any ‘person’ is that (as a default rule) not only is a member precluded from voluntarily assigning an interest in the LLP without the agreement of all current members, but any assignee from him (whether by way of voluntary assignment or operation of law) is equally precluded. The trustee in bankruptcy of a member, and the personal representative of a deceased member, may both be affected by this. 8.25 If there is provision in the LLP agreement permitting the assignment of a member’s share, the agreement is likely also to address the rights which an assignee may have to receive information as to transactions of the LLP and to inspect the LLP’s books of account. In the absence of such a provision, it will be a matter of interpretation of the assignor’s contractual rights under the LLP agreement, and of the nature and ambit of the assignment, as to what contractual rights the assignee will take the benefit of. This interpretation will need to be made against the background that the assignor will be remaining the member.

95

See Chapter 37. 13.8. 97 See, for instance, on ‘nominee directors’, In re Englefield Colliery Co (1878) 8 Ch D 388 (CA), Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 at 367, Boulting v Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606 at 626–7, Hawkes v Cuddy [2009] EWCA Civ 91 at [29]–[35] and Thompson v The Renwick Group Plc [2014] EWCA Civ 635 at [25]. 98 ‘Shadow members’ are discussed in 8.33–8.36. As to the danger for the assignor of agreeing to act in accordance with the instructions of a person the subject of a disqualification order or undertaking under the CDDA 1986, see 8.36. 99 The default rules generally are considered at 10.7–10.11. 100 There is no express default provision in the Partnership Act 1890 to the effect that a partner cannot assign his share, or an interest, in the partnership without the consent of the other partners: the issue as to whether he can, or cannot, is not directly addressed. Section 31, however, is clearly assuming that he can. It is on this basis that this provision is included in the default rules as an application or incorporation of partnership law with modifications pursuant to LLP Act 2000, s 15(c). 96 See

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8.26 An assignee, or transferee by operation of law, of a member’s share who does not himself become a member will not have the standing to present an ‘unfair prejudice’ petition to the court under CA 2006, s 994.101 In the case of an assignee, his assignor who remains a member, although as such wholly or largely a nominee for the assignee, will continue to have such standing, the ‘interests’ of the assigning member for the purposes of s 994 being those of the assignee (ie as beneficial owner).102 For a transferee by operation of law, or otherwise in the absence of a s 994 petition, the position for an assignee or transferee faced with unfairly prejudicial conduct may be partially alleviated in some circumstances by CA 1985, s 432,103 which (i) enables the Secretary of State to appoint inspectors to investigate the affairs of an LLP if it appears to him that the LLP’s affairs are being conducted or have been conducted, inter alia, in a manner which is unfairly prejudicial to some part of its members, and (ii) provides that ‘members’ for this purpose includes any person who is not a member but to whom a member’s share in the LLP has been transferred, or transmitted by operation of law.104

FIDUCIARIES AS MEMBERS 8.27 The Registrar will not accept a body of executors, trustees or other fiduciaries as a single member of an LLP;105 but such persons can, of course, be individual members.106 Section 126 of CA 2006, which provides for companies that no notice of any trust, express, implied or constructive, is to be entered on any register (or be receivable by the Registrar), is not applied in any way to LLPs. If trustees or other fiduciaries are members of an LLP, therefore, there is no reason why the LLP agreement should not expressly recognise and address this to any extent that is desirable. The other members and the LLP itself (like any persons dealing with trustees) will be potentially subject to equitable remedies at the instance of beneficiaries of the trust for wrongful receipt of trust monies or dishonest assistance in a breach of trust.107 If the LLP agreement provides for members to contribute funding,108 or to make contributions towards payment of the LLP’s debts and liabilities in a winding up,109 it will be a matter of construction of the agreement as

101

As modified and applied to LLPs by SI 2009/1804, reg 48. Section 994 is discussed in Chapter 32. Section 994(2) (as enacted for companies) is not adopted for LLPs. 102 Atlasview Ltd v Brightview Ltd [2004] 2 BCLC 191, Re McCarthy Surfacing Ltd [2006] All ER (D) 193 (Apr) and Re Edwardian Group Ltd [2018] EWHC 1715 (Ch) at [224]. The right for the members of an LLP to petition for unfair prejudice can be written out by agreement amongst all the members: s 994(3). 103 As modified and applied to LLPs by SI 2001/1090, reg 3 and Sch 2, Pt I. 104 See s 432(4). 105 See the discussion at 2.3 to the effect that only a ‘person’ who or which the law recognises as having its own legal personality will be accepted by the Registrar as a single member of an LLP. 106 The CA 2006 expressly recognises that voting and other rights in an LLP may be held by a member in a fiduciary capacity: see Sch 7, para 6, as modified and applied to LLPs by SI 2008/1911, reg 52. 107 As discussed in Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 WLR 1476, considering and explaining Royal Brunei Airlines v Tan [1995] 2 AC 378 and Twinsectra Ltd v Yardley [2002] 2 AC 164. See also Ivey v Genting Casinos UK Ltd [2018] AC 391 and Group Seven Limited v Notable Services LLP [2020] Ch 129 on the meaning of dishonesty. 108 On funding, see 16.1–16.11. 109 See 8.15–8.16.

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to whether, if the trust estate is not sufficient to cover the contribution, the liability of the trustee members for that contribution will be limited to the amount of the trust estate. The trustees will, unless a contrary intention is shown, be personally liable up to the contractual amount.110

LEAVING MEMBERS 8.28 An individual ceases to be a member on his death.111 Whilst the deceased member’s estate may have certain contractual financial entitlements arising or existing at the death (and discussed in Chapter 19), there is (subject to any provision in the LLP agreement clearly providing otherwise) no transmissible membership which the personal representatives are entitled to have transferred to them. Similarly, a corporation ceases to be a member on its dissolution.112 Subject to this, and to the statutory right next mentioned, the duration of a person’s membership, and the events upon which he ceases to be a member (either at his choice or at the choice of the other members), will be determined by agreement between the members ie the potentially leaving member and the other members.113 Such an agreement may range from an ad hoc agreement, specific to one individual, to terms agreed to be applicable to members generally. In practice, generally applicable terms are likely to be part of the LLP agreement made pursuant to LLP Act 2000, s 5(1)(a). The Act does provide, however, that where a person wishes to cease to be a member but there is no governing agreement between the members as to cessation of membership (ie either generally or covering the particular case) the person wishing to leave may do so by giving ‘reasonable notice’ to the other members of his ceasing to be a member.114 This is effectively the default position.115 This right of a member to leave (and what will constitute ‘reasonable notice’) is considered further in Chapter 19. 8.29 As with a person becoming a member, where a person ceases to be member of the LLP (for whatever reason), notice of his leaving must be given to the Registrar

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See, for instance, Muir v City of Glasgow Bank (1879) 4 App Cas 337, a Scottish case, where individuals took a transfer of shares, and were entered in the stock ledger, of an unlimited company (the bank) ‘as trust disponees’ of named persons. On the collapse of the bank (a cause celebre at the time), the trust disponees were personally liable for unlimited calls on the shares. 111 LLP Act 2000, s 4(3), and see further the discussion at 19.9. 112 LLP Act 2000, s 4(3). A corporate member which is in liquidation will, therefore, remain a member until it is dissolved, subject to agreement amongst the members providing otherwise. 113 LLP Act 2000, s 4(3). An ‘agreement with the other members’ may be made in advance (eg in an LLP agreement) and need not be an agreement made at the time of cessation: Thitchener v Vantage Capital Markets LLP [2019] EWHC 1576 (QB) at [100]. An agreement that prohibits a member from ceasing to be a member (whether for an initial period or at all) can be an agreement with the other members as to cessation of membership such that the right to give reasonable notice is excluded: see 19.5, and Grupo Mexico SAB de CV v Registrar of Companies [2018] EWHC 1306 (Ch) at [99]–[100] and Thitchener v Vantage Capital Markets LLP [2019] EWHC 1576 (QB) at [102]. 114 Ibid. 115 The provision for reasonable notice as to ceasing to be a member could not have been contained in regulations made under s 15(c) because, unlike the provisions of regs 7 and 8 of the LLP Regulations 2001 (including that relating to a person introduced as a member), it is not any part of the ‘law relating to partnerships’, but is a de novo provision for LLPs and thus must find its place in the body of the Act.

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within 14 days of his ceasing to be a member.116 The notice will need to be in the form specified by the Registrar, and (as required by the form) signed by a designated member. The giving of the notice is the responsibility of the LLP; but if the notice is not given, both the LLP and every designated member is guilty of an offence.117 8.30 As is stated in 8.28, the cessation of membership is governed by the LLP agreement or (in the absence of agreement) by LLP Act 2000, s 4(3). It is not the giving of the notice to the Registrar which effects the cessation of a person’s membership (any more than it is the giving of the relevant notice to the Registrar, discussed in 8.6, which causes a person to become a member), but the working of the contractual or statutory termination provisions.118 Two results flow from this. First, a false notice will have no effect on actual membership, although it may have effect on the apparent authority of the member in question to bind the LLP.119 Secondly, after he has ceased to be a member under the contractual or statutory termination provisions, the ceasing member will not be able to operate the procedure of CA 2006, s 1113120 (referred to in 8.6 and 8.7) to enforce the giving to the Registrar of notice of his departure. An incentive for the LLP to give that notice, however, may perhaps be provided, not only by the criminal sanctions of LLP Act 2000, s 9(4)–(6), but also by LLP Act 2000, s 6(3), the effect of which is that, until notice of a member leaving has been given to the Registrar, that (now former) member will continue to be regarded in relation to anyone dealing with the LLP as still being a member unless the person dealing with the LLP has notice that he has ceased to be a member.121 8.31 A person who has ceased to be a member, like the assignee or transferee of a member’s share, may not interfere in the management or administration of any business or affairs of the LLP.122 This inability to interfere does not affect a leaving member’s right to receive his entitlement on leaving the LLP.123 As in the case of an assignee or transferee, it is probably the case that there is no prohibition on the members agreeing, if they and the leaving member so wish, that a member who has left can interfere.124 8.32 The LLP legislation contains no express prohibition on all the members agreeing that they will cease to be members at the same time, or all the members giving notice under LLP Act 2000, s 4(3) expiring at the same time. The effect of such agreement or notices would be that the LLP would be left with no members.

116

LLP Act 2000, s 9(1)(a). LLP Act 2000, s 9(4)–(6). See fn 19 above and 12.13. 118 See, for the analogous position in relation to companies, POW Services Ltd v Clare [1995] 2 BCLC 435 at 440–1. 119 See further the discussion in 5.17–5.18 as to LLP Act 2000, s 6(2)(b) (the third party ‘does not know or believe him to be a member’ of the LLP). 120 As modified and applied to LLPs by SI 2009/1804, reg 69. 121 See further the discussion in 5.20. 122 LLP Act 2000, s 7. 123 LLP Act 2000, s 7(3). 124 See 8.22. An ex-member who does so interfere, however, will need to consider whether or not he is thereby a shadow member, considered at 8.33–8.36. 117

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There is, in the authors’ view, much to be said for the argument that it is implicit in the LLP legislation that no such agreement can be made or notices given if the LLP would, as a result, be left with no members.125

SHADOW MEMBERS 8.33 The LLP legislation refers in a number of contexts to ‘shadow members’, following the concept of ‘shadow directors’ in company law. A ‘shadow member’ is a person who is not actually a member of the LLP, but one ‘in accordance with whose directions or instructions the members of the LLP are accustomed to act’, save that a person is not deemed a shadow member by reason only that the members act on advice given by him in a professional capacity. This definition appears in IA 1986, s 251126 and CDDA 1986, s 22(5).127 The definition is aimed at identifying those persons, other than professional advisers, with real influence in the corporate affairs of the LLP.128 The reference to the members of the LLP being ‘accustomed to act’ is to be seen as a reference not necessarily to all the members, but to a governing majority of them.129 8.34 Under the IA 1986, provisions relating to wrongful trading (s 214), adjustment of withdrawals (s 214A) and the re-use of an LLP’s name after insolvent liquidation (ss 216–7)130 apply to shadow members as they apply to actual members,131 and a shadow member is liable to the same potential criminal sanctions as an actual member in relation to non-disclosure to a liquidator, or for making false representations to creditors in a winding up or for the purpose of securing a voluntary arrangement for the LLP with its creditors.132 Under the CDDA 1986,133 shadow members of an LLP, as well as actual members, can be made the subject of disqualification orders.134 In addition to these statutory provisions, for the purposes of FRS 8 (Related Party Disclosures), to be complied with in the preparation of an LLP’s accounts, shadow members of a reporting LLP are related parties of it.135 8.35 A person who is (by reason of falling within the statutory definition) a shadow member of an LLP does not, by reason of that mere fact, owe the same 125

But, given that an LLP can exist with one member, this is probably not the case if all of the members except for one give notice (although note the effect of LLP Act 2000, s 4A and see 2.15). 126 As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. 127 As modified and applied to LLPs by SI 2001/1090, reg 4. The term ‘shadow member’ is not used or applied in CA 2006 as modified for LLPs. 128 See Secretary of State v Deverell [2001] Ch 340 at [35], discussing the definition, and Smithton Ltd v Naggar [2015] 1 WLR 189 at [33]–[45] (Arden LJ). A shadow member may be the directing mind and will of the LLP for the purposes of attribution to the LLP of a state of mind or knowledge, but that will depend on the circumstances and context. as discussed in 3.4: see Jetvitia SA v Bilta (UK) Ltd [2016] AC 1 and Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2019] 3 WLR 997. 129 See Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) at [1270]–[1272] (Lewison J). 130 As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. 131 See 34.4–34.7 and 34.36–34.42. 132 IA 1986, ss 6A, 206, 208, 210, and 211. 133 As modified and applied to LLPs by SI 2001/1090, reg 4. 134 See 37.12. 135 See the SORP for LLPs (14 December 2018), paras 128–131, and FRS 8, para 2.5(b).

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fiduciary duties to the LLP as an actual member. Whether the shadow member does owe fiduciary duties to the LLP (and if so, what duties) will depend upon the particular facts, and whether it can be said that (to adopt the generally accepted definition of a fiduciary)136 he has undertaken to act for and on behalf of the LLP in a particular matter in circumstances which give rise to a relation of trust and confidence.137 Given that, for a person to be a shadow member, the (actual) members must be accustomed to act on his directions or instructions, a shadow member may well be held, on the particular facts, to owe a duty of care in tort to the LLP. 8.36 It is also worth noting in the context of shadow members that if a member (ie an actual member) of an LLP, or any other person who is concerned (directly or indirectly), or takes part, in the management of an LLP, acts, or is willing to act, on the instructions given (without the leave of the court) by a person whom he knows at that time to be the subject of a disqualification order or a disqualification undertaking under the CDDA 1986, or to be an undischarged bankrupt, then that actual member or other person concerned in the management will be personally responsible jointly and severally with the LLP for all the debts and other liabilities of the LLP as are incurred at a time when he was so acting, or willing to act.138

DE FACTO MEMBERS 8.37 Company law recognises the position of a ‘de facto director’ of a company, namely somebody who assumes to act as a director, although not actually or validly appointed as such. He is a person of whom it can fairly be said, on an objective view of all the facts, that he is part of the corporate governing structure of the company: one who participates in that governing structure on an equal footing with the de jure directors in collective decision making in matters for the company (albeit, perhaps, in relation to some of the company’s activities only).139 Although the term ‘de facto director’ is not a term to be found in the companies legislation, nevertheless de facto directors as well as de jure directors (and shadow directors by express provision) are liable to a disqualification order under the CDDA 1986,140 and can probably be

136

Per Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at 18A, approved by the Privy Council in Arklow Investments Ltd v Maclean [2000] 1 WLR 594. 137 See the discussion of this question in Ultraframe (UK) Ltd v Fielding above, at [1279]–[1291]. Newey J in Vivendi SA v Richards [2013] BCC 771 at [143] thought that shadow directors typically owe fiduciary duties in respect of instructions that they give. A further consideration of this issue was undertaken by Morgan J in Instant Access Properties Ltd (in liquidation) v Rosser & Ors [2018] EWHC 756 (Ch). Morgan J went back to first principles and recognised (at [262]) that the question whether an individual owes fiduciary duties is a fact-sensitive matter. 138 CDDA 1986, s 15, as modified and applied to LLPs by SI 2001/1090, reg 4. If the member or other person concerned in the management has at any time acted on instructions given as mentioned above, he is presumed, unless the contrary is shown, to have been willing at any time thereafter to act on such instructions given by the disqualified person or undischarged bankrupt: s 15(5). 139 See Holland v HMRC [2010] 1 WLR 2793 and Smithton Ltd v Naggar [2015] 1 WLR 189 at [33]–[45] (Arden LJ). As to the possibility of a director of a corporate director of a company himself being seen as a de facto director of the company, see Holland. 140 Re Kaytech International plc [1999] 2 BCLC 351 (CA) and Secretary of State v Hollier [2007] Bus LR 352. Disqualification is discussed in Chapter 37.

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liable also under IA 1986, s 214 in respect of wrongful trading by the company.141 It is principally, although certainly not exclusively, in the context of these two Acts that the term ‘de facto director’ has been considered. Outside this statutory context, a person who is a de facto director will owe the same fiduciary and other duties to the company in relation to his assumed role as if he was a de jure director.142 The position of a de facto director of a company has been described as that of a director de son tort.143 De facto directors are to be distinguished from shadow directors. As is stated above, a de facto director is somebody who assumes to act as a director, although not actually and validly appointed as such. A shadow director, on the other hand, does not assume to act as a director, but ‘lurks in the shadows, sheltering behind others who, he claims, are the only directors of the company to the exclusion of himself.’144 It is possible for an individual to be simultaneously a de facto director and a shadow director of a company.145 The capacity in which he acts in relation to the company will depend on the nature of the act. An act cannot be simultaneously carried out both in the capacity of a shadow director and a de facto director.146 8.38 As a matter of policy, there would seem to be no good reason why the law ought not to impose obligations or consequences on a person who acts as if he is a member of an LLP in the same way as it would if he had acted as if he was a director of a company; but the analytical route to that conclusion is not entirely straightforward. As Morse and Braithwaite point out,147 the ability to treat a de facto director as a true director is assisted by the fact that the company and insolvency legislation does not provide an exhaustive definition of the term ‘director’, whereas the term ‘member’ in LLPA 2000, s 4 is not as loosely defined. Where, therefore, the relevant liability or obligation actually depends upon a person being a ‘member’ for the purposes of the LLPA 2000, it is by no means obvious that the liability or obligation will be imposed on someone who is not a de jure member. Nevertheless, in some circumstances, liability will not necessarily depend upon the person being a de jure member. So, for example, the general modifications to the IA 1986 and the CDDA 1986 applied to LLPs provide for references to ‘a director or to an officer of a company’ to include references to a ‘member’.148 Given that, in company law, director includes de facto director and that the modifications provide that references to ‘director’ are not limited to ‘member’, the general modifications would seem wide enough to catch a person who assumes to act as a member, although not actually or validly appointed as such. This conclusion as to the ambit of ‘member’ (modified from ‘director’) in the relevant statutory provisions is aided by the inclusive nature

141

Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180. IA 1986, s 214 is discussed at 34.4–34.6. Primlake Ltd v Matthews Associates [2007] 1 BCLC 666 at [284] and cases cited. 143 In Re Canadian Land Reclaiming and Colonizing Co [1880] 14 Ch D 660, referred to in Re Kaytech International plc above, James LJ referred to the two de facto directors as ‘so to say, directors de son tort, and liable in that character’ (p 670). For the position of a trustee de son tort, see, for instance, Lewin on Trusts (20th edn) (2020), paras 42–101 to 42–110. 144 See Millett J in Re Hydrodam (Corby) Ltd above at 183. 145 See Popely v Popely [2019] EWHC 1507 (Ch) at [88]. 146 Ibid. 147 Partnership and LLP Law at 12.07. 148 SI 2001/1090, regs 4(1)(g) and 5(2)(b). 142 See

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of the definition of ‘member’ in the two 1986 Acts, namely in IA 1986, s 251149 and CDDA 1986, s 22(4).150 On this basis, de facto members of an LLP, as well as de jure members (and shadow members by express provision), are liable to a disqualification order under the CDDA 1986151 and can probably be liable also under IA 1986, s 212 or 214152 in respect of wrongful trading by the LLP.153 But it is far less clear whether a de facto member can be liable to ‘clawback’ liability under IA 1986, s 214A154 in the event of his withdrawing property from the LLP (eg repayment of a loan) within the period of two years prior to the commencement of the insolvent winding up of the LLP. This is because s 214A is a bespoke provision inserted in the IA 1986, as modified to apply to LLPs, which is drafted in terms that refer only to members and so the general modifications do not apply. Outside this statutory context, a de facto member will owe the same fiduciary and other duties to the LLP in relation to his assumed role as if he was a de jure member.155 8.39 A core ingredient to a person being a de facto director of a company is that he undertakes functions in relation to the company which could properly only be discharged by a director.156 The distinction which exists in relation to a company between a director and shareholder (ie between manager and owner) does not, of course, exist as a matter of statutory structure in relation to LLPs. It is uncertain to what extent the court will require a person to be actively participating in the governing structure of the LLP (for instance, participating in the deliberations of a management committee), as opposed to simply acting as an ordinary member of the LLP, before he can be held to be a de facto member. In a number of respects, all the members of an LLP are equated by the legislation to directors. The issue may arise, for instance, in relation to a professional services LLP. An individual may be assuming to act as a service providing member, and be held out and purporting to act as such, and be treated de facto internally as a member, albeit (and like a number of actual members) he does not participate in the particular day-to-day governing structure established by the LLP agreement. It may be a reasonable result in such circumstances (depending on the detailed facts) that that individual is seen as a de

149 150

151 152 153 154 155 156

As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. As modified and applied to LLPs by SI 2001/1090, reg 4. See Re Lo-Line Electric Motors Ltd [1988] BCLC 698 at 706/7. IA 1986, s 251, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, and CDDA 1986, s 22(4), as modified and applied to LLPs by SI 2001/1090, reg 4, provide that ‘member’ of an LLP includes ‘any person occupying the position of a member, by whatever name called’. As modified and applied to LLPs by SI 2001/1090, reg 4. See fn 140 above, and Chapter 37 at fn 22. As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. See Wetton v Ahmed [2011] EWCA Civ 610. See fn 140 above. As inserted in relation to LLPs by SI 2001/1090, reg 5 and Sch 3. See fn 141 above. ‘Other duties’ will include, for instance, a duty of care. Millett J in Re Hydrodam (Corby) Ltd above at 183. ‘It is not sufficient to show that he was concerned in the management of the company’s affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level’: ibid. And see Re Kaytech International plc above at 424: ‘… the crucial issue is whether the individual in question has assumed the status and function of a company director so as to make himself responsible under the [CDDA 1986] as if he were a de jure director.’

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facto member and under the same fiduciary and other duties157 to the LLP as if he were a de jure member.

PEOPLE WITH SIGNIFICANT CONTROL 8.40 LLPs incorporated under the LLP Act 2000 are required to maintain a register of people with significant control over the LLP (‘PSC Register’).158 LLPs have to enter this information on their own PSC Register within 14 days of becoming aware that a person meets the conditions and must be registered. LLPs must then update the central public register at Companies House within a further 14 days. 8.41 A person has significant control over an LLP if one or more of the specified conditions are satisfied. A person with significant control is an individual who meets any one or more of the following conditions in relation to an LLP: (i) (ii) (iii) (iv) (v)

directly or indirectly holding rights over more than 25% of the surplus assets on a winding up; directly or indirectly holding more than 25% of the voting rights; directly or indirectly holding the right to appoint or remove the majority of those involved in management; otherwise having the right to exercise, or actually exercising, significant influence or control; and holding the right to exercise, or actually exercising, significant influence or control over the activities of a trust or firm which is not a legal entity, but which would itself satisfy any of the first four conditions if it were an individual.

8.42 The Government has issued helpful guidance in connection with the application of these rules.159 The guidance considers in more detail the application of each of the conditions referred to above, including by reference to examples. The guidance should be consulted by anyone potentially affected by these rules. 8.43 If an individual is a person with significant control, there are certain pieces of information which that person must provide to the LLP for the PSC Register. The information to be provided by the person with significant control consists of their name, date of birth, nationality, country, service address, usual residential

157

There may, on the particular facts, be alternative routes to the result of holding the individual liable: see, for instance, Primlake Ltd v Matthews Associates above (dishonest assistance and knowing receipt). But the issue could arise in stark form in relation to IA 1986, s 214A, as inserted in relation to LLPs by SI 2001/1090, reg 5 and Sch 3. 158 Part 21A of, and Schedules 1A and 1B to, CA 2006 and the Register of People with Significant Control Regulations 2016 (SI 2016/339), as applied to LLPs by the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 (SI 2016/340). 159 See the ‘Statutory Guidance on the meaning of “significant influence or control” over Limited Liability Partnerships in the context of the Register of People with Significant Control’ (Department for Business, Innovation and Skills, 2016) and the ‘Guidance for people with significant control over companies, societates europaea, limited liability partnerships and eligible Scottish partnerships’ (Department for Business, Innovation and Skills, 2017).

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address, the date that person became a person with significant control in relation to the LLP, and which of the five conditions for being a person with significant control that person meets. In exceptional circumstances, there is a regime for suppressing all information relating to people with significant control from an LLP’s PSC Register and the central register for public inspection or preventing their residential addresses from being shared with credit reference agencies. In brief, ‘exceptional circumstances’ means where there is a serious risk of violence or intimidation.

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Chapter 9 EMPLOYMENT AND WORKER STATUS

INTRODUCTION 9.1 This chapter addresses two issues. The first is whether a person who is a member of an LLP can also be an employee of it: that is to say, whether a person can have the dual status of both member and employee of an LLP. The second is whether a member of an LLP can be a worker within the meaning of section 230 of the Employment Rights Act 1996 (ERA 1996) and, if so, in what circumstances. As to the first issue, given that an LLP has separate legal personality, it might be thought obvious that a person can be both a member and an employee of it. That is certainly the position so far as companies are concerned.1 But, as will be seen, the law as it currently stands appears – rather unclearly – to be that a member of an English LLP cannot be an employee of it.2 In the authors’ view, this is regrettable and is a conclusion based on a misconstruction of LLP Act 2000, s 4(4). In order to analyse the intention behind, and effect of, s 4(4), it is necessary to consider first the position in traditional partnerships.

EMPLOYMENT – THE PARTNERSHIP LAW POSITION 9.2 The traditional view is that a person cannot be a partner in a partnership and be employed by it; the so-called rule against dual status.3 The objection to dual status appears to be twofold. The first is a technical juridical point. As Elias LJ put it in the Court of Appeal in Clyde & Co LLP v Bates van Winkelhof,4 ‘since the partnership is not a separate legal entity, the parties are in a relationship with each other and accordingly each partner has to be employed, inter alia, by himself. He would be

1 2

3

4

Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld [2009] EWCA Civ 280, [2009] 3 All ER 790. The question whether an individual is a member or employee of an LLP is principally a question of the proper interpretation of the relevant agreement and, if there appears from the contract read in its context to have been an intention that the individual become a member, then that will usually exclude the possibility of an employment relationship. But an issue may arise as to whether the agreement reflects the reality of the position and whether, in fact, the individual is an employee rather than a member: see Uber BV v Aslam [2021] UKSC 5 at [58]–[78] (a case concerning worker rather than employment status). Ellis v Joseph Ellis & Co [1905] 1 KB 324; Stekel v Ellice [1973] 1 WLR 191 at 198F and 199H–200A; Cowell v Quilter Goodison Co Ltd [1989] IRLR 392; and Tiffin v Lester Aldridge LLP [2012] 1 WLR 1887. See also Watchorn v Comptroller of Stamps [1969] VR 168; Cheung Yau Bor and others v Wong Fook [1988] HKCFI 438; Hundal v Border Carrier Ltd (2012) BCSC 447; Fasken Martineau DuMoulin LLP v British Columbia (Human Rights Tribunal) (2012) BCCA 313; and Re Thorne and New Brunswick Workmen’s Compensation Board (1962) 33 DLR (2d) 167. [2013] ICR 883 at [63].

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both workman and employer which is a legal impossibility’. The second is, as Elias LJ described it,5 ‘sociological’: ‘The very concept of employment presupposes as a matter of sociological fact a hierarchical relationship whereby the worker is to some extent at least subordinate to the employer. This is the characteristic which underpins the general understanding of what constitutes the essence of an employment relationship. Where the relationship is one of partners in a joint venture, that characteristic is absent. Each partner is agent for the other and is bound by the acts of the other and each partner is both severally and jointly liable for the liabilities of the partners. There is lacking the relationship of service and control which is inherent in both concepts of employee and limb (b) worker. The partnership concept is the antithesis of subordination.’

9.3

The steps in the first (juridical) objection appear to be the following:

(a) A traditional partnership is not a separate legal person: partnership is a relationship not a thing. To describe persons as being in partnership is a description of the relationship between them. (b) A contract with a partnership is a contract between the partners jointly, on the one hand, and the counterparty, on the other. (c) In an employment relationship, where the employer is a partnership, each of the partners is an employer, and an employer cannot employ himself or herself. 9.4 In the authors’ view, the last step in this analysis is misconceived. It assumes that a partnership cannot contract with one or more of its partners. But it is clear, for instance, that a partnership can take a lease of premises owned by one or more of the partners.6 The objection appears to have its foundation in the two-party rule (that is, a person cannot contract with himself). But that rule was abolished by section 82 of the Law of Property Act 1925, and there is no reason, in principle, why the abolition of the two-party rule should not extend to partnerships. Section 82(1) provides: ‘Any covenant, whether express or implied, or agreement entered into by a person with himself and one or more other persons shall be construed and be capable of being enforced in like manner as if the covenant or agreement had been entered into with the other person or persons alone’. 9.5 So, for example, if partners in a firm make it clear by a written loan agreement that one of them is to lend the firm money on particular terms, there would seem to be no reason, in principle, why the law would not give effect to the agreement and to permit the partner qua lender to exercise rights against the firm.7 It may be that, where a partner simply advances money to a firm of which he or she is a partner, then, without more, it is likely that an inference will be drawn that he or she made the advance qua partner (not qua lender) and the partner would not be able to sue for the return of the money as a debt: his rights to repayment would depend upon the mutual rights and obligations of the partners and the taking of a partnership account. More generally, it will, no doubt, usually be the case – where the parties are 5

At [64]. Rye v Rye [1962] AC 496; Plumbly v Spencer 71 TC 399. 7 Cf Green v Hertzog [1954] 1 WLR 1309 and Malkinson v Trim [2003] 1 WLR 463 at [23] and [24]. See also Bonsor v Musicians’ Union [1954] Ch 479, [1956] AC 104. 6

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partners in a firm – that their rights and obligations inter se will be determined qua partners. But, where it is clear that the parties intended some non-partnership legal relationship between them, there is no good reason why the law should not give effect to that intention. 9.6 The second (sociological) objection is built on the hierarchical nature of the employment relationship. As Elias LJ put it in Clyde & Co LLP:8 ‘The very concept of employment presupposes as a matter of sociological fact a hierarchical relationship whereby the worker is to some extent at least subordinate to the employer. This is the characteristic which underpins the general understanding of what constitutes the essence of an employment relationship’. 9.7 The authors suggest that there are three problems with this analysis. First, subordination is a characteristic of the legal relationship of employer and employee. It is unhelpful to treat subordination as ‘sociological fact’. To say that subordination is a characteristic of the relationship is to comment on the content and operation of the legal rights and obligations that constitute that relationship: if one party is, in law, an employer and the other an employee, the employee is necessarily in a subordinate position (as regards his work). In other words, if the characteristic of subordination is missing from the legal rights and obligations, there can be no relationship, in law, of employer and employee. That is a matter of legal reality, not sociological fact. Whether one can draw any kind of generalised conclusion that (leaving the legal nature of their relationship aside) employees are sociologically subordinate to their employers is irrelevant; nor is it right to assume that, in any particular employment relationship, and leaving the legal rights and obligations on one side, the employee is in a position subordinate to the employer. 9.8 Secondly, it is wrong to treat a partner in a partnership as necessarily not being (legally) in a subordinate position. It is true that, so far as the outside world is concerned, partners are mutual agents with power to bind the firm (assuming that a limitation on their authority is not disclosed). But what matters is their relationship inter se. Many modern partnerships, particularly in the professional and financial services fields, use hierarchical structures to recreate a corporate structure: partnership agreements often provide for significant decision-making power to be delegated to managing partners or committees; partners’ rights to bind the firm are often severely curtailed; and the partners often have to abide by the directions given to them by the managing partners or committees. ‘Subordinate’ is often an appropriate word to describe the legal relationship between a rank and file partner and the managing partner or committee. Very often, there will be little difference, in substance, between the rights and obligations of an employee and a partner. 9.9 Thirdly, deploying the concept of subordination to test whether the legal rights and obligations of two parties are constitutive of employment may assist in the resolution of whether the parties are in a relationship of employer and employee. But it does not assist with answering the question whether parties who are partners can also be employer and employee. The law permits the constitution of different legal

8

At [64].

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relationships between the same parties. A beneficiary of a trust can be employed by a trust company which is the trustee of his trust (and can indeed be a trustee himself); and the sums paid to him qua employee by the trust company will have a different character to those paid to him qua beneficiary. A shareholder of a company can be a director of it. And the sole shareholder of a company can be employed by it.9 9.10 The partnership law rule against dual status was the subject of challenge in the Supreme Court in Bates van Winkelhof v Clyde & Co LLP.10 In the event, it was not necessary for the Supreme Court to decide the point, but Lady Hale (with whom Lords Neuberger and Wilson agreed) made the following obiter comments. Lady Hale said:11 ‘This means that there is no need to consider the subsidiary but important questions which would arise had section 4(4) borne the meaning for which the LLP contend: (i) is it indeed the law, as held by the Court of Appeal in Cowell v Quilter Goodison Co Ltd [1989] IRLR 392 and Tiffin v Lester Aldridge LLP [2012] 1 WLR 1887 that a partner can never be an employee of the partnership; and (ii) if so, does the same reasoning which leads to that conclusion also lead to the conclusion that a partner can never be a “worker” for the partnership? Suffice it to say that [Counsel], for the interveners, Public Concern at Work, mounted a serious challenge to the rule against dual status. Ellis v Joseph Ellis & Co [1905] 1 KB 324 was decided before section 82 of the Law of Property Act 1925 made it clear that a person could contract with himself and others. There are some contracts which a partner may make with the members of the partnership, such as lending them money or granting them a lease or a tenancy. So why should it be legally impossible to be employed, under either type of contract, by the partnership? This question raises two subsidiary questions: (a) whether such a relationship can arise from the terms of the partnership agreement itself (as apparently suggested by Lord Clarke JSC at para 52 below), or (b) whether it can only arise by virtue of a separate contract between the partner and the partnership (a possibility kept open by Elias LJ in the Court of Appeal [2013] ICR 883: see para 13 above). As it is not necessary for us to resolve any of these issues in order to decide this case, I express no opinion on a question which is clearly of some complexity and difficulty.’

9.11

Lord Clarke said: ‘52 … There is to my mind much to be said for the view that, if the appellant had been a partner in an 1890 Act partnership, she would now be treated as employed by the partnership, especially in the light of section 82 of the Law of Property Act 1925. As Lady Hale DPSC asks rhetorically, why should it be legally impossible to be employed, under either type of contract, by the partnership? … 54 Notwithstanding those points, the question remains, as Lady Hale DPSC says, of some complexity and difficulty. In these circumstances, it is desirable that it should be determined in a case in which it is necessary for it to be decided.’

9 10 11

Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld [2009] EWCA Civ 280, [2009] 3 All ER 790. [2014] 1 WLR 2047. At [29].

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Lord Carnwath, on the other hand, stated that he was unpersuaded: ‘59 Whatever may be the position or legal analysis in respect of leases (on which the authorities to which [Counsel] refers are not conclusive), section 82 does not assist him in the present context in my view. A contract treated as being between a particular partner and the other members of his firm may be effective in law for many practical purposes. But it cannot be equated with a contract between the partner and the firm as such, since each partner is an essential part of the firm. Furthermore, the reasoning of the Court of Appeal in Ellis v Joseph Ellis & Co [1905] 1 KB 324 does not turn simply on the lack of capacity to contract. As Collins MR said, at p 238, the particular arrangements made in that case in relation to payment for work did not affect the worker’s relation to the other partners, which was that of “co-adventurer and not employee”. In my view this was a statement of principle about the fundamental difference between the relationship of partners and that of employer and employee, a difference which is not bridged by section 82.’

9.13 The current position, therefore, is that the law remains, in an English partnership under the 1890 Act, that a person cannot be both a partner and an employee.12

EMPLOYMENT – THE EFFECT OF SECTION 4(4) 9.14 Given that an LLP has a legal personality separate from that of its members, the partnership law objection to dual status has no application and, as suggested above,13 one would expect it to be possible for a person to be both a member and employee of an LLP. However, during the course of the Limited Liability Partnership Bill, the concern was expressed that there was a risk that every member of an LLP would be treated as employed by it.14 In the authors’ view, the concern was probably overstated. In many cases, the rights and obligations of a member may indeed have some similarity to the rights and obligations of an employee: an employee of an LLP will be obliged to provide his services to or for the benefit of the LLP, as will (usually, but not invariably) be the case for a member; an employee will be entitled to be paid for his services, and a member will (usually) be entitled to a profit share that will (perhaps in part) be reward for the services he provides; and, in some cases, a member may be entitled specifically to a payment for services that is not linked to profits. But, notwithstanding the similarities in the relationships, it would not necessarily follow that the parties objectively intended, by the agreement between them, to constitute two separate relationships: that of membership and that of employment. In any given case, it may be clear (objectively) that two separate relationships are intended, but in most cases it will be obvious that the parties intended only one relationship. If, therefore, for example, the members of the LLP and the LLP enter into a written agreement that purports to govern their relationship as members, it would be difficult for a court to determine that (objectively) the parties intended to give each of the members a second status, that of employment.

12

This has been confirmed by Warren J in Reinhard v Ondra LLP [2015] EWHC 26 (Ch) at [42] and by HHJ Keyser QC in Altus Group v Baker Tilly [2015] EWHC 12 (Ch) at [161]–[163]. 13 See 9.1. 14 Hansard 24 January 2000 vol 608 pp 1359–1361.

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9.15 Nevertheless, the concern that there was a risk that every member of an LLP would be treated as employed by it resulted in LLP Act 2000, s 4(4). Section 4(4) provides: ‘A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.’

9.16 This provision is not happily drafted, but it is clear that its essential purpose is to prevent the general position being that a member of an LLP is an employee of the corporate body. The provision appears to envisage, however, that a member can also be an employee of the LLP, albeit only in the narrow circumstances permitted by s 4(4). The role of LLP Act 2000, s 4(4), therefore, lies not in determining whether a person is a member or an employee – s 4(4) only applies to a person who is a member – but in determining whether a person, who is a member, is also an employee.15 Section 4(4) is not, however, a statutory provision that is easy to understand. Read literally, the provision that a member should not be regarded for any purpose as employed by the LLP unless ‘if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership’ makes no sense (at least in the case of English LLPs and for so long as the rule against dual status remains the law) because (as explained above) a person cannot be both a partner of an English partnership and employed by it.16 The authors suggest that, in order to give the subsection meaning, it ought to be read as if it said ‘unless, if the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership’ or ‘unless, if he and the other members were partners or held out as partners in a partnership, he would be regarded for that purpose as employed by the partnership’. 9.17 A solution along the lines suggested above was accepted by the Court of Appeal in Tiffin v Lester Aldridge LLP.17 Rimer LJ stated as follows: ‘31 The drafting of section 4(4) raises problems. Whilst I suspect that the average conscientious self-employed professional or business person commonly regards himself as his hardest master, such perception is inaccurate as a matter of legal principle. That is because in law an individual cannot be an employee of himself. Nor can a partner in a partnership be an employee of the partnership, because it is equally not possible for an individual to be an employee of himself and his co-partners: see Cowell v Quilter Goodison Co Ltd [1989] IRLR 392. Unfortunately, the authors of section 4(4) were apparently unaware of this. The subsection is directed to ascertaining whether a particular member (call him “A”) of a limited liability partnership is or is not for any purpose an employee of it. The statutory hypothesis which the subsection requires in order to answer that question is that A and the other members of the limited liability partnership “were partners in a partnership”. That hypothesis, if it is to be read and applied literally, must in every case produce the same answer, namely that A cannot

15 Cf 16 17

Reinhard v Ondra LLP (No 2) [2015] EWHC 1869 (Ch) at [37]–[40]. Cf the position in Scotland: see Bates van Winkelhof v Clyde & Co LLP [2014] 1 WLR 2047 at [18]–[21]. [2012] 1 WLR 1887.

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be an employee of the limited liability partnership for any purpose. If that had been Parliament’s intention when enacting section 4(4), it might just as well have ended the subsection immediately before the word “unless”. That, however, was plainly not its intention. The subsequent words must be contemplating a practical inquiry that, in particular factual circumstances, will yield a yes or no answer to the question whether a particular member of a limited liability partnership is an employee of it. The subsection must, therefore, be interpreted in a way that avoids the absurdity inherent in a literal application of its chosen language so that it can be applied in a practical manner that will achieve the result that I consider it obviously intended. The presumption is that Parliament does not intend to enact legislation whose application results in absurdities, and section 4(4) must therefore be interpreted with that in mind. 32 In my judgment the way section 4(4) is intended to work is as follows. Subject to the qualification which I mention below, it requires an assumption that the business of the limited liability partnership has been carried on in partnership by two or more of its members as partners; and, upon that assumption, an inquiry as to whether or not the person whose status is in question would have been one of such partners. If the answer to that inquiry is that he would have been a partner, then he could not have been an employee and so he will not be, nor have been, an employee of the limited liability partnership. If the answer is that he would not have been a partner, there must then be a further inquiry as to whether his relationship with the notional partnership would have been that of an employee. If it would have been, then he will be, or would have been, an employee of the limited liability partnership. I consider that it is implicit that the primary source material for the purpose of answering these questions will be the members’ agreement although this will not necessarily represent the totality of what may be looked at. The inquiry thus requires a consideration of the circumstances in which a person may become a partner in a partnership under the Partnership Act 1890, which is why I have summarised such circumstances. The qualification that I have referred to is that, in what are probably likely to be more unusual cases, the relevant issue may perhaps arise in circumstances in which at the material times there were just two members in the limited liability partnership, with the issue being whether one of them was an employee of the limited liability partnership. The approach that I have suggested does not work in such a case and would need to be adapted for it. For present purposes, however, there is no need to consider such cases further.’

9.18 In the authors’ view, the conclusion reached by Rimer LJ is correct and gives effect to the Parliamentary intention that lies behind s 4(4). Unfortunately, the certainty provided by the Court of Appeal in Tiffin was short-lived. In Bates van Winkelhof v Clyde & Co LLP, Lady Hale (with whom Lords Neuberger, Wilson and (on this point) Carnwath agreed), having referred to Rimer LJ’s judgment in Tiffin, stated:18 ‘But once it is recognised that the 2000 Act is a UK-wide statute, and that there is doubt about whether partners in a Scottish partnership can also be employed by the partnership, then there is no need to give such a strained construction to section 4(4). All that it is saying is that, whatever the position would be were the LLP members to be partners in a traditional partnership, then that position is the same in an LLP. I would hold, therefore, that that is how section 4(4) is to be construed.’

9.19 So long as the rule against dual status remains the law, Lady Hale’s construction deprives s 4(4) of any practical use in the case of English LLPs, and is 18

At [21].

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somewhat surprising given that none of the parties suggested in Bates van Winkelhof that Rimer LJ’s view was wrong. In the authors’ view, Lady Hale’s view was obiter and the law remains as described by Rimer LJ in Tiffin. The question that fell to be determined by the Supreme Court (as explained below)19 was whether a member of an LLP can be a worker as defined by ERA 1996, s 230. One of the issues was whether s 4(4) was concerned with worker status, and the Supreme Court decided that it was not. Having made that decision, the way in which s 4(4) operates in relation to employment was not material, and so Lady Hale’s views on the operation of s 4(4) were, the authors suggest, obiter. If the authors are right, then as a matter of judicial precedent the law remains as stated by the Court of Appeal in Tiffin. But, in Reinhard v Ondra LLP (No 2),20 Warren J stated that, in his view, Lady Hale’s analysis was a necessary part of her decision and that he was not, therefore, bound by Rimer LJ’s approach.21 The present position on judicial authority is, therefore, unclear, not least because it is arguable that Warren J’s view in Reinhard v Ondra LLP (No 2) was itself obiter. In the authors’ view, Lady Hale’s analysis of the operation of s 4(4) was obiter. If, however, that analysis is binding authority, then as a matter of English law a person cannot be both a member and an employee of an LLP, unless and until the rule against dual status in partnership law is itself overruled. 9.20 Any dispute as to whether a person is a member of an LLP or an employee of it (or, if Rimer LJ’s analysis in Tiffin is accepted, whether a person who is a member of an LLP is also an employee of it) will turn on an examination of the agreed terms, construed in the light of the admissible factual matrix.22 Regard is likely usually to be had to the same kinds of criteria which determine the status of a person as between partner and employee.23 Important amongst these criteria, but not exclusively determinative, are whether the ‘partner’ in question is entitled to share in the profits24 and whether he is obliged to contribute to the losses.25 The concept of a contribution to the losses of an LLP is not entirely the same as that of a contribution to the losses of a partnership.26 It is of the essence of an LLP that (save insofar as the LLP agreement provides otherwise) there is no unlimited liability for losses on the part of any members, and that a member (of any description) is only liable to contribute to the assets of the LLP (whether in the event of losses or otherwise) to the extent that he has agreed to do so.27 Ultimately, and as with partnerships, the answer will turn on the particular facts of the particular case.28

19 See

9.23–9.26. [2015] EWHC 1869 (Ch). 21 See also Altus above at [161]. 22 See Reinhard v Ondra LLP [2015] EWHC 26 (Ch) and Reinhard v Ondra LLP (No 2) [2015] EWHC 1869 (Ch). 23 See, for example, Kovats v TFO Management LLP UKEAT/0357/08/ZT (21 April 2009), at [17]–[18] and Megarry J in Stekel v Ellice above at 199G–H: whether or not a ‘salaried partner’ is a partner in the true sense depends on the substance of the relationship. 24 See Partnership Act 1890, s 2(3); and see also M Young Associates Ltd v Lees [2006] 1 WLR 2562 (a sharing in the profits is not a pre-requisite to being a partner). 25 See, for example, Briggs v Oates [1990] ICR 473 at 475C–D. 26 See 16.17–16.18. 27 Contribution in the event of a winding up is discussed at 31.17–31.20. 28 In Kovats v TFO Management LLP above, the Tribunal pointed out (at [18(3)]) that, for a member to be an employee (as opposed to self-employed), the common law tests as to employment will also 20

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9.21 A further point should be noted. If the law does permit a person to be both an employee and a member of an LLP, there is an important difference between the position of ‘employee partners’ in an 1890 Act partnership and employee members of an LLP. The former, although appearing as partners to the outside world, are not in fact members of the partnership; and, in the absence of provision to the contrary, they do not have the default rights and duties of partners contained in the Partnership Act 1890.29 The latter, although employees and (probably) not profit-sharers, are members of the LLP for the purposes of the LLP legislation. Essentially, therefore, and subject always to any particular provisions in the LLP agreement, the relationship between employee members (as members) and the LLP, and between employee members and the other members, will be the same as the relationship enjoyed by ‘full’ (ie non-employee) members with the LLP and with the full other members. In particular, employee members (as ‘members’ for the purposes of the legislation) will be subject to the statutory duties and prohibitions set out in 13.29, and will be liable to penalties if ‘in default’ and found guilty of an offence in relation to the failure by the LLP to observe its duties set out in 13.30. Employee members will also have the statutory rights to receive or inspect documentation, and to enforce the filing of accounts and other documents with the Registrar, set out in 14.22–14.24. Similarly, employee members will (in the absence of agreement to the contrary) have the contractual rights and duties contained in the default rules.30 Certain duties and responsibilities are laid by the CA 2006 on the members as a whole.31 This will include employee members. In addition to the above, employee members will, of course, have the employer/employee relationship with the LLP arising under their contracts of employment. This will have significance in the event of the LLP going into insolvent liquidation. In such an event, an employee member will be able to prove in the winding up for any unpaid salary.32

WORKER STATUS 9.22

‘Worker’ is defined in section 230 of the ERA 1996 as follows: ‘(3) In this Act “worker” … means an individual who has entered into or works under (or, where the employment has ceased, worked under)– (a) a contract of employment, or (b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.

need to be applied. For a general discussion of the factors relevant to identifying whether a contract of employment exists, see, for instance, Chitty on Contracts (33rd edn) (2018), paras 40–010 to 40–031. 29 Ie ss 24, 25, 29 and 30. 30 The default rules for LLP agreements – adopting, with modifications, provisions in ss 24, 25, 29 and 30 of the Partnership Act 1890 – are discussed at 10.7–10.11 and other places there referred to. 31 See 13.29. 32 See further 33.3.

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The Law of Limited Liability Partnerships (4) In this Act “employer”, in relation to an employee or a worker, means the person by whom the employee or worker is (or, where the employment has ceased, was) employed. (5) In this Act “employment”– (a) in relation to an employee, means … employment under a contract of employment, and (b) in relation to a worker, means employment under his contract; and “employed” shall be construed accordingly.’

9.23 It has been decided by the Supreme Court in Bates van Winkelhof v Clyde & Co LLP33 that, in principle, a member of an LLP can be a worker within the meaning of ERA 1996. The claimant was a solicitor and a member of Clyde & Co LLP. Following a report to the firm’s money laundering officer, she was expelled from the LLP and she made a claim to an Employment Tribunal against the LLP on the basis that she had suffered a detriment contrary to ERA 1996, s 47B, in that the LLP had expelled her for having made protected disclosures. The point was taken against her that she lacked standing to bring the claim: it was said that, as a member of the LLP, she was not a worker within the meaning of ERA 1996, s 230(3) and therefore did not have whistleblowing protection. The Employment Tribunal decided that the claimant was not a worker and could not pursue her claim. The Employment Appeal Tribunal reversed that decision,34 but the Court of Appeal decided that, by reason of LLP Act 2000, s 4(4), a member of an LLP could not be regarded as a ‘worker’.35 9.24 By the time the case reached the Supreme Court, it was common ground that the claimant worked ‘under a contract personally to perform any work or services’ and that she provided those services ‘for’ the LLP, and that the LLP was not her ‘client or customer’.36 The central issues were twofold. 9.25 First, whether the term ‘employed by’ in LLP Act 2000, s 4(4), is limited to persons employed under contracts of service or whether it has a wider meaning and also covers those who have worker status.37 If the application of s 4(4) is limited to contracts of service, it has no relevance in determining whether a member of an LLP has worker status (in the broader sense), and the question whether a member of an LLP is a worker can be ascertained simply by reference to the test set out in ERA 1996, s 230(3). On the other hand, if s 4(4) extends to worker status, then, for a member of an LLP to be a worker, it would be necessary to apply s 4(4). The Supreme Court decided that s 4(4) did not extend to worker status. Lady Hale’s reasons (with which Lords Neuberger, Wilson and Carnwath agreed) were that: (a) the natural and ordinary meaning of ‘employed by’ is employed under a contract of service;38

33 34 35 36 37 38

[2014] 1 WLR 2047. [2012] IRLR 548. [2013] ICR 883. [2014] 1 WLR 2047 at [16]. [2014] 1 WLR 2047 at [22] and [23]. [2014] 1 WLR 2047 at [24].

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(b) had Parliament intended to include workers within the meaning of s 4(4), it could have done so expressly;39 and (c) ERA 1996, s 230 expressly extends the meaning of ‘employed’ and ‘employment’ so that they are used in a wider sense than the meaning that they would normally carry, and such an extension is conspicuously lacking in the LLP Act 2000.40 9.26 The second issue was whether there is a notion underlying the statutory definition of ‘worker’ that one party has to be in a subordinate relationship to the other and, if so, whether this prevents a member of an LLP from being a worker.41 The Supreme Court decided that there was not such a notion and that the claimant was a worker (with the result that she had whistleblowing protection). Lady Hale42 held that: ‘While subordination may sometimes be an aid to distinguishing workers from other self-employed people, it is not a free standing and universal characteristic of being a worker’.43 9.27 Whilst the Supreme Court decided in Bates van Winkelhof v Clyde & Co LLP that, in principle, a member of an LLP can be a worker, it does not follow that all members of an LLP are workers. A member of an LLP will not be a worker unless he or she contractually undertakes to do or perform personally any work or services for the LLP.44 An obligation to provide services is not imposed by the LLP default rules, and so a member will only be a worker if he makes an agreement to that effect with the LLP. Such an agreement may be made in writing, orally or by conduct and may be express or implied. Whether, in the absence of a relevant written or oral agreement between the members, any particular member will be a worker will depend upon an analysis of all the circumstances, but in the authors’ view the mere fact that individuals form an LLP to carry on a particular business, and in which they all de facto start working, will not necessarily result in each of them being under a contractual obligation to provide their services. 9.28 A number of statutory rights are given to individuals who are workers. In addition to protection under the whistleblowing legislation, the relevant rights are as follows: (a) protection against unlawful deduction from wages;45 (b) national minimum wage;46 (c) right not to suffer detriment for exercising rights in respect of the national minimum wage;47 39 40

41 42 43 44 45 46 47

[2014] 1 WLR 2047 at [25] and [26]. [2014] 1 WLR 2047 at [27]. Lord Clarke agreed that, if ERA 1996, s 230(3) could be construed without reference to LLP Act 2000, s 4(4), the claimant could properly be described as a worker, but he took the view that the reference in s 4(4) to ‘employed by’ extends to worker status: [47]–[51]. [2014] 1 WLR 2047 at [30]. With whom Lords Neuberger, Wilson and (on this point) Carnwath agreed. [2014] 1 WLR 2047 at [39]. A worker must be an ‘individual’, and so corporate members will not be workers. ERA 1996, s 13. National Minimum Wage Act 1998, s 1. National Minimum Wage Act 1998, s 23.

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(d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n)

paid annual leave;48 rest breaks;49 maximum working week;50 right not to suffer detriment for exercising rights in respect of the Working Time Regulations 1998;51 right to be accompanied at a disciplinary or grievance hearing;52 right not to suffer detriment for exercising the right to be accompanied at a disciplinary or grievance hearing;53 right to pension contributions from employer under the auto-enrolment scheme;54 right as a part-time worker not to be treated less favourably than a comparable full-time worker;55 right not to suffer detriment for exercising rights as a part-time worker;56 right not to suffer detriment for exercising rights in respect of trade union membership;57 and right not to suffer any detriment for exercising certain rights as an agency worker.58

TUPE 9.29 The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)59 make provision for the treatment of employees, and related matters, on the transfer of an undertaking or business or a service provision change. In particular, reg 4 provides that a relevant transfer does not have the effect of terminating the contract of employment of a person employed by the transferor, but that such contract is treated as if it had originally been made between the employee and the transferee. ‘Employee’ is defined as: ‘any individual who works for another person whether under a contract of service or apprenticeship or otherwise but does not include anyone who provides services under a contract for services and references to a person’s employer shall be construed accordingly.’60 48

49 50 51 52 53 54 55 56 57 58 59 60

Working Time Regulations 1998 (SI 1998/1833) (WTR), reg 13. See also regs 6 and 7 (limits on night working) and reg 14 (payment in lieu of untaken holiday). But note the exception in reg 20 for workers whose working time is not measured or predetermined, or can be determined by the worker himself. WTR, reg 12. WTR, reg 4. ERA 1996, s 45A. Employment Relations Act 1999, s 10. Employment Relations Act 1999, s 12. Pensions Act 2008, s 3. Note that this right only applies to a worker who satisfies the definition of an ‘eligible jobholder’ under Pensions Act 2008, s 1. Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551), reg 5. Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551), reg 7. Trade Union and Labour Relations (Consolidation) Act 1992, s 146. Agency Workers Regulations 2010 (SI 2010/93), reg 17. SI 2006/246. TUPE, reg 2(1).

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9.30 The question arises as to whether a member of an LLP can be an ‘employee’ for the purpose of TUPE. On the assumption that Lady Hale’s construction of LLP Act 2000, s 4(4) is correct,61 a member of an English LLP cannot be an employee of it in the sense of a person who works under a contract of service. The definition of ‘employee’ in TUPE does not include an equivalent of ERA 1996, s 230(3)(b): it is not extended to ‘workers’ in the sense of individuals who work under any other contract whereby they undertake to do or perform personally any work or services. Indeed, the TUPE definition of ‘employee’ expressly provides that it does not include anyone who provides services under a contract for services. 9.31 Nevertheless, it is certainly arguable that LLP members are ‘employees’ for the purpose of TUPE if they are obliged to provide their services to the LLP because they work for another (the LLP) and the reference to ‘or otherwise’ includes an LLP agreement. This argument derives support from the Employment Tribunal decisions in McCririck v Channel 4 Television Corporation62 and Dewhurst v Revisecatch Ltd.63 In McCririck, it was held that the definition of ‘employee’ in TUPE extends to ‘“workers” as well as to those employed under a contract of service or apprenticeship’ and that ‘[t]he term “contract for services”, in context, must be read as confined to the case of an independent contractor in business on his own account’.64 In Dewhurst, it was held as follows: ‘It seems to me that, as a matter of domestic interpretation, the exclusion is intended to catch only those independent contractors who are genuinely in business on their own account and do not have any employment / labour law rights to be preserved in the event of a transfer.’65

9.32 The authors question whether it is right to treat the definition of ‘employee’ for the purposes of TUPE as including all workers as employees for the purposes of TUPE. In any event, whilst acknowledging the strength of the contrary argument,66 the authors’ view is that LLP members are not ‘employees’ for the purposes of TUPE. The ET decisions involve implying a limitation to the reference to contracts for services by reading that reference as only applicable to independent contractors in business on their own account, and giving a broad reading to the

61 See

62 63

64 65 66

9.18. If the view expressed by Rimer LJ in Tiffin remains good law, then a member of an LLP cannot be an employee (in the sense of someone employed under a contract of service) unless, on the assumption that the LLP was being carried on in partnership by two or more of its members as partners, the relevant individual would have been regarded as employed by the partnership. 3 June 2013, case number 2200478/2013. 26 November 2019, case number 2201909/2018, in which Employment Judge Joffe considered that reg 2(1) of TUPE applied to ‘workers’ as well as ‘employees’. Adopting the same approach as the Employment Tribunal in McCririck, the EJ considered that, as a matter of domestic interpretation, the ‘contract for services’ exclusion under reg 2(1) of TUPE is intended to apply only to those independent contractors who are genuinely in business on their own account and do not have any employment / labour law rights to be preserved in the event of a transfer (at [62]). At [61]. At [62]. See also IDS Employment Law Handbooks, paras 2.25–2.29; and see Uber BV v Aslam [2021] UKSC 5 at [58]–[78] and [112]. See also Pimlico Plumbers Ltd v Smith [2018] UKSC 29 at [7] and [12]–[15]; and Uber BV v Aslam [2021] UKSC 5.

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words ‘or otherwise’.67 Whether or not that was justified in the contexts being considered in McCririck and Dewhurst (neither of which concerned an LLP), the relationship between a member and an LLP is different and is properly treated, for these purposes, as being one within the ordinary wider meaning of ‘contract for services’.68 The distinction which the Employment Tribunals drew is the same distinction drawn for the purposes of the definition of worker in ERA 1996, s 230; but, had Parliament intended to include within TUPE ‘workers’ (who are not employees under contracts of service), it could have done so expressly, and, given that it did not, it is difficult to see why it is necessary or appropriate to imply a limitation on the ordinary meaning of the phrase ‘contract for services’ that Parliament chose to use. To suggest, as the Employment Tribunal did in McCririck, that there was no good reason for imagining that Parliament could have intended to exclude workers begs the question whether Parliament intended TUPE to apply to the wider worker class, as does the Tribunal’s reference to the Acquired Rights Directive,69 which defines ‘employee’ as ‘any person who, in the Member State concerned, is protected as an employee under national employment law …’. 9.33 Domestic legislation limits some rights to employees under contracts of service and gives other rights to a broader class of worker. There is no particular reason to suppose that Parliament intended TUPE to apply to the wider class. On the contrary, the fact that the ‘worker’ definition was not used, and that there is an express exclusion of contracts for services, suggests that it did not. 9.34 Further, it is suggested that the authors’ view takes some support from the Court of Appeal decision in Cowell v Quilter Goodison Co Ltd.70 The issue in Cowell was whether an equity partner in a partnership was an employee for the purposes of TUPE. The Court of Appeal held that he was not. The judgment of the Master of the Rolls (with whom the other two Lord Justices agreed) focused on the nature of the relationship between Mr Cowell and the firm. Lord Justice Glidewell gave a short concurring judgment (with which Lord Justice Farquharson agreed) and he referred specifically to the exclusion from the definition of employee: ‘The definition of “employee” in Regulation 2 of the Transfer Regulations specifically excludes from the definition “anyone who provides services under a contract for services”. That, in my view, is precisely the position of a normal equity partner. His partnership agreement normally requires him or her to provide his services for the benefit of the partnership. In my view not merely because Mr. Cowell was not working

67

Cf the definition of employment in the Equality Act 2010, s 83 which provides that ‘employment’ means: ‘employment under a contract of employment, a contract of apprenticeship or a contract personally to do work’. Query whether, in the Equality Act 2010, ‘contract personally to do work’ extends to partners of partnerships or members of LLPs, given that specific provision is made: see ss 44–46 and 15.121. 68 See IDS Employment Law Handbooks, para 2.24 which suggests that ‘contract for services’ is ‘generally used to describe any contract under which services are provided that is not a contract of employment or apprenticeship’, but then goes on to contend that the phrase as it is used in reg 2(1) should bear a restricted meaning. 69 Council Directive 2001/23/EC of 12 March 2001. 70 [1989] IRLR 392. See IDS Employment Law Handbooks, para 2.23.

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for another person, but because the definition itself specifically excludes him, it is clear that he was not an employee of Quilter Goodison.’

It is right to note that Cowell was decided some time ago and before the development of the case law in relation to ‘workers’, including by the Supreme Court in Bates van Winkelhof. Nevertheless, it does, the authors suggest, give useful guidance as to what is meant by ‘contract for services’ when that phrase is used in legislation without the significant gloss applied by Parliament to the definition of ‘worker’ in ERA 1996, s 230.

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Chapter 10 THE LLP AGREEMENT: GENERAL PRINCIPLES

LLP ACT 2000, SECTION 5(1) 10.1 Section 5(1) of the LLP Act 2000 provides that, except as far as otherwise provided by the Act itself or any other enactment, the mutual rights and duties of the members of an LLP, and the mutual rights and duties of an LLP and its members, shall be governed (a) by agreement between the members, or between the LLP and its members, or (b) in the absence of agreement as to any matter, by any provision made in relation to that matter by regulations made under s 15(c) of the Act, ie by regulations establishing terms to have effect in default of agreement. 10.2 The agreement envisaged by s 5(1) (what we will call ‘the LLP agreement’) is, in some respects, comparable to the articles of association for a company. It is, however, like a traditional partnership agreement (and unlike articles of association), a private agreement which is not required to be disclosed to the outside world. Indeed, there may be no written agreement at all.1 And further like a traditional partnership agreement, the LLP agreement can be tailor-made to the requirements of the members in relation to such matters as decision-making and management, the provision of capital, profit-sharing (and what to do if losses are made), retirement and other relevant matters – subject only to what is excepted from free agreement and dictated by statute.2 10.3 There is, however, a fundamental difference between an LLP agreement and a traditional partnership agreement, reflecting the fundamental difference between an LLP and a partnership. A traditional partnership agreement is concerned solely with the legal relations (ie the mutual rights and duties) between the individual partners. The LLP agreement envisaged by s 5(1) covers not only the rights and duties existing between the individual members, but also the rights and duties existing between the members and the LLP. 10.4 Section 5(1) states that the LLP agreement (or the provisions having effect in default) will govern the mutual rights and duties mentioned ‘except as far as otherwise provided by this Act or any other enactment’. This exception really covers three categories of statutory provision: (a)

the duties and responsibilities placed on designated members, both by the LLP Act 2000 itself and by the CA 2006 and the IA 1986 as modified and applied to LLPs;3

1 See 2 3

10.6. As to which, see 10.4. The duties and responsibilities of designated members are considered in Chapter 12.

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the duties and responsibilities placed on all members, and the rights given to all members, by the CA 2006 and the IA 1986 as modified and applied to LLPs;4 and substantive provisions contained in the LLP Act 2000 itself (for instance, in s 6 as to a member’s agency for the LLP and in s 8 as to identifying designated members), and in legislation amended by the LLP Regulations 2001 to apply to LLPs,5 or expressly applied to LLPs, such as the Equality Act 2010.6

10.5 The LLP agreement is a contract, and will be subject to the ordinary principles of contract law in relation to both its existence7 and (subject to what is next said) its construction.8 An application of the ordinary rules of construction will, however, it is suggested, need to be sensitive to the fact that a written LLP agreement is a document which (unless changes in membership are prohibited) is likely to be capable of governing relations between a changing body of persons. An issue of construction may, for instance, arise for decision after a number of years of the LLP’s existence and changes in the membership. There may, therefore, be more limited scope than in a normal fixed party contract for interpretation, or at least the implication of terms, on the basis of the background knowledge reasonably available to the original members when the agreement was first entered into, in particular where that knowledge is not apparent from the agreement itself.9 The courts may have to decide where the compromise lies between protecting the interests of the original members (and so, on an issue of interpretation, considering all the background knowledge available to those members) and protecting the interests of new members.10 That there can in principle be implied terms in an LLP agreement is recognised by the LLP Regulations 2001.11 10.6 There is no legal requirement for the agreement to be in writing. All or part of its terms may, therefore, be agreed orally. Consistently with this, there is

4 5 6 7 8

9

10 11

As to the duties and responsibilities, see Chapter 13; as to the rights, see Chapter 14. See reg 9 and Sch 5. See s 45. Discrimination is discussed in Chapter 15. Although the doctrine of repudiatory breach does not apply: see 10.32–10.39. As to the general principles by which contracts are construed, see Wood v Capita [2017] AC 1173 at [8]–[15], Arnold v Britton [2015] UKSC 36 at [17] et seq and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912F–913F (Lord Hoffmann); and Kim Lewison, The Interpretation of Contracts (6th edn). Consider also, in this context, Jenkins LJ in Holmes v Keyes [1959] Ch 199 at 215 as to regarding the company articles of association in that case as a business document, and so being construed as to give them reasonable business efficacy where a construction tending to that result is admissible on the language of the articles in preference to a result which might otherwise prove unworkable. Although, unlike the articles of association of a company (under CA 2006, s 33), an LLP agreement is not a contract having statutory force when registered, nevertheless the consideration of the position of potential shareholders in Bratton Seymour Service Co Ltd v Oxborough [1992] BCLC 693 may be equally applicable to the position of potential new members of an LLP. And see, on the construction of company articles, Dashfield v Davidson [2009] 1 BCLC 220 at [82]–[83] and A-G of Belize v Belize Telecom Ltd [2009] 2 All ER 1127. See, for instance, Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [40]. LLP Regulations 2001, regs 2 (defining ‘limited liability partnership agreement’) and 8 explicitly recognise this. See Joseph v Deloitte NSE LLP [2020] EWCA Civ 1457.

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no statutory right for members to be supplied with a copy of the agreement,12 nor requirement that a copy of the agreement be kept anywhere. In accordance with the ordinary principles of contract law, terms may be agreed by conduct;13 and estoppels may arise. Also, and in accordance with the normal principles of contract law,14 the terms of the LLP agreement may be expressly or impliedly varied. Where there is a power to vary the agreement conferred on a majority, the power cannot be exercised so as to take away rights already accrued to a non-consenting minority.15

THE POSITION IN DEFAULT 10.7 Section 15(c) of the LLP Act 2000, referred to in s 5(1) of the Act, enables the Secretary of State to make provisions which govern the mutual rights and duties of the members, and the mutual rights and duties of the LLP and its members, in the absence of actual agreement between them as to any matter. Together with s 17 of the LLP Act 2000, s 15(c) provides that regulations may make provision about LLPs by applying or incorporating, with such modifications as appear appropriate, any law relating to partnerships. Pursuant to s 15(c),16 regs 7 and 8 of the LLP Regulations 2001 contain default provisions (what we will refer to as the ‘default rules’) whose purpose (with one exception) is expressed to be to determine the mutual rights and duties of the members, and the mutual rights and duties of the LLP and the members, subject to the provisions of the general law and to the terms of any (actual) agreement made between the members or between them and the LLP, either expressly or impliedly.17 The one exception is the default rule as to expulsion of a member (in reg 8), where an agreement to displace the default rule that no majority can expel a member is required to be made expressly. 10.8 The default rules, however, do not constitute all the provisions that the members might reasonably want.18 They cover 11 matters,19 and apply, with modifications, some (but not all) of the provisions contained in ss 24–30 of the Partnership Act 1890. The matters covered by the default rules, in outline, are as follows (references to section numbers are to the section in the Partnership Act 1890 being applied): (1) sharing in capital and profits (s 24(1));20 12

Unlike the members of a company being entitled to a copy of the articles of association under CA 2006, s 32(1). 13 See, for instance, Chitty on Contracts (33rd edn) (2018) paras 2–005 and 2–075, and Ho Tung v Man On Insurance Co Ltd [1902] AC 232, where particular articles of association of a company were held to have been adopted by a long course of dealing. 14 Not under s 19 of the Partnership Act 1890: see LLP Act 2000, s 1(5), discussed at 1.23. 15 See James v Buena Ventura Nitrate Grounds Syndicate Ltd [1896] 1 Ch 456 at 466. 16 See 1.23. 17 See the opening part of reg 7 and the definition of ‘limited liability partnership’ in reg 2. 18 See further 11.1. 19 Ten matters are covered by reg 7, and one (expulsion) by reg 8. As mentioned above, the distinction between reg 7 and reg 8 is that the default position of no right for the majority to expel must (as with traditional partnership agreements under s 25 of the 1890 Act) be excluded by express agreement, whereas the reg 7 default provisions are subject to any express or implied agreement between the members or the members and the LLP. 20 See further Chapter 16.

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(2) indemnity to members (s 24(2));21 (3) right to take part in the management of the LLP (s 24(5));22 (4) no entitlement to remuneration for acting in the business or management of the LLP (s 24(6));23 (5) introduction of a new member or voluntary assignment of a member’s interest requires unanimous consent (s 24(7));24 (6) ordinary matters connected with the business of the LLP to be decided by majority (s 24(8));25 (7) books and records to be available for inspection by any member (s 24(9));26 (8) each member to render true accounts and full information to any member (s 28);27 (9) obligation to account to the LLP for any profits made without consent from a business of the same nature as, and competing with, the LLP (s 30);28 (10) obligation to account to the LLP for any private benefit derived without consent from use of LLP property (s 29(1));29 and (11) no majority of members has power to expel any member without express agreement between members as to such power (s 25).30 In addition to these default rules (applying existing partnership law provisions), LLP Act 2000, s 4(3) creates a default rule that a member of an LLP may cease to be a member by giving reasonable notice to the other members.31 10.9 As has been mentioned in 10.3, there are two categories of rights and duties falling within the LLP agreement, namely (i) those existing between the individual members, and (ii) those existing between the LLP on the one hand and the individual members on the other hand. Beyond identifying that there are these two categories of mutual rights and duties,32 and that some provisions will fall within one category rather than the other,33 the legislation does not seek to identify into which category any particular rights and duties may fall. The default rules contain provisions in both these categories: rules (1), (3), (5), (6), (8) and (11), and the provision in s 4(3), are probably to be seen as containing rights and duties between individual members;

21 22 23 24 25 26 27 28 29 30 31

32 33

See further 14.19–14.21. See further 17.2–17.15. See further 17.2. See further 8.5 and 8.24. See further 17.5. See further 14.3–14.17. See further 13.30–13.31 and 14.18. See further 13.9. See further 13.9. See further 19.12–19.13. On cessation of membership generally, see 8.28–8.32. The provision for reasonable notice as to ceasing to be a member could not have been contained in regulations made under s 15(c) because, unlike the provisions of regs 7 and 8 of the LLP Regulations 2001 (including that relating to a person introduced as a member), it is not any part of the ‘law relating to partnerships’, but is a de novo provision for LLPs and thus must find its place in the body of the Act. See LLP Act 2000, s 5(1). See, for instance, LLP Act 2000, s 4(3) referring to an agreement as to cessation of membership, and CA 2006, s 994(3).

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rules (2), (4), (7), (9) and (10) are probably to be seen as containing rights and duties as between the LLP and members. A distinction between the two categories is that, if the members, acting on behalf of the LLP, are considering whether or not to agree to any release or modification of the rights of, or duties owed to, the LLP contained in the default rules incorporated into an LLP agreement, they will need to bear in mind their fiduciary duties to the LLP,34 and their duty also, if the LLP is actually or prospectively insolvent, to take into account the interests of the LLP’s creditors.35 10.10 Given that the default rules are an application, albeit with modifications, of the law relating to partnerships (namely, certain provisions of the Partnership Act 1890),36 it seems correct to say that, prima facie, they will fall to be interpreted in the same way as the corresponding provisions of the 1890 Act which they follow.37 But it would be unwise and wrong to proceed rigidly on this basis. In particular, the fundamental distinction between a partnership and an LLP must always be borne in mind: an LLP is a corporate entity with its own legal personality separate from that of the members/partners. The 1890 Act provisions are themselves, of course, interpreted in the context of the relationship which exists between partners (only). In relation to some aspects of the default rules, the 1890 Act interpretation can safely be assumed to apply. For instance, in default rule (1),38 it seems reasonable to assume that ‘capital and profits’ are to be interpreted in the same way as for s 24(1) of the 1890 Act.39 But, given the separate legal personality of the LLP, the new issue arises under this rule as to how and when, as against the LLP which has made the profits, the members are entitled to receive their share of those profits.40 The answer to this question will have little to do with the law relating to partnerships. Another illustration of the point that one cannot simply follow solely and slavishly the interpretation of the base 1890 Act provision relates to decision-making. In default rule (6), it is probably correct to assume that ‘ordinary matters connected with the business’ (of the LLP) is to be interpreted similarly to that phrase as it applies to partnerships under s 24(8) of the 1890 Act. But in relation to other decision-making on behalf of the corporate entity, it is to be noted that s 24(5) of the 1890 Act41 is materially modified for the purposes of default rule (3),42 as also are ss 29(1) and 30 for the purposes of default rules (10) and (9) respectively.43 10.11 It also needs to be emphasised that the default rules govern the mutual rights and duties of the members, and the mutual rights and duties of the LLP and the members, subject not only to the actually agreed terms of any LLP agreement, but also ‘subject to the provisions of the general law.’44 Although the default rules in 34

As to these fiduciary duties, see 13.8. 13.13. 36 R (Sword Services Ltd) v Revenue and Customs Comrs (QBD) [2016] 4 WLR 113 at [60]. 37 Cf Hilton v D IV LLP [2015] EWHC 2 (Ch) at [21]. 38 ‘All the members of the limited liability partnership are entitled to share equally in the capital and profits of the limited liability partnership’. 39 See further, on default rule (1), Chapter 16. 40 This issue is discussed further at 16.12–16.14. 41 ‘Every partner may take part in the management of the partnership business.’ 42 ‘Every member may take part in the management of the limited liability partnership.’ This is discussed further at 17.2–17.15. 43 These default rules are discussed at 13.11. 44 See the preamble to LLP Regulations 2001, reg 7. 35 See

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reg 7 are a modified form of certain statutory provisions, they do not themselves have the force of statute beyond being contractual terms existing as such (in default) by reason of statute, and their interpretation will (as with any contractual term) be subject to the provisions of the general law.

EXECUTE BEFORE INCORPORATION? 10.12 In many cases where an LLP is being incorporated, it is likely that, by the time the incorporation document is subscribed to, the subscribers will already have agreed the terms of the LLP agreement, and that the actual incorporation will itself be part of the terms agreed, or alternatively will be seen as merely the final formality to be completed. In these circumstances, the ‘partners’ may wish to sign up to the terms before the incorporation is actually effected. Section 5(2) of the LLP Act 2000 is clearly directed to enabling this. The subsection provides that an agreement before the incorporation of an LLP between the persons who subscribe their names to the incorporation document may impose obligations on the LLP (to take effect at any time after its incorporation). 10.13 It will be noted that s 5(2) refers only to obligations: it does not say that after incorporation the LLP will also have the benefit of the agreement, and will be able itself to enforce obligations stated (expressly or impliedly) in the agreement to be owed by members to it. It is a general principle of contract law that a person cannot acquire rights arising under a contract to which he is not a party.45 By referring only to obligations on the LLP (and not to obligations owed to the LLP by the contracting persons), s 5(2) is, on the face of it at least, providing for a partial LLP agreement only to be made prior to incorporation. The obligations owed to the LLP contained in the agreement could include such matters as the provision of capital by members, the obligations contained in default rules (9) and (10) as to accounting for profits made from a competing business or for any personal benefit derived from using LLP property, or a leaver’s restrictive covenant. The Contracts (Rights of Third Parties) Act 1999 will not, it appears, be available to make obligations owed to the LLP enforceable by it. Section 6(2A) of that Act46 provides that s 1 confers no rights on a third party (here the LLP) in the case of any incorporation document or ‘any agreement (express or implied) between the members of a limited liability partnership, or between a limited liability partnership and its members, that determines the mutual rights and duties of the members and their rights and duties in relation to the limited liability partnership’ (ie an LLP agreement). It might be thought that, by reason of the ‘pure benefit and burden principle’,47 the individual subscribers cannot take the benefit of the agreement without also assuming the burden of obligations owed by them under it to the LLP. Whether or not this is correct (and this ‘pure principle’

45 46

47

See, for example, Chitty on Contracts (33rd edn) (2018), para 18–021. Inserted by LLP Regulations 2001, reg 9 and Sch 5, para 20, and amended by Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009 (SI 2009/1941), Sch 1, para 179. This insertion equates, for the purposes of the 1999 Act, to an LLP incorporation document and an LLP agreement to a company’s constitution, which (under s 6(1) of the 1999 Act, as also amended by SI 2009/1941) cannot confer rights on a third party. As recognised by Megarry J in Tito v Waddell (No 2) [1977] Ch 106 at 301 et seq.

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has been heavily doubted by the House of Lords),48 the problem for the LLP would remain that it is not a party to the agreement. 10.14 Although the absence of a reference in s 5(2) to obligations owed to an LLP should be borne in mind, it may be that this absence will not in practice cause problems. An LLP agreement entered into before incorporation may provide for the subscribers to procure that the LLP becomes an additional party on incorporation. Alternatively, the subscribers may agree that certain rights of theirs under the agreement will be assigned to the LLP on incorporation. Another possible course is for the subscribers to enter into an agreement which schedules the LLP agreement in draft, and which contains an agreement amongst the subscribers to enter into that draft agreement, and to cause the LLP to enter into it, after incorporation. In any event, the members may be able themselves to enforce obligations of co-members owed to the LLP by way of an order for specific performance49 or damages,50 or by way of an injunction.51 However, if the LLP agreement is to be entered into before the LLP is incorporated, it would be wise for the LLP itself, in all cases, to become a party to the agreement immediately on incorporation. 10.15 Although s 5(2) is an adjunct to s 5(1), it does not, at least expressly, contain any limitation on the nature of the agreement between subscribers to which it is referring, nor on the identity of the persons to whom the LLP may be obligated by the agreement. Any such agreement, and the imposing by it of obligations on the LLP, will be subject to the fiduciary and other duties and responsibilities owed by the members to the LLP,52 including a duty not to impose an obligation on the LLP for an unlawful or improper purpose. One obligation which may be imposed by a s 5(2) agreement is an obligation for the LLP to pay for or reimburse the (proper) costs of its incorporation. If these costs have been paid by, or are outstanding to, a person who is not a party to the agreement, there is nothing in s 5(2) to preclude an obligation being placed on the LLP to pay or reimburse that third party. 10.16 A point of uncertainty which may be felt in relation to s 5(2) is the impact on it of CA 2006, s 51.53 The position is that there is probably no impact. An agreement between the subscribers which imposes (the word used in subs 5(2)) an obligation on the LLP is not a contract which purports to be made by or on behalf of the LLP.54

RECTIFICATION 10.17 The articles of association of a company, having statutory operation under CA 2006, s 33(1), cannot be rectified by the court under its equitable jurisdiction to

48

Rhone v Stephens [1994] 2 AC 310 at 322. See, for example, the discussion in Chitty on Contracts (33rd edn) (2018), paras 18–046 and 27–052. 50 See, generally on damages, Chitty on Contracts above, para 18–049 et seq. 51 See Chitty on Contracts above, para 18–071. 52 See Chapter 13. 53 Considered at 4.20. 54 It would, however, be wise to ensure that the wording of a s 5(2) agreement cannot be construed as bringing the agreement within this description. 49

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rectify documents which do not give effect to the actual intention of the parties.55 An issue may arise as to whether there is jurisdiction enabling the court to order rectification of an LLP agreement. In the authors’ view, there is. A fundamental reason for there being no jurisdiction in relation to the articles of association of a company is that the articles are a publicly available document, and (whether specifically drafted and filed with the Registrar, or constituted by a complete adoption of statutory model articles) are required to be registered in order for the company to be incorporated.56 An LLP agreement, on the other hand,57 is a private agreement, which is not required to be disclosed to the outside world (and may indeed be wholly or partly oral); and it is difficult to equate LLP Act 2000, s 5(1) with CA 2006, s 33(1). There appears to be no reason in principle why an LLP agreement should not be subject to rectification in the same way as any other commercial agreement (including a traditional partnership agreement). That said, however, the difficulties facing a claim for rectification of a multi-party agreement (at least a claim not founded on an error in the execution of the document caused by clerical mistake) are obvious. In addition, rectification to reflect the true common intention of the original signatories to the LLP agreement (at least so far as the future is concerned) is unlikely to be possible as against a person who has become a member of the LLP (and party to the agreement) subsequently. Such a new member is likely to be the equivalent of a bona fide purchaser for value without notice of the equity of rectification.58 Put another way, where a new member has joined, the relevant true intention will be that of all the parties at the time of the new contract entered into on the signature of the new member.

AMENDMENT 10.18 LLP agreements often contain a provision enabling amendments to the agreement to be made by decision by a specified majority vote (for instance, threequarters). The validity of the purported exercise of powers, such as a power to amend, is considered in detail in Chapter 17. The scope of the amendments which can be made in exercise of such a provision is not unlimited. The issue will be, at heart, one of construction of the particular power of amendment; but, broadly speaking, unless the power clearly contemplates otherwise, its ambit will be limited to matters which can be said to fall within the commercial venture as originally framed. A voting majority cannot use the power to create a provision which is outside the contemplated scope of that venture. In Hole v Garnsey,59 the rules of an industrial and provident society provided (rule 64) that ‘The rules may be amended by resolution of a three-fourths majority at a special meeting’. The House of Lords, on the facts of that case, held that an amendment to the rules, passed under this rule by a three-fourths majority, to the effect that all members were required to make additional capital contributions, was not binding on the appellant dissentient member, on the basis that such an increased 55 See 56 57 58 59

Scott v Frank F Scott (London) Ltd [1940] Ch 794 and Bratton Seymour Service Ltd v Oxborough [1992] BCLC 693. See CA 2006, ss 9(5), 18 and 1085–1086, and Scott v Frank F Scott above at 802 and Bratton Seymour above at 696f–h. If, indeed, there is an LLP agreement beyond the default rules. See, for instance, Snell’s Equity (34th edn) (2019), para 16–025, and Smith v Jones [1954] 1 WLR 1089. [1930] AC 472.

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burden of contribution was outside the scope of the venture as originally framed. Lord Tomlin said: ‘In construing such a power as this, it must, I think, be confined to such amendments as can reasonably be considered to have been within the contemplation of the parties when the contract was made, having regard to the nature and circumstances of the contract. I do not base this conclusion upon any narrow construction of the word “amend” in Rule 64, but upon a broad general principle applicable to all such powers. If no such principle existed I see no reason why a dairy society in Wiltshire should not by means of the exercise of such a power as the one under consideration find itself converted into a boot manufacturing society in Leicester with an obligation on the members to contribute funds to the new enterprise’60

10.19 The House of Lords also expressly referred to alteration of the purpose of, or the nature of the business of, the entity as matters falling outside the ambit of the amendment clause. Default rule (6) for LLPs, following s 24(8) of the Partnership Act 1890, expressly provides that a change in the nature of the business of the LLP requires the consent of all the members. This default rule may well, however, be written out as part of a full written LLP agreement. Whether, in any particular case, an amendment falling outside the contemplated scope of the venture is wholly void, as being ultra vires, and so not binding on even the assenting majority, or whether it is merely not binding on the dissentient minority, is not clear.61

RESCISSION AND TERMINATION 10.20 In considering the potential rescission of an LLP agreement as a result of misrepresentation, non-disclosure or other vitiating factor (considered in 10.22–10.31) or termination as the result of the acceptance of a repudiatory breach (considered in 10.32–10.46), it needs to be borne in mind that the relevant legal relationships are multi-party: the rights and obligations will exist between the LLP and each of the members, and between the members themselves. Furthermore, an LLP agreement gives rise to mutual inter-dependent rights and obligations as between the members, and between each member and the LLP. An LLP agreement will not (usually, at least) comprise a series of independent bi-lateral agreements between each member and the LLP. Whilst the effect of the rescission of a contract (to restore the parties to the position they were in prior to entering into the contract, ie restitutio in integrum) differs from the effect of discharge or termination of a contract by reason of repudiation (effectively, to stop the contract at the moment of discharge, ie to put an end to the unperformed primary obligations of the parties, and to substitute, by implication of law, a secondary obligation on the wrongdoer to pay compensation), the issues that arise for LLP agreements are similar.

60 61

[1930] AC at 500. See also Lord Atkin at 493–496. See Lord Atkin in Hole v Garnsey above at 496. The order made by the House of Lords in Hole v Garnsey, at page 502 of the report, declared that the amendments ‘are not binding upon’ the appellant.

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10.21 There is surprisingly little authority on the juridical nature of multi-party contracts and, in particular, on the application to them of particular contractual doctrines such as rescission and repudiation.62 In Hurst v Bryk, Lord Millett said, in relation to the possibility of repudiation of a multi-party agreement:63 ‘The contractual doctrine [of repudiation] applies to multiparty as well as to two party contracts, but it merely effects the mutual discharge of reciprocal obligations. It necessarily operates bilaterally as between each party in breach and each party accepting the breach as repudiatory by discharging them from their reciprocal obligations. It is difficult to see how it can operate to discharge the parties in the same camp, whether guilty or innocent, from the obligations they owe each other. This can only be achieved by agreement.’64

The authors question whether Lord Millett was right to suggest that there can, in principle, be discharge by acceptance of a repudiatory breach of bi-lateral rights and obligations (between wrongdoer and victim) where the relevant agreement is a multiparty agreement in which the rights and obligations as between all the parties are mutual and inter-dependent.65 A multi-party contract will usually be formed on the basis that each of the parties will be bound to each of the others, and the participants would not, it is suggested, expect there to be the possibility that certain only of the bi-lateral relationships (which make up the multi-party agreement) can be discharged. In any event, the authors’ view is that rescission as a result of a vitiating factor will not be available (whether as a self-help remedy or by court order) if the consequence would be to rescind the rights and obligations between some, but not all, of the parties to a multi-party agreement because either the other parties are to be treated as third parties who would be adversely affected by the rescission or because it is not possible to restore the parties to the position they were in prior to entering into the agreement (ie restitutio in integrum is impossible).

RESCISSION FOR MISREPRESENTATION 10.22 It is clear that, in partnership law, a contract to enter into a partnership or a contract governing the dissolution of a partnership may be rescinded for misrepresentation.66 Equally, but subject to the matters raised in 10.21, there is, the authors suggest, no reason why the doctrine of rescission should not apply to other multi-party agreements such as LLP agreements. 10.23 The common law right to rescind for misrepresentation is subject to a number of qualifications. In particular, it is subject to restitutio in integrum being possible, to the representee not having affirmed the agreement after discovering

62

Repudiation is considered at 10.32–10.46 below. His view in this regard is doubly obiter: see Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch) at [228]. 64 [2002] 1 AC 185 at 195H–196A. 65 See 10.32–10.46 below. 66 See Partnership Act 1890, s 41 and Lindley & Banks on Partnership (20th edn) (2017), paras 23-52 to 23-68. 63

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the misrepresentation, and (in the case of non-fraudulent misrepresentation) to the discretion which the court has under s 2(2) of the Misrepresentation Act 1967 to award damages in lieu of rescission.67 A further important qualification is that the right to rescind may be barred by the intervention of the rights of third parties. As to creditors, it is likely that rescission will be barred if the LLP goes into insolvent liquidation, at least if the member who made or received the misrepresentation has contributed capital, or has agreed to contribute in a winding up.68 Equally, it is likely that there can no longer be rescission if the LLP, although not yet being wound up, is in fact insolvent.69 10.24 Rescission for misrepresentation70 may arise in an LLP context in several different types of scenario: (a) Rescission of an agreement to form an LLP. (b) Rescission, either by the new member or by an existing member, of an agreement that a person join an existing LLP. (c) Rescission by one or more existing members of a new LLP agreement, a variation of an existing LLP agreement or a retirement agreement.

Rescission of an agreement to form an LLP 10.25 Where an agreement to form an LLP remains executory (that is, the LLP has not been incorporated), there would seem to be no reason why the agreement should not, in principle, be rescinded where one or more parties are guilty of misrepresentation71 and the usual requirements for rescission are satisfied. If there are more than two parties to the agreement, the issues raised in 10.21 as to the impact of the agreement being a multi-party contract will need to be considered. Assume, for example, that A, B, C and D enter into an agreement to form an LLP and A makes a material representation of fact on which B relies. The representation turns out to be untrue and B wishes to rescind the agreement, but C and D do not. C and D entered into the agreement on the basis that there would be four members and B’s involvement may have been important to their decision to participate. In a case of this kind, it is difficult to see that B should be entitled to rescind and, even if he can rescind the contract bilaterally with A, that would do him no practical good: he would still be bound as regards C and D. 10.26 Once the agreement has been executed (that is, the LLP has been incorporated), rescission would seem to be impossible. Once the incorporators

67

As to rescission for misrepresentation generally, see Chitty on Contracts (33rd edn) (2018), paras 7–112 to 7–123. 68 See, for instance, Tennent v City of Glasgow Bank (1879) 4 App Cas 615 and In re Scottish Petroleum Co (1883) 23 Ch D 413 (company cases). 69 See Tennent v City of Glasgow Bank, above, at 622. See also, generally, West Mercia Safetywear Ltd v Dodd [1988] BCLC 250, Official Receiver v Stern (No 2) [2002] 1 BCLC 119 and BTI 2014 LLC v Sequana SA [2019] 2 All ER 784 as to the interests of creditors becoming paramount when a company is insolvent or of doubtful solvency. The position will be similar for LLPs. 70 Or as a result of other vitiating factors, such as undue influence. 71 Or other vitiating factor.

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have subscribed their names to the incorporation document and the LLP has been incorporated, the LLP will exist and they will be members of it.72 The legislation does not contemplate the possibility of reversal of the incorporation of the LLP itself by rescission.73 Even if rescission is not impliedly excluded by the legislative framework, the existence of the LLP must make it impossible for the status quo ante to be restored. Rather than rescind the agreement, B’s remedy (using the example in 10.25) may be to petition the court to wind up the LLP on the just and equitable ground or possibly to apply for relief under CA 2006, s 994.

Rescission, either by the new member or by an existing member, of an agreement that a person join an existing LLP 10.27 There would seem to be no reason, in principle, why an agreement made pursuant to s 4(2) of the LLP Act 2000 between a person and the existing members of an LLP that the outsider becomes a member of the LLP cannot be rescinded for misrepresentation, provided that the usual requirements for rescission are satisfied. The effect of rescission would be that the new member would be treated as never having been a member, but the LLP would continue to exist and the existing members would continue to be members of it. 10.28 In the authors’ view, in order to obtain the rescission of the agreement by which he became a member, a new member would have to show that the misrepresentation was made by or on behalf of all the existing members.74 In practice, it may be that the negotiations with the prospective new member are conducted by one or more, but not all, of the existing members. In such cases, the new member would need to establish that those with whom he was negotiating did so with the actual or ostensible authority of the other members (and perhaps the LLP). 10.29 Where the misrepresentation is said to have been made by the new member, obviously no difficulty arises as to authority in respect of the making of that representation; but, if one or more but not all of the existing members wish to rescind the agreement, it may be that rescission is not possible.

Rescission by one or more existing members of a new LLP agreement, a variation of an existing LLP agreement or a retirement agreement 10.30 Again, in principle, rescission of an agreement to enter into a new LLP agreement, or variation of an existing agreement, or a retirement agreement ought to be possible, but difficulties may arise where some but not all of the victims of the misrepresentation wish the agreement to be rescinded.

72 73 74

See LLP Act 2000, s 4(1). As to rectification of the register, see CA 2006, ss 1093–1098. Query whether it would also have to be shown that the misrepresentation was made by the LLP: the LLP is not a necessary party to an agreement pursuant to LLP Act 2000, s 4(2), but, if the actual agreement is one to which the LLP is a party, then the agreement would have to be rescinded as against it as well as the existing members.

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NON-DISCLOSURE 10.31 It is well established that partners or prospective partners negotiating the formation of a partnership, or a partnership or retirement agreement, must make disclosure to each other of material matters and facts and that, if they do not, the agreement may be set aside. Whether this principle extends to members of an LLP is unclear. In the absence of agreement to the contrary, members do not owe each other obligations of good faith.75 Nevertheless, the authors’ view is that the nature of the relationship between the members, and between the members and the LLP, is one based on trust and confidence and that, consequently, such a duty of disclosure, akin to that owed between partners, exists where members or prospective members are negotiating the terms of an agreement to form an LLP or to admit a new member to an existing LLP, or the terms of a new LLP agreement or the terms of a retirement agreement.76 If this is the case, the principles set out above in relation to rescission for misrepresentation will come into play.77

REPUDIATION Partnership law 10.32 It is now well established in the High Court, at first instance, that a traditional partnership cannot be dissolved, and an agreement governing a partnership cannot be terminated, by the acceptance by one partner or group of partners of a repudiatory breach of the agreement by one or more of the other partners; and it is also now generally accepted that, if dissolution of the partnership is to be the result of a serious breach of the agreement, then (in the absence of specific agreement amongst the partners, or the partnership being a partnership at will) an order of the court will be required under Partnership Act 1890, s 35.78 This is essentially because the partnership relationship is more than a simple contract: it is a continuing personal as well as commercial relationship, which is subject to the supervisory jurisdiction of the court of equity and to the general principles developed by that court in relation to partnerships.79

75

F&C Alternative Investments (Holdings) Ltd v Barthelemy [2012] Ch 613 at [207]–[216]. 13.15 and 13.26. As to the distinction between pure non-disclosure and misrepresentation, see Chitty on Contracts (33rd edn) (2018), para 7–018. Hurst v Bryk [2002] 1 AC 185 at 193–196 (Lord Millett), Mullins v Laughton [2003] Ch 250 at [86]–[93], Barber v Rasco International Limited [2012] EWHC 269 (QB) at [58]–[60], Golstein v Bishop [2013] EWHC 881 (Ch), [2014] Ch 131 at [114]–[123] per Christopher Nugee QC and [2014] EWCA Civ 10, [2014] Ch 455 at [9]–[10] per Briggs LJ, and Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch). See also Wilson Solicitors LLP v Roberts [2018] EWCA Civ 52 and Thitchener v Vantage Capital Markets LLP [2019] EWHC 1576 (QB). (Cf Ryder v Frohlich [2004] NSWCA 472. It appears from the report (judgment at [133]) that Hurst v Bryk was not cited to the court, but the judges found it themselves and (without hearing argument) declined to follow it, basing themselves on Elisabeth Peden and JW Carter ‘The Bonds of Partnership’ 16 Journal of Contract Law 275.) In addition, automatic dissolution by the acceptance of a repudiatory breach is difficult to reconcile with the discretionary power given to the court by Partnership Act 1890, s 35(d) to order a dissolution where a partner wilfully or persistently commits a breach of the partnership agreement.

76 See 77 78

79

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The application of the doctrine to LLPs 10.33 Partnership law has not been applied generally to LLPs. The relationship between members of an LLP is not one of partnership and, therefore, not one that is subject to the jurisdiction and principles of the court of equity, as referred to by Lord Millett in Hurst v Bryk.80 Nevertheless, questions arise as to: (a) whether an LLP agreement is capable of being discharged by acceptance of a repudiatory breach, either between the innocent members (‘the breach accepters’) on the one hand and the party or parties in breach (‘the contract breakers’) on the other, or between all the parties to the agreement (that is, all the members and the LLP); and (b) if so, what are the consequences both for the membership of the LLP and for the terms that govern the relationship between the members inter se, and the relationship between the members and the LLP.81 10.34 The authors previously expressed the view that the reasoning which applies to preclude a traditional partnership agreement, and the partnership relationship, from being terminated by the acceptance of a repudiatory breach does not apply in relation to an LLP agreement; and that, in principle, the doctrine of termination of a contract by the acceptance of a repudiatory breach applies to an LLP agreement.82 That view was held to be wrong (correctly, in the current view of the authors) by Henderson J in Flanagan v Liontrust Investment Partners LLP.83 Henderson J held that the doctrine of discharge by acceptance of repudiatory breach was impliedly excluded by the LLP legislation (at least in relation to LLPs with more than two members), and so does not apply to an LLP agreement that is an agreement for the purposes of s 5(1) of the LLP Act 2000.84 10.35 Mr Flanagan was a member of Liontrust Investment Partners LLP, with an entitlement to a fixed annual profit share. Under the LLP agreement, he did not contribute substantial capital (which was provided by the corporate member) and

80

81

82 83 84

Above. The incorporation for LLPs of those provisions of the 1890 Act (with modifications) reflected in regs 7 and 8 of the LLP Regulations 2001 as default LLP agreement provisions cannot reasonably be said to be incorporating for LLPs the partnership relationship governed by equity referred to by Lord Millett. See, generally, on discharge of a contract by breach, Chitty on Contracts (33rd edn) (2018), chapter 24. Whilst an acceptance of a repudiation leads to the agreement being terminated, this is not the same as a rescission of the agreement (for instance, on the ground of misrepresentation: see 10.22), where the status quo ante is restored. On a termination resulting from an accepted repudiation, the agreement is not rescinded ab initio: what is ended is the primary contractual obligations of the parties which remain unperformed: see Chitty on Contracts above, para 24–049. The Law of Limited Liability Partnerships, 3rd edition, para 9.23; Lindley & Banks on Partnerships (19th edn) (2010), para 24–08. [2015] EWHC 2171 (Ch) at [218]–[243]. (The decision was appealed to the Court of Appeal on another issue at [2017] EWCA Civ 985.) Henderson J left open the question whether the doctrine of repudiatory breach applies to LLPs with two members: see [243]. In the authors’ view, no distinction can be drawn in respect of twomember LLPs in cases where the LLP is a party to the LLP agreement: such an agreement will have three parties.

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he had no interest in the capital profits (ie the equity). Mr Flanagan’s case was that the LLP (and either some or all of the other members) had committed repudiatory breaches of the LLP agreement, which he was entitled to, and did, accept. This resulted, he contended, in the termination of the LLP agreement as between at least himself and the LLP. He advanced this argument, not as a way of being entitled to cease to be a member without serving notice, but as the basis for asserting that, following the termination of the LLP agreement, he remained a member of the LLP and the relationship between, at least, himself and the LLP was thereafter governed by the LLP default rules, with the result that he was entitled to an equal share in the profits and capital of the LLP. This, he said, entitled him to a buy-out order under CA 2006, s 994 on the basis of his now equal share. It was accepted by Mr Flanagan85 that (whether or not all or any of the other members were in repudiatory breach) the relationship between (a) the other members inter se, (b) the other members and the LLP, and (c) himself and any other members who were not in repudiatory breach continued to be governed by the LLP agreement. The consequence of his case would, therefore, have been (had he been right) that two different sets of rules would govern the various relationships: his relationship with the LLP (and any members who were in repudiatory breach) would have been governed by the default rules; and all the other relationships would have continued to be governed by the LLP agreement.86 Henderson J said, in relation to the possibility of two different sets of rules being in play: ‘231.  In my judgment, it is all but self-evident that the co-existence of two different contractual regimes governing the same LLP is likely to lead to results which are legally incoherent and could only be resolved by further agreement between all the members. [Counsel for Liontrust] gave two examples. The first example was of an LLP with five members, one of whom (A) is in repudiatory breach of the section 5 agreement which governs the LLP, and another of whom (B) accepts the breach. Under the section 5 agreement, B has a small profit share, say 1%, but an equal share would entitle him to 20%. How, then, are the profits to be distributed after B has accepted A’s repudiation? As between A and B, B would now be entitled to share equally in the profits under the default rules; but the other members retain their original entitlements, so if both A and B were paid 20% the combined profit shares of the five members would exceed 100%. Nor would there be any existing contractual mechanism which would enable the additional 19% now payable to B to be deducted from A’s share; and, even if there were, the other members would presumably still be entitled to say to B that his only right was to receive 1%, and if he received more than that, he should repay it. 232.  [Counsel for Liontrust’s] second example concerned decision making. Assume that, under the same section 5 agreement, complete decision making control is vested in A. Following B’s acceptance of A’s repudiatory breach, B would now have the right as against A to participate equally in decision making under the default rules, and he would therefore be entitled to prevent A from making any decisions without his consent. But the other three members, assuming them to be breach-agnostics, would still be entitled to insist on decisions being taken by A alone, even if B objected to them. That would be an impossible state of affairs, submits [Counsel for Liontrust], which Parliament could never have intended.’

85 86

Consistent with Lord Millett’s analysis of the effect of repudiation in multi-party cases: see 10.21. See [230].

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10.36 The response to this argument was that these difficulties are inherent in any multi-party contract. Henderson J accepted the force of this point, but held that this does not answer: ‘233 … the basic question whether Parliament could reasonably have intended to create a statutory framework for LLPs under which the same subject-matter might foreseeably be governed by inconsistent provisions (under a section 5 agreement and the default rules respectively) following acceptance of a repudiatory breach of a section 5 agreement. In my judgment, the statutory scheme should if reasonably possible be construed in a way which avoids this possibility. 234 In my view it is reasonably possible to construe the statutory scheme in such a way, without doing any violence to the wording of either section 5 or the default rules. I would accept Liontrust’s submission that it is implicit in the statutory regime for the internal governance of LLPs that, in relation to any particular matter, an LLP and all of its members for the time being must be subject to the same set of rules, whether those rules are contained in an exhaustive section 5 agreement, or (in the absence of any section 5 agreement) in the default rules alone, or in a combination of a section 5 agreement and the default rules. This does not mean, of course, that the rules have to treat all the members alike, or that the rules may not themselves be subject to amendment or modification in accordance with procedures to which all have previously agreed. But it does mean, in my judgment, that there is no place for operation of the doctrine in relation to section 5 agreements, save perhaps where the LLP has only two members. 235 Another way of expressing the same principle is to say that, once a section 5 agreement has been made, it will continue to bind the LLP and the members until either it is terminated by common agreement, or it is varied in accordance with a procedure to which all the relevant parties have previously subscribed. It is only in such circumstances, in my judgment, that there could be “the absence of agreement as to any matter”, within the meaning of section 5(1)(b) of LLPA 2000, in relation to a matter which was previously covered by the section 5 agreement, so as to allow the matter to be governed for the future by the default rules.’

10.37 Henderson J was clearly influenced by the commercial consequence in the event that the claim was successful. He said:87 ‘… it would in my judgment be offensive to common sense, and contrary to the reasonable commercial expectations of the parties, if the effect of the doctrine were to permit Mr Flanagan to share in the profits of the LLP on a basis of notional equality with the other members, when the LLP Agreement itself gave him only a fixed allocation of income profits and no entitlement to any capital profits, all of which were allocated to LIS. The appropriate remedy for a member in Mr Flanagan’s position is a declaration as to his continuing membership of the LLP and a right to damages, if he can establish that he has suffered any loss as a result of his exclusion.’

10.38 The authors’ view is that Henderson J’s reasoning and conclusion are correct. The only part of his analysis with which they would quarrel concerns the relevance of the court’s power to wind up an LLP on the just and equitable ground to

87

See [239].

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the question whether the doctrine of repudiation was impliedly excluded by the LLP legislation: ‘242 Finally, [Counsel for Liontrust] relied on the jurisdiction of the court to wind up an LLP on the just and equitable ground. He submitted that one of the circumstances in which such a petition might be presented by a member would be where the LLP was in serious breach of its contractual obligations. To that extent, therefore, there is an analogy with section 35(d) of the Partnership Act 1890, which was the factor which weighed most heavily with Lord Millett in Hurst v Bryk when he provisionally decided that the doctrine could not apply to partnership agreements. In my judgment, however, this point is too tenuous to be of any real assistance. It is true that the jurisdiction to wind up an LLP on just and equitable grounds is a discretionary one, which could in principle be invoked in a case of comprehensive breaches of contract by the LLP; but the authorities on the use of this remedy in the context of limited companies suggest that it is to be regarded as very much a last resort, and in any event the jurisdiction is not tied specifically to breaches of contract in the same way that section 35(d) of the 1890 Act is. The legislative intention to exclude operation of the doctrine in relation to section 5 agreements must therefore be found in a consideration of the statutory scheme as a whole, not in the availability of this particular remedy for a dissatisfied member who wishes to wind up the LLP to which he belongs.’

10.39 The LLP legislation, like the Partnership Act 1890, sets out a statutory code governing the formation, winding up and dissolution of the entity and the admission and exit of members, which makes no reference to repudiation,88 and which vests in the court power to grant relief in the event that a member of an LLP is prejudiced by conduct of a repudiatory nature: the court has power to order the LLP to be wound up on the just and equitable ground and to grant relief under CA 2006, s 994.89 The statutory provisions applicable to companies and LLPs have their origin in the common law of partnerships before its statutory consolidation, and in the equitable principles developed in relation to partnerships. The statutory regimes give the court powers to deal with the unfairness to a member arising from a serious or repudiatory failure to comply with the basis upon which it was agreed that the venture would be conducted. This reflects the shared historic DNA of partnerships, companies and LLPs.90 In Hurst, Lord Millett placed considerable weight on the significance of the existence of s 35(d) of the 1890 Act, which gives the court power to dissolve a partnership where there has been a breach of the partnership agreement. The authors suggest that the analogy between s 35(d) (and the other parts of s 35) and the court’s power to order the winding up of an LLP on the just and equitable ground is a close one: the court’s power to wind up a company or LLP on the just and equitable ground clearly extends to circumstances in which there is a serious or repudiatory breach of the governing documents.91 The authors suggest that the common law concept of repudiation sits just as uneasily with the existence of the overall statutory regime

88 See

Hurst at 194F and 195B–D. Hurst at 195D–F and 196B. 90 See Ebrahimi v Westbourne Galleries Limited [1973] AC 360 at 375B and O’Neill v Phillips [1999] 1 WLR 1092 at 1098D to 1099A. The court’s power to order buy out in a partnership context is non-statutory: see Mullins v Laughton at [107]–[112], referring to Syers v Syers (1876) 1 App Cas 174. 91 See, for example, Re A & BC Chewing Gum [1975] 1 WLR 579. 89 See

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in an LLP (or company) context as it does in a partnership context.92 The fact that the LLP itself is a separate entity, the legal existence of which will (on any basis) be unaffected by repudiation, is, it is suggested, irrelevant: the analogy lies in the similarities in the relationship between the venturers and the court’s powers to deal with repudiatory conduct.

The consequences if the doctrine applies to LLPs 10.40 If, contrary to Henderson J’s decision in Flanagan v Liontrust, the doctrine of repudiation does apply to LLPs, three questions arise. First, whether acceptance of a repudiatory breach results in the automatic cessation of the innocent member’s membership. Secondly, if not, whether the default rules apply in relation to the innocent member. Thirdly, if there is no automatic cessation of membership, what notice period applies to the innocent member.

Cessation of membership? 10.41

In Flanagan v Liontrust, Henderson J said (obiter):

‘I am not attracted by an alternative submission advanced by Liontrust to the effect that, if the doctrine does apply, the membership of the breach acceptor terminates automatically upon his acceptance of the breach. Membership is governed by the separate provisions of section 4, and section 4(3) sets out the different ways in which membership may cease: by death, by dissolution of the LLP, by agreement with the other members, or (in the absence of such agreement) by the member giving reasonable notice to the other members. The acceptance of a repudiatory breach would not fit into any of those categories. In particular, as Lord Millett explained in Hurst v Bryk at 195C: “The theory that a repudiatory breach of contract is an offer to terminate the contract which can be accepted by the offeree, thereby bringing the contract to an end by mutual consent, is discredited. The contract is brought to an end by the exercise of a right conferred by law on the parties to the contract from the outset, not by virtue of a new agreement between them.”’

Do the default rules apply? 10.42 If the innocent member’s membership continues, it does not necessarily follow that the relationship between the breach accepter(s) and the contract breaker(s) is governed by the default rules. As noted above, even if the doctrine applies and results in the termination of the LLP agreement so far as concerns the relationship between the contract breaker(s) on the one hand and the breach accepter(s) on the other, it will not terminate the LLP agreement between the contract breakers inter se or between the breach accepters inter se (if, in either case, there are more than one) or between any other parties who are neither contract breakers nor breach accepters (‘breach agnostics’) or between the breach agnostics and the other parties. According to Lord Millett,93 acceptance of a repudiatory breach operates bilaterally as between each party in breach and each party accepting the breach. In a multi-party contract,

92 See 93 See

Hurst at 195D. Hurst at 193H and 195H.

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it effects the mutual discharge of future obligations as between the two camps (ie the camps of the wrongdoers and the wronged respectively). It does not operate to effect a discharge of obligations as between persons in the same camp. Equally, on the basis of Lord Millett’s analysis, it seems reasonable to say that acceptance of a repudiatory breach by a wronged party will not operate per se to effect a discharge as between the wronged party and a party to the contract who is not in breach, so that, for instance, a repudiatory breach by the LLP only of an obligation owed by it to a particular member will not lead per se (by acceptance of the repudiation by the wronged member) to a discharge as between the wronged member and the other members. 10.43 If the doctrine applies (and the breach accepter is discharged from the LLP agreement as regards the contract breakers by his acceptance of the repudiation), the question is whether, as between a breach accepter and a contract breaker (most likely the LLP itself), the default rules now apply. The argument in favour of this conclusion is that the default rules apply to the relationship because the termination of the LLP agreement results in the ‘absence of agreement’ for the purposes of s 5(1)(b) of the LLP Act 2000, such that the default rules in regs 7 and 8 of the LLP Regulations 2001 apply. But, in the authors’ view, this argument is wrong. Why should a member who elects to treat the LLP agreement as terminated as between himself and a contract breaker, and unlike the wronged party under other forms of contract discharged for repudiation, acquire newly created primary rights and obligations? The doctrine of repudiation is clear. If one party to a contract commits a repudiatory breach, the other (the innocent party) has a choice: he can affirm the contract (and, if he has suffered recoverable loss, he can sue for damages) or he can elect to accept the repudiatory breach, in which case both parties are discharged from unperformed obligations under the contract and there is substituted, by implication of law, for the innocent party’s future rights and obligations under the contract, a ‘secondary right’ for that party to receive from the wrongdoers money compensation for the loss caused to him by no longer having the benefit in the future of the primary obligations owed to him.94 10.44 If a wronged member of an LLP elects to terminate the LLP agreement, and to put an end to the primary rights and obligations that constituted his interest under it, he has chosen to substitute a secondary right to compensation for those primary rights and obligations. No injustice results: he could have affirmed the contract; or sought a just and equitable winding-up order or s 994 relief with the LLP agreement in force; but, instead, he has chosen to substitute for the primary obligations a secondary right to damages. Does the combined effect of s 5 of the LLP Act 2000 and regs 7 and 8 of the LLP Regulations 2001 compel a different result? In the authors’ view, it does not. The default rules only apply in the absence of an agreement between the members and the LLP. But the enquiry as to whether there is such an absence should

94

Although discharge of a contract for repudiatory breach discharges the parties from future performance, rights accrued unconditionally to either the wronged party or the wrongdoers are not affected. See Moschi v Lep Air Services Ltd [1973] AC 331 at 349–350 and Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 849; and see generally Chitty on Contracts above, para 24–050.

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be directed temporally to the time of the formation of the multi-party relationship (or to the time when there is a consensual change in the terms of the relationship). In any event, and as set out above, the discharge of rights and obligations as a result of the acceptance of a repudiatory breach does not result in the rescission of the agreement or the absence of an agreement. The contract continues to subsist: rights and obligations already accrued continue, but a secondary right to compensation for the innocent party is substituted for his unperformed future rights. There is no reason to regard a situation in which a member has elected to substitute a secondary right to compensation for his or her primary rights and obligations as causing an absence of an agreement for the purposes of s 5 of the LLP Act 2000 and regs 7 and 8 of the LLP Regulations 2001; and no other rights or obligations beyond the secondary rights and obligations implied by law (and the statutory right given by s 4(3)) are required for the innocent member to have his remedy in repudiation of the LLP agreement.

Applicable notice period? 10.45 If, in accordance with what has been said above, the innocent member’s membership continues and the LLP agreement is no longer binding between himself and the contract breakers, but remains in force between himself and any other innocent members, it would appear that the innocent member would (in order to terminate the relationship between himself and the other innocent members) have to comply with any notice requirements that there may be in the LLP agreement. Only in the (probably rare) case where the LLP and all the other members are contract breakers (such that he was not bound by the primary obligations in the LLP agreement at all) would the innocent member be able to terminate his membership by exercising his right to cease to be a member by giving notice under s 4(3) of the LLP Act. Given that, on this hypothesis, the conduct of the contract breakers is such as to have amounted to a repudiatory breach of the LLP agreement, a ‘reasonable’ notice period is likely to be short, to the point of instantaneous.

Fiduciary duties 10.46 A further possible issue which may arise is whether the general fiduciary duties which a member owes to the LLP (and which duties will encompass considering the interests of creditors if the LLP is insolvent or of doubtful solvency)95 will cause there to be any restraints on the wronged member accepting the repudiation in the first place and/or giving notice of ceasing to be a member under s 4(3). The position, it is suggested, is that they will not. The wronged member will be exercising rights and powers which are conferred on him (by the common law and/or s 4(3)) in his own behalf, and which rights and powers are not fiduciary.96 It is suggested that his 95 96

As to the fiduciary duties owed by a member to the LLP, see 13.8–13.15. See, for instance, CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 at [87] and [95] (a director’s power to resign from office is not a fiduciary power: it can be exercised, however damaging this may be to the interests of the company). See also 14.29. Cf, in relation to whether there may be an implied restraint on the exercise of a right to terminate a contract, Lomas v JFB Frith Rixson Inc [2012] 2 Lloyd’s Rep 548; MSC Mediterranean Shipping Co v Cottonex [2015] EWHC 283 (Comm); Anstalt Monde Petroleum SA v Westerzagros Ltd [2016] EWHC 1472 (Comm); Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396, [2016] 1 CLC 712; Hamsard 3147 Ltd v Boots UK Ltd [2013] EWHC 3251 (Pat). See also ‘The exercise of contractual discretion’, Bridge, (2019) 135 LQR 227.

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exercise of them cannot be impugned, however damaging it may be to the interests of the LLP. It is to be appreciated, however, that the wronged member will still remain under the general fiduciary duties not to appropriate to himself, after he has left the LLP, business opportunities properly belonging to the LLP.97

REMEDIES FOR BREACH Generally 10.47 The LLP agreement is a contract. The authors suggest that there is no reason, in principle, why the usual remedies for breach of contract, other than discharge by acceptance of a repudiatory breach (as discussed at 10.33–10.39), should not be available to a wronged party. A member may have a claim for breach of the agreement against one or more of the other members or the LLP (assuming that the relevant act or omission is to be attributed to the LLP in breach of an obligation owed by it under the agreement). The LLP agreement may itself provide remedies in the case of some breaches; but its remedies may well not cover all breaches (in particular, by a majority of members against a minority),98 nor provide for compensation where financial loss has been caused.

Damages 10.48 Although the availability of damages as a remedy for breach of a traditional partnership agreement has been questioned,99 the authors suggest that there is no reason, in principle, why a breach of an LLP agreement does not sound in damages in the ordinary way. 10.49 For damages to be recoverable for a breach of contract, there must be a causal connection between the breach and the loss claimed. If the wronged member decides, because of the wrongful conduct towards him by the other members, to exercise a contractual right to leave the LLP (usually by serving notice), and claim compensation (eg loss of future profit share), the question will arise as to whether the loss to him resulting from his ceasing to be a member has, in truth, been caused by the breach of the agreement, or has been caused by his own decision to give notice of departure. When considering the requirement that, for damages to be recoverable for breach of contract, the loss must have been caused by the breach, the general approach taken by the court is to consider whether, viewed as a matter of common sense, the breach of the contract is the effective or dominant cause of the loss (as opposed, for instance, to merely providing the wronged party with the occasion or opportunity to act as he did).100 Where the wronged member has been the object of clearly wrongful

97 See

CMS Dolphin Ltd v Simonet above, at [87]–[96]. This will be the more so if members’ rights to apply to the court under CA 2006, s 994 have been excluded under s 994(3). 99 Golstein v Bishop [2014] Ch 455 per Briggs LJ at [11]. 100 See, for instance, the discussion in Chitty on Contracts above, paras 26–066 to 26–084. 98

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conduct (for instance, he has been unjustifiably excluded from the LLP’s premises and business), it is suggested that, if the member then exercises a right under the LLP agreement to leave, the court is likely, as a matter of common sense, to see the wrongful conduct as the cause of the loss to the excluded member which results from his ceasing to be a member. This outcome will, of course, all depend on the particular facts, but support for it, in principle, is derived from Golstein v Bishop.101

Other remedies 10.50 Other potential remedies (or routes to remedies) for the wronged member include presenting a petition under CA 2006, s 994 for a ‘buy-out’ order or presenting a petition under IA 1986, s 122(1)(e) for a ‘just and equitable’ winding-up order. These are considered further in Chapters 28 and 29.

GOVERNED BY FOREIGN LAW? 10.51 The members of an LLP which, in the day-to-day conduct of its affairs, is to have only a tenuous link with the UK may wish to have the LLP agreement governed by some law other than English law.102 In the authors’ view, this could, at most, only be achieved to a limited extent. The Rome I Regulation,103 which provides that as a general rule a contract is to be governed by the law chosen by the parties, excludes from its scope, and so does not apply to, ‘questions governed by the law of companies and other bodies, corporate or unincorporated, such as the creation, by registration or otherwise, legal capacity, internal organisation or winding up of companies and other bodies, corporate or unincorporated, and the personal liability of officers and members as such for the obligations of the company or body’.104 It is clear that an LLP is an ‘other body corporate’. The LLP agreement default rules (introduced by legislation), and any provisions agreed by the parties in the place of the default rules, are probably part of ‘the law of companies and other bodies corporate’. In any event, ‘internal organisation’ will include such matters as the appointment of new members, voting rights of members and the division and allocation of profits. It will include also the fiduciary obligations owed by a member to the LLP.105

101

102 103

104 105

Golstein v Bishop [2013] EWHC 881 (Ch), [2014] Ch 131; [2014] EWCA Civ 10, [2014] Ch 455. And note the words of Glidewell LJ in Galoo Ltd v Bright Grahame & Murray [1994] 1 WLR 1360 (a leading contract causation case) at 1372C: ‘not all judges regard common sense as driving them to the same conclusion’. ‘Foreign connections’ generally are discussed in Chapter 26. Regulation (EC) No 593/2008 [2008] OJ L177/6, which applies to contracts concluded after 17 December 2009. In relation to LLP agreements, the Rome I Regulation does not alter the position existing previously under the Rome Convention. Article 1.2(f). For a fuller discussion of this exception from the general rule, see Dicey, Morris & Collins on The Conflict of Laws (15th edn) (2012), paras 30–029 et seq. Base Metal Trading Ltd v Shamurin [2005] 1 WLR 1157 at [56] and [65]–[69]. Insofar as such obligations might be said to arise non-contractually, it may be noted that the Rome II Regulation (Regulation (EC) No 864/2007), which gives a certain freedom of choice of law as to noncontractual obligations (Art 14), has, for present purposes, the same exclusion from its scope for obligations arising out of the law of companies and other bodies, corporate or unincorporated, as the Rome I Regulation.

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It is difficult to see any matters of significance for an LLP agreement which fall outside this exception from the general rule in the convention. The result of (in broad terms) the Rome I Regulation not covering an LLP agreement is that the proper law of the agreement (ie the law governing the interpretation and validity, mode of performance and consequence of breaches) will fall to be determined by common law rules. These rules provide for the proper law of a contract to be the law chosen (expressly or inferentially) by the parties for this purpose, or in the absence of any such discernible choice, for the proper law to be that system of law with which, viewed objectively, the contract has the closest and most real connection.106 This right of choice, however, is subject to certain rather ill-defined limitations, in particular that the choice must be ‘bona fide and legal’, and that the application of the foreign law will not be contrary to public policy.107 10.52 An LLP is a creature of UK legislation; and certain obligations on the part of the members, and (probably) certain rights of members, are under that legislation fundamental conditions of the LLP’s existence.108 It seems clear that an English court would not recognise the provisions of an LLP agreement which purported to render nugatory any of these statutory obligations or rights.109 It may also be correct to say that any provision which would be null and void on the basis that the proper law of the agreement is English law would be held to be null and void (as a matter of its application) even though purporting to be governed by a foreign law.110 But, subject to these limitations, consideration could be given, if this is desired, to certain specific issues of membership covered by the LLP agreement being governed by a foreign law, with the agreement generally being governed otherwise by English law.111 The issue of jurisdiction over LLPs is considered at 26.3–26.5.

106

107 108 109

110

111

See, for instance, Amin Rasheed Shipping Corporation v Kuwait Insurance Co [1984] AC 50 at 60–61, Lexington Insurance Co v AGF Insurance Ltd [2009] UKHL 40 at [90], and generally Dicey, Morris & Collins above, paras 32–004 to 32–008. Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277 (PC) at 290; and see Chitty on Contracts (33rd edn) (2018), para 30–006. For instance, obligations to have a minimum two designated members, and to prepare, approve and then file with the Registrar each year annual accounts. See, for instance, Walker v London Tramways Co (1879) 12 Ch D 705, holding that a company’s articles cannot deprive the company of the statutory right to alter the articles under what is now CA 2006, s 21(1). See the discussion in Dicey, Morris & Collins above, at paras 32–182 et seq and, for instance, The Hollandia [1983] AC 565 at 576C–E. And in relation to any wish to exclude fiduciary obligations owed by a member to the LLP, see Base Metal Trading Ltd v Shamurin above (a company case) at [69]–[75]. See, on splitting the agreement, Dicey, Morris & Collins above, para 32–052, and Chitty on Contracts (33rd edn) (2018), para 30–016.

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INTRODUCTION 11.1 As has been mentioned in Chapter 10, LLP Act 2000, s 5(1) provides for the mutual rights and duties of the members, and the mutual rights and duties of the LLP and the members, to be governed by an agreement made between the members, and between the LLP and the members. Section 5 of the LLP Act, together with regulations made under s 15(c) of the Act, also establishes certain default provisions.1 These default provisions do not constitute all the provisions that the members might reasonably want, or at least wish to consider. In particular, they do not: (a)

contain any provision as to return of capital, or payment in respect of his share or interest, in the event of a member dying or otherwise ceasing to be a member of the LLP; (b) limit or exclude in any way a member’s duty of care to the LLP; (c) contain any management delegation structure, nor in a number of situations provide a clear answer as to whether a decision by a majority only of members will suffice or whether unanimity is required; nor (d) provide for the members to be ‘contributories’ in relation to a winding up of the LLP. Also, it is to be borne in mind that, if a dispute arises between the members as to any matter which is not covered by the default rules (or by such agreed provisions as there are), then there may be considerable uncertainty as to the legal basis upon which the dispute should be resolved. As has been mentioned in Chapter 1, one cannot simply look to partnership law to provide an answer.2 The LLP Act 2000 expressly provides that partnership law is not a long-stop.3 In the light of all this, it will be the wise course, save in the most unusual circumstances, for there to be a full written LLP agreement. 11.2 The purpose of this chapter is to assist those preparing a full written LLP agreement to consider what terms should be included. Partnership agreements provide a useful starting point for LLP agreements, in particular in relation to management and decision-making, the financing of the business and profit sharing, retirement (voluntary and compulsory), and the consequences of retirement (eg financial

1

Referred to in 10.7–10.11. 1.23–1.24. LLP Act 2000, s 1(5), which provides that: ‘Accordingly, except as far as otherwise provided by this Act or any other enactment, the law relating to partnerships does not apply to a limited liability partnership’. ‘Accordingly’ follows from the earlier provisions establishing the body corporate separate from its members. The words ‘does not apply to’ an LLP are presumably intended to cover the relations between members, and between members and the LLP.

2 See 3

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entitlement of the leaver), and also restrictive covenants. But the fundamental difference mentioned in 10.3 between the two types of agreement needs to be fully appreciated. It will be essential when drafting an LLP agreement to bear in mind that the LLP is a separate corporate entity, and that it will be this entity which will carry on the business (and make the profits and losses), and own the assets of the business.4 There will be rights and duties to be considered not only between the members inter se, but between the members and the corporate entity. The headings and points that follow are not put forward as an exhaustive list of what needs to be addressed; but are intended to provide a core list of matters to consider. In addition to these matters, and on the assumption that the LLP is intended to fall outside the definition of ‘collective investment scheme’ and ‘alternative investment fund’ (with their attendant regulatory regimes), consideration should be given to the analysis at 20.23–20.37.

POINTS FOR CONSIDERATION The business of the LLP 11.3 The LLP agreement should, as a general rule, state what the business of the LLP is. Apart from the probable general commercial desirability of the members explicitly agreeing on the nature of the business they are embarked upon, such a statement will be a useful base from which to consider provisions as to the authority to act on behalf of the LLP which individual members of the LLP are to have.5 A statement of the business will also be highly desirable if default rule (2), or an equivalent provision, is to be included. Default rule (2)6 provides an indemnity to members in relation to ‘the business of the limited liability partnership’, and clarity as to the scope of the indemnity is clearly desirable. In the light of the possibility (discussed at 5.5–5.8) of the LLP being held responsible for the acts of employees which were not authorised, but which nevertheless fell within such employees’ ostensible authority, it may also be wise (at least where the LLP will have employees) for the LLP agreement to set out how the business of the LLP is to be described to the outside world.

Accounts and accounting obligations 11.4 There are statutory obligations as to the keeping of accounting records, and as to the preparation, auditing and approval (and filing) of annual accounts which comply with the requirements of the CA 2006.7 The duty of preparing the accounts and approving them is laid on the members,8 as also is the primary duty of appointing the auditors.9 There is also an obligation for the LLP to preserve accounting records

4

See, generally, Chapter 3 discussing the corporate entity. 11.15. 6 Default rule (2) is discussed further at 14.19–14.21. 7 See generally, Chapter 21. 8 See 13.21. 9 See 22.2–22.7. 5 See

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for three years.10 Consideration needs to be given to the desirability of putting provisions into the agreement to ensure that the statutory obligations as to accounts, and accounting records, and the appointment of auditors, are met. Is the preparation and/or approval of the accounts, or the appointment of auditors, to be delegated to a committee?11 Is there to be a requirement that the auditors be actually appointed anew each year, or are the existing auditors to be deemed to be automatically re-appointed each year unless the members determine otherwise?12 If there is to be deemed re-appointment each year, what is to be the ‘requisite percentage’ of the total voting rights which may prevent such deemed re-appointment taking place?13 How is the remuneration of the auditors to be fixed: by the designated members or by the members as a whole (or by a management board or other committee of the members)?14 11.5 Some LLPs may wish to provide that, in addition to the ‘statutory accounts’ prepared in accordance with the requirements of the CA 2006 and filed with the Registrar,15 annual (or other periodic) purely internal management accounts are to be prepared. These may, inter alia, be used for the purpose of attributing profits of the business to members or groups of members. The mechanism for the approval of such internal accounts, and rights of access to them amongst the members, may differ from the provisions as to approval and access in relation to the statutory accounts.

Funding 11.6 The agreement should deal with the provision of working capital for the LLP.16 Are the members to contribute ‘capital’, or is all funding going to be by way of loans made to the LLP? If the members are to contribute capital, the agreement should probably include provision for a possible subsequent increase in contributions (but perhaps up to a certain limit only, and/or in certain circumstances only). The need for a provision regarding contributions of capital (if capital is to be, or may be, required from the members) is discussed in 16.6. There could also be provision for a possible reduction in the future of members’ capital contributions (at any time, or perhaps in certain specified circumstances only). If there is no initial obligation on members to contribute capital, it may nevertheless be wise to provide for the possibility of such contributions being required at a later date (again, perhaps up to a certain limit only, and/or in certain circumstances only). If capital is to be contributed by members, or loans made by members to the LLP, are the capital contributions or loans to carry interest (or an entitlement to a prior profit share)? If they are, this fact, and the rate of interest (or method of determining it, or determining the prior profit share), will need to be specified. For FCA-authorised LLPs, there are special rules regarding the permanency of capital: these are discussed in 20.19–20.20.

10 See

21.3–21.6. Every member has an obligation in this respect. There is also an obligation on members to keep records relating to the LLP’s tax position: see 13.22(a). 11 See the discussion in 17.22. 12 See 22.3. 13 See 22.3. The percentage may be 5 per cent or lower. 14 See 22.13. 15 See 21.29. 16 See 16.1–16.11.

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11.7 Any specific procedure and authority for the LLP to enter into fixed or floating charges over its assets should be covered.17

Profits and losses 11.8 The agreement will need to deal with the members’ respective shares in profits (both income profits and capital profits) made by the LLP. Income profits and capital profits may be shared in different proportions. The agreement should also cover the timing of the allocation18 of those profits amongst the members in accordance with their respective shares (eg crediting members’ respective profit shares to their individual current accounts with the LLP),19 any intended right of the members to draw during a financial year on account of profits for that year20 and the right to withdraw sums after the year end. In the light of the tax transparency of LLPs (and individual members being taxed under the self-assessment rules as if they are self-employed partners in a partnership),21 it may be convenient to provide for the amount of an individual member’s tax liability on his share of the profits to be retained by the LLP (either to be used as part of the LLP’s working capital, or possibly held in a ring-fenced trust account for the members in order to protect them from creditors’ claims in a winding up),22 and to be paid to the tax authorities on his behalf when due. 11.9 Provision should also be made for the eventuality of the LLP making a trading loss. On the assumption that unlimited losses are not to be borne by the members personally (which would undermine the primary purpose of trading with limited liability), there are two broad approaches to dealing with losses. The first approach is that no part of any losses is in any way allocated to members, and all losses are debited to a retained loss account and carried to ‘Other reserves’ in the balance sheet.23 In other words, losses always remain with the corporate entity alone. This can be made subject to a membership vote that some or all of a year’s losses be allocated to members (or some of them) and debited to their current and/or capital accounts or, alternatively, a vote that members contribute amounts – either by way of additional capital contribution or loan – to cover all or part of the loss.24 A voting provision along these lines will allow for flexibility in the face of the possible requirements of a third party provider of funds (eg a bank). The second approach is for losses – up to a cap – to be allocated to the members in any event by the debiting of members’ current and/capital accounts (or, alternatively, for members in any event

17

Charges are considered in Chapter 6. Sometimes referred to as ‘division’. 19 And thus determining the point at which such shares become debts of the LLP to the members for the purposes of the LLP’s annual accounts: see 16.14 and the SORP for LLPs (14 December 2018). 20 See 16.15. 21 See Chapter 23. It should be noted that income or corporation tax is payable on a member’s share of profits, regardless of whether it has been allocated or distributed. 22 If the sums are lost, the individual members will still be liable for the tax. 23 See the SORP for LLPs (18 December 2018) para 61. ‘Other reserves’ may, as a result, be a negative figure. 24 For an LLP of professionals, circumstances might arise, for instance, where a negligence liability exceeds professional indemnity insurance cover, but the creditor will accept payment of the excess over a period of years. 18

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to contribute further amounts – up to a cap – by way of additional capital contribution or loan), with the balance of any loss over the cap being carried to ‘other reserves’. Depending on the approach taken, it may be sensible for the LLP agreement to set out how any losses are to be appropriated amongst the members for tax purposes.25 11.10 Continuing on the assumption that unlimited losses are not to be borne by the members personally, an LLP agreement should most definitely not provide that losses are to be divided amongst members and automatically divided and allocated to them individually in their respective profit shares. Such a provision would make members, indirectly, personally liable for the LLP’s debts, and would risk undermining the primary purpose of the members being in the LLP, namely limited liability.26

New members 11.11 The procedure by which a person may join the LLP as a new member should be set out, if the default position (requiring the consent of all existing members to a new member joining) is not desired. It may also be wise to set out a procedure for the requisite notice of a new member joining to be given to the Registrar under LLP Act 2000, s 9.27 As is discussed at 8.18–8.19, there may be different classes of members with different participation and voting rights. Different procedures may be required in relation to the admission of new members to different classes.

Designated members 11.12 The agreement should deal with the appointment of designated members and the carrying out of their responsibilities.28 The incorporation document will specify whether all the members are automatically to be designated members, or whether the designated members are to be some named members only.29 It would be sensible for the LLP agreement also to set out what is agreed in this respect.30 If the designated members are to be some named members only, consideration needs to be given to a procedure for determining who they will be (and how and when they will cease to be designated members); and to ensuring that there is always a minimum number of two named members. As to the carrying out of the designated members’ responsibilities, consideration should be given to establishing a decision-making procedure for the designated members,31 and for the signing and filing with the

25

As to tax relief in respect of losses, see 23.69–23.76. In the event of any overdrawing on a member’s current account, that member will, in most cases anyway, either expressly or by necessary implication come under an obligation – enforceable by the LLP or a liquidator – to repay to the LLP the amount of such overdrawing. 27 On new members, see 8.5–8.6. 28 See Chapter 12. 29 See 2.30. 30 It is the experience of the authors that, in the absence of this being recorded in the LLP agreement, the original election made as to designated members is frequently forgotten. 31 See 12.23. There will be decision-making, inter alia, in relation (in certain circumstances) to the appointment of the auditors, or in relation to auditors not being required; and also if the LLP goes into a members’ voluntary winding up. 26

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Registrar of the various documents which are to be signed by a designated member and filed.32 11.13 It is not uncommon for those persons defined in the LLP agreement as ‘the designated members’ to have, under the terms of the agreement, administrative and management functions substantially wider than the responsibilities imposed by the legislation on those persons who are the designated members for the purposes of the legislation (who we will call ‘the statutory designated members’). There is no objection in principle to the statutory designated members also having wider functions under the terms of the LLP agreement. But, if this is to be the case, it is important (a) to make clear the identity of the statutory designated members, and how persons are to be appointed, or cease to be, statutory designated members, and (b) that the functions required or enabled by the legislation to be carried out by the statutory designated members (for instance, determining that audited accounts for a year will not be required, or making a statutory declaration of solvency for the purposes of a members’ voluntary winding up) are, under the terms of the LLP agreement, to be carried out by them alone. 11.14 The possibility of excluding a designated member’s liability to the LLP for a failure to carry out his functions as a designated member, and the possibility of a designated member having an indemnity from the LLP, are discussed at 12.21–12.22. Whether or not there is to be such an exclusion and/or indemnity, and if so the extent of it,33 should be considered.

Authority 11.15 The general question of the authority of a member to act on behalf of, and to bind, the LLP is discussed at 5.9–5.19. As is stated in 5.11, the starting position under LLP Act 2000, s 6(1) is probably that every member has unlimited actual authority to bind the LLP in any respect. This is subject, inter alia, to qualifications of such authority in the LLP agreement. What is to be the actual authority of members to bind the LLP? This question arises both in connection with the carrying on of the business of the LLP, and also in connection with matters of management and administration. The LLP agreement may itself set out detailed limits on authority, or it may be more convenient for the agreement to establish a mechanism for determining such limits from time to time. The agreement may also set out (or establish a mechanism for determining) who are the members who have authority to execute (or authorise the execution of) documents on behalf of the LLP.34 If the LLP has a seal,35 the agreement should specify the authority to affix it to any document.36 11.16 It is worth considering also whether there any matters in respect of which the LLP, or an individual managing member, is to have authority to act on behalf 32

For instance, notices of change of members under LLP Act 2000, s 9. See 1.9 as to the exercise by the Registrar of his power to specify requirements as to forms. 33 It may, for instance, be limited so as not to cover fraud or wilful default. 34 As to execution of documents generally, see 4.10–4.18. 35 See 4.11–4.13. 36 See, for instance, in a company context, the CA 2006 model articles (SI 2008/3229), Sch 1, art 49.

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of (and commit) members personally. One such matter may be the effecting of indemnity insurance. Issues sometimes arise, in particular where a professional services LLP has gone into insolvent liquidation, as to the authority which the LLP or one member has to enter into an indemnity insurance contract on behalf of members which places personal liability on those members to pay premiums (eg in relation to run-off liability).

Property 11.17 The LLP, having its own legal personality, is capable of owning property, and may be intended to own the assets of the business. The agreement (and the business transfer agreement, in the case of an existing partnership converting into an LLP) will need to make clear which assets are to be vested in and owned by the LLP, and which assets (if any) are to be retained in the ownership of some or all of the individual members and simply made available for use by the LLP.37

Inspection of books and records, and obtaining information, by members 11.18 The default position is that every member (whether himself, or by an agent) has a right of access to the books and records of the LLP.38 This is, however, a default contractual right, not a statutory right, and can be limited or excluded altogether by the LLP agreement. Similarly, it is the default contractual position that every member (whether himself, or by an agent) has the right to obtain information directly from another member.39 This right also can be limited or excluded by the LLP agreement. Complete exclusions are uncommon (and a person agreeing to be a member subject to them would need to consider the position carefully),40 but it is becoming increasingly common for members of large LLPs to agree to limit the rights, or at least to give those involved in management power to determine that particular types of information are not to be open to general inspection by the members. For example, it may be thought appropriate to permit those to whom management responsibility is delegated (the managing partner or members of a management committee) to keep confidential from the membership at large their dealings with particular members or in relation to particular matters, such as negotiations around a proposed involuntary retirement. Every member will, in any event, have the statutory right to receive a copy of the LLP’s statutory accounts together with a copy of the auditors’ report on those accounts, and certain other statutory rights as discussed at 14.22–14.24.

Liability of members to third parties 11.19 The possibility of members having personal liability to clients of the LLP or other third parties, and of any such personal liability being avoided or excluded,

37 38 39 40

If there are to be such assets made available for use by the LLP, the agreement may need to specify, in principle if not in detail, the terms of such availability. Default rule (7), discussed at 14.3–14.17. Default rule (8), discussed at 13.30–13.31 and 14.18. See the discussion in 14.15.

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is discussed in Chapter 18. Particularly in relation to professional services LLPs, there are two matters which are worth considering in this context. First, the LLP agreement could make express provision for the effecting of indemnity insurance for the individual members (in addition to such insurance for the LLP itself). Is the LLP going to fund separate indemnity insurance for the individual members? It would be usual practice for this to be done; and, in the authors’ experience, it does not normally involve additional expense. Secondly, the agreement could impose an obligation on individual members to attempt to ensure that agreements between the LLP and its clients contain provisions to the effect that (a) the retainer is of the LLP alone (and not also of the members), (b) the members do not assume any personal responsibility to the client for the carrying out of the retainer, and (c) any duty that would otherwise be owed by a member personally to the client is excluded. Where a traditional partnership is transferring its business to an LLP, it may also be wise for the LLP agreement to confirm (if this is the case) that the predecessor partnership has entered into dissolution, and that henceforth there is no mutual agency between the members, and to have a provision, in any event, reminding members that they are now carrying on business on behalf of the LLP, and prohibiting them from holding themselves out as being in partnership with their co-members or as having authority to act as agent for any fellow member.

Liability of members to the LLP, and exclusions and indemnity 11.20 The members will individually owe a duty of care to the LLP, both in relation to work carried out on behalf of the LLP for clients or customers of the LLP and in relation to management and administration of the LLP.41 The possibility of members (i) having a liability under that duty of care, (ii) having a liability, as joint tortfeasors with the LLP, to make a contribution to the LLP under the Civil Liability (Contribution) Act 1978 and (iii) having the benefit of an indemnity from the LLP for personal liability to a third party,42 is discussed at 14.30–14.32. Whether or not there are to be such exclusions and/or indemnity should be considered. Any such exclusion or indemnity may be made subject to the member not having the benefit of it in respect of liability arising out of his own misconduct (as defined: for instance, fraud, dishonesty or wilful and conscious disregard of a duty or obligation). It may be worth considering these issues separately in relation to (a) work carried out on behalf of the LLP for clients or customers of the LLP and (b) other activities relating to the management and administration of the LLP, and worth considering also different definitions of misconduct (or different limitations on the exclusion or indemnity) in relation to each of these categories. 11.21 Going a step beyond a member not having an exclusion from liability, or an indemnity, in respect of his own misconduct (as defined), the agreement may place an express obligation on members positively to refrain from engaging in any such misconduct, and to keep the LLP indemnified (save to the extent that the LLP is, in any event, indemnified by insurance) against any loss or liability suffered by it as a

41 See 42

13.17–13.18. As to the indemnity in default rule (2) not protecting the member against liability (either to third parties or to the LLP) arising out of his own negligence, see 14.21.

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result of the member’s misconduct. Consideration may be given to the possibility, in addition, of individual members keeping the LLP indemnified against any claims of a particular nature arising out of their own actions or omissions which may be made against the LLP, whether or not such actions or omissions constituted a breach of a duty of care owed to the LLP.43 11.22 Are the exclusions and indemnities provided to current members in relation to breaches of duty of care to be provided also to outgoing members? 11.23 Are members who are engaged in the management of the LLP to have ‘directors and officers’ indemnity insurance; and, if so, is the LLP going to fund such insurance?

Liability of members to other members, and exclusions and indemnity 11.24 The possibility of a duty of care being owed by one member to another member is discussed at 13.27, and the possibility of liability arising under such a duty of care being excluded, and of a right between members to seek contribution under the Civil Liability (Contribution) Act 1978 also being excluded, is discussed at 14.33. When an LLP agreement is being prepared, it may be thought by the draftsman, in the interests of collegiality, and if an indemnity from the LLP to individual members covers both claims made by third parties and claims arising out of the internal management or administration of the LLP, that it would be desirable for the agreement to provide that no duty of care is owed by one member to another, and to exclude also the right of one member to seek contribution from another (in the event of both having direct personal liability to a third party) under the Civil Liability (Contribution) Act 1978. Before this course is pursued, however, it may be worth considering the possibility of a scenario in which a negligence or other claim which exceeds both the insurance available, and the worth of the LLP’s indemnity to an individual member, is made against both the LLP and an individual member who has assumed a personal responsibility. In these (extreme) circumstances, there may be something to be said for not excluding the right of one member to make a claim over against, or to seek a contribution under the 1978 Act from, another member whose negligence has contributed to the claim, or who has equally assumed (objectively viewed) a personal responsibility to the third party.

Conflicts of interest 11.25 Reference is made in 13.9 to the obligation of a member not to put himself in a position where his duty to the LLP and his own interests may be in conflict (and not to make a profit for himself out of a transaction in which the LLP is involved), and to the resulting duty of disclosure which in practice a member has. Reference is made in 13.9(d) to the likely default position as to the requirements for effective disclosure, and consent to a member retaining a personal benefit from a transaction.

43

One may wish to consider such possibilities as the LLP becoming liable to pay compensation or damages to an employee found to have been constructively dismissed as a direct result of a member’s own behaviour.

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If the business of the LLP is one which may give rise to actual or potential conflicts of interest for individual members, it is for consideration whether the LLP agreement should provide that a member may, to some extent or in relation to some transactions (and probably subject to relevant disclosure), profit from a transaction in which he is interested. Equally, it is for consideration whether the agreement should provide a procedure for disclosure,44 and for subsequent limits on the ability of the interested member to vote where there is a conflict or potential conflict between his declared interest and the interest of the LLP.

Meetings, decision-making and management 11.26 What the authors suggest is the default position as to the management of the LLP, and its business and affairs, is set out in Chapter 17. The LLP agreement can depart from this default position, and can create whatever rules as to meetings, and whatever management and decision-making procedures and structures (and remuneration for acting in the business or management), with such voting structures, as the members wish.45 In order to be a complete code, the provisions will need to cover not only such matters as are referred to in the default rules, but also the taking of decisions consigned by the legislation to ‘the members’ and to ‘the limited liability partnership’.46 Consideration ought also to be given to the inclusion of express provisions concerning the decision-making process and the requirements of a valid decision. If the decision will affect a particular member, should he be given advance notice and a chance to make representations? Should the decision-maker be under a duty to ascertain the relevant facts? Is the decision-maker under a duty to make the decision in good faith? Or do the members want to agree that any decision is not open to challenge on bad faith grounds? Should reasons for any decision have to be given? 11.27 The LLP agreement needs to contain provisions as to the convening and conduct of meetings of the members. In an LLP with a substantial number of members (perhaps distributed over a wide geographical area), it may be worth considering provisions as to the use of electronic communications in the convening of a meeting and method of attendance at meetings.47 The need for provisions that permit virtual meetings has been highlighted by experience of the Covid-19 pandemic. The agreement should establish the quorum for meetings, the majorities of members’ votes required in relation to different matters, and any rules as to proxies. There is no common law right on the part of a member to vote by proxy. If proxies are to be allowed, this must be provided for specifically.48 It may also be worth considering provisions (similar to those for private companies in CA 2006, ss 288–299) enabling resolutions to be proposed and passed in writing without the need for an actual meeting (save in relation to those matters where the legislation requires a meeting

44

For instance, disclosure to the management committee will suffice as disclosure to the whole membership. Strict adherence to the provision would be required for the disclosure to satisfy it: see Gwembe Valley Development Co Ltd v Koshy [2004] 1 BCLC 131 at [59]. 45 See further 8.18–8.19 as to the possibility of an LLP having different classes of ‘shares’. 46 See 17.4–17.16. 47 See, for instance, in relation to companies, CA 2006, s 309 (notice of meeting via a website) and s 333 (sending documents relating to meetings in electronic form). 48 Harben v Phillips (1883) 23 Ch D 14 at 35.

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to be held).49 It may also be worth considering provisions as to the use of electronic communications for voting. 11.28 Default rule (3) provides that every member may take part in the management of the LLP. Subject to the limited number of decisions consigned by the CA 2006 to the designated members,50 there is no default mechanism for management and decision-making by a group only of members (ie a management committee). If there is to be a management and/or other committee, its existence needs to be stated in the LLP agreement. It is clearly for consideration in an LLP of any size whether there should be a specified management structure, and a procedure for establishing one or more committees to deal with different aspects of the LLP’s management and affairs. The functioning of a committee, and what detailed provisions as to its decision-making should be included in the LLP agreement, are considered further at 17.19–17.20. One particular issue that it is worth considering is the inclusion of an express ‘claim management’ provision enabling the managing partner, or the management committee, to conduct or defend claims (whether against, or brought by, either third parties or individual members) on behalf of the LLP, the members collectively, or (where the LLP has taken over the business or assets of a traditional partnership) the former partnership/partners.51 11.29 If there is to be a corporate member of the LLP, it may be sensible to have a provision in the LLP agreement as to how that corporate member is to be represented at meetings of the membership and/or how its representative is to be appointed.52

Assignment by a member of his share 11.30 Default rule (5) provides that a member (or any other person) may not voluntarily assign an interest in the LLP without the consent of all the existing members. This rule differs from the default position under the Partnership Act 1890, which permits an assignment by a partner of his share in the partnership (although the effect of such an assignment is limited).53 The nature of a member’s share and interests in the LLP, and the alienation of such a share or interest, are discussed at 8.18–8.26. It is for consideration whether the default restriction on assignment is to be loosened; and if it is to be loosened, what rights (if any) are to be accorded to an assignee.

Duty of good faith? 11.31 The duty of utmost good faith which exists between partners will not automatically exist as between the members of an LLP.54 It is for consideration

49 See

17.22. Discussed in Chapter 12. 51 See HLB Kidsons (a firm) v Lloyd’s Underwriters [2008] EWHC 2415 (Comm). 52 See, for instance, in relation to companies, CA 2006, s 323 (Representation of corporations at meetings). 53 Partnership Act 1890, s 31. It is, however, common for partnership deeds to prohibit or restrict assignments. 54 See 13.25. 50

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whether the agreement should provide that, in relation to the affairs of the LLP, the members should act towards each other with that same good faith which is required of traditional partners to each other. This consideration should probably take place in the context of a consideration of collegiality amongst the members, and issues such as exclusions of liability on the part of one member to another discussed in 11.24. It is also important to bear in mind that there is a distinction between the existence of a general duty of good faith and implication of good faith duties or fetters in relation to decision-making powers, which is discussed at 17.26–17.37.55

Unfair prejudice and winding-up petitions 11.32 The legislation adopts for LLPs CA 2006, ss 994–999 (protection of members against unfair prejudice).56 Section 994(3) provides (for LLPs only) that the members may (by unanimous agreement recorded in writing) exclude the right of a member to apply to the court under s 994(1).57 Consideration should be given to whether or not to take advantage of s 994(3) to exclude this right. If a full written LLP agreement is adopted, exclusion of this right is likely to be sensible, and the authors’ experience is that, in professional services LLPs, it is routinely excluded.58 Unlike the right under s 994(1), the right to present a winding-up petition under IA 1986, s 124 probably cannot be excluded, although it appears that the members can agree that a winding-up petition on the just and equitable basis should not be presented until the underlying dispute between the members has been determined by arbitration.59

Salaried members 11.33 The question whether it is possible for a person to be both a member and employee of an LLP is discussed at 9.14–9.21. Even if (as the law currently appears to be) dual status is not possible, an LLP can have a member who, or a class of members that, is entitled to employment-like rights, such as a right to remuneration. But such rights will need to be agreed. Default rule (4) provides that no member is entitled to remuneration for acting in the business or management of the LLP. This is an adoption of s 24(6) of the Partnership Act 1890 (with the addition of the words ‘or management’).60 11.34 There may be a desire on the part of the ‘full’ members to exclude salaried members (or, indeed, some other class of members) from being party to carrying out 55 See

Horlick v Taylor [2018] EWHC 4034 (Ch), in which an interim injunction was granted to prevent a meeting of members taking place to vote on proposed amendments to the LLP agreement, where Barling J held that the claimant had a very good prospect of establishing a breach of a duty of good faith. 56 See Chapter 32. 57 As modified and applied to LLPs by SI 2009/1804, reg 48. See 32.7. 58 See 32.14. 59 See Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855, [2012] 1 BCLC 335, overruling Exeter City AFC Ltd v Football Conference Ltd [2004] 4 All ER 1179. See also Bridgehouse (Bradford No 2) Ltd v BAE Systems Plc [2020] EWCA Civ 759. 60 Section 24(6) states: ‘No partner shall be entitled to remuneration for acting in the partnership business’. Default rule (4) is considered further at 17.2–17.3.

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some or all of the duties (including the preparation and approval of the accounts), and to exercising some or all of the powers given to the members as a whole, and from having a vote in relation to them. The question of delegation of duties and powers to particular members only is considered at 17.22. Whilst the authors consider that such duties and powers can in principle be delegated,61 given the potential liabilities which all members have if the LLP goes into insolvent liquidation referred to in 8.17,62 it may be considered doubtful whether, save in unusual circumstances, it would be fair or proper to exclude salaried members (or any other class of members) from taking part in the approval of the annual accounts. In the light of the provisions of the IA 1986 and the CDDA 1986,63 a well-advised salaried member may, in any event, be unlikely to agree to being so excluded. There may also be a desire on the part of the ‘full’ members to restrict or exclude the default right of salaried members to have access to the books and records of the LLP (default rule (7)),64 or to have the default right to obtain information in relation to the LLP from another member (default right (8)).65 Again, in the light of the provisions of the IA 1986 and the CDDA 1986, a well-advised salaried member may be unlikely to agree to being heavily restricted, or wholly excluded, in his right of access to the books and records of the LLP or to obtain information.66 11.35 Are the salaried members to be liable to contribute in the event of a winding up?67 A possible point for consideration is whether salaried members should be given some indemnity against having to put back into the LLP under IA 1986, s 214A the whole or part of their salary taken over the two years prior to an insolvent liquidation.68 Any such indemnity would have to be given by other members, as opposed to by the LLP itself.

Fiduciary members 11.36 The possibility of trustees or other fiduciaries being members of an LLP is discussed in 8.27. If any members are trustees or other fiduciaries, it may be sensible to provide a mechanism for a replacement office holder to be able to become a member of the LLP in place of a retiring trustee or other fiduciary (whether retiring as a fiduciary or as a member). It may also be sensible to make clear the extent of such a member’s liability to meet calls for capital or other payments to the LLP: is that liability to be limited to the amount of the fiduciary member’s trust fund?

Retirement 11.37 The basis upon which a person may, at his option, cease to be a member should be set out if the uncertainties of a member leaving on ‘reasonable notice’

61

Save as mentioned in 17.23. And note the reference to ‘salary’ in IA 1986, s 214A(2)(a). 63 See 8.17 and 14.15. 64 Default rule (7) is discussed at 14.3–14.17. See also 11.18. 65 The right under default rule (8) is discussed at 14.18. 66 See 14.15. 67 See 11.48. 68 See 8.17. 62

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(as permitted in default by LLP Act 2000, s 4(3)) are to be avoided.69 Any circumstances in which a person is automatically to cease to be a member should also be set out. If the agreement is to contain a compulsory retirement age, consideration needs to be given to the law relating to age discrimination, which is discussed in Chapter 15. 11.38 It is an offence for an undischarged bankrupt to be a member of an LLP without the leave of the court.70 Accordingly, in the context of provisions as to retirement of members, the issue of a member becoming bankrupt should be addressed. There is, on the other hand, no statutory restriction on a corporate member which is in liquidation continuing as a member.71 It may, nevertheless, be sensible, if there is a corporate member, for the LLP agreement to address whether or not a corporation is to cease to be a member if it goes into liquidation. 11.39 The financial consequences of a person ceasing to be a member should be set out if considerable uncertainty as to the position is to be avoided.72 In particular, in the absence of agreement to this effect, a departing member (including the estate of a deceased member) will have no right to a return of his capital. Where members of an LLP are required to contribute capital, they often borrow the required sum from a bank or other third party;73 and the lender sometimes requires a guarantee from the LLP itself as to the repayment of the sum lent.74 If the LLP agreement provides for a retiring member’s capital to be returned to him, it is for consideration whether the agreement should further provide that the LLP is empowered to apply sums standing to the credit of his capital (or current) account with the LLP directly towards the repayment of any borrowings by him guaranteed by the LLP. The terms of any indemnity that is to be given by the LLP to a leaving member should be set out. As with a new member joining, it may be wise to set out a procedure for the requisite notice of a member leaving being given to the Registrar under LLP Act 2000, s 9. 11.40 Most professional services firm LLP agreements require a member who wants to leave to serve a period of notice before doing so. Notice periods tend to be between three months and one year. Restraint of trade doctrine applies during the currency of contractual arrangements generally, and not just after their termination, and the authors suggest that the position in relation to LLP agreements is the same.75

69

On cessation of membership generally, see 8.28–8.31 and Chapter 19. CDDA 1986, s 11, as modified and applied to LLPs by SI 2001/1090, reg 4. The offence is ‘to act as a member of, or directly or indirectly to take part in or be concerned in the promotion, formation or management of,’ an LLP, except with the leave of the court. See further 19.10. 71 See 8.2. 72 Cessation of membership and its consequences are considered in Chapter 19. 73 As to tax relief on interest payable on the loan, see 23.103–23.106. 74 As to the accounting treatment of such a guarantee, see SORP for LLPs (July 2014), paras 117–120. 75 See One Money Mail Limited v RIA Financial Services [2015] EWCA Civ 1084; Kamerling and Osman, Restrictive Covenants under Common and Competition Law (5th edn), para 10; McEllistrim v The Ballymacelligott Co-op [1919] AC 548; English Hop Growers Ltd v Dering [1928] 2 KB 174; Foley v Classique Coaches Ltd [1934] 2 KB 1; and Proactive Sports Management Ltd v Rooney [2012] IRLR 241; Peninsula Securities Ltd v Dunnes Stores (Bangor) Ltd [2020] UKSC 36, [2020] 3 WLR 521; and Quantum Actuarial LLP v Quantum Advisory Ltd 70

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It should not, therefore, necessarily be assumed that substantially longer notice periods will be enforceable, although, if the doctrine does, in principle, apply while a person is a member of an LLP, it is only likely to operate in cases where the relevant restrictions sterilise the ability to work and/or operate in a harsh or oppressive way.76 Further, a member who is unhappily locked into a long fixed-term LLP agreement, or is required to give a substantial period of notice, may be pushed towards seeking an order for the just and equitable winding up of the LLP, or for unfair prejudice relief (if not excluded by agreement under CA 2006, s 994(3)).

Power of expulsion 11.41 There is no default power of expulsion (or forced retirement) of a member.77 Default rule (11) (following Partnership Act 1890, s 25) provides that ‘no majority … can expel any member’ without an express power to that effect agreed to by the members. If such a power is desired, therefore, it needs to be expressly included in the agreement.78 The authors consider that there is no objection in principle to a power of expulsion being conferred on specified members (constituting a minority of members) if that is what is desired and agreed. The LLP agreement will need to specify whether the power to expel is exercisable only for cause (and, if so, the grounds), or without cause having to be shown. In either case, it may be advisable for the agreement to set out the process to be followed before the power can be exercised, and whether reasons for the decision need to be given. Whether the law requires a ‘fair process’ to be followed is considered at 19.13, and whether reasons must be given is considered at 17.35.

Restrictive covenants 11.42 As with a traditional partnership agreement, consideration should be given to the need for any restrictive covenants on a leaving member. In that the purpose of

[2021] EWCA Civ 227. In Lindley & Banks on Partnership, the editor appears to suggest (in a paragraph concerned with the enforceability of a restraint on competition during the currency of a partnership) that the doctrine does not apply at all to restrictions during the currency of the partnership: para 10–104. See, in this regard, the employment cases of JM Finn v Holliday [2014] IRLR 102 at [57] and Elsevier Ltd v Munro [2014] IRLR 766. In the authors’ view, whilst it is difficult to see how a non-competition covenant applicable during a partnership could be struck down on restraint of trade grounds, any contention that the doctrine does not apply at all during the currency of a partnership relationship is wrong and that, to the extent that the JM Finn and Elsevier cases suggest that the doctrine does not apply during the currency of an employment relationship, they were wrongly decided; cf Symbian v Christensen [2001] IRLR 77, per Morritt LJ (with whom Chadwick LJ and Charles J agreed) at [45]; Chitty on Contracts at 16–115 and 16–152; and Lapthorne v Eurofi Ltd [2001] EWCA Civ 993 at [24]–[26]. It is important, in this connection, to separate arguments that go to whether a covenant should be enforced by injunction as a matter of the court’s discretion from arguments as to whether the clause itself was an unreasonable restraint of trade. 76 One Money Mail Limited v RIA Financial Services [2015] EWCA Civ 1084 and Proactive Sports Management Ltd v Rooney [2012] IRLR 241. 77 See 19.12. 78 The effect of default rule (11) is that a power of expulsion cannot be implied into an LLP agreement.

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a restrictive covenant will be to protect the business being conducted, it will be the LLP that will be the primary beneficiary and covenantee.79 In order to be valid and enforceable, the restriction will need to be no greater than is reasonably necessary in the interests of the LLP and the individual member, and in the interests of the public, to protect a legitimate interest of the LLP requiring protection. It will be for the LLP, seeking to enforce the restriction, to establish that the restriction is no more than reasonable in the interests of itself and the outgoing member (and if that is done, it will be for the member, if he wishes to seek to do so, to establish that the restriction is unreasonable in the public interest).80 The legitimate interest requiring protection is likely to be one or more of the following: (a) the goodwill of the business, (b) trade secrets or other sensitive commercial information of a highly confidential nature,81 and (c) the stability of the LLP’s workforce.82 The reasonableness of the restriction falls to be judged as at the date when it is entered into. In relation to a person becoming a member of an already functioning LLP (and entering into the restrictive covenant in the LLP agreement), this will be, therefore, as regards him, the date of his joining.83 11.43 Again as with traditional partnership agreements, possible restrictive covenants essentially comprise one or more of the following six basic provisions: (a)

an area restriction (eg not within a specified geographical area, and for a certain period, to be engaged in a business competing with that of the LLP); (b) a non-solicitation provision (eg not for a certain period to solicit for a business which is in competition with the business of the LLP the custom of persons who are clients or customers of the LLP); (c) a non-dealing provision (eg not for a certain period to carry out for persons who are clients or customers of the LLP work of a nature which the LLP business covers); (d) not to engage at all for a certain time in a business competing with that of the LLP;84 (e) not to disclose or use defined confidential information; and (f) not to recruit or entice away personnel from the LLP.85

79

See, in relation to the assignment of the benefit of restrictive covenants, Prescott v Dunwoody Sports Marketing [2007] 1 WLR 2343. See, in relation to group structures, Beckett Investment Management Group Ltd v Hall [2007] ICR 1539 (CA). 80 For a general discussion of restrictive covenants, see Chitty on Contracts (33rd edn) (2019), paras 16–135 to 16–148 and Cavendish Square Holding BV v Talal El Makdessi [2013] 1 All ER (Comm) 787 at [15]. See also, in relation to severance of part of a covenant, Tillman v Egon Zehnder Limited [2020] AC 154. 81 As to the difficulty of determining what confidential information is entitled to post-termination protection, see the discussion in Thomas v Farr Plc [2007] ICR 932 (CA). 82 See Kamerling and Osman, Restrictive Covenants under Common and Competition Law (5th edn), para 8.4.3, Dawnay Day & Co Ltd v D’Alphen [1998] ICR 1068 at 1096–7 (Robert Walker J) and 1110–1 (CA), Hydra Plc v Anastasi [2005] EWHC 1559 (QB) at [39]–[45] and EE & Brian Smith (1928) Ltd v Hodson [2007] EWHC 2753 (QB), CEF Holdings Limited v Mundey [2012] EWHC 1524 (QB) and White Digital Media Limited v Weaver [2013] EWHC 1681 (QB). 83 See, for instance, Bridge v Deacons [1984] AC 705 (solicitors’ partnership in Hong Kong) at 718, referring to 1974, the date when Mr Bridge became a partner. 84 See PricewaterhouseCoopers LLP v Carmichael [2019] EWHC 824 (Comm). 85 As to the meaning of ‘entice’, see Hydra Plc v Anastasi above, at [45].

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The reasonableness of each aspect of the restriction chosen will need to be considered, eg the period of restraint, the extent of the geographical area of restraint, the ambit of past or present clients or customers of the LLP who cannot be solicited, the scope of the business which cannot be conducted or in respect of which there can be no solicitation, and the level of personnel who cannot be enticed away. 11.44 The reasonableness of a restriction also needs to be considered in the context of the membership interest and status of individual members. It is open to the members to agree that a particular member, or class of members, has limited rights: for example, that they are remunerated by a salary or fixed share of profits. Specific consideration will need to be given to the scope of any restrictions that apply to such a class and whether it is appropriate to make a distinction between the content of the restrictions that apply to such a class and those applying to the ‘full’ members, perhaps by imposing on salaried members restrictions of a kind that may be agreed with senior employees. That said, members are not employees86 and whilst (in some cases) the relationship between member and LLP shares characteristics with the relationship between employer and employee, the nature and content of the relationships are not the same. Members of an LLP have a mutual interest in its success and the enhancement and preservation of its goodwill and are party to a multi-lateral relationship that imposes mutual rights and obligations. The authors suggest, therefore, that the starting point ought to be that restrictive covenants in LLP cases are approached by analogy with the position in partnership law.87 Whilst practitioners are prone to point out that it was decided 30 years ago, the leading authority remains the Privy Council decision in Bridge v Deacons,88 in which the mutuality of the relationship was emphasised.89 The application of the principles set out in that case to the context of a member of an LLP is illustrated (in the context of an application for an interim injunction) by the decision in PricewaterhouseCoopers LLP v Carmichael,90 in which express reference is made to the approach in partnership cases. 11.45 It is notoriously difficult for a covenantee to obtain more than nominal damages in the event of a breach of a restrictive covenant: hence the great importance 86

See Chapter 9. PricewaterhouseCoopers LLP v Carmichael [2019] EWHC 824 (Comm). Cf, in a traditional partnership context, the approach of the court to a restriction upon a less than full equity partner, in Kao, Lee and Yip v Donald Koo [1994] HKCA 239 (Hong Kong). [1984] AC 705 at 717. Referred to in PricewaterhouseCoopers LLP v Carmichael [2019] EWHC 824 (Comm) as the leading authority in a partnership context. In an LLP case, the business and its goodwill belong to the LLP, rather than the partners, as is the case in a traditional partnership case; but, in the authors’ view, that does not affect the mutuality point and the authors suggest that a court will see the LLP, in the context of restrictive covenants, as essentially an instrument through which the members conduct the business: see, for instance, Beckett Investment Management Group Ltd v Hall [2007] ICR 1539 (CA) at [18]–[19], rejecting ‘a purist approach to corporate personality’ in the context of an employee’s restriction on dealing. There may be limits to this commercially realistic approach, however. A leaving member (unlike a traditional partner) will not be disposing of any actual interest in goodwill; and, in the absence of a restriction, it is difficult to see on what basis he could be restrained (after leaving) from specifically soliciting clients or customers of the LLP, as a traditional outgoing partner could be restrained: see Trego v Hunt [1896] AC 7 and Curl Brothers Ltd v Webster [1904] 1 Ch 685. [2019] EWHC 824 (Comm), at [17].

87 See

88 89

90

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of obtaining an injunction. Until recently, authority in relation to past breaches of a restrictive covenant was moving in the direction of permitting the award of damages to the covenantee notwithstanding that actual financial loss could not be established. This was on the basis that damages could be awarded in an amount assessed as the sum which the court considers it would have been reasonable for the covenantor to pay and the covenantee to accept for the hypothetical release of the covenant, so-called ‘negotiating damages’.91 The assessment could be based, wholly or in part, on the benefits received by the breaching covenantor.92 However, in One Step Support Ltd v Morris-Garner, the Supreme Court limited the availability of such negotiating damages principally to breaches of contract involving the infringement of a proprietary right, so that generally they will not be available for breaches of covenant.93 This development may also cast some doubt on the circumstances and terms on which it is possible to include in the LLP agreement a liquidated damages provision, based on a genuine pre-estimate of loss, to have effect in the event of breach by an outgoing member of a restrictive covenant binding on him (but without prejudice to the right of the LLP to seek an injunction).94

Garden leave 11.46 It is increasingly common for partners or employees in a business to be placed on ‘garden leave’ if they exercise a right to give notice of leaving the business. Garden leave generally takes the form of being excluded from (or allowed restricted access only to) the office, being prohibited from communicating with clients or staff, and being prohibited from taking part in meetings and decision making: effectively, it precludes the leaver from working in the business. It is for consideration whether the LLP agreement should contain an ability to require a member of the LLP who has given notice of retirement to serve out that notice under such restrictions. It is probably the position (at least in an LLP providing professional or other skilled services) that, in the absence of an express provision allowing a leaving member to be placed under such restrictions during his period of notice, a leaving member cannot (without his agreement) be validly so restricted95 (although some redirection

91

Experience Hendrix LLC v PPX Enterprises Inc [2003] 1 All ER (Comm) 830; WWF-World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2008] 1 WLR 445; Giedo van der Garde BV v Force India Formula One Team Ltd [2010] EWHC 2373 (QB); Stadium Capital Holdings v St Marylebone Properties Co Plc [2010] EWCA Civ 952; Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2009] UKPC 45, [2011] 1 WLR 2370; and One Step (Support) Limited v Karen Morris-Garner [2014] EWHC 2213 (QB). 92 See Experience Hendrix above, at [46] and [58]. 93 [2018] UKSC 20, [2019] AC 649 (SC). The decision also casts doubt on the approach taken in Experience Hendrix as regards benefits received by the contract-breaker: see per Lord Reed at [85]–[90]. 94 Care will, in any event, be needed when drafting any provision the effect of which is to impose an obligation on the contract-breaker to pay liquidated damages or which results in the forfeiture of a right to money or other assets to which the contract-breaker would otherwise have been entitled. For the law on penalty clauses, see Makdessi v Cavendish Square Holding BV [2015] UKSC 67. 95 This is said on the basis that it will most probably be an implied term of the LLP agreement that each member is to be entitled to work and exercise his skills. This will be more certainly the position if the member’s remuneration is dependent wholly or in part on his level of work. See, in the context of an employee, William Hill Organisation Ltd v Tucker [1999] ICR 291 and SG&R Valuation Service Co LLC v Boudrais [2008] IRLR 770.

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of the leaver’s work in the interests of the continuing business of the LLP may be legitimate). If there is to be a garden leave provision, its impact on a member’s remuneration should be considered. 11.47 All or part of a member’s remuneration may be dependent on an annual assessment, by reference to specified criteria, of his performance in the business. Such specified criteria (including, for instance, billable work) will almost certainly assume that a member is working (or has the choice as to the extent to which he works) during the period under assessment. If garden leave is not to work oppressively, or by way of a financial penalty on a member who has (quite validly) given notice to leave, the question of how remuneration during a period of garden leave is to be assessed needs to be addressed. How this question (if it arises) is addressed may in turn have an impact on whether, and if so for what length of time, the court will allow a garden leave provision to be enforced.96 The Court of Appeal has also indicated that the existence of a garden leave provision may be a factor to be taken into account in determining the validity of a restrictive covenant as at the date it is entered into.97 If there is to be a garden leave provision in the LLP agreement, consideration should be given to (a) the period for which such leave may be required (it need not, for instance, be for the whole of a period of notice of retirement), and (b) in the context of protecting legitimate interests of the LLP (and the requirement for reasonable necessity of restriction only), the relationship between the provision and any restrictive covenants to be imposed on a leaver. The LLP agreement could provide, for instance, that the period during which a restrictive covenant would otherwise apply shall be reduced (after the leaver’s cessation of membership) by a period equal to any pre-cessation garden leave.

Liability to contribute in a winding up 11.48 The legislation provides that the liability of the members to contribute to the assets of the LLP in the event of it being wound up is limited to what (if anything) they have agreed to contribute in these circumstances.98 If the members are, without doubt, to be ‘contributories’ in the event of the winding up of the LLP, the LLP agreement needs to provide that, in that event, each member will be liable to contribute a specified sum to the assets of the LLP. The sum specified may be nominal only (for instance, £10). The rights of contributories are discussed at 14.27–14.28.

Surplus in a winding up 11.49 The default position as to the distribution of a surplus in a winding up (after the satisfaction of all the debts and obligations of the LLP, and the repayment of 96 See

97 98

Credit Suisse Asset Management Ltd v Armstrong (1996) ICR 882 (CA) at 894 (‘The court can exercise its discretion in deciding the permissible length of garden leave ….’: Neill LJ) and William Hill Organisation Ltd v Tucker above. In the latter case, Morritt LJ said (at [25]): ‘It seems to me that the court should be careful not to grant interlocutory relief and enforce a garden leave clause to any greater extent than would be covered by a justifiable covenant in restraint of trade previously entered into by an employee.’ Both Credit Suisse and William Hill were employee cases. Credit Suisse above. IA 1986, s 74, as modified and applied to LLPs by SI 2001/1090, reg 5. This is subject to any contributions which may be required under IA 1986, ss 212– 214A: see 8.17.

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members’ capital) is discussed in 33.6–33.7. Whether or not this is what is desired, it is probably sensible to set out expressly how any ultimate surplus is to be distributed.

Default rules 11.50 The default rules (ie the provisions contained in regs 7 and 8 of the LLP Regulations 2001) should be considered in order to see in what respects they are not wanted, and need to be varied. LLP agreements sometimes provide simply that the default rules shall not apply. It is probably preferable to provide that, in the event of any conflict between the provisions of the agreement and the default rules, the provisions of the agreement are to prevail.

Dispute resolution 11.51 Is there to be an arbitration clause?99 If so, are any particular arbitration rules to apply, or are all matters to be left to the Arbitration Act 1996?100 If there is to be an arbitration clause, there could also be provision for mediation, in the event of a dispute, before arbitration proceedings are commenced.

Amendment of agreement 11.52 As is mentioned in 1.16–1.17, regulations made under ss 14–17 of the LLP Act 2000 are a fundamental part of the LLP legislation. These regulations (and, indeed, primary statutory provisions) may be altered by statutory instrument made by the Secretary of State and approved by Parliament.101 In the light of this power of the Secretary of State, consideration should be given to a provision enabling amendments to be made to the agreement, at least in some respects, by some form of majority vote of the members or other mechanism. As to the interpretation of such a provision, see 10.18.

99

If there is, arbitration will effectively be compulsory by reason of Arbitration Act 1996, s 9 unless all the parties to the dispute agree otherwise. In construing an arbitration agreement, ‘member’ is likely to include ‘former member’: Backos v WFW Global LLP [2019] EWHC 243 (Ch). As to the court’s powers in support of arbitration under Arbitration Act 1996, s 44, see Schillings International LLP v Scott [2019] EWHC 1335 (Ch). 100 See s 4 of the Act. 101 See the wide-ranging scope for new regulations in CA 2006, s 1292, as modified and applied to LLPs by SI 2009/1804, reg 81: ‘(1) Regulations under this Act may (a) make different provision for different cases or circumstances, (b) include supplementary, incidental and consequential provision, and (c) make transitional provision and savings. (2) Any provision that may be made by regulations under this Act may be made by order’.

Chapter 12 DESIGNATED MEMBERS

INTRODUCTION 12.1 Unless the membership of an LLP falls to being one person only, at all times at least two of its members must be ‘designated members’.1 The two options which an LLP has for identifying who the designated members are to be have been discussed earlier.2 As has also been discussed earlier,3 a company or corporation, as well as an individual, can be a member of an LLP; and there is no requirement that a member of an LLP must be resident in the UK. All the members can, therefore, be foreign individuals, or foreign corporations, or some combination of these. There is no distinction in this respect between ordinary members and designated members.4 12.2 Whilst the LLP Act 2000 establishes (in s 8) the office or role of designated member, and requires there to be two such members, it does not attempt any overall description or definition of the role. The role is essentially that of compliance officer. The duties, responsibilities and powers of the designated members are to be found in various pieces of legislation, most notably the LLP Act 2000 itself, the CA 2006 and the IA 1986. They are concerned principally with requirements of the legislation as to disclosure and notification to the Registrar. The Registrar has also exercised the power given to him by CA 2006, s 1068 to impose requirements as to the form and authentication of documents to be delivered to him to stipulate that certain documents be signed by a designated member.5 The designated members may in addition come to be seen in other, general, legislation as convenient and identifiable representatives of the LLP for the purpose of fulfilling particular roles or functions.6

1

This follows from LLP Act 2000, ss 2(1)(a) and 8(2). 2.30. The two options are, in brief, (i) specify named members or (ii) state that every member is automatically a designated member. 3 At 2.2. 4 When the Bill was going through Parliament, the Government recognised this. On Second Reading in the House of Commons, Dr Kim Howells, Parliamentary Under-Secretary for Trade and Industry, said that the Government did not believe that they needed to prevent an offshore member being a designated member: if there was a breach of obligation by the designated members, the LLP itself could be pursued: Hansard, HC, 23 May 2000, col 915. There is no equivalent for LLPs of CA 2006, s 155, which requires that a company must have at least one director who is a natural person. 5 In particular, any notices to be delivered to him under s 9 of the LLP Act as to a person becoming a member of an LLP, or as to a change in particulars in the LLP’s register of members or its register of members’ residential addresses. These registers are discussed at 2.25–2.28. 6 There are a number of examples. Criminal Justice Act 1967, s 9 is amended by LLP Regulations 2001 (SI 2001/1090), Sch 5 to provide that any written statement made under that section may be served on an LLP by being delivered or sent to any designated member of the LLP; and a designated member of an LLP is specified as the person to whom an initial request for consultation is to be addressed by an enforcer in relation to enforcement proceedings against the LLP under Part 8 of the Enterprise Act 2002 (relating to the enforcement of certain consumer legislation): see Enterprise Act 2002 (Part 8 Request for Consultation) Order 2003 (SI 2003/137), para 6(c). 2 At

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12.3

In Re A&C Restoration LLP,7 ICC Judge Jones held: ‘Whilst dealing with the applicable law, I should also mention that I am satisfied that designated members of an LLP, which in this case will include Mr Riches at all material times, will owe the same duties as directors owe to limited companies. These are set out in the Companies Act 2006 and also exist in common law and equity.’

He referred in support of that suggestion to his decision in McTear v Eade.8 A degree of caution is required in relation to this suggestion. First, as ICC Judge Jones explained in McTear v Eade,9 the duties of directors set out in CA 2006 have not been applied to members of an LLP, whether designated or ordinary. The duties on members of LLPs in this context are to be found in the common law and equity, and in certain of the LLP default rules.10 Secondly, designated members are not the LLP equivalent of directors of companies and they are not, by virtue of their position, in any special position so far as the existence or operation of the common law and equitable duties is concerned. It may be that, in the circumstances of a particular case, it is the designated members who are, in fact, responsible for the conduct of the LLP’s business and who are, therefore, particularly in the line of fire in the event of the LLP’s insolvency, but that arises not by virtue of their statutory role as designated members. The scheme of this chapter is, first, to discuss the appointment and retirement of members as designated members (12.4–12.7); secondly, to set out the duties, responsibilities and powers of the designated members (12.8–12.21); and, thirdly, to consider the relationship between the designated members and the LLP (12.22–12.24).

APPOINTMENT AND RETIREMENT OF DESIGNATED MEMBERS Option (i): specifying named members 12.4 Where the option is chosen (either on incorporation or by a later change) of specifying named members to be the designated members (as opposed to stating

7 8 9 10

See, similarly, the Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001 (SI 2001/1420), the Electricity and Gas (Market Integrity and Transparency) (Enforcement etc) Regulations (Northern Ireland) 2013 (SR 2013/208), the Operation of Air Services in the Community (Pricing etc) Regulations 2013 (SI 2013/486), the Civil Aviation (Air Travel Organisers’ Licensing) Regulations 2012 (SI 2012/2017), the Official Feed and Food Controls (Wales) Regulations 2009 (SI 2009/3376) and other legislation giving powers to statutory authorities, which provide for documents to be served on an LLP by giving them to a designated member. Legislation such as the Licensing (Northern Ireland) Order 1996 (NI 1996/3158), art 2B applies the Order to LLPs, subject to replacing references to the secretary of a body corporate with references to any designated member. [2020] EWHC 1404 (Ch) at [10]. [2019] EWHC 1673 (Ch), [2019] BPIR 1380 at [139]–[148]. At [139]. See Chapter 13.

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that every member is automatically a designated member),11 the members may at any time after incorporation agree amongst themselves changes in the identity of the designated members, and that a member not currently a designated member should become one, or that a member who is currently a designated member should cease to be one.12 There may, for instance, be provision in the LLP agreement as to the members of the LLP who are for the time being to be the designated members. If at any time, as the result of agreement amongst the members, or deaths or retirements, there is only one designated member, then every member of the LLP automatically becomes a designated member.13 12.5 Notice of any change in the designated members (ie of any person becoming or ceasing to be a designated member) must be given to the Registrar within 14 days of the change.14 The obligation of ensuring that such notice is given is an obligation of the LLP.15 The notice must be in the form required by the Registrar under CA 2006, s 1068. Where it is notice of a person becoming a designated member, it must contain a statement signed by that person that he consents to becoming a designated member.16 Although notice of a change in the designated members is required to be given to the Registrar, the change takes effect by reason of the agreement between the members, and is not dependent on notice being given within the 14-day period.17 However, if notice of a change in the designated members is not given to the Registrar within 14 days of the change, the LLP, and every designated member (unless he proves that he took all reasonable steps for securing that the notice was given) commits an offence.18 In addition to individual notices of change as to the designated members, the confirmation statement which the LLP is obliged to deliver to the Registrar must state which of the members are designated members.19

Option (ii): all members automatically designated members 12.6 Where the option is chosen of all members automatically being designated members, the relevant notification to the Registrar is that of a person becoming or ceasing to be a member:20 no separate notice is required as to changes in designated members.

11 12 13 14 15 16 17 18 19

20

See the discussion as to these options in 2.29–2.31. There can be a switch between these options at any time after incorporation: ibid. LLP Act 2000, s 8(1). LLP Act 2000, s 8(2): ‘… if there would otherwise be no designated members, or only one, every member is a designated member’. LLP Act 2000, s 9(1)(a). LLP Act 2000, s 9(1). LLP Act 2000, s 9(3), as amended by the LLP (Application of Companies Act 2006) Regulations 2009 (SI 2009/1804). See LLP Act 2000, s 8(1): ‘in accordance with an agreement’. LLP Act 2000, s 9(4)–(5). The penalty on summary conviction is a fine. CA 2006, ss 853A–853L, as modified and applied to LLPs by SI 2009/1804, regs 30 and 18, and Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2016 (SI 2016/599), reg 3. The confirmation statement is discussed at 4.28–4.30. LLP Act 2000, s 9(1) and (2), discussed further in 8.6 and 8.29.

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Ceasing to be a member 12.7 Whichever option as to nominating designated members is chosen, when a person ceases to be a member of the LLP for any reason, he also automatically ceases to be a designated member.21

DUTIES, RESPONSIBILITIES AND POWERS OF THE DESIGNATED MEMBERS 12.8 The duties, responsibilities and powers of the designated members can be seen as broadly divided into two categories. The first category comprises responsibility for compliance by the LLP with obligations placed on it as an entity by the legislation. The responsibility is carried by the designated members in that it is the designated members who are or may be guilty of an offence (in addition to the LLP itself) if a requirement of the legislation is not complied with. The second category comprises those duties and powers which are given directly to the designated members by the legislation.

LLP obligations Designated members ‘in default’ 12.9 The legislation places various obligations on the LLP (discussed elsewhere), and provides that, in the event of failure to comply on the part of the LLP, not only the LLP, but also every designated member who is ‘in default’, commits an offence. Such failures of obligation include: (a)

failure to comply with a direction of the Secretary of State to change the name of the LLP;22 (b) failure without reasonable excuse to display the name of the LLP at its registered office and other locations, and to disclose the specified information on its business letters (and other documentation), and on its websites;23 (c) failure to keep the register of members available for inspection;24 (d) failure to keep the register of members’ residential addresses;25 (e) failure to enter a member’s usual residential address in the register of members as the member’s service address (and to state in the register of members’ residential addresses that the member’s usual residential address is the same as his service address) where the Registrar has decided under CA 2006, s 245 to put a member’s usual residential address on the public record;26 21 22 23 24 25 26

LLP Act 2000, s 8(6). CA 2006, ss 68(5), 75(5) and 76(6), as modified and applied to LLPs by SI 2009/1804, regs 11 and 13: see 4.23. Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2015 (SI 2015/17), reg 28: see 4.1–4.7. CA 2006, s 162(6), as modified and applied to LLPs by SI 2009/1804, reg 18: see 2.26. CA 2006, s 165(4), as modified and applied to LLPs by SI 2009/1804, reg 18: see 2.27. CA 2006, s 246(5), as modified and applied to LLPs by SI 2009/1804, reg 19: see 8.12.

Designated Members

(f) (g) (h) (i) (j) (k)

(l) (m) (n)

(o)

27 28 29

30 31 32 33 34 35 36

37 38

39

181

failure to notify the Registrar of changes to information during the period of an election to disapply the obligations of CA 2006, ss 162 and 165(1);27 failure to inform the Secretary of State of the LLP’s failure to appoint auditors within the required period;28 continued failure to deliver a confirmation statement to the Registrar;29 publishing a copy of the LLP’s auditors’ report without stating the name of the person who signed it as senior statutory auditor (or, alternatively, the fact that the name has been properly omitted);30 failure to give notice to the Registrar of the removal by the members of the LLP’s auditors;31 failure, in the event of resigning auditors depositing32 a statement of the circumstances connected with their ceasing to hold office, to send a copy of the statement to the persons entitled to be sent copies of the accounts, or to apply to the court;33 failure, where the LLP’s auditors cease to hold office before the end of their term of office, to notify the appropriate audit authority;34 failure to deliver a confirmation statement confirming the accuracy of information on the register within the requisite period;35 failure to maintain a register of people with significant control36 or take reasonable steps to find out who should be entered on such a register,37 or failure to give notice to the Registrar of any change in such register38 or the place of inspection of the register;39 failure to publish a report on payment practices, policies and performance, if so required by the Reporting on Payment Practices and Performance Regulations 2017, SI 2017/395, as amended by the Limited Liability Partnerships

CA 2006, s 167D(4), as inserted by SI 2016/599, Sch 1, para 3. CA 2006, s 486(3), as modified and applied to LLPs by SI 2008/1911, reg 36: see 22.6. CA 2006, s 853L(5), as modified and applied to LLPs by SI 2009/1804, reg 30 (as substituted, with effect from 30 June 2016, by SI 2016/599, reg 1, Sch 1, para 5 (with reg 3(2)–(4)): see 4.29. As to the initial failure, see 12.13(b). CA 2006, s 505(3), as modified and applied to LLPs by SI 2008/1911, reg 41: see 21.37. CA 2006, s 512(2), as modified and applied to LLPs by SI 2008/1911, reg 43: see 22.20. Under CA 2006, s 519. CA 2006, s 520(6), as modified and applied to LLPs by SI 2008/1911, reg 46: see 22.26. CA 2006, s 523(4), as modified and applied to LLPs by SI 2008/1911, reg 46: see 22.30. CA 2006, s 853L, as modified and applied to LLPs by SI 2009/1804, reg 31ZA, as inserted by SI 2016/599, Sch 1, para 5. CA 2006, s 790M(12), as amended and applied to LLPs by SI 2009/1804, reg 31E, inserted by Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 (SI 2016/340), Sch 1, para 1. CA 2006, s 790F, as applied to LLPs by SI 2009/1904, reg 31C, inserted by SI 2016/340, Sch 1, para 1. CA 2006, s 790VA, as amended by SI 2009/1904, reg 31JA, inserted by Information about People with Significant Control (Amendment) Regulations 2017 (SI 2017/693), reg 26; alternatively, if an election is made pursuant to CA 2006, s 790X, provide the information to the Registrar (ss 790X(9)(b), 790ZA(4)(b)) or confirm, upon request, that the information has been delivered (s 790ZB(2)(b)). CA 2006, s 790N, as amended and applied to LLPs by SI 2009/1904, reg 31F, inserted by SI 2016/340, Sch 1, para 1.

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(Reporting on Payment Practices and Performance) Regulations 2017, SI 2017/425, reg 4;40 and (p) failure to give the Registrar notice of a necessary change of name following restoration to the register.41 12.10 For the purposes of all of the failures set out in 12.9, a designated member who is an individual (or is otherwise a designated member not covered by what is said in 12.11) will be ‘in default’ for the purposes of these obligations if he authorises or permits, participates in, or fails to take all reasonable steps to prevent, the nonperformance of the obligation.42 This definition covers a spectrum of activity, without crystal clear distinctions between the different components of it. The authors suggest that the spectrum is broadly as follows. ‘Authorise’ means essentially the formal granting (expressly or by implication) of licence to do the relevant act; and ‘permit’ probably widens this to include the granting of licence to do the act by someone with de facto control. ‘Participation’ will include enabling or assisting the contravention of the relevant statutory provision. Authorisation or permission or participation can be inferred from acts which fall short of being direct and positive acts. Whether or not there is one of these activities will turn on the particular facts of the situation. There is, however, a mental element to each of the activities. There cannot be authority or permission, or participation, without knowledge of, or reason to suspect, that thing happening.43 12.11 For the purposes of (a)–(g) in 12.9, where a company or an LLP is a designated member, it does not commit an offence as a designated member in default unless (in the case of a company) one of its officers is in default (ie he authorises or permits, participates in, or fails to take all reasonable steps to prevent, the contravention) or (in the case of an LLP) one of its members is similarly in default.44 Where the member company or LLP does commit an offence as above, the officer or member in question also commits the offence and is liable to be proceeded against and punished accordingly.45 For the purposes of (i)–(l) in 12.9 (obligations on the LLP contained in Parts 15 and 16 of the CA 2006, concerned with annual accounts and the appointment of auditors), the definition of ‘in default’ in relation to a company which is a designated member is the same as above (with the same 40

41 42

43

44 45

Reporting on Payment Practices and Performance Regulations 2017, (SI 2017/395), reg 8, as amended by Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (SI 2017/425), reg 9. CA 2006, s 1033, as applied and modified by SI 2009/1804, reg 58. CA 2006, s 1121, as modified and applied to LLPs by SI 2008/1911, reg 49 and SI 2009/1804, reg 70. This is a change from the definition of being ‘in default’ in the CA 1985, which was ‘knowingly and wilfully’ authorising or permitting the default or contravention (s 730(5)). As appears from 12.12, this latter definition remains, however, in the IA 1986. For a general discussion of the meaning of ‘authorise’ and ‘permit’, see CS Inc v Ames Records & Tapes Ltd [1982] Ch 91 and CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] AC 1013 (both infringement of copyright cases) and the cases referred to in the judgments. As emphasised in Vehicle Inspectorate v Nuttall [1999] 1 WLR 629, ‘permit’ is capable of a range of meanings and it must take its meaning from the relevant legislation. For the purposes of the Act under discussion in that case, it means ‘fail to take reasonable steps to prevent’. CA 2006, s 1122(1) and (3) in relation to the provisions of the CA 2006 modified and applied to LLPs by SI 2009/1804: see reg 70. CA 2006, s 1122(2), as modified and applied to LLPs by SI 2009/1804, reg 70.

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result for the relevant individual officer); but, for the purposes of Parts 15 and 16, the definition makes no mention of an LLP as a designated member.46 The result is that, whether an LLP, as a designated member of another LLP, is in default will depend upon whether, as an entity, it is in default as set out in 12.10;47 and for the purpose of determining this, the issue will presumably be whether or not the actions of a particular member can be attributed it in accordance with the normal rules of attribution considered in 3.4. 12.12 A further obligation on the LLP, arising under s 84 of the IA 1986, failure to comply with which leads to a designated member ‘in default’ committing an offence, is the obligation within 15 days after the LLP has determined to go into voluntary winding up, to forward to the Registrar a copy of the determination. For the purposes of the IA 1986, however, the definition of ‘in default’ differs from that now in the CA 2006 (which applies in the case of the failures referred to in 12.9). For the purposes of the IA 1986, a designated member is in default if he has knowingly and wilfully authorised or permitted the default or contravention mentioned in the statutory provision.48 ‘Knowingly’ means with knowledge of the facts which constitute the default or contravention: it does not require knowledge that there is a breach or contravention of the relevant statutory requirement.49 ‘Wilfully’ means that the act is done deliberately and intentionally, not by accident or inadvertence.50 It includes acting recklessly as to the consequences.51

Designated members liable, subject to a defence 12.13 In relation to other obligations placed on the LLP, the legislation provides that, in the event of failure to comply on the part of the LLP, every designated member commits an offence simpliciter (in addition to the LLP), but that it is a defence for a designated member charged with an offence to prove: (a) in the case of a failure to deliver to the Registrar notice of a change in membership particulars within 14 days of the change under s 9 of the LLP Act, that he took all reasonable steps for securing that the obligation was complied with;52 and

46

CA 2006, s 1122(1) and (3) in relation to the provisions of Parts 15 and 16 of the CA 2006 applied to LLPs by SI 2008/1911, reg 49 (as amended by SI 2009/1804, reg 85 and Sch 3, Pt 3, para 15(4)). 47 The definition set out in 12.10 is not, in s 1121, confined to individuals who are designated members. It is a general definition, with a carve-out in s 1122 for companies (and LLPs in the context of Parts 15 and 16 of the CA 2006). 48 IA 1986, s 430(5). 49 See Burton v Bevan [1908] 2 Ch 240 at 247 and Securities and Investments Board v Scandex Capital Management [1998] 1 WLR 712 at 720. Knowledge will almost certainly include ‘blindeye knowledge’, ie knowledge which exists when a person deliberately refrains from enquiring further lest his firmly grounded suspicion of wrongdoing be confirmed: see, for instance, Cia Maritima San Basilio SA v Oceanus Mutual Underwriting Association (Bermuda) Ltd (The Eurysthenes) [1977] QB 49 at 68; Manifest Shipping Co Ltd v Uni-Polaris Co Ltd [2003] 1 AC 469 at [112]–[116]; and White v White [2001] 1 WLR 481 (HL) at [14]–[16]. 50 See R v Senior [1899] 1 QB 283 at 290–291, and also De Maroussem v Commissioner of Income Tax [2004] 1 WLR 2865 (PC) at [41]. 51 Ronson International Ltd v Patrick [2006] 2 All ER (Comm) 344 at [16]–[17]. 52 LLP Act 2000, s 9(4)–(5).

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(b) in the case of a failure to deliver to the Registrar the confirmation statement within 14 days after the end of the review period, that he took all reasonable steps to avoid the commission or continuation of the offence.53

Direct duties and powers Annual accounts and audit 12.14 The designated members have a significant role to play in relation to the LLP’s annual accounts,54 in addition to their responsibility for the LLP carrying out its obligations in relation to its annual accounts as referred to in 12.9(i)–(l). When prepared, the accounts are to be signed, on behalf of all the members, by a designated member.55 The duty of filing the accounts (and auditors’ report) with the Registrar within the required period is a duty laid directly on the designated members.56 If the accounts and auditors’ report are not filed within the required filing period every person who, immediately before the end of that period, was a designated member is guilty of an offence.57 It is a defence for a designated member charged with this offence to prove that he took all reasonable steps for securing that the accounts and auditors’ report would be delivered to the Registrar within the required period.58 It is not a defence, however, to show that the accounts and report were not in fact prepared as required by the Act.59 12.15 The designated members have certain powers of appointment of the auditors of the LLP, as discussed at 22.5–22.8. They also have the power to determine that, in respect of a financial year, the LLP’s accounts are unlikely to be required to be audited.60 Assuming that there are auditors appointed, however, the designated

53 54 55

56

57

58 59 60

CA 2006, ss 853A, 853B and 853L, as modified and applied to LLPs by SI 2016/599. Discussed more fully in Chapter 21. CA 2006, s 414(1) or 450(1) (abbreviated accounts), as modified and applied to LLPs by SI 2008/1911, reg 12. The signature is on the balance sheet. Every copy of the balance sheet which is circulated, published or issued is to state the name of the designated member who signed: CA 2006, s 433(1), as modified and applied to LLPs by SI 2008/1911, reg 19A. CA 2006, s 441(1), and see also ss 444(1)–(2), 445(1) and (3), 446(1)–(2) and 449(1)–(2), as modified and applied to LLPs by SI 2008/1911, reg 17. As to the period for filing accounts, see 21.41. Where the accounts are abridged, the designated members must deliver to the Registrar a statement by the LLP that all the members of the LLP have consented to the abridgement: CA 2006, s 444(2A), as inserted by Limited Liability Partnerships, Partnerships and Groups (Accounts and Audit) Regulations 2016 (SI 2016/575), reg 12. CA 2006, s 451(1), as modified and applied to LLPs by SI 2009/1804, reg 22. The liability is to a fine and, for continued contravention, to a daily default fine. Someone becoming a designated member after an accounting year has ended but before the accounts and auditors’ report for that year are delivered to the Registrar is therefore assuming responsibility for those accounts being delivered, subject to the defence next mentioned. In addition to the designated members being guilty of an offence, the LLP itself is liable to a civil penalty under CA 2006, s 453(1), as modified and applied to LLPs by SI 2009/1804, reg 22: see, further, 21.42. As to the ability of any member or creditor of the LLP, or the Registrar, to apply to the court for an order against the designated members requiring them to file the accounts and auditors’ report, see 21.42. CA 2006, s 451(2), as modified and applied to LLPs by SI 2008/1911, reg 22. CA 2006, s 451(3), as modified and applied to LLPs by SI 2008/1911, reg 22. CA 2006, s 485(1), as modified and applied to LLPs by SI 2008/1911, reg 36. As to exemptions from the need for audited accounts, see 21.51–21.54. The Companies and Limited Liability

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members have the duty (in default of the members deciding otherwise) to fix the auditors’ remuneration.61 12.16 In relation to the termination of the appointment of auditors (discussed at 22.17–22.23), certain obligations are placed on the designated members. When the auditors resign, and their notice of resignation is accompanied by a statement of the circumstances connected with their resignation under CA 2006, s 519, they may call on the designated members (by a signed requisition) to convene a meeting of the members for the purpose of receiving the auditors’ explanation of their resignation. If such a meeting is required by the auditors, and the designated members fail within 21 days to convene it,62 every designated member who failed to take reasonable steps to secure that a meeting was convened commits an offence.63

Compliance with other statutory requirements 12.17 Designated members have a similar role in relation to other reporting obligations. For example: (a) If the LLP is obliged to prepare a slavery and human trafficking statement,64 the statement must be signed by a designated member.65 (b) If the LLP seeks to change its name to one which requires it to seek government comments, a designated member must confirm on the notice of change that a request has been made.66 (c) If the LLP is required to file an energy and carbon report,67 a designated member must sign the report68 and the designated members must deliver a copy of the report to the registrar.69 (d) If the LLP is required to file a report on payment practices and performance,70 the information for the reporting period must be approved by a designated member before it is published.71

61 62 63 64 65 66 67 68 69 70

71

Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012 (SI 2012/2301) provide that the designated members must deliver notice of qualification of conditions for exemption from audit for subsidiary LLPs. CA 2006, s 492, as modified and applied to LLPs by SI 2008/1911, reg 37, discussed at 22.20. To take place not less than 28 days after the date of the notice sent by the designated members convening it. CA 2006, s 518(2), (5) and (6), as modified and applied to LLPs by SI 2008/1911, reg 45. The penalty on conviction is a fine. Modern Slavery Act 2015, s 54(1)–(2). Modern Slavery Act 2015, s 54(6)(b). CA 2006, s 56(4), as amended by the LLP (Application of Companies Act 2006) Regulations 2009 (SI 2009/1804), reg 8. CA 2006, s 415A et seq, as applied by Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, (SI 2018/1155), reg 10. Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (SI 2018/1155), reg 10. Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (SI 2008/1911), reg 19, as amended by SI 2018/1155, reg 18. Reporting on Payment Practices and Performance Regulations 2017 (SI 2017/395), reg 5, as amended by Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (SI 2017/425), reg 5. Regulation 4 of the Principal Regulation, as amended by reg 6 of the Amending Regulation.

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If the LLP is required to publish annual information relating to employee pay,72 a designated member must sign the accompanying statement verifying that the information is correct.73 (f) If the LLP is required to file a strategic report,74 the designated member must sign the report on behalf of all the members.75 (g) A designated member is also required to sign a declaration on certain notices submitted by LLPs, eg a notice given under the Renewables Obligations Closure Order (Northern Ireland) 2015, SR 2015/346.76 (e)

Insolvency and winding up 12.18 Where a proposal for a voluntary arrangement under IA 1986, Part I is made, and the nominee is not the liquidator or administrator of the LLP, it is the designated members of the LLP who are to submit to the nominee a document setting out the terms of the proposed voluntary arrangement and a statement of the LLP’s affairs.77 It is also the designated members who may apply to the court for the nominee to be replaced by another insolvency practitioner if the nominee fails to submit his report to the court within the prescribed period.78 12.19 A statutory declaration of solvency made for the purposes of the LLP going into a members’ voluntary winding up is to be made by the designated members (or, if there are more than two, the majority of them) at a meeting of the designated members.79 12.20 If the LLP goes into a creditors’ voluntary winding up, it is the designated members who are to make the statement as to its affairs (verified by affidavit by some or all of them); and one of the designated members is to attend the meeting of creditors and preside at it.80 12.21 The designated members also fulfil the role ascribed to directors in certain provisions of the Corporate Insolvency and Governance Act 2020.81

72 73 74 75 76 77 78 79

80 81

Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (SI 2017/172), reg 2. Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (SI 2017/172), reg 14. CA 2006, s 414A, as applied and modified by SI 2008/1911, reg 12A. CA 2006, s 414D, as applied and modified by SI 2008/1911, reg 12A. Article 9(9). IA 1986, s A6, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3 (as amended by SI 2020/643, Sch 1). See Chapter 28. IA 1986, s 2(4). IA 1986, s 89(1). A designated member making a declaration without having reasonable grounds for the opinion that the LLP will be able to pay its debts in full, with interest at the official rate, within the period specified is liable to imprisonment or a fine, or both: s 89(4). IA 1986, s 99(1) and (2), as amended by SI 2017/1119, para 28. In the event of default, see IA 1986, ss 99(3) and 166(5). Limited Liability Partnerships (Amendment etc) Regulations 2020 (SI 2020/643), Sch 1 paras 2, 5, 6, 9 and 11. See 28.1–28.3 in relation to the powers of designated members in connection with an application for a moratorium under IA 1986, ss A3–A8. (The Limited Liability Partnerships (Amendment etc) Regulations 2020 were revoked with effect from 16 February 2021 by the Limited Liability Partnerships (Amendment etc) Regulations 2021, SI 2021/60, which introduced substitute amendments.).

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DESIGNATED MEMBERS AND THE LLP 12.22 The designated members of an LLP are members of the LLP, with all the normal duties and responsibilities (statutory and otherwise) of a member towards the LLP.82 By reason of them being designated members, they have additional duties and responsibilities, and powers. All these functions must be carried out consistently with the core fiduciary obligation owed by every member to the LLP of single-minded loyalty, and in the promotion of the best interests of the LLP. Equally, the authors suggest, the designated members will (unless excluded by agreement) owe a duty to the LLP to use reasonable care and skill, and diligence, in carrying out their functions as designated members. 12.23 The possibility of the LLP agreement containing an exclusion of liability of a member to the LLP for a breach of his duty of care is discussed in 14.30 (where it is concluded that there can be such an exclusion). There is no reason in principle why liability on the part of a designated member to the LLP for breach of his duty of care in carrying out his functions as a designated member should not also be covered by an exclusion clause. 12.24 A provision in the LLP agreement excluding liability on the part of a designated member to the LLP will not, however, serve to exclude a designated member from criminal sanctions which may be imposed on him where a responsibility has not been met. As has been seen from the foregoing paragraphs, there is a considerable number of absolute obligations (either laid upon the designated members directly or upon the LLP) in respect of which the designated members are potentially liable to criminal sanctions if the obligations are not met. The extent to which the LLP agreement may validly and effectively provide for a designated member to be indemnified against a fine imposed on him is not clear. As a matter of general law, there is scope for a valid and effective indemnity against a criminal sanction where the offence is one of strict liability and the breach was wholly innocent.83 It may be, therefore, that the LLP agreement can provide for a designated member to be indemnified against a fine which has not resulted in any way from his own wilful default or negligence. In practice, however, it is unlikely that a fine would be imposed in such circumstances, given the requirement in many cases that the designated member must be ‘in default’ before he commits an offence, and given also the availability to the designated member in other cases of a defence of having taken all reasonable steps. The LLP probably can, in any event, agree to indemnify a designated member against his costs of successfully defending himself when charged with an offence.84 12.25 A number of the duties and powers of the designated members require decisions to be made by them as a body.85 There is no reason in principle why the 82

See, generally, Chapter 13. Chitty on Contracts (33rd edn) (2018), para 16–213. See CA 2006, s 234(3)(b)(i) (applying only to companies), which prohibits a company providing indemnity insurance to a director against any liability in defending criminal proceedings in which he is convicted. Eg in relation to the auditors.

83 See 84

85

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LLP agreement should not provide for decision-making by the designated members to be by majority vote, with a necessary quorum and chairman’s casting vote and such like. In default of such a provision in the LLP agreement, and as discussed in 17.13, decision-making by the designated members will, the authors suggest, be by a majority of all of them.

CDDA 1986 12.26 The application of the CDDA 1986 to LLPs is discussed in Chapter 37. It is, however, worth noting the provisions of s 3 of that Act here. Section 3 provides that the court may make a disqualification order against a person where it appears to the court that that person has been persistently in default in relation to provisions of the legislation86 requiring any return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the Registrar. This will cover defaults in filing the LLP’s annual accounts and annual return with the Registrar, and in giving notice to the Registrar of changes in members or designated members, or in membership particulars, as required by LLP Act 2000, s 9.

86

The reference in CDDA 1986, s 3(1) to ‘the companies legislation’ includes references to the LLP Act 2000: LLP Regulations 2001, reg 4(2)(b).

Chapter 13 DUTIES AND RESPONSIBILITIES OF MEMBERS

INTRODUCTION 13.1 This chapter is concerned with duties owed by members to the LLP and to other members, and with what may be called the public duties and responsibilities of members imposed by statute.

Duties to the LLP 13.2 Most LLPs will have a written LLP agreement (or, if not, the default rules will apply so far as not varied or excluded),1 and this will be an important source of duties and responsibilities of members. 13.3 But the LLP agreement will not be the only source. Subject to the terms of the LLP agreement, a member is likely to owe fiduciary duties and obligations to the LLP. The fiduciary relationship between member and LLP arises out of a member’s position as an agent of the LLP (with consequential power to affect the legal relations of the LLP with other parties),2 and as a person having a responsibility for its affairs.3 Also (again, subject to the terms of the LLP agreement) a member will owe common law duties to the LLP.

Statutory duties 13.4 In addition to a member’s fiduciary and common law duties and obligations, and as part of the price for the members being able to carry on their business with limited liability through the LLP, the CA 2006 places on the members in any event a number of duties and responsibilities relating to the LLP. These are considered in 13.29–13.31.

Duties to other members 13.5 Unlike partners of traditional partnerships, members are not agents for one another. Generally speaking, the duties owed by a member to his co-members arise

1 2 3

Including by an agreement made orally or by conduct. LLP Act 2000, s 6(1) provides that every member of an LLP is its agent. An agent has long been recognised as owing fiduciary obligations to his principal: see generally Bowstead & Reynolds on Agency (21st edn), paras 1–001, 1–014 and 6–033 to 6–039. And see Lord Browne-Wilkinson in White v Jones [1995] 2 AC 207 at 271E–G referring to an agent coming under fiduciary duties to his principal by reason of assuming responsibility for the affairs of the principal. But, in the case of a member of an LLP, the existence and scope of fiduciary obligations will depend upon the specific roles and responsibilities of the member concerned: F&C Alternative Investments (Holdings) Ltd v Barthelemy [2012] Ch 613 at [217]–[220].

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out of express or implied terms in the LLP agreement, or under the law of tort. The issue of what duties are owed by members of an LLP to each other is, very broadly, similar to the issue of what duties are owed between shareholders in a company. The relationship between members (as opposed to the relationship between a member and the LLP) will be concerned principally with members’ roles as co-owners of the LLP (as opposed to their roles as co-managers of its business).4 The duties owed by members to each other are discussed in 13.33–13.42. It is also relevant, in this context, to consider whether the LLP itself owes any duties to the members. This is considered in 13.41.

A MEMBER’S DUTIES TO THE LLP 13.6 The fiduciary and common law duties owed by a member to the LLP may, broadly speaking, be equated to the duties owed by a director to his company.5 It is to be noted, however, that, whilst the fiduciary and common law duties owed by directors to their companies (and the remedies available for breach of those duties) have been codified in the CA 2006,6 this codification is not adopted for members of LLPs. For companies, CA 2006, s 170(4) provides: ‘The general duties [specified in the Act as owed by a director to the company] shall be interpreted and applied in the same way as common law rules or equitable principles, and regard shall be had to the corresponding common law rules and equitable principles in interpreting and applying the general duties.’

It is essentially the corresponding common law rules and equitable principles here being referred to which apply directly to LLP members, without the prism of the statutory provisions.7

Duty to account 13.7 An agent is under a general duty to pass over to his principal (or pay as the principal directs) any money or assets which he receives on behalf of the principal, and to render any appropriate account to the principal.8 A member of an LLP will clearly be under a duty to pay over to the LLP at some point any money or assets (or perhaps net money or assets after expenses) which he receives on behalf of the LLP (for instance, where he receives payment from a customer of the LLP for work done). Whether the duty is in a particular case a fiduciary duty (with the member being a 4

For a discussion of the distinction between the role of a director of a company trading for profit voting as such and the role of a shareholder voting as such, see Northern Counties Securities Ltd v Jackson & Steeple Ltd [1974] 1 WLR 1133 at 1144E–H. 5 As to duties owed to the LLP by shadow members, and by de facto members, see 8.33–8.39. 6 CA 2006, ss 170–187. The reference by ICC Judge Jones in Re A&C Restoration LLP to the CA 2006 duties should not be taken to suggest that they apply directly to LLP members, designated or ordinary: [2020] EWHC 1404 (Ch) at [10]. See also McTear v Eade [2019] EWHC 1673 (Ch), [2019] BPIR 1380 at [139]–[148] and 12.2. 7 Some elements of the fiduciary obligations owed by a member to the LLP are contained in the default rules as default terms of the LLP agreement: see 13.9(b) and (c). 8 See Bowstead & Reynolds above, paras 6–099 and 6–100.

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trustee of any money which he receives on behalf of the LLP) will depend on what trust obligations, or (to the contrary) independent rights, he has over the money.9

Fiduciary obligations 13.8 As mentioned in 13.3, a member is likely to owe fiduciary obligations to the LLP, but the existence and extent of the obligations in a particular case will depend upon an analysis of the relevant rights and obligations of the member. In F&C Alternative Investments (Holdings) Ltd v Barthelemy,10 Sales J analysed the nature and extent of the fiduciary relationship between a member and an LLP, and the content of the fiduciary obligations, in some detail.11 Sales J rejected the submission that the mere fact of membership of an LLP resulted in the imposition of fiduciary obligations (including, in particular, a fiduciary obligation of good faith), and held that the imposition of fiduciary obligations (beyond those imposed by the default rules) arose from the specific roles and responsibilities of a member, in particular the control that a member has over the affairs or property of the LLP,12 and from the acts of a member as the agent of the LLP.13 13.9 The core obligation of a fiduciary is that of single-minded loyalty to his principal:14 a fiduciary must act in his principal’s interest in preference to his own. This core obligation can, for convenience, be divided broadly into a number of separate (albeit overlapping) duties or restrictions. As a general rule (and subject always to the particular terms of the applicable LLP agreement, including the default rules, and the factual analysis required as a result of the judgment of Sales J in F&C Alternative Investments (Holdings) Ltd v Barthelemy),15 the fiduciary obligations of the member of an LLP, and their effect, will be as set out in (a) to (g) below. The obligations referred to are not offered as an exhaustive list.16 Their precise nature

9 See

10 11 12 13 14

15 16

Paragon Finance v D B Thakerar & Co [1999] 1 All ER 400 (CA) at 415–6; Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707; and FHR European Ventures LLP v Cedar Capital Partners LLC [2015] AC 250. [2012] Ch 613. At [217]–[255]. At [218]. At [219]. And see [227]. See generally the judgment of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at 16–22 and the approval of his dictum as to fiduciary obligations by the Privy Council in Arklow Investments Ltd v Maclean [2000] 1 WLR 594. The Privy Council said (at 598G–H) that the concept of loyalty ‘encaptures a situation where one person is in a relationship with another which gives rise to a legitimate expectation, which equity will recognise, that the fiduciary will not utilise his or her position in such a way which is adverse to the interests of the principal’. Put more colloquially in Imageview Management Ltd v Jack [2009] 1 BCLC 724 (concerning a footballer’s agent): ‘An agent’s own personal interests come entirely second to the interests of his client. If you undertake to act for a man you must act 100%, body and soul, for him. You must act as if you were him’ (at [6]). See F&C Alternative Investments (Holdings) Ltd at [227]–[230] for how the dictum of Millett LJ is to be interpreted when the agent is in an authorised position of conflict. As to the ability to vary or restrict the fiduciary obligations of members by agreement (express or implied), see 13.12. Equity is flexible in adjusting obligations to make them fit what it sees as the requirements of the particular situation: see, for instance, Medforth v Blake [2000] Ch 86 (CA) at 102D. And see also Lord Upjohn in Boardman v Phipps [1967] 2 AC 46 at 123: ‘Rules of equity have to be applied to

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and scope will depend on both the particular circumstances of the relationship between the member in question and the LLP, and on the particular circumstances in the context of which their nature and scope falls to be considered.17 It is also the position that, in determining in any particular case whether or not a person who is in a fiduciary position must account for a profit or advantage obtained by him, the court is flexible in its analysis of which theme or component of the obligations owed by the fiduciary he may have breached.18 (a)

The member must at all times, when acting on behalf of the LLP or carrying out his role or responsibilities as a member, act in what, in good faith, he believes to be the best interests of the LLP and for a proper purpose.19 Where a member is under an obligation to provide his services, this duty will include doing his best to promote the business of the LLP.20 Clearly, the obligation to take active steps to promote the business is only engaged where the relevant member is actively involved in the business or management of the LLP. In F&C Alternative Investments (Holdings) Ltd v Barthelemy, Sales J also referred to the fiduciary duty of good faith in more general terms, stating simply that: ‘A fiduciary must act in good faith’.21 He described this as being ‘a compendious expression of duty, comprehending each of the no conflict rule, the no profit rule and the duty to act in the best interests of the fiduciary’s beneficiary or principal’, and stated that: ‘It may also be taken to add a general obligation of openness and fair dealing as between fiduciary and beneficiary. But, again, the precise content of that obligation will vary depending on the particular circumstances and what is reasonably to be expected of the person acting in those circumstances’. Indeed, where a relevant member has no role or responsibilities, the effect of Sales J’s judgment appears to be that a member will not owe this general obligation of openness and fair dealing (save to the extent imposed by default rule (8)). The authors suggest that the better approach may be (subject to contrary agreement) to treat all members as owing the general obligation to the LLP (as a result of their position as agents of the LLP) and to acknowledge that the precise content of the obligation will depend upon an analysis of the particular circumstances.

such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case.’ 17 See NZ Netherlands Society v Kuys [1973] 1 WLR 1126 (PC); F&C Alternative Investments (Holdings) Ltd above. 18 See the survey of cases as to company directors by Lewison J in Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) at [1303]–[1355], adopted in Wilkinson v West Coast Capital [2007] BCC 717 at [247]–[269]. 19 See, for instance, Re Smith & Fawcett Ltd [1942] Ch 304 at 306; Item Software (UK) Ltd v Fassihi [2005] 2 BCLC 91 at [41] (both cases on directors of companies); and F&C Alternative Investments (Holdings) Ltd above at [217]–[220] and [227]–[254]. The fact that the member’s belief that his actions are in the LLP’s best interests is an unreasonable belief does not of itself put the member in breach of his fiduciary obligation, although it may provide evidence that the belief was not honestly held; and it may lead to the member being in breach of his (quite separate) duty of care to the LLP discussed in 13.25–13.26: see Swan v Sandhu [2006] BPIR 1035 at [29]–[30]. In relation to proper purpose, see Eclairs Group Limited v JKX Oil & Gas plc [2015] UKSC 71. 20 See Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 at 366–7 and Guinness Plc v Saunders [1990] 2 AC 663 at 691A–B, citing Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq HL 461. 21 At [227(iv)].

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(b) The member must not put himself in a position where his duty to the LLP and his own interests are in conflict, or may be in conflict (in the sense that there is a real sensible possibility of such a conflict, not merely a conceivable possibility).22 This is the ‘no conflict’ rule. The purpose of this duty is to prevent the member from being swayed by considerations of personal interest in the exercise of powers which are his to exercise in a fiduciary capacity.23 But, in an LLP context, an analysis will usually be required as to the extent to which a member is entitled to act in, or take into account, his own interests.24 A breach of the no conflict rule is not dependent on the member making a profit or gaining some other personal advantage. Examples of breaches of this duty would include (i) a member taking advantage for his own benefit of information or a business opportunity properly belonging to the LLP,25 (ii) a member having a personal financial interest in a contract of sale to, or purchase from, the LLP,26 and (iii) a member engaged in a business competing with the LLP.27 This prohibition on competing will include a prohibition on soliciting the clients or customers of the LLP for a competitor business which the member will be starting or joining after he has ceased to be a member.28

22

F&C Alternative Investments (Holdings) Ltd at [217(i)]. See also Parker v McKenna [1874] 10 Ch App 96 at 118 and Boardman v Phipps above at 123D–124D; and also Regal (Hastings) Ltd v Gulliver in 1942 reported [1967] 2 AC 134 at 137F–138G. As to the practical application of ‘a real sensible possibility’, see Wilkinson v West Coast Capital above, at [250] and [253]. 23 See Ultraframe (UK) Ltd v Fielding above, at [1308]. 24 F&C Alternative Investments (Holdings) Ltd at [221]–[254]. 25 An example is Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443, where the managing director of a company received valuable information as to possible contracts, and dishonestly obtained release from his position with the company in order to obtain the contracts for himself. Another is Bhullar v Bhullar [2003] 2 BCLC 241 (CA), where directors of a property investment company exploited for their own benefit a commercial opportunity to acquire a property adjacent to one owned by the company. A relevant business opportunity has been held to be one where contact between the principal and the third party has progressed to the stage where some outlines of future contractual relations are in play, and which the principal is actively pursuing: see Recovery Partners GP Limited Revoker LLP v Rukhadze [2018] EWHC 2918 (Comm) at [52]–[68]. 26 As to ‘self-dealing’ (ie a member directly and openly entering into a transaction with the LLP), see (f) below. 27 This is similar to a breach of the implied duty of good faith owed by an employee, as applied in Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] Ch 169 and Sanders v Perry [1967] 1 WLR 753. The proposition that a member must not compete in business with the LLP is a sound working rule, but like all these duties falls to be applied to the specific facts of the case in issue. For an illustration of this, see In Plus Group Ltd v Pyke [2002] 2 BCLC 201 (CA), where the competing director had been effectively excluded from all decision-making and participation in the company’s affairs and so, de facto, was not in a position to be in breach of the no conflict rule. In Recovery Partners GP Limited Revoker LLP v Rukhadze, In Plus Group Ltd v Pyke was regarded as an exceptional case: see [85]–[91]. 28 Hivac Ltd v Park Royal Scientific Instruments Ltd above and Sanders v Perry above. In relation to situations where it is necessary to ascertain the moment at which a potentially competing member will be in breach of his fiduciary duties to the LLP if he does not cease to be a member, see British Midland Tool Ltd v Midland International Tooling Ltd [2003] 2 BCLC 523 at [80]–[90], Shepherds Investments Ltd v Walters [2007] FSR 15 at [95]–[108] and Foster Bryant Surveying Ltd v Bryant [2007] 2 BCLC 239 (all cases concerned with company directors). For a consideration of these principles in a partnership context, see Kao Lee & Yip v Koo [2003] WTLR 1283 (HK). For a decision specifically dealing with the principles applicable to an LLP, see Recovery Partners GP Limited Revoker LLP v Rukhadze above, and in particular [69]–[84] on the duration of duties.

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(c)

(d)

29

30 31

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The member (while still a member, and, in some circumstances, subsequently) must not use what is or has been his position as a member of the LLP, or use information learned or an opportunity acquired by him in that capacity in the course of fulfilling his role as a member, to make a personal profit, or otherwise produce an advantage for himself.29 This is the ‘no profit’ rule. The no conflict and no profit rules are to a substantial extent reflected in default rules (9) and (10).30 Within the expression ‘use his position as a member’ etc is considerable scope for investigation of the particular circumstances. An important factor in this consideration may be the scope of the LLP’s business and activities. It is probably a sound working rule, based on the position of company directors, that a member who turns to his personal advantage (without the fully informed consent of the other members) any information or opportunity that he has acquired as a member of the LLP is in breach of the no profit rule, regardless of the ambit of the LLP’s business and activities. However, it may be (but the position is not clear) that if the ambit of the LLP’s business (and a member’s activities on its behalf) is clearly limited by the LLP agreement, and if the only relevant contractual terms as to the scope of a member’s fiduciary duties to the LLP are default rules (9) and (10) (which are an application of ss 29(1) and 30 of the Partnership Act 1890), a member will not be in breach of the no profit rule if he turns to his own advantage information or an opportunity which, although received by him through being a member of the LLP, cannot reasonably be considered to be of any commercial interest to the LLP as it is outside the ambit of the LLP’s business.31 This would, broadly, be in accordance with the position in partnership law. Subject to this possibility, the restriction on the use by a member of his position etc applies however honourably or legitimately he may consider he is acting.32 The member can, generally speaking, avoid being in breach of duties (b) or (c) above if he makes a full and frank disclosure of his position and interest to the other members (on behalf of the LLP), and they – fully informed and aware of the circumstances – give their consent to him being, or acting, in breach

F&C Alternative Investments (Holdings) Ltd above at [217(ii)]. See also Don King Productions Inc v Warren [2000] Ch 291 (CA) (a partnership case) at 340H–341F. An example of misuse of position is CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 (Lawrence Collins J, whose judgment, at [98]–[105], also discusses the position where the director exploits the opportunity through a new corporate vehicle or partnership), but his approach in the case of a new corporate vehicle has been disapproved of in Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) and National Grid v McKenzie [2009] EWHC 1817 (Ch) at [112]–[115]. Another example would be accepting a bribe, namely an incentive to act in breach of the duty of single-minded loyalty to the LLP, including where the sum received by the member does not result in additional expense to the LLP: see A-G for Hong Kong v Reid [1994] 1 AC 324, Daraydan Holdings Ltd v Solland International Ltd [2005] Ch 119 and Imageview Management Ltd v Jack [2009] 1 BCLC 724 (at [20]–[26]). Recovery Partners GP Limited Revoker LLP v Rukhadze above. Default rules (9) and (10) are considered further in 13.10. See the discussion – in Wilkinson v West Coast Capital [2007] BCC 717 at [273]–[298] and in O’Donnell v Shanahan [2009] EWCA Civ 751 at [46]–[70] – of the partnership case of Aas v Benham [1891] 2 Ch 245. A related issue would arise as to the ambit of the member’s obligation to disclose the information or opportunity to the LLP under duty (e) below. See, for instance, Regal (Hastings) Ltd v Gulliver above, at 144G–145A and 153B–F, and Gwembe Valley Development Co Ltd v Koshy (No 3) [2004] 1 BCLC 131 at [44]–[45] and [144]–[145].

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of what would otherwise be his fiduciary obligation.33 In the absence of any provision in the LLP agreement governing disclosures of a member’s position, and the giving of consent to it as mentioned above, the authors suggest that the requirements for effective disclosure to, and effective consent by, the LLP are probably as follows. Disclosure by a member is made to, and any decision as to whether or not to give consent to a transaction is given by, the LLP.34 It is probably correct, therefore, to see a meeting of the members for these purposes as a meeting of the owners of the LLP (ie equivalent to a meeting of shareholders). If the disclosure is not made to all the members individually, it will need to be made to a duly convened general meeting of the members. As set out in 17.12, the authors’ view is that, in the absence of any provision in the LLP agreement which covers the giving of such consent, any consent which is necessary (if it has not been given by all the members individually) will be capable of being given by a majority vote at such a meeting attended by a sufficient quorum (which, in the absence of a definition in the LLP agreement of a quorum, will be a majority of members).35 Will the member himself whose interest is under consideration be able to vote on the giving of consent or, if there is a particular transaction proposed from which he might benefit personally, on the LLP entering into the transaction? Should he be counted towards the quorum of the meeting? If the interested member’s status is equated to that of a shareholder (which is consistent with the members considering the matter as owners of the LLP), and the terms of the LLP agreement do not preclude it, the authors suggest that (assuming that he has made full disclosure) the member will be entitled to participate in the vote, and be counted towards the quorum.36 It may be arguable that (in some circumstances) the interested member’s status is equated to that of a director, and that, therefore, his vote is not to be counted on the giving of consent or determining whether or not the LLP enters into the particular transaction, and that he should not be counted towards the quorum of the meeting;37 but the authors’ view is that members should, for these

33 See

Dunne v English [1874] 18 Eq 524 and NZ Netherlands Society v Kuys [1973] 1 WLR 1126 at 1131H–1132A. It will be for the member to establish that he has made a sufficiently full disclosure for the consent to stand: see Dunne v English above, and Hursthanger v Wilson [2007] 4 All ER 1118 at [35] and [42]–[44]. What amounts to such a disclosure will be a matter of fact in all the circumstances: see, for instance, Knight v Frost [1999] 1 BCLC 364 at 374g–375f and FHR European Ventures LLP v Mankarious [2011] EWHC 2308 (Ch) at [81]. 34 Insofar as the giving of consent is covered by default rules (9) or (10), this is expressly stated to be the position. 35 As to disclosure, see also (in a company context) Ross River Ltd v Cambridge City Football Club Ltd (2007) [2008] 1 All ER 1004 at [213]–[215]. There are, in principle, some limits as to what consent can be given to: see 13.12. 36 See North-West Transportation Co v Beatty (1887) 12 App Cas 589 and Burland v Earle [1902] AC 83. In Burland v Earle, Lord Davey said (at p 94), ‘Unless otherwise provided by the regulations of the company, a shareholder is not debarred from voting or using his voting power to carry a resolution by the circumstance of his having a particular interest in the subject-matter of the vote’. 37 See North-West Transportation Co v Beatty above, at 593 (referring to a director); and as to a quorum, see Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2003] 2 BCLC 153 at [92] (referring to the well-established rule that, where a company director is prohibited from voting on a matter, he cannot be taken into account for the purpose of ascertaining whether a quorum of directors is present). In relation to company directors, this position is now specified by CA 2006, s 175(6).

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purposes, be equated to shareholders. As with any vote by a majority, if the decision amounts to a ‘fraud on the minority’ (discussed at 14.37–14.43),38 or is ‘unfairly prejudicial’ to the minority (as discussed in Chapter 32), it will be open to challenge by the minority. It is also to be appreciated that what is being here discussed is the disclosure, or the giving of consent, in relation to a particular transaction or breach of fiduciary duty. Unless the LLP agreement clearly permits otherwise, any agreement to a general waiving of fiduciary duties will require the unanimous agreement of the members.39 (e) Generally speaking, the member must, in any event, make full and fair disclosure to the LLP of all information which he obtains which is material to the business of the LLP; but the nature and the extent of the obligation (particularly in relation to information acquired by a member in a different capacity) will depend upon a detailed analysis of the nature and content of the LLP agreement and the circumstances.40 Such information will include not only business opportunities for the LLP, but also information which the member has as to any activity, actual or threatened, which damages the interests of the LLP.41 Included within any such activity to be disclosed by the member will be any material misconduct or breach of fiduciary duty to the LLP on the part of the member himself, or any misconduct or breach of fiduciary duty to the LLP of which he is aware on the part of another member.42 (f) A member entering into a contract or other transaction with the LLP (for instance, selling a property to the LLP, or purchasing a property from the LLP) must, in doing so, act with complete good faith towards the LLP, and make full disclosure of all material facts and matters which would be likely to affect the thinking of the LLP in entering into the transaction.43 (g) The member must not misapply money or property of the LLP. He has the duties of a trustee in relation to the LLP’s money and property in his hands or under his control: his power to deal with the LLP’s money and property must be exercised for the purposes, and in the interests, of the LLP.44 As part of this

38

See also 17.26–17.37. Cobden Investments Ltd v RWM Langport Ltd [2008] EWHC 2810 (Ch) at [63]–[64]. The ability of the members, even acting unanimously, to waive generally fiduciary duties is not unlimited: see 13.13. 40 F&C Alternative Investments (Holdings) Ltd above at [221]–[254], particularly [245]–[254]. See, for example, Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443 at 451F–453B and Bhullar v Bhullar [2003] 2 BCLC 241 at [41]. This is the case whether or not the LLP will be able to turn the information to account for itself: see Industrial Developments v Cooley above, at 449A–C, and Bhullar above, at [41]. 41 See British Midland Tool Ltd v Midland International Tooling Ltd above, at [89]. 42 See Tesco Stores Ltd v Pook [2004] IRLR 618; Item Software (UK) Ltd v Fassihi [2005] 2 BCLC 91; Helmet Integrated Systems Ltd v Tunnard [2007] IRLR 126 and British Midland Tool Ltd v Midland International Tooling Ltd above. The duty to self-report is not a free-standing duty but an element of the duty of loyalty or good faith: see First Subsea v Balltec Ltd [2014] EWHC 1266 (Ch) at [191]. 43 See Bowstead & Reynolds above, paras 6–062 to 6–072 and cases cited. Compare the duty on a prospective member of disclosure to the LLP discussed in 13.15. 44 See Re Lands Allottment Co [1894] 1 Ch 616 (CA) at 631 and 638, JJ Harrison (Properties) Ltd v Harrison [2002] 1 BCLC 162 (CA) on company directors and Burnden Holdings (UK) Ltd v Fielding [2018] UKSC 14. The liability for wrongful application or dissipation (and obligation to replace the moneys) will be the same as that of a trustee. 39

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duty, the member must not apply LLP money for an illegal purpose,45 or for a purpose which is unlawful for the particular LLP (as, for instance, being in breach of trust obligations which it owes to others in relation to the moneys).46 13.10 As has been mentioned in 13.6, the codification in the CA 2006 of fiduciary duties owed by company directors has not been adopted for members of LLPs. Nevertheless, as time goes on it is likely that the fiduciary obligations owed by members to the LLP will come to be expressed, at least in part, by reference to the terms of the CA 2006. Duty (b) in 13.9 (a member must not put himself in a position where his duty and interest conflict) may be an example.47 However, it would be erroneous simply to apply the codification in the CA 2006 de facto to members of LLPs. This can be seen in particular by reference to duty (a) in 13.9 – to act at all times in what, in good faith, the member believes to be the best interests of the LLP. This core duty is given a considerable gloss for company directors by CA 2006, s 172, which, after formulating it as a requirement to ‘act in the way [the director] considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole’, goes on to require him, in doing this, to have regard (‘amongst other matters’) to six specific matters.48 Whilst some of these matters may, on some occasions, be relevant to a consideration by the members of an LLP of what is in the best interests of the LLP, there is no such statutory obligation to have regard to them in any event as there is for the directors of a company. Indeed, the nature and content of the fiduciary duties applicable to 1890 Act partners are likely to be at least as relevant in determining the duties imposed on LLP members. 13.11 Some, but not all, of the obligations set out in 13.9 are reflected in the default rules, as default contractual terms of the LLP agreement. Default rule (9)49 provides as follows: ‘If a member, without the consent of the limited liability partnership, carries on any business of the same nature as and competing with the limited liability partnership, he must account for and pay over to the limited liability partnership all profits made by him in that business.’ 45 See

Bowman v Secular Society Ltd [1917] AC 406 at 439, referring to directors who apply company funds for an illegal object being guilty of misfeasance and liable to replace the money. And see also Re Loquitur Ltd [2003] 2 BCLC 442 at [133]–[137] (concerned with company directors paying an unlawful dividend). 46 See Bishopsgate Investment Management Ltd v Maxwell (No 2) [1994] 1 All ER 261 (CA), esp 265j. 47 For company directors, the CA 2006, s 175(1) now expresses this duty in terms that the director ‘must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.’ Sections 177(6)(a) and 182(6)(a) provide that an interest in a proposed transaction or an already existing transaction need not be declared if it cannot reasonably be regarded as likely to give rise to a conflict of interest. 48 These are: (a) the likely consequences of any decision in the long term; (b) the interests of the company’s employees; (c) the need to foster the company’s business relationships with suppliers, customers and others; (d) the impact of the company’s operations on the community and the environment; (e) the desirability of the company maintaining a reputation for high standards of business conduct; and (f) the need to act fairly as between members of the company. As to the last of these, the common law recognises a duty on directors to act in the general interest of all classes of members, and not to favour one class of member at the expense of another: see Henry v The Great Northern Railway Co (1857) 1 De G & J 606 at 638, and see also 17.26–17.37. 49 Ie SI 2001/1090, reg 7(9).

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This is a modified version of s 30 of the Partnership Act 1890.50 Others of the duties referred to at 13.9(b) and (c) are included, at least in part, as default contractual terms by default rule (10), which provides as follows: ‘Every member must account to the limited liability partnership for any benefit derived by him without the consent of the limited liability partnership from any transaction concerning the limited liability partnership, or from any use by him of the property of the limited liability partnership, name or business connection.’

This is a modified version of s 29(1) of the Partnership Act 1890.51 There may be some doubt as to the ambit of the word ‘property’ in default rule (10). But in the light of the increasing use by the court of the proprietary analysis of the no profit rule,52 it seems likely that ‘property’ will be construed to include information and/or a business opportunity. Each of ss 29(1) and 30 as appearing in the 1890 Act refers to ‘the consent of the other partners’. For the purposes of default rules (9) and (10) this has become ‘the consent of the limited liability partnership’. This modification, it is suggested, is a fundamental change, occasioned by the fundamental difference between an LLP (a corporate entity distinct from its members) and a partnership (an aggregate of the members). Any consent which is necessary will be capable of being given in the manner discussed in 13.9(d). It may be said that, on a fair reading, default rule (9) (and possibly also default rule (10)) is referring only to consent being given before the event to a member carrying on a competing business, or deriving a personal benefit from a transaction. Whether or not this is a correct reading, the authors suggest that it is probably the position that, as well as being able to give consent to a member carrying on a competing business, or having a personal interest in a transaction, in advance, a majority will be able to ratify a breach of duty on the part of a member after the event.53 In any event, and generally speaking, the members acting unanimously, and honestly, will be able to authorise or ratify a breach of a fiduciary obligation.54 13.12 The authors suggest that the fiduciary obligations set out at 13.9(a)–(g) will exist unless they are expressly (and properly)55 excluded by the LLP agreement,

50

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Section 30 provides: ‘If a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business.’ Section 29(1) provides: ‘Every partner must account to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership, or from any use by him of the partnership property name or business connexion.’ As referred to in Ultraframe (UK) Ltd v Fielding above (see esp [1344]–[1345]). See also FHR European Ventures LLP v Mankarious [2014] Ch 1. Cf One Step (Support) Ltd v Morris-Garner [2018] UKSC 20. See, for instance, Bamford v Bamford [1970] Ch 212. A majority does not, however, have an unrestricted ability to ratify or condone a breach of fiduciary duty. There is a dividing line, albeit difficult to draw: Airey v Cordell [2007] Bus LR 391 at [44]. It is probably the case that a majority cannot, in any event, ratify or condone an actual fraud. See, for instance, Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258 (CA), considering the right of shareholders to ratify the acts of directors and Bowthorpe Holdings Ltd v Hills [2003] 1 BCLC 226 at [48]–[50]. Again, however, this ability of the members is not unrestricted: see 13.13. See the discussion in 13.13.

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or it is clear from a consideration of all the circumstances that particular duties are inapplicable.56 The fact that these obligations are partly, but not wholly, reflected in the default rules does not mean, in the authors’ view, that the non-reflected fiduciary duties are not owed by the members to the LLP. These duties would normally flow from a principal/agent relationship, and be owed by the agent to his principal.57 The default rules are not, in the authors’ view, intended to exclude these duties from the principal/agent relationship expressly stated to exist between an LLP and every member of it.58 13.13 Careful consideration would need to be given to any decision on the part of the members to exclude, or waive generally, to any significant extent, the obligations set out in 13.9, or the obligation to account mentioned in 13.7. Generally speaking, it is the case that the precise nature and extent of fiduciary obligations can be refined by the terms of any contract existing between the principal and the fiduciary, and must accommodate themselves to the terms of that contract.59 And, as has been mentioned in 13.9(d) and 13.11, the members acting together (either by majority or unanimously) can, generally speaking, authorise or ratify a breach of any of these obligations. But against this must be set the considerations that the members will probably be under a de facto continuing obligation to carry on the LLP’s business with a view to profit,60 and that they must not act so as to put in jeopardy the solvency of the LLP or cause loss to its creditors.61 There are probably also certain core duties (perhaps those of acting honestly and in good faith in the best interests of the LLP) which, if imposed on a member, cannot in any circumstances be generally excluded or waived.62 In the result, the scope for the members to allow circumvention of the obligations set out in 13.7–13.9, if otherwise desired, should not be seen as unlimited. 13.14 The potential remedies available to a wronged principal (ie the LLP here) for the breach of a fiduciary obligation are as follows:63 (a) Where a member has a personal (but not fully disclosed) interest in a transaction with the LLP in breach of duty (b) at 13.9, the transaction may be voidable at the option of the LLP, provided that the transaction is avoided within a reasonable time of the non-disclosure being discovered and that equity

56 See

NZ Netherlands Society v Kuys [1973] 1 WLR 1126 and F&C Alternative Investments (Holdings) Ltd above. 57 Cf F&C Alternative Investments (Holdings) Ltd at [217]–[220]. 58 See LLP Act 2000, s 6(1). And see the reference in LLP Regulations 2001, reg 7 to ‘the provisions of the general law’. 59 See Kelly v Cooper [1993] AC 205 (PC), especially at 213H–214B and 215A–D; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 206B–D; F&C Alternative Investments (Holdings) Ltd above; and the discussion in Bowstead & Reynolds above, paras 6–034 to 6–035. 60 See 3.19–3.22. 61 Where an LLP is insolvent, or of doubtful solvency, the interests of the creditors will become paramount: see West Mercia Safetywear Ltd v Dodd [1988] BCLC 250 (CA) and Official Receiver v Stern (No 2) [2002] 1 BCLC 119 (CA) esp at [32] and [51]. 62 See Wilkinson v West Coast Capital [2007] BCC 717 at [246], Cobden Investments Ltd v RWM Langport Ltd [2008] EWHC 2810 (Ch) at [63]–[64] and [67(e)] and Tradepower (Holdings) Ltd v Tradepower (Hong Kong) Ltd [2010] 1 HKLRD 674 (CFA). 63 See also 13.16 in relation to forfeiture. See, in relation to the court’s power to order springboard injunctive relief, Create Financial Management LLP v Lee [2020] EWHC 1933 (QB).

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can do what is practically just to restore the position to what it was before the transaction took place.64 (b) A member who obtains an unauthorised benefit or profit will be required to account for that benefit or profit to the LLP.65 (c) Where the LLP suffers loss as a result of a breach of fiduciary duty on the part of a member, it will be entitled to equitable compensation.66 These are the principal ‘potential’ remedies, in that the court has a discretion as to the granting of equitable relief.67 13.15 Given the nature of the relationship between a member and an LLP, a prospective member is probably under a duty to make full disclosure to the LLP of all facts and matters which are material to his proposed status as a member and agent of the LLP of which he has knowledge and of which the LLP might not be aware.68 The usual remedy, where there is a pre-contractual failure to make proper disclosure, is rescission of the agreement, but the multi-party nature of an agreement to form an

64

See, for instance, Armstrong v Jackson [1917] 2 KB 822; Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 (CA) at 585C–E, 589F–590C and 594F–G; Bristol and West Building Society v Mothew [1998] Ch 1 at 18C–E; and Guinness Plc v Saunders [1990] 2 AC 663 at 697G–698B. 65 ‘Equity … insists that it is unconscionable for a fiduciary to obtain and retain a benefit in breach of duty’: Lord Templeman in A-G for Hong Kong v Reid above at 331B–C. And Regal (Hastings) Ltd v Gulliver above at 144G–145A and 153B–F and Don King Productions Inc v Warren above at 340H–341F. The purpose of an order for an account against a defaulting fiduciary is to strip him of the profit which he has made within the scope and ambit of the duty which conflicts or may conflict with his personal interest: see Murad v Al-Saraj [2005] WTLR 1573 at [56]–[61], [74], [82]–[83], [108]–[112] and [121]. There may also be a right for the wronged principal to trace into property representing the principal’s moneys or assets wrongfully obtained: see the discussion in Bowstead & Reynolds above, paras 8–159 to 8–167 and FHR European Ventures LLP and others v Mankarious and others above. 66 Ie compensation to make good the loss in fact suffered by the principal and which, using hindsight and common sense, can be seen to have been caused by the breach: see Target Holdings Ltd v Redferns [1996] AC 421 and Swindle v Harrison [1997] 4 All ER 705 (CA) esp at 731h–735d. For a general analysis of the availability of equitable compensation as a remedy for breach of fiduciary duty (particularly consequent upon a failure to disclose), see AB v MB [2013] (1) CILR 1, per Smellie CJ at [434]–[498]. 67 For a fuller discussion of remedies in relation to benefits acquired in breach of fiduciary duties, see Bowstead & Reynolds above, paras 6–040 to 6–044 or (more fully) Goff & Jones, The Law of Restitution (9th edn), Part 7. As to the application of the Limitation Act 1980 in relation to claims for breach of fiduciary duty against a member, see Gwembe Valley Development Co Ltd v Koshy (No 3) [2004] 1 BCLC 131 and First Subsea Ltd v Balltec Ltd [2017] EWCA Civ 186. See, in relation to the court’s power to order an equitable allowance, Gray v Global Energy Horizons Corporation [2020] EWCA Civ 1668. 68 See Conlon v Simms [2008] 1 WLR 484 (CA) at [87] (setting out, inter alia, [196]–[200] of the first-instance judgment of Lawrence Collins J at [2006] 2 All ER 1024) and [127]–[128] (duty of disclosure between prospective partners) and Bell v Lever Bros Ltd [1932] AC 161 at 227 (Lord Atkin referring to certain fiduciary relationships). See also United Dominions Corporation Ltd v Brian Proprietary Ltd (1985) 157 CLR 1 (concerned with obligations between parties prospectively in a fiduciary relationship), also discussed at 13.34. Although note that the LLP is not a necessary party to an agreement to admit a new member: LLP Act 2000, s 4(2) requires only the agreement of the existing members. Query whether such a duty is owed to the LLP where (unusually) the LLP is not a party to the intended admission agreement. In practice, in most cases the LLP will be a party because it will be a party to the LLP agreement to which the new member will be agreeing to adhere.

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LLP or to admit a person as a new member may well limit the circumstances in which rescission can be achieved.69

Forfeiture 13.16 It is well established that a fiduciary may forfeit his right to remuneration if he acts dishonestly, takes a secret profit or effectively fails to perform at all.70 In Hosking v Marathon Asset Management LLP,71 Newey J held that the profit share of an LLP member was potentially susceptible to forfeiture under these principles:72 ‘(i) The arbitrator was, as it seems to me, right to take the view that the forfeiture principle can potentially apply to partners. While the principle has in the past been invoked mainly in relation to agents, the rationale for it (as seen in, for example, Imageview Management Ltd v Jack [2009] Bus LR 1034) extends more widely and so it is unsurprising that it has been taken to be applicable (eg by Snell’s Equity – see para 11 above) to other fiduciaries, too. In any event, a partner or LLP member is an agent (see paras 26 and 28 above) and it is hard to see why the mere fact that someone is a partner or LLP member as well as an agent should preclude the operation of a principle which affects agents more generally. Supposing, therefore, that the arrangements relating to a partnership or LLP provided for a partner or LLP member to receive a set sum for undertaking particular services regardless of the profitability of the firm or LLP, it would, in my view, be susceptible to forfeiture. In fact, I did not understand [counsel for the applicant] to submit to the contrary.’

Newey J rejected the submission that there was, for this purpose, a conceptual distinction between profit share and remuneration, and said:73 ‘The distinction that [counsel for the applicant] draws between profit share and remuneration is not, in my view, well founded. While it will often (typically, I suspect) be impossible to characterise all or any particular part of the profit share of a partner or LLP member as “remuneration”, I do not see why that should always be the case. As a matter of language, it can sometimes be appropriate to speak of a person being remunerated by way of “profit share”, as section 2(3)(b) of the 1890 Act and the textbook quoted in M Young Legal Associates Ltd v Zahid [2006] 1 WLR 2562 illustrate … There is, moreover, no good reason to treat profit share differently from other forms of remuneration in the (probably unusual) cases where it can be identified as reward for undertaking specific duties. As [counsel for the respondent] said, it would make no sense for the law to be that forfeiture was available if a partner were entitled to an extra £10,000 for certain services but not if he were instead to be awarded extra points for the purpose of calculating how profits should be divided. Profit share may usually reflect the interest of the partner or member in the firm, but it is possible to envisage cases 69 See

10.20–10.30. See also Hely-Hutchinson v Brayhead Ltd and Guinness Plc v Saunders referred to in fn 64 above (concerned with non-disclosure of an interest by an existing fiduciary) and Conlon v Simms (CA) above at [129]–[130] (referring also to the availability of damages where the breach of duty of disclosure is fraudulent). 70 See Snell’s Equity (33rd edn) (2015), at 7–062; Andrews v Ramsay & Co [1903] 2 KB 635; Keppel v Wheeler [1927] 1 KB 577; Imageview v Jack [2009] 2 All ER 666; Stevens v Premium Real Estate Ltd [2009] 2 NZLR 384; Stupples v Stupples [2012] EWHC 1226 (Ch). 71 [2016] EWHC 2418 (Ch), [2017] Ch 157. 72 At [43]. 73 At [43(ii)].

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The Law of Limited Liability Partnerships in which it rather represents compensation for certain services and, where that is so, profit share can fairly be viewed as remuneration and within the scope of the forfeiture principle. The law should here be concerned with substance rather than form.’

13.17 It would appear to follow from Newey J’s decision that profit shares are not forfeitable per se and are only liable to forfeiture if and to the extent that they can be characterised as ‘remuneration’, that characterisation being necessary to bring the payment or payments within the fiduciary forfeiture principle. In the authors’ view, the decision is wrong and the profit share of a partner or an LLP member is not liable to forfeiture, whether it is capable of being characterised as remuneration or not. In the authors’ view, whilst colloquially profit shares are often described as remuneration and it is common to regard partners as being remunerated by their shares of profit, there is a clear conceptual distinction: remuneration is payable in return for services and is payable regardless of profit, whereas a share of profit is a financial entitlement that is necessarily dependent on the making of a profit and, in a partnership or LLP context, arises from the person’s ownership status as a partner or member and the terms of the LLP agreement. Regulation 7(1) of the 2001 Regulations provides by way of default rule that: ‘All the members of a limited liability partnership are entitled to share equally in the capital and profits of the limited liability partnership’, and regulation 7(4) provides: ‘No member shall be entitled to remuneration for acting in the business or management of the limited liability partnership’. 13.18 The authors suggest that, where a member is entitled to remuneration under the terms of the LLP agreement, there is no reason why that remuneration would not be susceptible to forfeiture, but if the entitlement is to a share of profits it falls outside the forfeiture principle. There is no reference in the 2001 Regulations to the possibility of forfeiture, and the suggestion that profit share can be forfeited is, in the authors’ view, inconsistent with the entitlement to share in profits provided for in regulation 7(1) and also with the way in which regulation 7(9) and (10) is drafted: ‘(9) If a member, without the consent of the limited liability partnership, carries on any business of the same nature as and competing with the limited liability partnership, he must account for and pay over to the limited liability partnership all profits made by him in that business. (10) Every member must account to the limited liability partnership for any benefit derived by him without the consent of the limited liability partnership from any transaction concerning the limited liability partnership, or from any use by him of the property of the limited liability partnership, name or business connection.’

A defaulting member is obliged to account to the LLP (rather than to the other members) for any profit or benefit made in contravention of those provisions. There is nothing in either regulation that suggests that, once the member has accounted for the profit to the LLP, he is not entitled to his or her share of it in accordance with the terms on which profits are shared under the LLP agreement or regulation 7(1); still less is there any suggestion that, having acted in a way that triggers the forfeiture principle, the member may forfeit a share in the profits that were made entirely separately from, and that are unaffected by, his wrongful conduct. It should be noted that there was no suggestion in the Marathon case that the profits of the LLP included any profits made and accounted for to the LLP by Mr Hosking as a result

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of his wrongful conduct, and so the purpose of the forfeiture was not to deprive him of a share in profits resulting from his wrongful conduct; rather, the purpose of the forfeiture was to deprive him of any share in all the profits made during the period of his wrongful conduct (to the extent that those profits were characterised as ‘remuneration’). 13.19 In Olson v Gullo,74 a Canadian traditional partnership case decided in 1994, the defaulting partner dishonestly sold a tract of land belonging to the partnership, and attempted to retain the profit for himself. He was obliged by the court to disgorge to the partnership the profit that had been earned, but was entitled to payment of his share of that profit (qua partner) even though, whilst that profit had been earned, he had clearly been in breach of his fiduciary duties (in fact, the profit was earned solely because he breached fiduciary duties to the partnership). On this key point of principle, the Ontario Court of Appeal held that:75 ‘We must … begin our consideration with the basic premise that the profit in question is the property of the partnership … To exclude the wrongdoer would be to effect a forfeiture of his or her interest in this partnership property. The point may be understood by considering a starker form of wrongdoing – a case where the partner misappropriates partnership funds for his own benefit. In such a case I am not aware of any principle or decision to the effect that not only must the partner account to the partnership for the money but must also suffer a forfeiture of his or her interest in it. In fact, the case law of which I am aware is to the contrary.’

13.20 The same principle was applied, by the Manitoba Court of Appeal, in MacDonald Estate v Martin.76 The defendant partner had acted in breach of his fiduciary duty to the partnership. The lower court held that equity required that one of the partnership assets should be unequally divided between the partners, giving the defaulting partner a smaller share, even though the partners had agreed to have equal shares in the partnership. The Court of Appeal overturned the decision, saying: ‘We do not think that it is right to allocate the lion’s share of the investment to Mr. MacDonald by ignoring the agreement and exercising a discretionary power to do equity … We find support for this view in the recent decision of the Ontario Court of Appeal in Orson v Gullo … The decision affirms the principle that where one partner agrees to an equal division of profits with the other, he is entitled to have that agreement fulfilled … the claiming partner is not entitled to the entire profit for himself to the exclusion of the dishonest or dishonourable partner. Rather, the profit becomes a partnership asset shareable between the partners in accordance with their agreement.’

74 75 76

17 OR (3d) 790. At 798C–E. [1994] M.J. No. 398. See also Dunne v English LR 18 Eq 524 and Erikson v Carr (1945) 46 SR (NSW) 9 in which Jordan CJ had observed that ‘if a partner in a subsisting partnership finds that his co-partner has made a secret profit for which he is accountable to the firm, this does not entitle him to rescind the partnership ab initio’ but ‘to require the amount to be brought into the partnership account so that he may receive his proper share of it’, while ‘if a person, acting as agent under a subsisting contract of commission agency, accepts a secret commission in relation to an agency transaction, he must account for it to his principal’ and ‘ordinarily he also forfeits his right to commission’ (see p 14).

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13.21 None of these cases considered the argument that profit share is forfeitable if it can be characterised as remuneration, but the authors suggest that, if the law does not deprive a partner who wrongfully makes a secret profit of any interest in that profit, it is difficult to see the legal basis for denying a defaulting partner an interest in the general profits of the firm which are not the product of his wrongdoing, even if the whole or part of the defaulting member’s profit share can be seen as remuneration for services. 13.22 Newey J appears to have proceeded on the basis that the forfeiture principle will rarely apply because it will often (typically, he suggests) be impossible to characterise all or any particular part of the profit share as remuneration,77 but it is not clear, the authors suggest, why he took that view. Certainly, it would be unusual for an LLP agreement to provide expressly that an entitlement to share in profits is actually conditional on the provision of services by the member, but where the members are obliged to provide their services there will be a link in many LLP agreements between the provision of the contractually required services and the profit share: where the members are required to provide services, most LLP agreements impose a ‘time and attention’ requirement; some LLP agreements vest a power in an individual, committee or majority of members to decide how profits are to be allocated based on an assessment of the relative performance and contribution of the members; and most LLP agreements provide for profit share to be adjusted during periods of parental or sick leave, or part-time working. If a member is denied a share of profit when (for example) on parental leave, how can it not be said that profit share is a reward for services? The authors suggest that, if the conceptual distinction between profit share and remuneration is rejected, then, contrary to Newey J’s assumption, the analytical exercise is likely to be reversed: the defaulting member is likely to have to show why the whole or (more realistically) part of his profit share can be treated as not being akin to remuneration and will have to do so by showing how, looking at the terms of the LLP agreement, the whole or part of his entitlement is derived from his ownership interest rather than services. In many cases, that is likely to be difficult. 13.23

If the forfeiture principle applies, there are two key defences:

(a) that the partner/member has acted in good faith;78 and/or (b) that the breach does not go to the whole contract; and/or it would be disproportionate or inequitable to impose forfeiture.79 In considering how the forfeiture principle is to be applied, it is important to keep in mind the distinction between single ventures and ongoing relationships. Forfeiture will not necessarily result in the loss of the share of profit during the whole of the defaulting member’s membership and should be restricted to the period of the wrongdoing.80 Indeed, in cases where the member had mostly complied with his

77 78 79 80

At [43(ii)]. Keppel v Wheeler [1927] 1 KB 577. Bank of Ireland v Jaffery [2012] EWHC 1377 (Ch). Bank of Ireland v Jaffery [2012] EWHC 1377 (Ch) and Gamatronic (UK) Ltd v Hamilton [2016] EWHC 2225 (QB).

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duties (perhaps contributing a material part of the profit during the relevant period), it may well be disproportionate for any part of his profit share to be forfeited.81

Other (non-statutory) duties and responsibilities of a member to the LLP 13.24 Although a member is likely to be in a fiduciary relationship with the LLP, this does not mean that all the duties which he owes to the LLP are fiduciary duties.82 In addition to the fiduciary duties discussed in 13.9, a member will (again, subject to the terms of the LLP agreement) owe certain other duties to the LLP, arising in equity or in tort or out of the express or implied terms of the LLP agreement.

Duty of care 13.25 The principal duty will be a duty of care, arising in equity or in tort, owed by a member to the LLP in carrying out his functions on behalf of the LLP.83 There will probably also be an implied term (if there is not an express term) in the LLP agreement to the same effect. The extent of the duty (and whether or not there has been a breach of it by the member) will be affected by the terms of the LLP agreement and the particular circumstances. The question of the standard of care expected of partners in traditional partnerships is a difficult one. It has historically been the position, at least in relation to services provided as part of the partnership’s business to third parties, that the standard of care owed by a partner to his co-partners is the standard of care which he adopts in his own affairs, and that a partner can only be liable to his co-partners for ‘culpable’ or ‘gross’ negligence (in addition to fraud or wilful default).84 In Tann v Herrington,85 a distinction was drawn86 between the situations where a partner at fault causes liability and/or loss to the firm (a) by negligence in work for a client/third party, where the requirement for liability on the partner to indemnify his co-partners may still be ‘gross negligence’, (b) incompetent performance of business transactions involving partnership property, where a reasonable standard of care and skill is the test, and (c) incompetent administration of partnership internal affairs in relation to a matter entrusted by the firm to him to look after on behalf of all, where the partner’s duty is one of objective reasonable care and skill. In relation to professional services carried out for clients, the Supreme Court of New Zealand in AMP General Insurance Ltd v Macalister Todd Phillips Bodkins 81

82

83

84 85 86

In exceptional circumstances, the court may be willing to order an equitable allowance, but cases where this is appropriate are likely to be very rare indeed. See generally, in relation to equitable allowance, Gray v Global Energy Horizons Corporation [2020] EWCA Civ 1668. For a discussion of the ambit of fiduciary duties, and the distinction between these duties and other duties which may be owed by a person in a fiduciary position, see the judgment of Millett LJ in Bristol and West Building Society v Mothew above, at 16–17. Whether the duty in any situation is seen as arising in equity out of the member’s fiduciary relationship with the LLP or in tort (as to which, see generally Lord Browne-Wilkinson in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 205F–H, and in White v Jones [1995] 2 AC 207 at 271C–272B), the measure of compensation or damages (as also the limitation period) will be the same in equity as in tort: see, as to damages, Millett LJ in Mothew above at 17H and, as to limitation, Companhia de Seguros v Heath (REBX) Ltd [2000] 1 WLR 112. See, for instance, Thomas v Atherton (1878) 10 Ch D 185 at 199. [2009] Bus LR 1051. See also Campbell v Campbell [2017] EWHC 182 (Ch) at 121. At [43]–[69].

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has expressed the view that it is usually implicit (if not explicit) in partnership agreements, in particular in the insurance arrangements (especially where the firm and each of the individual partners are ‘the insured’), that individual partners who have acted negligently (merely) are not in breach of a duty owed to the other partners and need not, therefore, exclusively bear the full cost of their own negligence: ‘… as we think has long been the case in modern professional partnerships, partner negligence leading to a claim by a client is regarded as an unfortunate but accepted fact of life, since even the best of professionals may have an occasional lapse, and is handled by appropriate insurance arrangements protecting all the partners, including any who may be guilty of negligence.’87

The NZ Supreme Court adopted as the test for an individual partner’s liability to his co-partners in respect of services to clients whether the negligent partner had ‘acted bona fide with a view to the benefit of the firm and without culpable negligence’. 13.26 In the authors’ view, it is difficult to see why (in the absence of an express or implied limitation on the scope of his liability) a partner in a traditional partnership should not be under ordinary tortious and implied contractual duties of care, and traditional expressions concerning the standard of care expected of partners – made before the modern law of negligence was developed in the twentieth century – need to be approached with considerable caution. That said, however, whatever may be the position in the context of traditional partnerships, there is no necessity for the court to adopt the same approach in the context of LLPs.88 The authors suggest that the better analogy is the standard of care required of the directors of a company.89 This is set out in CA 2006, s 174 as being: ‘… the care, skill and diligence that would be exercised by a reasonably diligent person with– (a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and (b) the general knowledge, skill and experience that the director has.’

Section 174 reflects the pre-2006 common law position.90 This, in turn, adopted the standard of care set out in IA 1986, s 214(4) which, with the substitution of ‘member’ and ‘limited liability partnership’ for ‘director’ and ‘company’, is adopted for LLPs. 87

AMP General Insurance Ltd v Macalister Todd Phillips Bodkins [2006] NZSC 105 at [15]–[16]. The distinction between the duty of care owed by an individual partner to the firm, and that owed by the firm (acting by the partner in question) to the client, was referred to in Ross Harper & Murphy v Banks 2000 SLT 699 (a Scottish case on the duty of care by a partner to his co-partners) at 705 (Lord Hamilton). When Ross-Harper & Murphy was before the Inner House, the pursuer partnership withdrew their claim: see the Law Commission Report of November 2003 (Law Com No 283), para 12.8. 88 As mentioned in 1.23–1.24, there is no automatic or default application to LLPs of the law relating to partnerships. 89 Particularly as the court is expressly given power to grant relief against liability where a member has acted honestly and reasonably: CA 2006, s 1157, as modified and applied to LLPs by SI 2009/1804, reg 77. 90 Following Norman v Theodore Goddard [1991] BCLC 1028 and Re D’Jan of London Ltd [1994] 1 BCLC 561.

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If this is the right approach, there is then a further question whether (in the absence of an express limitation of liability in the LLP agreement) it can be said in any particular case that there is an implied limitation. It may well be arguable (in the light of cases such as AMP General Insurance Ltd v Macalister Todd Phillips Bodkins)91 that there is an implicit contractual limitation in LLP agreements of LLPs that provide services to third party clients (particularly where the LLP is required to carry, or routinely carries, indemnity insurance) to the effect that members are not liable to the LLP merely because they have acted negligently in relation to the provision of services to clients and that something more is required. It needs to be borne in mind in this regard that (if a member is to be judged by reference to the standard expected of company directors and absent an express or implied agreement to the contrary) a member’s duty of care to the LLP will effectively be the same as the LLP’s duty of care to its clients, and the result will be that (subject to the LLP agreement varying this)92 the position of a member of a UK LLP is that practising through an LLP does not afford him limitation on liability for his own negligence: even if the member is not liable directly to the client, he will be liable to the LLP.

Act within authority 13.27 There has been discussion in 5.9–5.18 of the possibility of the LLP being bound by the actions of a member which, although done by the member outside his actual authority on behalf of the LLP, were within his apparent authority. The member will be under a duty to the LLP to act within the scope of his actual authority, and not to exceed that authority.93

Liability of the member 13.28 Subject to the LLP agreement providing otherwise (and to any ratification of the member’s actions by the LLP), in the case of a breach by a member of the duty referred to in 13.25–13.26, the member will be liable to compensate or indemnify the LLP for loss caused to it as a result of the breach. The possibility of excluding the liability of a member to the LLP, and the possibility also of the LLP giving an indemnity to a member against personal liability to a third party, are discussed at 14.30–14.32.

STATUTORY DUTIES AND RESPONSIBILITIES Duties and responsibilities on the members as a whole 13.29 The members of the LLP as a whole are given certain duties by the CA 2006 in relation to the LLP’s accounts. These duties include the following: (a)

91

The members must prepare, for each financial year of the LLP, accounts which comply with the provisions of the CA 2006 and give a true and fair view of the LLP’s financial position.94

[2006] NZSC 105. 14.30–14.33. See generally Bowstead & Reynolds above, paras 6–002 to 6–004.

92 See 93

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(b) The members must approve the annual accounts before they are filed with the Registrar.95 If annual accounts are approved which do not comply with the requirements of the CA 2006, every member of the LLP who (i) knows that the accounts do not comply with those requirements, or is reckless as to whether they do or not, and (ii) fails to take reasonable steps to secure compliance with the requirements or, as the case may be, to prevent the non-complying accounts from being approved, is guilty of an offence.96 (c) Appointing auditors for each financial year is principally an obligation of the members.97 The extent to which these duties may be delegated to a limited number only of the members of the LLP is discussed at 17.22.

Duties (with penalties for non-compliance) on individual members 13.30 There are a number of statutory duties or prohibitions laid on all members individually, with penalties for non-observance. These include the following: (a) Every member must take all reasonable steps to ensure that the accounting records which the LLP is obliged by the CA 2006 to keep are preserved by the LLP for three years from the date on which they are made.98 (b) Every member is obliged to give to the LLP’s auditors such information and explanations as the auditors require from him as being necessary for the performance of their duties as auditors.99 (c) A member must not use or authorise the use of a seal purporting to be the seal of the LLP on which the name of the LLP is not engraved in legible characters. If he does so, he commits an offence and is liable to a fine.100 (d) If the LLP’s affairs are investigated by government-appointed inspectors, every member (and past member) must, if required by the inspectors to do so, give to the inspectors all assistance in their investigation which he is reasonably able

94

CA 2006, ss 393–394, as modified and applied to LLPs by SI 2008/1911, regs 8–9, as amended by SI 2016/575, Pt 2, reg 7(2). Accounting requirements are considered in detail in Chapter 21. 95 CA 2006, s 414(1), as modified and applied to LLPs by SI 2008/1911, reg 12. 96 CA 2006, s 414(4), as modified and applied to LLPs by SI 2008/1911, reg 12. The liability on conviction is to a fine. Members who are party to the approval of defective accounts could also find themselves ordered to bear personally the costs of the preparation of revised accounts: CA 2006, s 456, as modified and applied to LLPs by SI 2008/1911, reg 23, as amended by SI 2018/1155, Pt 3, reg 21(5)(e)(i). 97 CA 2006, s 485(4), as modified and applied to LLPs by SI 2008/1911, reg 36, discussed at 22.2–22.5. 98 CA 2006, s 389(3)–(4), as modified and applied to LLPs by SI 2008/1911, reg 6. The penalty on conviction is possible imprisonment or a fine (or both): ibid. In addition, Taxes Management Act 1970, s 12B places an obligation on the members to keep records of amounts received and expended in the course of the LLP’s business until the end of the fifth anniversary of the 31 January next following the end of the tax year in which the relevant accounting period ended: see 23.20. 99 CA 2006, s 499, as modified and applied to LLPs by SI 2008/1911, reg 40. Employees of the LLP, and certain other persons, have the same obligation: ibid. See further 21.21, 21.22 and 21.34 as to giving misleading, false or deceptive information or explanations, and the penalties. 100 CA 2006, s 45(4), as modified and applied to LLPs by SI 2009/1804, reg 4. The LLP’s seal is discussed at 4.12.

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to give, including producing all documents relating to the LLP which he has in his custody or power.101 (e) If the LLP is required to produce documents to a government-appointed investigator, every member (and past member) must, if required by the investigator to do so, provide an explanation of any of the documents.102 (f) If a compromise or arrangement is being proposed between the LLP and its creditors or its members, every member must give notice to the LLP of those matters relating to himself as are necessary to enable the effect of the compromise or arrangement to be explained in a statement sent to creditors and/or members.103 (g) If the LLP has been wound up by the court, a member must, if required to do so by the Official Receiver, make out and submit to the Official Receiver a statement as to the affairs of the LLP.104

LLP obligations: liability of members ‘in default’ 13.31 In the case of a number of statutory duties which are placed on the LLP by the CA 2006, as modified and applied by secondary legislation, failure to comply on the part of the LLP leads to every member of the LLP who is ‘in default’ committing an offence, and being liable on conviction to a fine (and, in relation to (a) and (b) below, to imprisonment or a fine, or both). A member who is an individual is ‘in default’ for the purposes of the CA 2006 if he authorises or permits, participates in, or fails to take all reasonable steps to prevent, the contravention of the relevant statutory provision.105 In addition to any member in default, the LLP itself is also guilty of an offence (save in relation to (a) and (b) below). The failures of statutory duty on the part of the LLP being referred to include: (a) failure to keep adequate accounting records;106 (b) failure to keep the accounting records at the LLP’s registered office (or such other place as the members may have determined);107

101

102

103 104 105

106

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CA 1985, s 434, as modified and applied to LLPs by SI 2001/1090, reg 4. See further 24.11. Failure to comply can lead to the inspectors referring the matter to the court, which may punish the member (or past member) as if guilty of contempt of court: CA 1985, s 436, as modified and applied to LLPs by SI 2001/1090, reg 4. CA 1985, s 447(5), as modified and applied to LLPs by SI 2001/1090, reg 4. See further 24.11. Failure to comply can lead to the investigator referring the matter to the court, which may deal with the member (or past member) as if guilty of contempt of court: CA 1985, s 453C. CA 2006, s 898, as modified and applied to LLPs by SI 2009/1804, reg 45. IA 1986, s 131, as modified and applied to LLPs by SI 2001/1090, reg 5. The penalty for failure to comply without reasonable excuse is a fine: ibid. See CA 2006, s 1121, as modified and applied to LLPs by SI 2009/1804, reg 70. The meaning of ‘in default’ (including the meaning in relation to corporate members) is discussed further at 12.10–12.12. The term has the same meaning in relation to members as it has in relation to designated members. CA 2006, ss 386–387, as modified and applied to LLPs by SI 2008/1911, reg 6, considered at 21.3. It is a defence for the member to show that he acted honestly and that in the circumstances in which the LLP’s business was carried on the default was excusable: s 387. CA 2006, ss 388–389, as modified and applied to LLPs by SI 2008/1911, reg 6. The records are also at all times to be open to inspection by the members (as to which, see 14.14–14.15). There is a similar defence for the member as stated in fn 106 above.

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(c) (d) (e) (f) (g)

(h) (i) (j) (k)

108 109 110

111

112

113 114 115 116

failure to send a copy of the annual accounts, auditors’ report and energy and carbon report to every member, and to every debenture holder, within the required period;108 failure to supply on demand to any member (within seven days of receipt of the demand) a copy of the last annual accounts, auditors’ report on those accounts, and energy and carbon report;109 publishing a copy of the LLP’s balance sheet and energy and carbon report without the name of the person who signed it on behalf of the members of the LLP being stated on the copy;110 publishing the LLP’s statutory accounts without such accounts being accompanied by the relevant auditors’ report;111 publishing non-statutory accounts112 without a statement indicating that they are not the LLP’s statutory accounts (and indicating also certain matters in relation to the statutory accounts and auditors’ report), or publishing with nonstatutory accounts the auditors’ report on the statutory accounts;113 failure, where the LLP’s records are kept otherwise than in bound books (eg they are kept electronically), to take adequate precautions to guard against such records being falsified, and to facilitate the discovery of any falsification;114 failure to give notice to the Registrar of the place where documents creating or amending charges are kept or failure to allow inspection of such documents;115 failure, if the LLP keeps a register of debenture holders, to give notice to the Registrar of the place where the register is kept, or to allow inspection of it (or to supply a copy);116 various failures in relation to debentures, including (i) to register an allotment of debentures within the required period, (ii) to supply a copy of the trust deed for securing debentures to a holder of the debentures, or (iii) when a transfer

CA 2006, s 425, as modified and applied to LLPs by SI 2008/1911, reg 14, as amended by SI 2018/1155, Pt 3, reg 13(2). CA 2006, s 431(3), as modified and applied to LLPs by SI 2008/1911, reg 15, as amended by SI 2018/1155, Pt 3, reg 14(2). CA 2006, s 433, as modified and applied to LLPs by SI 2008/1911, reg 16, as amended by SI 2018/1155, Pt 3, reg 15(2). An LLP is regarded as publishing a document if it publishes, issues or circulates it or otherwise makes it available for public inspection in a manner calculated to invite members of the public generally, or any class of members of the public, to read it: s 436(2). CA 2006, s 434(4), as modified and applied to LLPs by SI 2008/1911, reg 16. The statutory accounts are the accounts for a financial year as required to be filed with the Registrar under CA 2006, s 441, as modified and applied to LLPs by SI 2008/1911, reg 17: see 21.46. As to what constitutes ‘publishing’, see fn 110 above. Ie any balance sheet or profit and loss account relating to, or purporting to deal with, a financial year of the LLP, or an account in any form purporting to be a balance sheet or profit and loss account for a group headed by the LLP relating to, or purporting to deal with, a financial year of the LLP otherwise than as part of the LLP’s statutory accounts: CA 2006, s 435(3), as modified and applied to LLPs by SI 2008/1911, reg 16. CA 2006, s 435, as modified and applied to LLPs by SI 2008/1911, reg 16. As to what constitutes ‘publishing’, see fn 110 above. As to the statutory accounts, see fn 111 above. CA 2006, s 1138, as modified and applied to LLPs by SI 2009/1804, reg 74. As to the meaning of ‘the LLP’s records’, see CA 2006, s 1134. CA 2006, s 859A, as modified and applied to LLPs by SI 2009/1804, reg 32, as itself modified by SI 2013/618, Sch 1, para 1. CA 2006, ss 743–746, as modified and applied to LLPs by SI 2009/1804, reg 21.

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of a debenture is lodged with the LLP, either to register the transfer or to give notice of refusal to do so, within the required period;117 and failure in relation to a compromise or arrangement which is proposed between the LLP and its creditors or its members to send out a statement (with the notice summoning a meeting) explaining the effect of the compromise or arrangement, or failure, where an order has been made sanctioning a compromise or arrangement under which the whole or any part of the undertaking or property of the LLP is to be transferred to a company or another LLP, to file a copy of the order with the Registrar.118

Insolvency Act 1986 and Company Directors Disqualification Act 1986 13.32 The IA 1986 and the CDDA 1986 impose a number of duties on members of an LLP. Misfeasance is discussed in Chapter 34 and disqualification is discussed in Chapter 37. It is worth noting here, however, that amongst the matters to which the court is to have regard on an application for a disqualification order against a member on the ground that his conduct as a member makes him unfit to be concerned in the management of an LLP119 is the extent of that member’s responsibility for any failure by the members or the LLP to comply with, inter alia, the provisions of the CA 2006 as to keeping adequate accounting records, preparing annual accounts and approving the accounts.120 The matters to which the court is directed to have regard under the CDDA 1986 are considered at 37.13–37.15. It is also worth noting that, although an LLP of any appreciable size is likely to have a management committee or its equivalent, it is wrong to see a management committee as being the equivalent of a board of directors of a company or to see anything more than a loose analogy between the members of an LLP and its management committee on the one hand, and the shareholders of a company and its board of directors on the other hand. The emphasis of modern company legislation is to impose standards of conduct and carrying of responsibility on individual directors which are calculated to protect the public and, in particular, creditors dealing with the director’s company. It follows from the application of the two 1986 Acts to LLPs and their members that, in principle, these same standards of conduct and carrying of responsibility must be accepted by LLP members. The following two statements were made in director’s disqualification cases: ‘Those who trade under the regime of limited liability and who avail themselves of the privileges of that regime must accept the standards of probity and competence to which the law requires company directors to conform.’121

117

CA 2006, ss 741, 749 and 771, as modified and applied to LLPs by SI 2009/1804, regs 20, 22, 25. CA 2006, ss 897 and 900, as modified and applied to LLPs by SI 2009/1804, reg 45. 119 See CDDA 1986, ss 6 and 9 and Sch 1, paras 4 and 5. 120 ‘Those who persistently fail to discharge their statutory obligations in this respect [ie the statutory provisions regarding accounting records and the preparation of annual accounts] can expect to be disqualified, for an appropriate period of time, from using limited liability as one of the tools of their trade. The business community should be left in no doubt on this score.’: Nicholls V-C in Secretary of State for Trade and Industry v Ettinger [1993] BCLC 896 (CA) at 900. 121 Neill LJ in Re Grayan Building Services Ltd [1995] Ch 241 at 258. And see Henry LJ in the same case, quoted in Chapter 1. 118

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The Law of Limited Liability Partnerships ‘Each individual director owes duties to his company to inform himself about its affairs and to join with his co-directors in supervising and controlling them. A proper degree of delegation and division of responsibility is of course permissible, and often necessary, but not total abrogation of responsibility … It is of the greatest importance that any individual who undertakes the statutory and fiduciary obligations of being a company director should realise that these are personal responsibilities.’122

In both these statements, ‘LLP member’ may be substituted for ‘company director’. The collegiate responsibility of members is discussed further at 37.19–37.21 in the context of the CDDA 1986.

A MEMBER’S DUTIES TO HIS CO-MEMBERS General 13.33 It is an axiom of the law of traditional partnerships that partners owe to each other a duty of the utmost good faith. The foundation of this duty is the fact that each partner is the agent for all the others in carrying on the partnership business.123 The duty extends to the conduct of the purely internal affairs of the partnership, and can perhaps be described as a duty of open, fair and honourable dealing between partners in relation to the partnership and all its affairs.124 As has been discussed earlier, a member of an LLP is not the agent for his co-members, but is the LLP’s agent (and as such is likely to owe a duty of good faith to the LLP as part of his wider fiduciary obligations).125 There is no general application of partnership law to LLPs;126 and the default rules for LLP agreements do not expressly contain (as many partnership deeds do) a requirement of good faith as between members.127 In the absence of agreement to the contrary, therefore, there is no general fiduciary duty of good faith on the individual members of an LLP to their co-members of the kind imposed by law

122

Lord Woolf MR in Re Westmid Packing Services Ltd [1998] 2 All ER 124 at 130 and 131. And see Re Kaytech International Plc [1999] 2 BCLC 351 (CA) at 425e: ‘… complete inactivity by a director can constitute unfitness’ for the purposes of the CDDA 1986. As to a degree of delegation and division of responsibility being permissible, see also Bishopsgate Investment Management Plc v Maxwell (No 2) [1993] 1 BCLC 1282 (breach of fiduciary duty case) at 1285a–b: ‘… the existence of a duty to participate [in the management of a company] must depend on how the particular company’s business is organised and the part which the director could reasonably have been expected to play’ (Hoffmann LJ). 123 See the discussion in Blackett-Ord on Partnership (6th edn) (2020), para 11.1. 124 For an example of the application of the duty of good faith between partners, see Mullins v Laughton [2003] Ch 250 (‘Bullying, seeking to trap and intentionally taking by surprise with a view to shock, in hope of obtaining an advantage for the co-partners and a disadvantage for the partner concerned, must, in my view, amount to a breach of good faith’: Neuberger J at [100]). And see also R v Dept of Health ex p Source Informatics Ltd [2001] QB 424 (CA) at [31], where ‘good faith’ in the context of use of confidential information was characterised in terms of conscience. For a wide-ranging discussion of the meaning of ‘good faith’, in a statutory context, see Bropho v Human Rights & Equal Opportunities Commission [2004] FCAFC 16 (Federal Court of Australia) at [83]–[103]: game playing at the margins of an obligation may well fall short of good faith. 125 See 3.4 and 13.9(a). 126 See 1.23–1.24. 127 The default rules are considered at 10.7–10.11.

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on partners in a traditional partnership.128 For the same reason, members of an LLP will not (usually, at least)129 owe one another other fiduciary duties. Nevertheless, requirements of good faith, or other fiduciary obligations, may exist, either generally or in particular circumstances, between members, or potential members, of an LLP. We consider these requirements in the following paragraphs.

Good faith between negotiating parties 13.34 In the absence of agreement to the contrary, members do not owe each other a general fiduciary duty of good faith (see 13.33); and it appears that no contractual obligation of good faith or of trust and confidence (as between the members) will (usually, at least) be implied (see 13.40–13.41). That being the case, it is by no means obvious that mutual obligations of good faith (or other fiduciary obligations) will be owed between: (a) prospective members negotiating the incorporation of an LLP; (b) existing members negotiating the admission of a new member; or (c) existing members negotiating the terms, or variation, of an LLP agreement or a retirement or liquidation agreement. Nevertheless, the authors suggest that the relationship between members of an LLP is one of sufficient trust and confidence as to justify the imposition of a mutual obligation of good faith, in the circumstances set out above, so as to impose a requirement on the negotiating parties to disclose facts and matters material to the decision to enter into the relevant agreement.130 There may also be a case for imposing more extensive fiduciary obligations, at least until the LLP is incorporated.131 In any event, whether 128

F&C Alternative Investments (Holdings) Ltd above at [207]–[220], Brown v InnovatorOne Plc [2012] EWHC 1321 (Comm) at [1301]–[1311] and Mckillen v Misland (Cyprus) Investments Ltd [2012] EWHC 521 (Ch) at [94]–[97]. 129 But not inevitably: see, for instance, Millett LJ in Stein v Blake [1998] 1 All ER 724 at 727d, referring to the position of two 50 per cent shareholders in a company: ‘I have no doubt that circumstances may exist in which [a fiduciary duty owed by one to the other personally] may exist’. And see also Peskin v Anderson [2001] 1 BCLC 372 (CA), discussing company directors owing fiduciary duties to shareholders in special circumstances. The problem for the wronged member may be to establish loss to him personally from the breach, rather than loss to the LLP or loss which is merely a reflection of loss for which the LLP may recover: see Johnson v Gore-Wood [2002] 2 AC 1 (HL) and Sevilleja v Marex Financial Ltd [2020] UKSC 31. 130 See Law v Law [1905] 1 Ch 140 and Conlon v Simms at first instance [2006] 2 All ER 1024 at [195], quoted with apparent approval in the CA [2008] 1 WLR 484 at [87]. See also, for instance, in relation to situation (b), Directors of Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99 (concerned with a dishonest prospectus inviting the public to subscribe): ‘In my opinion, the public, who are invited by a prospectus to join in any new adventure, ought to have the same opportunity of judging of everything which has a material bearing on its true character, as the promoters themselves possess. It cannot be too frequently or too strongly impressed upon those who, having projected any undertaking, are desirous of obtaining the co-operation of persons who have no other information on the subject than that which they choose to convey, that the utmost candour and honesty ought to characterise their published statement’ (Lord Chelmsford LC at 113). Members will owe a duty to take reasonable care and skill to ensure that any statements or recommendations made regarding admission or variation of the LLP agreement are accurate: Sharp v Blank [2019] EWHC 3096 (Ch). 131 See United Dominions Corporation Ltd v Brian Proprietary Ltd (1985) 157 CLR 1 (concerned with the relationship between three prospective joint-venturers who had not yet entered into the formal

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fiduciary duties do exist in any particular case will depend on the circumstances of that case.132 If fiduciary duties do arise in any particular case, and there is a breach, the possible remedies will be those discussed in 13.14. Where there is an issue as to the destination of property which has been purchased by a prospective member of the future LLP, under a pre-acquisition agreement that the property would be injected into the LLP when incorporated, the issue may more properly fall to be analysed in terms of constructive trusts and proprietary estoppel.133

Duty of care? 13.35 The duty of care owed by a member to the LLP in carrying out his functions on behalf of the LLP has been discussed in 13.25–13.26. In some circumstances, a member may owe a duty of care to his co-members, the duty arising either in tort as a matter of common law or arising out of a term implied into the LLP agreement to use reasonable care and skill in the particular matter. In relation to the administration of the LLP, a member charged with the responsibility within the LLP of fulfilling some regulatory or like requirement may owe a duty of care to the other members to fulfil that requirement. Examples of such situations could arise where a member is entrusted with the task of delivering to the Registrar notice of a person becoming or ceasing to be a member of the LLP under LLP Act 2000, s 9, or is charged with the duty of notifying insurers of claims made against members personally.134 In relation to the carrying on of the business of the LLP, one member giving assistance to another in the course of the latter providing a service to a customer or client of the LLP may be under a duty of care to the service provider in the giving of that assistance.135 An example of such a situation could arise in an LLP of professionals, where the member advising the client seeks specialist assistance ‘in-house’ from another member. The circumstances in which such a duty of care (if existing) may become of practical importance are discussed in 14.33, in the context of a wider discussion as to the ability of the LLP agreement to exclude a member’s personal liability in negligence to the LLP or to other members, and/or to provide for the LLP to give an indemnity to members against certain personal liabilities.

Cause of action 13.36 If a member does have a claim against another member for damages in negligence, or for breach of the LLP agreement, he will have a cause of action at law in the conventional manner, but such a claim will be subject to the principles governing recovery for reflective loss.136 joint venture agreement), especially at 10–12 (Mason, Brennan and Deane JJ) and 16 (Dawson J); and Fawcett v Whitehouse (1829) 1 Russ & M 132 (intending partner obtaining secret benefit from negotiations conducted by him on behalf of intended partnership). 132 As to the moulding of fiduciary duties to the particular circumstances, see NZ Netherlands Society v Kuys [1973] 1 WLR 1126 (PC). 133 See Banner Homes Group Plc v Luff Developments Ltd [2000] Ch 372 (CA). A binding agreement is likely to be required: Generator Developments Limited v Lidl UK GmbH [2018] EWCA Civ 396. 134 See the partnership case of Tann v Herrington [2009] Bus LR 1051. 135 The principles of a duty of care arising in tort are discussed (in the context of a member owing a personal duty of care to the client or customer of the LLP) in 18.7 et seq. 136 Johnson v Gore-Wood [2002] 2 AC 1 (HL); Sevilleja v Marex above.

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13.37 Unlike the position for a member of a partnership under the Partnership Act 1890, where the relationship between the partners is not simply contractual, but is a continuing personal as well as commercial relationship subject to the jurisdiction of the court of equity, the route to recovery for one member against another will not be through the taking of an account in equity.137

Default duty to render ‘true accounts’ etc 13.38

Default rule (8) provides as follows:

‘Each member shall render true accounts and full information of all things affecting the limited liability partnership to any member or his legal representatives.’

This rule is an adoption of s 28 of the Partnership Act 1890, essentially substituting ‘member’ for ‘partner’. Like all default rules, it can be varied or written out. An express disapplication will obviously be effective. In principle, the provision is capable of being disapplied implicitly, but the inclusion of an express contractual obligation to provide information that is narrower in scope does not necessarily operate to exclude the wider statutory right.138 It would perhaps have been more logical (and consistent with a member’s fiduciary obligation to the LLP discussed at 13.9(e)) for the rule to have been framed in terms of rendering accounts and information to the LLP. It may be that the practical effect will be much the same; and the right which this provision effectively gives to any member to require information from another member is a valuable direct right where there is discord amongst the members. ‘Affecting’ is clearly a word of wide ambit.139 13.39 The obligation on a member under the rule to provide information will continue on that member after he has ceased to be a member. This interpretation of the rule accords with the principle behind it of openness between members, and has some judicial support.140 The reference to ‘legal representatives’ in the rule is, given the nineteenth-century provenance of the provision, probably a reference to the personal representatives of a (deceased) member. However, in like manner as under default rule (7)141 a member’s (expressly stated) right to have access to, and to inspect, the books and records of the LLP may be exercised through an agent nominated by the member, so, it is suggested, under default rule (8) a member may be required to provide information to the nominated agent (for instance, solicitor) of another member. The rule is considered further (as creating a member’s right) at 14.18.

137

See generally, on the partnership position, Lord Millett in Hurst v Bryk [2002] 1 AC 185 at 194. Dorsey Ventures [2019] 1 CILR 249l and Gulf Investment Corporation & ors v The Port Fund LP & anor 235/2019, both decisions concerning similar provisions in the Cayman Island Exempted Limited Partnership Law 2018. 139 See Gulf Investment Corporation above. 140 Moser v Cotton (1990) 140 NLJ 1313 (CA), Lawtel Doc No AC 1073712, a case concerning confidentiality as between ex-partners and considering, inter alia, Partnership Act 1890, s 28: see Parker LJ at Transcript p 12D–E. 141 Considered at 14.3–14.17. 138

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EXPRESS AND IMPLIED CONTRACTUAL TERMS OF GOOD FAITH OR MUTUAL TRUST AND CONFIDENCE 13.40 It is open to members of an LLP to agree express obligations of good faith or trust and confidence and to make provision for whether such obligations are to be owed by the members to the LLP, the LLP to the members and/or mutually as between the members. The precise scope of an express contractual obligation is a matter of construction ‘informed by the particular factual and contractual context in which it is located’.142 A contractual obligation of good faith does not (necessarily) require a party to subordinate his own interests, but it may require him to have due regard to the legitimate interests of all the parties.143 13.41 In a contract of employment, there are mutual obligations of trust and confidence: there is an implied term that the employer will not, without reasonable and proper cause, conduct himself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee;144 and an employee owes his employer a duty of good faith and fidelity.145 But it needs to be borne in mind that these terms are imposed by law rather than implied in fact: they are standardised terms implied by law (that is, terms which are an incident of all contracts of employment).146 Whilst the relationship of employer and employee may have some similarities to that between member and LLP, the relationship between member and LLP, and between the members themselves, is fundamentally different. It is of the essence of the relationship between employer and employee that the employee provides his services in exchange for a salary; but there is no default obligation imposed on members of an LLP to provide their services. In default of any agreement to the contrary, a member has a right to be involved in the management of the LLP, but whether (and, if so, in what way) a member is to be required to provide services is a matter for agreement. The authors suggest, therefore, that there is no basis for the law imposing, as it does as an incident of the relationship between employer and employee, an obligation of trust and confidence in an LLP context, whether between LLP and member, member and LLP or as between the members themselves. If this is right, then the question is whether, in any particular case, an obligation of good faith, or trust and confidence, can be implied in fact.147 In Flanagan v Liontrust Investment Partners LLP,148 Henderson J held that there was no basis for implying a duty of trust and confidence, either in the LLP agreement or a side letter, which set out particular terms governing the relationship between the

142

F&C Alternative Investments (Holdings) Ltd above at [255]–[259]. Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [146]. 144 See Halsbury’s Laws of England, vol 39 (2014), at para 48 and Computer Systems Plc v Ranson [2012] IRLR 769. 145 See Halsbury’s Laws of England, vol 39 (2014), at para 67. 146 Malik v Bank of Credit and Commerce International SA [1998] AC 20 at 45. 147 As to the requirements for implying terms, see Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC at [18]–[22], and the discussion of the relevant principles by the Court of Appeal in Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc [2009] EWCA Civ 531, [2009] 2 Lloyd’s Rep 639. 148 [2015] EWHC 2171 (Ch) at [248] and [249]. 143

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petitioning member and the LLP; and, in doing so, he placed reliance on Sales J’s rejection of fiduciary duties of good faith between members in F&C Alternative Investments (Holdings) Ltd v Barthelemy.149 Whether a term should be implied in any given case will obviously depend upon the express terms of the relevant agreement and the circumstances, but, given the approaches adopted by Sales J and Henderson J, such an implication will not be the norm. It will be particularly difficult to imply a term imposing an obligation owed by the LLP to the members or between the members themselves, if the LLP agreement (as is commonplace) provides for an express duty of good faith owed by the members to the LLP. Contrary to the view expressed in the third edition,150 the authors suggest that, unless there are particular features that positively justify an inference, duties of good faith or trust and confidence will not be implied.

DUTIES IN DECISION-MAKING 13.42 The obligations of good faith, and other implied duties and fetters, that are imposed on members in connection with the exercise of decision-making powers are considered in Chapter 17.

149

[2012] Ch 613 at [207]–[220]. 12.26.

150 At

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Chapter 14 RIGHTS, INDEMNITIES AND PROTECTION OF MEMBERS

INTRODUCTION 14.1 An individual member’s rights, as against both the LLP and other members, are likely to be considerably more dependent on the express terms of the LLP agreement than are his duties and responsibilities. Many of the latter (as has appeared from Chapter 13) will probably arise in any event from the agent/principal relationship existing between the member and the LLP, or as a matter of implied terms of the LLP agreement. The default rules (ie broadly, the terms of the LLP agreement in default of any actual agreement to the contrary)1 contain certain rights and entitlements (as well as duties and restrictions) for members. The right to share equally in the capital and profits of the LLP (rule (1)) is considered in 16.10 and 16.13; the right to take part in the management of the LLP (rule (3)), and the right to take part in decision-making (rule (6)), are considered in Chapter 17. The default right contained in LLP Act 2000, s 4(3)2 to cease to be a member on giving reasonable notice to the other members is considered in 19.2–19.8. 14.2 The default rules contain three further rights for members, namely the right to inspect the LLP’s books and records, the right to obtain information from other members and the right to be indemnified. These are considered in 14.3–14.21. Thereafter, this chapter considers various statutory rights given to members or ‘contributories’ by the companies and insolvency legislation.3 The unfettered nature of individual membership rights, the possibility of excluding liability on the part of a member to the LLP (and to other members), the discretionary power of the court under the CA 2006 to relieve members from certain liabilities, and an individual member’s own right of action against the LLP, or right to bring a derivative action on behalf of the LLP, are also considered.

1 See 2

3

10.7–10.11. The provision for reasonable notice as to ceasing to be a member could not have been contained in regulations made under s 15(c) because, unlike the provisions of regs 7 and 8 of the LLP Regulations 2001 (including that relating to a person introduced as a member), it is not any part of the ‘law relating to partnerships’, but is a de novo provision for LLPs and thus must find its place in the body of the Act. The rights given to members under the anti-discrimination legislation are considered in Chapter 15.

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DEFAULT RULE RIGHTS Right to inspect the books and records of the LLP 14.3 Default rule (7) confers on every member (subject to the provisions of the general law and the terms of the particular LLP agreement)4 the right to inspect the books and records of the LLP. The rule provides: ‘The books and records of the limited liability partnership are to be made available for inspection at the registered office of the limited liability partnership or at such other place as the members think fit and every member of the limited liability partnership may when he thinks fit have access to and inspect and copy any of them.’

This is an adoption (with modifications) of s 24(9) of the Partnership Act 1890.5 14.4 Although the rule provides that the books and records may be inspected (and copies taken), it does not give a member the right to remove the books and records from where they are kept in order to examine them more conveniently elsewhere. The rule provides that ‘every member’ may inspect the books and records. It seems reasonably clear that persons who have ceased to be members (eg retired members) will not have a right to inspect under the rule.6 The rule provides for ‘the members’ to be able to determine a place other than the registered office as the place where the books and records are available. Whether the members must act unanimously, or can act by a majority, under such a provision as default rule (7) is essentially a matter of construction, and the authors’ view is that the governing principle is that, in the absence of an indication to the contrary, a decision by a majority of all the members is sufficient.7 Not only is there no indication to the contrary in the rule, but the reference in it to ‘the members’ may be contrasted with the express reference in default rule (5), and also in the second part of default rule (6), to ‘the consent of all the … members’. It seems reasonable to conclude that when the default rules require unanimity in decision-making they say so, and that a decision by a majority of all the members will be valid for the purposes of default rule (7). 14.5 Usually, no difficulty will arise as to whether particular documents are books or records. The LLP’s accounting records (required to be kept under

4

See the opening words of reg 7 of the LLP Regulations 2001. All of default rules (1) to (10) are expressed to be so subject. Rule (11) – expulsion – is subject to an express agreement to the contrary. 5 Section 24(9) of the 1890 Act refers only to the ‘partnership books’, and requires them to be kept at the principal place of business of the partnership. The words in default rule (7) ‘at the registered office … or at such other place as the members think fit’ are a reflection of CA 1985, s 222(1), now CA 2006, s 388(1), as modified and applied to LLPs by SI 2008/1911, reg 6. See Hilton v D IV LLP [2015] EWHC 2 (Ch) at [21] and 1.23. 6 The CA 2006 is consistent with this (as was the CA 1985), in that the LLP’s annual accounts are to be approved by the members for the time being (see 21.38), so that a retired member has no duty to be satisfied that they give a true and fair view. 7 See 17.3.

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CA 2006, s 386)8 are clearly included,9 as will be the LLP agreement and other constitutional documents.10 14.6 The scope of the right to inspect, in the case of a limited partnership registered under the Limited Partnership Act 1907, was considered in detail by Norris J in Inversiones Frieira SL v Colyzeo Investors II LP.11 The default right in the case of a limited partnership is to inspect the partnership books. Section 6(1) of the Limited Partnership Act 1907 refers to the inspection of the ‘books of the firm’, and s 24(9) of the Partnership Act 1890 refers to ‘partnership books’. Whether the reference in default rule (7) to ‘records’ adds anything to ‘books’ is doubtful.12 The authors suggest that there is no distinction, or at least no practical distinction, between ‘books’ and ‘records’.13 A book or a record is simply a physical thing that records information and will include documents in hard copy or electronic form. 14.7 In Inversiones Frieira SL & anor v Colyzeo Investors II LP (No 1),14 Norris J held that what is required to fulfil the inspection rights will vary from case to case, depending on the nature of the partnership business and its mode of conduct and the terms of the governing documents read in the light of current business practice. He stated that there is little to be gained by looking at the decided cases to see if they establish categories of document which, as a matter of law, every partnership must maintain as part of its records and which every partner has a right to inspect. The test is a functional one. As a rough rule of thumb, he suggested that: (a) if it would be necessary or advantageous to rely on the document or record in order to establish the rights of the partnership as against a third party, or in order to determine or adjust the rights of the partners inter se, then it is a book, document or record which relates to the affairs of the partnership, and a limited partner is entitled to see it, and (b) if the partnership has paid for the document, that would also establish that it related to the affairs of the partnership.15

8

Modified and applied to LLPs by SI 2008/1911, reg 6. As to the meaning of ‘accounting records’, see 21.3 and DTC (CNC) Ltd v Gary Sargeant & Co [1996] 1 WLR 797 (accountants asserting a lien for unpaid fees over accounting records of a company), where these were said ordinarily to include sales invoices, purchase invoices, cheque books, paying-in books and bank statements (which were the categories in dispute in the case). However, in Oxford Legal Group Ltd v Sibbasbridge Services Plc at first instance [2007] EWHC 2265 (Ch), it was said (at [36]) that invoices and receipts were beyond ‘accounting records’. 10 This will be subject, of course, to the possibility of the LLP agreement itself having modified default rule (7). 11 Inversiones Frieira SL v Colyzeo Investors II LP (No 1) [2011] EWHC 1762 (Ch) and Inversiones Frieira SL v Colyzeo Investors II LP (No 2) [2012] EWHC 1450 (Ch). See also Re Dorsey Ventures Grand Court of the Cayman Islands [2019] 1 CILR 249 and Gulf Investment Corporation v The Port Fund LP Grand Court of the Cayman Islands 16 June 2020. 12 See Inversiones Frieira SL & anor v Colyzeo Investors II LP (No 1) [2011] EWHC 1762 (Ch) at [23(i)], where Norris J suggests that fine distinctions of this kind are not to be drawn. 13 As to the meaning of ‘books of account’, see Winslow ex p Godfrey (1886) 16 QBD 696 per Cave J and The Orion Publishing Group Limited v Novel Entertainment Limited [2012] EWHC 1951 (Ch) per Vos J at [74]. 14 [2011] EWHC 1762 (Ch) at [23(k)]. 15 Cited with apparent approved by HHJ Pelling in Hilton above at [35]. 9

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14.8 The authors suggest that Norris J’s focus on whether the books and records are necessary to establish the rights of the partnership against third parties or the partners inter se is unlikely to be of much practical assistance in many cases, and may be taken to support a contention that the books and records that are open to inspection are narrower than is really the case. The authors would tentatively suggest an alternative formulation: a document (whether in hard copy or electronic form) is a book or record if the book or record (ie the physical thing in question): (a) is either owned by the LLP or within its control; (b) records information relating to the business, assets or affairs of the LLP; and (c) was created by a member or records something said by a member, and was created or said by the member in the course of acting as a member. The third point is important, because it would prevent a record from being an LLP book or record if it records something said by a member in his personal capacity but which relates to the LLP. 14.9 The right to inspect, and take copies,16 conferred by default rule (7), or an equivalent contractual provision, may (subject to any express provision to the contrary) be exercised through an agent nominated by the member.17 The LLP’s books and records (and, in particular, its accounting records) may contain sensitive commercial information. The right to inspect the LLP’s books and records through an agent will be subject to the proviso that the agent is a person to whom no reasonable objection can be taken by the LLP (in reality, the other members).18 The LLP probably could reasonably object, for instance, to inspection by an agent who was a business rival of the LLP.19 The agent will be under an obligation not to use the information which he acquires from the inspection otherwise than for a proper purpose, and can, in practice, probably be required (as a condition of the inspection by him) to give an undertaking not to make use of any such information except for the purpose of giving confidential advice to the member who is his principal, and not to disclose any such information to anyone except that member.20 14.10 A point of particular difficulty is whether (and, if so, the extent to which) the court can refuse to make an order requiring the LLP to permit a member to inspect the LLP’s books and records. Two separate issues arise. The first is whether the right itself is subject to some form of implied limitation; and the second is whether (even if the right itself is absolute) the court has a discretion to refuse to grant relief. A member who inspects the LLP’s documents, whether he inspects directly or through an agent, is likely to be under an obligation not to use the information for an

16

If an equivalent provision to default rule (7) is contained in the LLP agreement, but refers to inspection only, without mentioning also the taking of copies, the right to take copies is likely to be implied: see Nelson v Anglo-American Land Mortgage Agency Co [1897] 1 Ch 130. 17 Bevan v Webb [1901] 2 Ch 59 (a partnership case on s 24(9) of the 1890 Act and an agreement clause equivalent to LLP default rule (7)) and Dodd v Amalgamated Marine Workers’ Union [1924] 1 Ch 116. 18 Dodd v Amalgamated Marine Workers’ Union above. 19 See Dadswell v Jacobs (1887) 34 Ch D 278 at 285/6. 20 See Bevan v Webb and Dodd v Amalgamated Marine Workers’ Union above.

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improper purpose.21 But the position would appear to be that the member’s statutory right to inspect is absolute; certainly, a member’s right to inspect is not affected by his motive for wanting to see the documents.22 Nevertheless, the court would appear to have the ability to control the exercise of a member’s right to inspect (to some extent, at least, as discussed in 14.11 and 14.12), presumably on the basis that an order requiring an LLP to make documents available for inspection is a form of mandatory injunction, and the grant of such relief is always in the court’s discretion.23 14.11 Where the inspection is intended to be conducted by an agent and it appears that the agent intends to misuse the information, the court can refuse to permit the inspection.24 The position is less clear in the case of a member himself seeking to inspect, where a court is likely to be inclined to permit the inspection, but make an order restraining misuse of the information. Nevertheless, if a court reaches a conclusion that an order restraining misuse would not be sufficient, then it presumably has a residual discretion to refuse to make an order for inspection. 14.12 Another situation in which the court’s power to refuse to grant relief may be relevant is where the nature and extent of the desired inspection would impose a significant burden on the LLP. In principle, it appears that the burden on an LLP may justify the refusal of relief,25 but the absolute nature of the right must not be lost sight of and, in most cases, the fact that inspection may impose a significant burden on the LLP will not justify a refusal to grant relief.26 21

This may form part of any fiduciary obligations owed to the LLP discussed at 13.8; and see also Trego v Hunt [1896] AC 7 at 26 and Bevan v Webb above, at 81 (both partnership cases). 22 Inversiones Frieira SL & anor v Colyzeo Investors II LP (No 1) above at [26]; although note the possible distinction, so far as motive is concerned, between a statutory and a contractual right to inspect: Inversiones Frieira SL & anor v Colyzeo Investors II LP (No 1) at [27] and Hilton above at [46] and [47]. 23 That the court has a power to decide whether and, if so, what relief to grant is implicit in Norris J’s decision in Inversiones Frieira SL & anor v Colyzeo Investors II LP (No 2) above, in which he refused to make an inspection order where the necessary search would impose a burden: see [24], [28] and [34]. See also Hilton v D IV LLP above at [44] to [50]. But see Trego v Hunt and Bevan v Webb above, which suggest that the member of an 1890 Act partnership cannot himself be prevented from exercising his right to inspect, although he can be restrained from making improper use of the information acquired. Query whether the position should be considered to be different where the books and records belong to the corporate entity (the LLP) rather than, as in a partnership, to the members themselves: see, for instance, part of the reasoning in Bevan v Webb above, at 68. And see also Conway v Petronius Clothing Co Ltd [1978] 1 WLR 72 at 90C–91B and Oxford Legal Group Ltd v Sibbasbridge Services Plc [2008] 2 BCLC 381 (CA) (esp at [24]), referring to the common law right (assuming it to be such) of a director to inspect the company’s books of account being for the benefit of the company, and that the court would not enforce the right if it were clearly shown that the director was using it for an improper purpose. In both these cases, the applicant directors were refused an immediate order for inspection of the company’s books of account. 24 See Duche v Duche (1920) LT Vol CXLIX 300 (compromised on appeal at LT Vol CXLIX 338) and Dodd v Amalgamated Marine Workers’ Union [1923] 2 Ch 236 (Astbury J) and [1924] 1 Ch 116 (CA). 25 See Inversiones Frieira SL & anor v Colyzeo Investors II LP (No 2) above, in which Norris J refused to make an inspection order where the necessary search would impose a burden: see [24], [28] and [34]. See also Hilton v D IV LLP above at [44]–[50]. 26 In relation to the reasonableness and proportionality of a search in the context of a data access request, see Dawson-Damer v Taylor Wessing LLP [2017] 1 WLR 3255.

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14.13 The right to inspect will not extend to documents that are privileged from production to a member by reason of legal professional privilege. Documents recording general advice given to the LLP and which are the subject of legal advice privilege will not (usually) be privileged as against a member,27 but documents recording advice given to the LLP in respect of a dispute with a member, where litigation had either been commenced or was in reasonable contemplation, will, it is suggested, be privileged as against that member on the basis of litigation privilege.28 The more difficult issue concerns legal advice given to the LLP in relation to an issue with a particular member, but at a time before it can be said that litigation was in reasonable contemplation. Advice will often, for example, be sought in relation to whether grounds exist for expulsion. It is (obviously) not satisfactory for a member to be able to inspect a document recording that advice and, whether strictly privileged or not, a right to inspect would run counter to the public policy considerations that underpin the law on legal professional privilege. It is open to members expressly to agree to limit the scope of the right to inspect in the LLP agreement. In the absence of such an express term, the authors suggest that there are three possible bases upon which a court could refuse to grant relief in a case of this kind: first, to develop the law on legal advice privilege such that a document is privileged from production to a particular member where advice was sought by the LLP which was intended to be confidential from the member and in respect of which the member and the other members do not have a common interest; secondly, to find the existence of an implied term in the LLP agreement to the effect that a member has no right to inspect advice obtained by the LLP which was intended to be confidential from that member and in respect of which the member and the other members do not have a common interest; and, thirdly, for the court to refuse to grant relief, as a matter of discretion, on the basis that it would be inequitable and unfair for a member to be able to inspect advice given in these circumstances. 14.14 CA 2006, s 388(1)29 provides that (a) an LLP’s accounting records (namely, the accounting records required to be kept under CA 2006, s 386)30 must be kept at its registered office or such other place as the members think fit,31 and (b) such records ‘must at all times be open to inspection by the members of the LLP’. There are criminal sanctions on members ‘in default’ if the LLP fails to comply with this statutory obligation.32 In a company context, CA 2006, s 388(1)(b) provides that a company’s accounting records ‘must at all times be open to inspection by the company’s officers’. This is modified as indicated above for LLPs, to refer to the LLP’s members. It has been held in a company context that the CA 1948

27

LLP members are treated in the same way as shareholders of companies: Hilton above at [51]; and see BBGP Ltd v Babcock & Brown Global Partners [2011] Ch 296. 28 CAS (Nominees) Limited v Nottingham Forest plc [2002] BCC 145 at [19]. 29 As modified and applied to LLPs by SI 2008/1911, reg 6. 30 As modified and applied to LLPs by SI 2008/1911, reg 6. 31 See 21.3–21.6 as to keeping accounting records. As to the meaning of ‘accounting records’, see fn 9 above. 32 CA 2006, s 389(1), as modified and applied to LLPs by SI 2008/1911, reg 6. The meaning of ‘in default’ in this context is discussed in 22.29.

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predecessor to CA 2006, s 388 (1)33 was not itself creating or conferring on directors or officers an enforceable civil right to compel the company to make its accounting records available for inspection by that director or officer, but was, rather, implicitly recognising the existence of a common law right to inspect the records, conferred on directors or officers in order that they could properly perform their duties as such. The purpose of the statutory provision was to impose criminal sanctions in the event of the records not being made available for inspection.34 CA 2006, s 388(1)(b) does not appear itself, any more than its statutory predecessors, to be creating or conferring a right to allow inspection. 14.15 Whether or not a company director’s common law right to inspect his company’s books and records is based on express or implied contractual terms, or is to be regarded as a right incident to his office and independent of contract, is unclear.35 In relation to LLPs, however, it appears from the existence of default rule (7) in the LLP Regulations 2001 that the basis for a member’s right to inspect the LLP’s books and records is seen by the legislation as essentially contractual. Accordingly, and assuming that default rule (7), or an equivalent provision, is contained in the LLP agreement, the right for a member to require inspection of the LLP’s accounting records will be based on that contractual provision.36 On this basis, a member’s right to inspect the LLP’s accounting (or other) records can be limited or excluded altogether by the LLP agreement. If a member of an LLP does agree to an exclusion or material limitation of his right to inspect the accounting records of the LLP, and the LLP subsequently goes into insolvent liquidation, the member may, the authors suggest, receive little sympathy from the court on a claim against him by the liquidator under IA 1986, s 214 (liability for wrongful trading by the LLP)37 or s 214A (clawback of property withdrawn from the LLP within the period of two years prior to the commencement of the winding up).38 The requirements for liability under ss 214 and 214A are discussed in detail in 34.3–34.13. In brief, liability turns largely on what a reasonably diligent person in the member’s position would have known or ascertained and concluded as to the LLP’s solvency, and thereafter done. Where a member has agreed to put it out of his power to know or ascertain the financial position of the LLP, and has, therefore, agreed to limit severely his ability to draw conclusions as to the LLP’s solvency, the court may, in considering what facts that member ought to have known or ascertained, and what conclusions he ought to have drawn (and action he ought to have taken), decline to accept that a reasonably diligent member for the purposes of the sections would have started from

33 34

35 36 37 38

Namely, CA 1948, s 147(3) providing that the company’s books of account ‘shall at all times be open to inspection by the directors’ or ‘by the company’s officers’. Conway v Petronius Clothing Co Ltd above. This view of the CA 1948 provision, and of its CA 1985 successor (s 222(1)), was favoured, albeit without deciding the point, by the Court of Appeal in Oxford Legal Group Ltd v Sibbasbridge Services Plc above. This question was expressly left open in Conway v Petronius Clothing Co Ltd above at 89H–90B, and (following Conway) in Oxford Legal Group Ltd above. Default rule (7) is not, of course, confined to the accounting records of the LLP, but refers generally to the LLP’s ‘books and records’. As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. As inserted in relation to LLPs by SI 2001/1090, reg 5 and Sch 3.

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the position of having agreed not to inspect to the LLP’s accounting records, or to limit his inspection of them. In other words, the court may, in considering objectively the position of a reasonably diligent member, effectively ignore the exclusion or limitation of an ability to inspect the accounting records which the member has voluntarily agreed to. The risk involved in the member agreeing to this exclusion or limitation may be viewed by the court as having been assumed by the member rather than by the LLP’s creditors, in the event of the LLP becoming insolvent and, for instance, the member withdrawing his capital. A similar issue may arise as to whether, in approving the accounts of the LLP under CA 2006, s 414(1),39 a member has fulfilled his duty of care to the LLP (if not otherwise excluded).40 As discussed in 13.25–13.26, the standard of care owed by a member to the LLP is probably that stated in IA 1986, s 214(4) (and now reflected for company directors in CA 2006, s 174). Although perhaps less likely, an issue as to the righteousness and effect of a limitation or exclusion of a right to inspect the accounting records may also arise in the context of an application to disqualify the member under the CDDA 1986. Here again, at least in some circumstances, the court may be unsympathetic to a plea that the member agreed to a limited right only, or to no right, to inspect the accounting records. 14.16 It is also worth noting here that, although default rule (7) probably can be limited or excluded, one of the grounds on which the Secretary of State may, on his own initiative, appoint inspectors to investigate the affairs of the LLP is that it appears to him that there are circumstances suggesting that the LLP’s members have not been given all the information with respect to its affairs which they might reasonably expect.41 14.17 An issue which may arise on default rule (7) is whether the right which it gives to members to inspect the books and records of the LLP continues to exist after the LLP has gone into liquidation. The authors suggest that, generally speaking, the right is probably to be read as not continuing. Whilst the rule is based on s 24(9) of the Partnership Act 1890, and the right in s 24(9) will continue to exist after a dissolution of a partnership, in a company context the rule is the equivalent of the common law right of a director to inspect the books and records of the company so that he can properly perform his duties as a director.42 It seems correct to view default rule (7) as having a similar purpose in relation to LLPs. In the dissolution of a traditional partnership, the partners will continue to conduct the partnership’s business and affairs for the purposes of winding up in the dissolution. In the winding up of an LLP, however, generally speaking, the powers of the members (as the powers of the directors in the winding up of a company) will cease, and the property and assets of the LLP will come under the power of the liquidator.43 Generally speaking,

39 40 41 42 43

As modified and applied to LLPs by SI 2009/1801, reg 54. As to such an exclusion generally, see 14.30. CA 1985, s 432(2)(d), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part I, discussed further at 24.5(2)(d). See fn 23 above and 14.10. IA 1986, ss 91(2), 103, 143–4 and 165–7, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3.

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therefore, it may be said that the rule will have no further purpose. This, however, will not invariably be the case. In a members’ voluntary, or a creditors’ voluntary, winding up, the powers of the members may be continued in whole or in part (by a meeting of the members, or by the creditors, respectively).44 The position may be, therefore, that default rule (7) is to be seen as intended to cease to apply on the LLP going into liquidation, save to the extent that the rule can be said to be reasonably necessary for the purpose of enabling members to exercise properly continuing powers conferred on them in a voluntary winding up. Insofar as the rule is to be seen as conferring a right on members as owners of the LLP and its business (ie as equivalent to shareholders), it is reasonably clear that the right to inspect will cease to exist after the LLP has gone into liquidation.45 In any event, a member who is a contributory46 (or a creditor) will be able to apply to the court under IA 1986, s 112 (voluntary winding up) or IA 1986, s 155 (winding up by the court) for an order that he be entitled to inspect the books and records.

Right to obtain information from other members 14.18 The default rules also contain, in rule (8), a duty on each member to supply information to another member. Rule (8) provides: ‘Each member shall render true accounts and full information of all things affecting the limited liability partnership to any member or his legal representatives.’

This duty, which is discussed in the context of the duties of members at 13.38–13.39, amounts to a right (subject to the provisions of the general law and to the terms of the particular LLP agreement) for one member to obtain information directly from another member. The rule is an adoption of s 28 of the Partnership Act 1890, essentially substituting ‘member’ for ‘partner’. One member can, therefore, require such full information from another member. As is stated in 13.39, ‘legal representatives’ is probably a reference to the personal representatives of a (deceased) member; but a member may under this rule, it is suggested, require information to be provided to his nominated agent. We have discussed in 14.9 the default right for a member, whether himself or through an agent, to inspect the books and records of the LLP, and the obligations on the member or his agent not to use the information so obtained for an improper purpose. There will be the same obligations on a member in respect of information obtained by him under default rule (8). It also seems reasonable to say that an order by the court at the instance of one member for another member to provide information under default rule (8) will be refused in similar circumstances to those in which an order to permit inspection of the LLP’s books and records under default rule (7) would be refused.

44

IA 1986, ss 91 and 103. In a company context, both these sections refer to the power of the directors. 45 See In re Yorkshire Fibre Co (1870) LR 9 Eq 650, clearly approved by the Court of Appeal in In re Kent Coalfields Syndicate Ltd [1898] 1 QB 754. This would probably preclude a member having the right to inspect contained in the rule for the purpose of sanctioning the action of a liquidator in a members’ voluntary winding up under IA 1986, s 165(2). 46 As to contributories, see 14.27–14.28.

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Right to be indemnified 14.19 Default rule (2) gives members (again, subject to the provisions of the general law and the terms of the particular LLP agreement)47 the right to an indemnity from the LLP. The rule provides: ‘The limited liability partnership must indemnify each member in respect of payments made and personal liabilities incurred by him— (a) in the ordinary and proper conduct of the business of the limited liability partnership; or (b) in or about anything necessarily done for the preservation of the business or property of the limited liability partnership.’

This is an adoption of s 24(2) of the Partnership Act 1890. It is clearly proceeding on the basis that every member of the LLP, as the agent of the LLP,48 has authority to act for the purpose of the carrying on of the business of the LLP.49 On this basis, rule (2) is in accordance with the general principles of agency, namely the right of an agent to be indemnified by his principal against payments and liabilities incurred by him in the execution of his authority.50 14.20 Paragraph (a) refers to ‘the ordinary and proper conduct of the business’ of the LLP. Whether an action is in the ‘ordinary conduct of the business’ of the LLP will be a matter to be determined objectively,51 looking at the actual circumstances in which the action was carried out and having regard to business practices in the relevant commercial world. An action may, in appropriate circumstances, be in the ordinary conduct of the business although it is exceptional, or the first action of its type, for the LLP. The focus of consideration will be on the ordinary operational activities of the business as a going concern. An action which is intended to bring the business to an end, or have the effect of bringing it to an end, is very unlikely to be done in the ordinary conduct of that business.52 14.21 Given that, as stated above, rule (2) is subject to the provisions of the general law, the reference to the conduct of the business having to be ‘proper’ may, in reality, not add substantially to what the position as to entitlement to indemnity would have been without that express reference.53 The member will not

47

See the opening words of reg 7 of the LLP Regulations 2001. All of default rules (1) to (10) are expressed to be so subject. Rule (11) – expulsion – is subject to an express agreement to the contrary. 48 Ie under LLP Act 2000, s 6(1). 49 The Partnership Act 1890 provides (in s 5) that: ‘Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; …’. As noted in 5.12, LLP Act 2000, s 6(1) does not adopt the second part of the words from s 5 of the 1890 Act quoted above. 50 See Bowstead & Reynolds on Agency (21st edn) (2017), chapter 7, article 62 and Chitty on Contracts (33rd edn) (2018), para 31–162. 51 Ie would it be viewed by an objective observer as having been done in the ordinary course of the business. 52 See Ashborder BV v Green Gas Power Ltd [2005] 1 BCLC 634 (considering the words ‘in the ordinary course of its … business’ in a floating charge) at [192]–[227]. 53 See Bowstead & Reynolds above, article 63 and Chitty on Contracts above, para 31–163.

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be indemnified under rule (2) for liabilities incurred by him in acting in breach of his fiduciary obligations to the LLP, nor in acting otherwise in breach of duty owed by him to the LLP. Such breach of duty will include acting outside his authority (see 13.27) and acting so as to put in jeopardy the solvency of the LLP or to cause loss to its creditors (see 13.13).54 It will also include acting in breach of his duty of care to the LLP (see 13.25–13.26). The member will not be protected by rule (2) from a claim against him by the LLP for recovery of loss which has been suffered by the LLP as a result of the member’s negligence (in breach of his duty of care to the LLP) when acting on behalf of the LLP for a client. The possibility of excluding a member’s liability to the LLP for negligence is considered in 14.30. The member will equally (at least, generally speaking) not be indemnified under rule (2) against personal liability which he may himself incur in negligence to a client of the LLP.55 This is said on the basis that carrying out work negligently for a client will, generally speaking, not fall within (a) or (b) of rule (2) and will be a breach of his duty of care to the LLP.56

RIGHTS GIVEN BY CA 2006 TO EVERY MEMBER The rights 14.22 The CA 2006 gives to every member, directly or indirectly, a number of rights. These relate principally to the LLP’s accounts and its financial position. Some of these rights – those mentioned in (a), (c), (d), (e) and (f) below – are given indirectly in that an obligation is placed on the LLP or the designated members to send copies of the documents mentioned to members, and members are accordingly the beneficiaries of that obligation owed to the LLP. The rights given (directly or indirectly) include the following: (a)

54 55 56

57

the right to receive a copy of the LLP’s annual accounts, the auditors’ report on those accounts and the energy and carbon report (if any), not later than the end of the period for the filing of the accounts or, if earlier, the date on which the accounts are actually delivered;57

Acting in this latter way may also lead to liability on the member under one or more of ss 213–214A of the IA 1986, considered at 34.3–34.13. The possibility of a member owing a personal duty of care to a customer or client is discussed in Chapter 18. It may be, at least in relation to those businesses (the great majority) where there is no automatic assumption of personal responsibility to the client by the individual member (see 18.31), that the mere assumption of a personal duty of care by the individual member (whether or not there is subsequently a breach by him of that duty of care) falls outside the ordinary and proper conduct of the business of the LLP. It should also be noted that there is a distinction between the negligence of an agent towards a third party and towards his principal: see, for instance, Linklaters v HSBC Bank Plc [2003] 2 Lloyd’s Rep 545. CA 2006, s 423(1), as modified and applied to LLPs by SI 2008/1911, reg 13. Where advantage is taken of an exemption from the audit requirements of the CA 2006 under s 477, as modified and applied to LLPs by SI 2008/1911, reg 34 (discussed in 21.51 et seq), there will be no right to a copy of an auditors’ report: see CA 2006, s 444(2), as modified and applied to LLPs by SI 2008/1911, reg 17.

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(b) the right to be furnished, on demand and without charge, with a copy of the LLP’s last annual accounts, the auditors’ report on those accounts and the last energy and carbon report (if any);58 (c) where the members (perhaps acting by an authorised committee of some members only) are proposing to remove the auditors before the expiration of their term of office, or not to re-appoint them (in favour of other auditors), the right to receive a copy of any representations from the auditors which they may wish to make to the members (via the LLP) as to their removal or non-reappointment;59 (d) where the auditors resign of their own volition, the right to receive and consider at a meeting of members any statement from the resigning auditors explaining the reasons for, and matters connected with, their resignation and which they wish to be placed before a meeting of the members;60 (e) where the auditors are in fact removed, or not re-appointed, or do not seek re-appointment, or cease to be the LLP’s auditors for any other reason, the right to receive a copy of any statement from those auditors of the reasons for their ceasing to hold office;61 (f) the right to inspect copies of any charges created by the LLP which are required to be registered with the Registrar (ie under CA 2006, s 859A),62 without fee;63 (g) the right to inspect the LLP’s charges register, and (if it keeps one) to inspect its register of holders of debentures (subject, in the latter case, to making a request to the LLP containing certain information), without fee;64 and (h) the right to apply to the court in relation to a proposed compromise or arrangement between the LLP and its creditors, or its members.65 14.23 Every member also has statutory rights to enforce the filing of documents with the Registrar. (a) If the designated members fail to file with the Registrar a copy of the LLP’s annual accounts, the auditors’ report on those accounts and any energy and carbon report within the permitted period,66 any member may serve a notice on 58

59 60 61 62 63 64

65 66

CA 2006, s 431(1), as modified and applied to LLPs by SI 2008/1911, reg 15. See further 21.45. This right (to a single copy) of the accounts and report is in addition to any copy which a member is entitled to under subpara (a) above: s 431(2). As to the position where advantage is taken of an exemption from audit requirements, see fn 57 above. CA 2006, ss 511 and 515, as modified and applied to LLPs by SI 2008/1911, regs 43 and 45 respectively. See further 22.17–22.23. CA 2006, s 518, as modified and applied to LLPs by SI 2008/1911, reg 45. See further 22.23. CA 2006, s 520, as modified and applied to LLPs by SI 2008/1911, reg 46. See further 22.24. As modified and applied to LLPs by SI 2009/1804, reg 32 (as inserted by SI 2013/618). With certain exceptions, any charge created by an LLP must be registered: see 6.4. CA 2006, s 859Q, as modified and applied to LLPs by SI 2009/1804, reg 32 (as inserted by SI 2013/618). Section 859Q(7) provides that the court may compel immediate inspection. CA 2006, ss 859Q (register of charges) and 744 (register of debenture holders), as modified and applied to LLPs by SI 2009/1804, reg 21. As to these registers, and the right to inspect them, see further 6.14–6.25. Sections 877(7) and 746(3) respectively provide that the court may compel immediate inspection. CA 2006, ss 896(2)(b) and 899(2)(b), as modified and applied to LLPs by SI 2009/1804, reg 45. See generally, on filing the accounts with the Registrar, 21.39–21.44. The duty to file the accounts is a duty of the designated members: CA 2006, s 441, as modified and applied to LLPs by SI 2008/1911, reg 17.

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the designated members requiring the accounts or report to be filed, and may follow this up with an application to the court if the accounts or report are not filed within 14 days.67 If there is a failure on the part of the LLP to meet any obligation on it under the CA 2006 or the LLP Act 2000 to deliver any document or give any notice to the Registrar (for example, to give notice to the Registrar of a person becoming or ceasing to be a member of the LLP as required by LLP Act 2000, s 9),68 any member may serve a notice on the LLP requiring the document to be delivered or notice to be given, and may follow this up with an application to the court if the statutory obligation is not complied with within 14 days.69

14.24 There is also a right for not less than one-fifth in number70 of the members of an LLP to apply to the Secretary of State for the appointment by him of inspectors to investigate the affairs of the LLP and report to him.71 This is considered at 24.5(1).

Waiver of rights? 14.25 Can these statutory rights be varied or waived (ie treated as if not existing) by agreement between the members and the LLP? As has been mentioned previously, the rights referred to in sub-paragraphs (a), (c), (d), (e) and (f) of 14.22 are, in truth, reflections of positive obligations placed on the LLP (or designated members) by the specified provisions of the CA 2006. The provisions establishing the obligations also provide for penalties if the obligations are not met. Against this background, the reflective rights cannot, it is suggested, be varied or waived by agreement. 14.26 The general position as to the waiver of statutory rights (properly so called) is that the beneficiary of a right may waive it if the right is entirely for his own benefit, and the waiver would not infringe a public right or public policy.72 The remaining rights (namely, those referred to in sub-paras (b), (g) and (h) of 14.22 and in 14.23–14.24) are modifications of statutory rights given by the CA 2006 to shareholders or members of a company; and, in general terms, they may be said to be rights conferred on the members of an LLP as the owners of the LLP. It does not necessarily follow from this, however, that these rights can be varied or written out by agreement. The authors consider it open to doubt that the court would see them as conferred entirely for the private benefit of members and able to be limited or waived. Alternatively, it may be said that these statutory rights are conditions of incorporation under the LLP Act 2000 and, as such, inalienable and incapable of

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CA 2006, s 452, as modified and applied to LLPs by SI 2008/1911, reg 22. The right is also given to any creditor of the LLP and to the Registrar. The failure constitutes an offence by the LLP, and also by the designated members: s 9(4) and (5). CA 2006, ss 1113–1114, as modified and applied to LLPs by SI 2009/1804, reg 69. The right is also given to any creditor of the LLP and to the Registrar. As appearing from notifications given to the Registrar. CA 1985, s 431(2), as applied and modified to LLPs by SI 2001/1090, reg 4 and Sch 2, Part I. Bowmaker Ltd v Tabor [1941] 2 KB 1 at 6; and see, generally, Halsbury’s Laws of England, Vol 96 (2018), para 327.

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being diminished or removed by contract.73 The rights contained in sub-paras (b), (g) and (h) of 14.22 are, in any event, largely rights which can be exercised by anybody (albeit, in the case of a non-member, on payment of a fee to the Registrar or the LLP).

RIGHTS GIVEN BY IA 1986 TO CONTRIBUTORIES 14.27 The Insolvency Act 1986 gives to members of an LLP who are ‘contributories’ certain rights in the event of a winding up of the LLP. A contributory is a member who has agreed with the other members or with the LLP itself that he will, in the circumstances which have arisen, be liable to contribute on a winding up a certain sum towards what is sufficient for the payment of the LLP’s debts and liabilities (and the expenses of the winding up).74 A person may agree to be, or to continue to be, a contributory after he has ceased to be a member. It is the position, therefore, that the members of an LLP may by agreement be ‘contributories’, but that without an agreement that they will contribute on a winding up they will not be contributories. The agreement may be to contribute a nominal sum only (as is commonly the case for members of a company limited by guarantee). Although members are not automatically contributories, it is convenient to set out in this chapter, together with the rights of members generally, the rights of members who are also contributories. These rights (which are also given to creditors of the LLP) include the following: (a)

the right to apply to the court for a winding up order under IA 1986, s 122, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3;75 and the right in a voluntary winding up (and provided that the rights of the contributories will be prejudiced by such a winding up) to apply to the court to have the LLP wound up by the court;76 (b) the right, at any time after the presentation to the court (by, for instance, a creditor) of a petition to wind up the LLP, and before an order has been made, to apply to any court where an action is proceeding against the LLP to have that action stayed;77

73

74 75

76 77

This argument is not as strong as might have been previously thought, after the Court of Appeal in Fulham Football Club (1987) Ltd v Richards [2012] Ch 333 overruled Exeter City AFC Ltd v Football Conference Ltd [2005] 1 BCLC 238 at [21]–[24], in which it was decided that a shareholder’s statutory right to petition under CA 1985, s 459 (as applying to companies) could not be excluded by contract. The Court of Appeal held that there was nothing to prevent a dispute which formed the basis of an unfair prejudice petition under CA 2006, s 994 from being referred to arbitration where such a dispute was covered by an arbitration agreement. IA 1986, ss 74 and 79, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. See further 8.16–8.17. IA 1986, s 124, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. The right to apply to the court for a winding up order, including the question whether any individual member who is not a contributory has this right, is discussed further in 31.16–31.23. IA 1986, s 116, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, s 126, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. When a winding-up order has been made, there is an automatic stay on any action by or against the LLP proceeding except with the leave of the court: IA 1986, s 130(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3.

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the right to apply to the court, after a winding up order has been made by the court, for an order staying the winding up;78 the right to apply to the court to determine any question arising in a voluntary winding up;79 the right (with the leave of the court) to invite the court during the course of the winding up of the LLP to examine the conduct of any person who has been a member of the LLP, or a liquidator or administrator of it, or has been concerned, or taken part, in the promotion, formation or management of the LLP, where it appears that such a person has misapplied any money or property of the LLP or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the LLP;80 if a vacancy occurs in the office of liquidator appointed by the LLP in a members’ voluntary winding up, the right to convene a meeting of members of the LLP for the purpose (subject to any arrangement with the LLP’s creditors) of filling the vacancy;81 and if, in a winding up by the court, the official receiver, as the liquidator of the LLP, decides to apply to the Registrar for an early dissolution of the LLP, the right to be given prior notice of the application and to apply to the Secretary of State for directions.82

14.28 The contributories as a body have a status (secondary to that of the creditors of the LLP) in relation to nominating a person to be the liquidator of the LLP in a winding up by the court if the official receiver (who, generally speaking, automatically becomes the initial liquidator)83 summons meetings of the LLP’s creditors and of its contributories to choose a liquidator in his place.84 The contributories may also, in a winding up by the court, direct the liquidator to summon a meeting of them for the purpose of ascertaining their wishes.85 And in any winding up, compulsory or voluntary, the court may have regard to the wishes of the contributories and, for the purpose of ascertaining those wishes, direct a meeting of the contributories to be held.86

78 79

80

81 82 83 84

85 86

IA 1986, s 147, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, s 112, as modified and applied to LLPs by SI 2001/1090, reg 5. This could include seeking an order for inspection of the books and records of the LLP: see further, on inspecting the LLP’s books and records in a winding up, 14.17. IA 1986, s 212, as modified and applied to LLPs by SI 2001/1090, reg 5. The right is exercisable notwithstanding that the contributory will not benefit from any order that the court may ultimately make: s 212(5). IA 1986, s 92(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. As to such a meeting, see further 17.10. IA 1986, ss 202 and 203, as modified and applied to LLPs by SI 2001/1090, reg 5. Under IA 1986, s 136(2), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, ss 136 and 139, as modified and applied to LLPs by SI 2001/1090, reg 5. The contributories in their meeting may nominate a person to be the liquidator; and this person will become the liquidator if the creditors at their meeting do not make a nomination. IA 1986, s 168, as modified and applied to LLPs by SI 2001/1090, reg 5. Such a meeting can also be required in writing by one-tenth in value of the contributories: ibid. IA 1986, s 195, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3.

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DECISION-MAKING AS TO INDIVIDUAL MEMBERSHIP RIGHTS 14.29 The duties of a member to the LLP and to his co-members (including the duty of good faith in collegiate decision-making) are considered in Chapter 13. The default rights (if not excluded or varied by a tailor-made LLP agreement), and the statutory rights, considered previously in this chapter, and (generally speaking) any other individual membership rights contained in the LLP agreement, such as a right to retire, or to assign his economic interest in the LLP, are exercisable by the member alone, and will not be subject to any implied duty of good faith or requirement to act for the benefit of the LLP as a whole: the subject-matter being dealt with is the right or property of the member personally, existing solely for his own benefit and with which he may deal as he wishes (subject to contractual provisions).87 This is subject to the caveat, however, that if a member exercises an individual right which he has in the interests or pursuit of fraud, the exercise is likely to be void.88

EXCLUDING A MEMBER’S LIABILITY TO THE LLP (AND TO OTHER MEMBERS) 14.30 Reference is made in 13.25–13.26 to the duty of care which the member will owe to the LLP. This duty may arise in connection with both the internal management of the LLP (for instance, the buying or hiring of equipment) and the carrying out of work for a client or customer of the LLP. It is in this latter respect, in particular, that the existence of this duty could have great significance. To take the most obvious, but not the only, example, suppose that the LLP is liable to a third party under a claim in excess of its insurance cover for negligence for work carried out. In such a situation, the LLP (or its liquidator) might consider it necessary to seek to recover the excess of the liability over the insurance cover from the member whose negligence (in possible breach of his own duty of care owed to the LLP)89 has caused the liability to be incurred.90 The question arises as to whether the members and the LLP can agree in the LLP agreement, or separately, for an exclusion of liability on the part of a member to the LLP for loss caused to the LLP as a result of the member’s negligence in carrying out his functions as a member (whether in the carrying out of administration of the LLP or in the course of carrying on the LLP’s business).

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88

89 90

See, for instance, Russell v Russell (1880) 14 Ch D 471 at 480–1 (a power for one partner to determine the partnership could be exercised capriciously), and CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 at [87] and [95] (a director’s power to resign from office is not a fiduciary power: it can be exercised however damaging this may be to the interests of the company). And see Cassels v Stewart (1881) 6 App Cas 64, a partnership case concerning the disposal by a partner of his share in the partnership: the general ‘good faith’ duties of traditional partners do not apply in relation to a partner’s purely personal right or interest, because in exercising the right or dealing with the interest he is not acting as the agent of his co-partners. Similarly, a shareholder does not owe any duties of good faith to the company when dealing with his shares. On the basis that ‘fraud unravels all’. See, for instance, Walters v Bingham [1988] 1 FTLR 260 at 267–8, where it was held (obiter) that a notice of dissolution of a partnership served by a partner with a view to impeding an investigation of his own fraudulent actions was void and of no effect. See further the discussion at 13.25–13.26. For the position if the member was a joint tortfeasor, see 14.31.

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There is no reason in principle why there cannot be such an exclusion. In this respect, the position of a member of an LLP differs from that of a director of a company, who is precluded by CA 2006, s 232 from having such an exclusion.91 Section 232 of CA 2006 is not adopted for LLPs. Such an exclusion clause will not, it is suggested, be subject to the Unfair Contract Terms Act 1977,92 and so will not need to satisfy the requirement of reasonableness. That Act (so far as presently material) does not extend to any contract so far as it relates to the constitution of any body corporate or to the rights or obligations of the corporators or members of any body corporate.93 This is clearly wide enough, it is suggested, to cover the tortious or contractual duty of care owed by a member to the LLP (or, should the issue arise, to other members).94 14.31 Where the LLP is liable to a third party in negligence, the member whose negligence caused the liability to be incurred may himself, in addition to the LLP, be independently liable to the third party (if he assumed a personal responsibility), and thus a joint tortfeasor with the LLP.95 In these circumstances, it would be open to the LLP to seek a contribution from the member in question (whether or not the member was pursued directly by the third party) under the Civil Liability (Contribution) Act 1978. This right to contribution can be regulated or excluded by agreement between the members and the LLP.96 The LLP agreement can therefore contain a provision excluding (or limiting) the LLP’s right to seek contribution under the 1978 Act from a negligent member who is also himself personally liable to the third party. 14.32 The possibility of an individual member being himself liable to the third party leads to a consideration of two matters: insurance for individual members, and an indemnity for members from the LLP. As to insurance, clearly individual members can have their own indemnity insurance;97 and there is no reason why the LLP agreement cannot provide for the premiums for this to be paid by the LLP.98 91

A company can, however, purchase insurance against such liability for a director and provide an indemnity for a director against civil liability to a third party. Equally, it is suggested (see 14.32), an LLP can purchase insurance for a member or provide an indemnity to him. 92 Section 2(2) of which (subject to exclusions from the Act) provides that, in the case of loss or damage other than death or personal injury, liability for negligence cannot be excluded or restricted except insofar as the exclusion satisfies the requirement of reasonableness. 93 Section 1(3) of UCTA 1977 and Sch 1, para 1(d)(ii). The Unfair Terms in Consumer Contracts Regulations 1999 (discussed in the previous edition of this book) will also, it is suggested, not be applicable to the agreement between the LLP and the members: see Chitty on Contracts (31st edn) (2012), para 15–028. It is difficult to see an LLP agreement as a ‘consumer contract’. The 1999 Regulations have been replaced as regards agreements made on or after 1 October 2015 by the Consumer Rights Act 2015, discussed in 18.25 and see Chitty on Contracts (33rd edn) (2018), chapter 38, para 38–216. 94 Insofar as the duty of care may arise in equity, UCTA 1977 will in any event have no application, as it does not apply to exclusions or restrictions of liability for breach of a duty of care arising in equity. 95 For the position of the individual member, see Chapter 18. The liability of the LLP for the member’s negligence may also arise under LLP Act 2000, s 6(4) discussed in 5.22–5.25. 96 Section 7(3) of the 1978 Act. 97 In Merrett v Babb [2001] QB 1174, the Court of Appeal clearly signalled that individual professionals will be expected to have personal insurance: see May LJ at [46]. And see also Lord Griffiths in Smith v Bush [1990] 1 AC 831 at 858H referring to all prudent professional men carrying insurance. 98 In practice, professional indemnity insurance will be taken out by the LLP, with the members and employees being co-assureds. It may be difficult, if not impossible, for individual members

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As to an indemnity, it might be thought that an exclusion of a negligent member’s liability to the LLP as discussed in 14.30 and an exclusion of the LLP’s right to seek contribution under the 1978 Act as discussed in 14.31 will be the equivalent to an indemnity. This would, however, be wrong. A third party may, for some reason, choose to sue the individual member who has assumed personal responsibility only, and not the LLP as well. The member would be directly exposed to the third party’s claim, whilst the LLP would not be so exposed (although the member might consider the possibility of a claim against the LLP, as a joint tortfeasor with him, for contribution under the 1978 Act). Full protection for the individual member, therefore, will include an indemnity from the LLP (to the extent that the individual member’s liability is not covered by his own insurance).99 14.33 The discussion above concerns liabilities as between a member and the LLP. It is also material to consider in this context possible liabilities as between one member and another. The possibility of a duty of care being owed by one member to another has been discussed in 13.35. Such a duty of care could become of practical importance if a member has a personal liability to a third party. An example would be where a member, having carried out work for a client of the LLP, has a personal liability in negligence (together with the LLP) to that client,100 and the claim exceeds both the insurance available, and the worth of the LLP’s indemnity to the member. In these circumstances, the issue may arise as to whether or not the member can recover in respect of some or all of his liability from another member whose negligent provision of ‘in-house’ assistance has been a contributory cause of the first member’s liability to the client. As with the position between the LLP and a member,101 there can be a limitation or exclusion of liability between members for negligence. Such a limitation or exclusion will not, it is suggested, be subject to the Unfair Contract Terms Act 1977, and so will not need to satisfy the requirement of reasonableness.102 Equally, in the event of two or more members having personal liability to a third party, the right between members to seek contribution under the Civil Liability (Contribution) Act 1978 can be regulated or excluded by agreement between members.

DISCRETIONARY POWER OF COURT TO RELIEVE MEMBERS FROM LIABILITY 14.34 Under CA 2006, s 1157103 the court has the power, in certain circumstances, to relieve a member, either wholly or in part, from liability in respect of actual or

to obtain their own personal insurance. As to the personal liability of members for the premium payable in respect of the insurance taken out by an LLP, see Zeckler v Assigned Risk Pool Manager Capita Commercial Services Ltd [2012] EWHC 3591 (Ch). 99 An indemnity clause will need to make clear that it is covering (if this is the intention) the consequences of the member’s own negligence: see Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165 (HL) and, generally, Chitty on Contracts (33rd edn) (2018), para 15–014. 100 As discussed in Chapter 18. 101 See 14.31. 102 See fn 93 above. 103 As modified and applied to LLPs by SI 2009/1804, reg 77.

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prospective proceedings against that member for negligence, default, breach of duty or breach of trust. The court may do this if ‘it appears to the court … that the member … is or may be liable but that he acted honestly and reasonably, and that having regard to all the circumstances of the case (including those connected with his appointment) he ought fairly to be excused’. Section 1157, as applying to companies and directors (and also auditors) is a re-enactment of CA 1985, s 727. Section 727 was not applied to the members of an LLP (although it was applied to auditors of an LLP). The re-enactment in the CA 2006 is, however, applied to members (as well as to auditors). It is the case, therefore, that, even in the absence of a provision in the LLP agreement excluding liability on the part of a member to the LLP for loss caused to the LLP as a result of the member’s negligence,104 there is a residual discretion in the court to give relief from such liability in accordance with the criteria set out in s 1157. Section 1157 came into force on 1 October 2009. There is, however, no restriction on it being invoked (after 1 October 2009) for the granting of relief in respect of liability arising from negligence or default etc before October 2009. 14.35 The onus of proof will be on the member seeking the relief to show that he acted honestly and reasonably and in all the circumstances ought fairly to be excused.105 Although on its face s 1157 refers to ‘proceedings’, without restriction, for negligence or default, etc the section will only apply to claims by or on behalf of the LLP against a member in his capacity as a member,106 and will not apply in relation to claims by third parties against members personally (eg on the basis of an assumption of personal responsibility by the member for carrying out work). The section will also, generally speaking, permit relief from liability (including, it appears, criminal penalties) for breach of duties placed on members by the CA 2006.107 This last statement is subject to the caveat, however, that it probably does not apply in relation to liability falling on a member by reason of him being ‘in default’108 (which includes failing to take all reasonable steps to prevent the contravention of the relevant provision),109 or being otherwise able under the relevant statutory provision to avoid liability by showing that he took all reasonable steps to prevent the statutory obligation being breached.110 This is on the basis that, as such liability itself contains a failure to satisfy an objective reasonableness test, the possibility of relief under s 1157 cannot have been intended to be also applicable. This was the

104 See

14.30. In re Stuart [1897] 2 Ch 583 and National Trustees Co of Australasia Ltd v General Finance Co of Australasia Ltd [1905] AC 373. 106 See Customs & Excise v Hedon Alpha Ltd [1981] QB 818. The possibility of relief under s 1157 will, it appears, extend to a claim by a liquidator, based on a member’s default or breach of duty etc, under IA 1986, s 212: see In re Westlowe Storage & Distribution Ltd [2000] 2 BCLC 590 (where such relief was refused, but assumed to be possible). 107 Customs & Excise v Hedon Alpha Ltd above. See, for instance, the duties on members referred to in 13.29–13.30. 108 See, for instance, the statutory duties referred to in 13.31. 109 See 13.31 with 12.10–12.11 and 22.29. 110 See Customs & Excise v Hedon Alpha Ltd above and In re Produce Marketing Consortium Ltd [1989] 1 WLR 745. If (as may be the case) it is correct to see s 1157 as in principle capable of allowing relief to be given in respect of a member’s liability arising under provisions in the LLP Act 2000, the caveat mentioned in the text will cover the infringement under that Act which can lead to a criminal sanction for designated members, namely s 9(4)–(5). 105 See

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reasoning adopted to decide that the statutory predecessor for companies to s 1157 was not capable of being invoked by a director in relation to a claim against him by a liquidator under IA 1986, s 214 (wrongful trading).111 Section 214 contains its own objective test of reasonableness for determining whether or not there can in principle be liability. This decision remains valid for s 1157, and will be equally applicable to a claim under IA 1986, s 214 against an LLP member. Section 214A of the IA 1986 (adjustment of withdrawals by an LLP member), as inserted in relation to LLPs by SI 2001/1090, reg 5 and Sch 3, similarly contains its own objective test of reasonableness; and it follows that s 1157 will also not be capable of being invoked by a member in relation to a claim against him for a ‘claw-back’ under that section.

CLAIMS BY A MEMBER AGAINST THE LLP 14.36 There is no reason in principle why the LLP (which, as previously mentioned, can only act by its members or other agents or employees)112 cannot be liable for breach of contract or in tort (or for other wrongdoing, such as discrimination discussed in Chapter 15) to an individual member. There could, therefore, be circumstances in which the LLP is liable to one member as a result of the negligent or other wrongful acts of some or all of the other members (which are attributable to the LLP).113 An example would be if the LLP, acting by one member, provides a service negligently to another member as a client. Any claim would be brought as a common law action in the conventional manner: there would be no need for the taking of an account between the member and the LLP first.114

DERIVATIVE CLAIM BY A MINORITY OF MEMBERS 14.37 Reference has been made in Chapter 13 to the fiduciary and other obligations owed by members to the LLP. In the event of a breach of these duties, it is the LLP (and not individual members) which will have the claim, and bring any action, against the wrongdoing member or members in respect of the breach. This is in accordance with the rule in Foss v Harbottle.115 In relation to companies, the common law has developed by way of exception to this rule, and essentially as matter of procedure, rules to meet the situation where the wrongdoing members are the controlling majority, benefiting themselves at the expense of the company and

111

In re Produce Marketing Consortium Ltd above. 3.4. 113 As to the issue of vicarious liability of the LLP for the wrongful act of one member to another member, see 5.22–5.23 considering LLP Act 2000, s 6(4). 114 See 1.23–1.24, and the discussion at 13.36–13.37 in relation to claims between members, which is also relevant here. 115 (1843) 2 Hare 461. In relation to LLPs, the rule may be stated as follows: in order to redress a wrong done to the LLP, the claim should prima facie be brought by the LLP itself. The court will not interfere with the internal management of an LLP acting within its powers: a minority interest amongst members cannot sue for wrongs done to the LLP or complain of irregularities in the conduct of its internal affairs which a simple majority can lawfully ratify: see generally (in relation to companies), for instance, Gore-Browne on Companies, para 18[2]. 112 See

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using their majority voting power to prevent the company from taking any action to remedy the wrong to it. In such situations, the minority116 have been allowed to bring, in their own names but for the benefit of the company, a ‘derivative claim’, namely an action against the wrongdoing majority which the company ought to (and would) have brought but for the majority’s abuse of their power by using that power to block the company bringing such an action.117 The company is made a defendant to the claim so that it is bound by the judgment and can be the beneficiary of any relief ordered in its favour. The classic case is where the majority seek directly or indirectly to appropriate to themselves property or opportunities belonging to the company. Where there is such a ‘fraud on the minority’, the court will, subject to procedural requirements, permit the minority to bring an action for the benefit of the company for recovery of the property, or for other appropriate relief.118 Where the company wronged is a wholly owned subsidiary, and the wrong to it is caused by the majority’s abuse of their control of the holding company (and, through it, the subsidiary), the minority members of the holding company will have a legitimate interest, and standing (again, subject to procedural requirements), to bring an action for the benefit of the subsidiary.119 14.38 The bringing of derivative claims on behalf of companies has now been codified (and the common law position to some extent altered) by Pt 11 of the CA 2006.120 Part 11 is not applied by the LLP Regulations 2009 to LLPs. In the event of a ‘fraud on the minority’ of an LLP, and subject to what is said in the following paragraphs, the court will apply in relation to the LLP the same common law rules as have been developed for companies pre-2006.121 In this context, it is to be noted that the provisions of the CPR concerned with derivative claims apply not only in relation

116

The minority for these purposes includes a 50 per cent shareholder who cannot procure a legitimate claim to be brought by the company against the wrongdoer: see Barrett v Duckett [1995] 1 BCLC 243 at 250d. 117 See Burland v Earle [1902] AC 83 (PC) at 93, Wallersteiner v Moir (No 2) [1975] QB 373 at 390–1 and Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 at 210–11. The claim is ‘derivative’ as the shareholders’ right to make it derives from the company’s right to claim in respect of the wrong done to it. For an illuminating brief history of the development of the common law derivative claim, see Lord Millett NPJ in Waddington Ltd v Chan Chun Hoo Thomas, in Hong Kong, [2009] 2 BCLC 82 (HKCFA), at [47]–[54]. 118 See, for example, Daniels v Daniels [1978] Ch 406 where directors, who were also the majority shareholders, were allegedly acting in breach of duty. ‘The principle … is that a minority shareholder who has no other remedy may sue where directors use their powers, intentionally or unintentionally, fraudulently or negligently, in a manner which benefits themselves at the expense of the company.’ (Templeman J at 414D–E). There is a full and useful exposition of derivative claims on behalf of companies in Joffe and others, Minority Shareholders Law, Practice and Procedure, (5th edn) (2015), Ch 2. An alternative is Gore-Browne on Companies, Ch 18. The facts which lead to a derivative action may also be facts which found an ‘unfair prejudice’ petition under CA 2006, s 994: see Wilkinson v West Coast Capital [2007] BCC 717 at [243]. 119 See Wallersteiner v Moir (No 2) [1975] QB 373 (regarding the subsidiary company, HJ Baldwin & Co Ltd) and Waddington Ltd v Chan Chun Hoo Thomas above: ‘if wrongdoers must not be allowed to defraud a parent company with impunity, they must not be allowed to defraud its subsidiary with impunity’ (Lord Millett at [75]). 120 Sections 260–264 for England and Wales and Northern Ireland. 121 In Universal Project Management Services Ltd v Fort Gilkicker Ltd & ors [2013] Ch 551, Briggs J held that the common law procedural device of a derivative claim has not been abolished by the CA 2006 and that multiple derivative claims are still permitted: at [44]–[49]. In that case,

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to a company, but also in relation to any ‘other body corporate’.122 This will clearly include an LLP.123 As mentioned above, the derivative claim has been developed by the common law essentially as a procedural device.124 14.39 A member, or members, of an LLP seeking to bring a derivative claim will need to comply with the procedure set out in CPR, rr 19.9 and 19.9C. An outline only of that procedure is given here: detailed reference should be made to the CPR. The claim must be started by a claim form, with the LLP made a defendant.125 After the claim form has been issued, the next step by the claimants (save in the case of an urgent application for interim relief) must be to apply to the court for permission to continue the claim.126 This is done by application notice under CPR, Pt 23, together with the written evidence on which the member claimants rely in order to continue the claim.127 The LLP is not a respondent to the permission application; but (save where notifying it of the permission application would be likely to frustrate some part of the remedy being sought on its behalf)128 the LLP must be notified of the claim being made, and of the application for permission to continue the claim, and must be sent copies of the claim form, the notice of application for permission and the evidence in support of the application.129 For the purposes of the court determining whether or not to give permission to the claimants for the claim to be continued, the procedure in relation to companies under CA 2006, s 261 applies as if the LLP were a company.130 The effect of s 261(2) is that the onus will be on the claimants to satisfy the court in the first instance, by their evidence, that there is a prima facia case for giving permission to continue the claim. If it appears to the court that such a prima facia case is not shown by this evidence, the court must dismiss the application.131 The initial decision as to whether or not to dismiss the application will normally be

122 123 124

125 126 127 128 129 130 131

the intermediate member (which made a multiple derivative claim necessary) was an LLP. Briggs J held that the fact that the entity was an LLP rather than a company made no difference. In doing so, he made reference to the fact that LLP members had no recourse to a statutory derivative claim: at [52]. Although he refers to this as a lacuna, he should not be taken as deciding that the common law procedure is not applicable to LLPs (a question that was not before him). In Harris v Mircrofusion 2003-2 LLP [2016] EWCA Civ 1212, it was not challenged that the common law procedural device had survived the enactment of the statutory remedy and the Court of Appeal was happy to proceed on that basis (see [13]). The position was put beyond doubt in Homes of England Ltd v Nick Sellman (Holdings) Ltd [2020] EWHC 936 (Ch) at [23]–[34]. In that case, Zacaroli J held that Part 11 of the CA 2006 did not apply to derivative actions in respect of LLPs, but that the common law principles developed prior to the enactment of the CA 2006 did. CPR, r 19.9 (‘Derivative claims – how started’). The consultation conducted by the Department of BERR as to the application of the CA 2006 to LLPs proceeded on the basis that common law derivative claims will be open to members of LLPs. ‘… a minority shareholder’s action in form is nothing more than a procedural device for enabling the court to do justice to a company controlled by miscreant directors or shareholders’: Lawton LJ in Nurcombe v Nurcombe [1985] 1 WLR 370 at 376A–B. CPR, r 19.9(2) and (3). CPR, r 19.9C(2). CPR, r 19.9A(2), applied by CPR, r 19.9C(5). In these circumstances, the court may, on the application of the claimants, order that the LLP need not be notified for a period of the application notice: CPR, r 19.9A(7), as applied by CPR, r 19.9C(5). CPR, r 19.9A(4) and (5), applied by CPR, r 19.9C(5). CPR, r 19.9C(4). CA 2006, s 261(2). When dismissing the claim, the court may make any consequential order it considers appropriate: ibid.

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made by the court without a hearing.132 If the application is not dismissed, the court will order that the LLP ‘and any other appropriate party’ must be made respondents to the permission application.133 The court may also give directions as to evidence to be provided by the LLP for the purposes of the permission application (and adjourn the application for that evidence to be obtained); and, on the substantive hearing of the application, the court may either give permission to continue the claim on such terms as it thinks fit, or refuse permission or adjourn the application or give such directions as it thinks fit.134 Where the court does give permission to continue the claim, it may order that the claim is not thereafter to be discontinued, settled or compromised without the court’s permission.135 The court may also order the LLP to indemnify the claimant against liability for costs incurred in the permission application and/or in the derivative claim itself.136 14.40 In relation to companies, s 262 of the CA 2006 provides for a member of a company which has itself brought a claim which is based on a cause of action that could be pursued as a derivative claim137 to be able to apply to the court for permission to continue the claim as a derivative claim; and s 264 of the CA 2006 provides for a member of a company to apply to the court to continue an existing derivative claim being pursued by another member on behalf of the company. The sections go on to set out (in similar manner to s 261) the procedure for such applications. As mentioned in 14.38, Part 11 of the CA 2006 is not applied by the LLP Regulations 2009 to LLPs. Nevertheless, CPR, r 19.9C states that it (r 19.9C) sets out a procedure for a member of any body corporate (eg an LLP) which is not a company to take over a claim for a remedy to be given to that body which has already been started by the body itself, or by another member or members of it; and, for the purposes of such a takeover, applies to non-company bodies corporate ‘the procedure for applications in relation to companies’ under CA 2006, s 262 or s 264 (as appropriate) regarding such take-overs ‘as if the body corporate … were a company’. Although CA 2006, ss 262 and 264 are not applied to LLPs by the LLP Regulations 2009, the CPR are clearly assuming, if not establishing, that members of an LLP (or other body corporate) can, as a matter of procedure, and with the court’s permission, take over a claim already being pursued by the LLP, or take over another member’s existing derivative claim. As has been mentioned in 14.37, the derivative claim is essentially a procedural device, and there seems little reason to doubt that CPR, r 19C has validly introduced (or recognised the possibility existing at common law) of LLP members taking over an existing action which is being pursued for a remedy to be granted to the LLP. Such a takeover may be desirable where wrongdoers in control of the LLP have caused the LLP to start what is, in effect, a collusive action intended to pre-empt a genuinely pursued claim, or where the original member claimant is not for some reason adequately pursuing the claim. The application for permission to take over an existing claim must be made on the ground that (a) the manner in which the claim

132 133 134 135 136 137

If the application is dismissed without a hearing, the claimants may ask for an oral hearing to reconsider the decision: CPR, r 19.9A(10), as applied by CPR, r 19.9C(5). CPR, r 19.9A(2), as applied by CPR, r 19.9C(5). CA 2006, s 261(3) and (4). CPR, r 19.9F. CPR, r 19.9E. Ie coming within CA 2006, s 260(3).

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has been commenced or continued amounts to an abuse of the process of the court, (b) the LLP or existing member claimant has failed to prosecute the claim diligently, and (c) it is appropriate for the (now applying) members to continue the claim as a derivative claim.138 The steps in the application for members to take over an existing action are similar to the steps set out in 14.39 where the members are seeking to pursue an original action. 14.41 Whilst CA 2006, ss 261, 262 and 264 are indirectly applied to LLPs in the manner discussed in 14.40, the remaining sections of Part 11 of the CA 2006 (ie for England and Wales and Northern Ireland, ss 260 and 263) are neither directly applied to LLPs by the LLP Regulations 2009 nor mentioned in the CPR as applicable to non-company bodies corporate. Section 260 (setting out how, by whom and for what causes of action only a derivative claim may be brought on behalf of a company) clearly does not apply to LLPs either directly or indirectly. Section 263 sets out circumstances in which permission to continue a derivative claim on behalf of a company must be refused, and (if there is no compulsory refusal) sets out matters which the court must take into account in particular in determining whether or not to give permission. The adoption for LLPs (and other non-company bodies corporate) by CPR, r 19.9C of the procedure for permission applications set out in CA 2006, ss 261, 262 and 264 appears not to include the adoption of the requirements set out in s 263 for deciding the substance of the application in the case of a company.139 In the case of a permission application by members of an LLP, therefore, it will be the pre-2006 Act, judge-made criteria and principles which will be relevant and it would be necessary to show that the case came within the four established exceptions to the rule in Foss v Harbottle.140 The result of this is that there is some divergence in the situations in which a derivative claim can be brought or pursued on behalf of a company and the situations in which such a claim can be brought or pursued on behalf of an LLP. (a) At common law (ie for LLPs), a claimant must be a current member of the corporate body. The personal representatives of a deceased member, or the trustee in bankruptcy of a member, will not have standing to bring a derivative claim.141 For companies, this is no longer the case.142 (b) It appears to be the case at common law (ie for LLPs) that, in the absence of actual fraud or an ultra vires act, the wrongdoing members must have received some personal benefit at the expense of the corporate body from the wrongdoing.143 This has the result, inter alia, that there can be no derivative claim brought against an LLP member solely in respect of loss which he has

138

CA 2006, ss 262(2) and 264(2). This passage was quoted with approval in Homes of England Ltd at [34] and is referred to in fn 121 above. This conclusion is also consistent with the references in s 263 to CA 2006, s 172 (duties of company director), which is not adopted for LLPs. 140 The four exceptions were succinctly summarised by Templeman J in Daniels v Daniels (at 408G–H), referred to in fn 118 above. That summary was recently approved by the Court of Appeal in Harris v Mircrofusion 2003-2 LLP (at [14]), referred to in fn 121 above. 141 This is consistent with the provisions of LLP Act 2000, s 7, discussed at 8.21–8.26. 142 CA 2006, s 260(5)(c), permitting a derivative claim to be brought by a person who is not a member but to whom shares in the company have been transferred or transmitted by operation of law. 143 See Daniels v Daniels referred to in fn 118 above. See also Abouraya v Sigmund [2015] BCC 503 at [27]. That passage in Abouraya was approved by the Court of Appeal in Harris v Mircrofusion 2003-2 LLP (at [15] and [31]), referred to in fn 121 above. 139

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caused to the LLP by his negligence.144 In the case of companies, however, it is now no longer the case that the wrongdoers must have received some personal benefit.145 (c) The common law criteria and principles (applying to LLPs) appear to differ from criteria set out in CA 2006, s 263 in two principal respects. First, it is central to a claimant’s right to proceed with a derivative claim at common law that the wrongdoers are in control of the corporate body.146 This is not the case under s 263. Secondly, at common law the claimant will not be permitted to continue the claim if the transaction complained of is capable of being (although it has not in fact been) properly authorised or ratified by a simple majority of members.147 This appears not now to be the position for companies under s 263. 14.42

In relation to both companies and LLPs, it is the position that:

(a)

it is immaterial whether the cause of action the subject of the claim arose before or after the person seeking to bring (or continue) the derivative claim became a member;148 (b) where the company or LLP has gone into liquidation, the making of a derivative claim on behalf of the corporate body is not available to members: the right of the corporate body to take action is now vested in the liquidator, and the remedy for members who feel aggrieved that the liquidator is not pursuing a claim which the body has is to apply to the court under IA 1986, s 112(1) (in a voluntary winding up)149 or s 168(5) (in a winding up by the court) for an order that the liquidator bring an action in the name of the body, or that the aggrieved member be permitted to bring the action in the name of the body subject to giving an indemnity as to costs;150 (c) the claimant will not obtain permission to continue the claim if he is not pursuing it bona fide for the benefit of the company or LLP, but rather for some ulterior purpose;151 and (d) where there are members who are independent of the competing interests, particular regard will be paid to the views of those members as to whether or not the claim should be pursued.152

144 145 146 147

148 149 150 151 152

Pavlides v Jensen [1956] Ch 565. CA 2006, s 260(3) omits any such requirement. It also expressly includes a cause of action arising from the negligence of a director. Burland v Earle [1902] AC 83 at 93, Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 at 210–11 and Barrett v Duckett [1995] 1 BCLC 243 at 249–50. Ibid. The difficulty of drawing the line between what a majority vote can condone or ratify and what cannot be condoned or ratified was recognised in Airey v Cordell [2007] Bus LR 391 (a pre-2006 Act application to continue a derivative action on behalf of a company) at [44]. For companies, this is now confirmed by CA 2006, s 260(4). It is the position at common law also: see, for instance, Seaton v Grant (1867) LR 2 Ch App 459. In order to have the right to apply to the court under IA 1986, s 112(1), the aggrieved member will (under the terms of s 112 (1)) need to be either a creditor or contributory. Fargro Ltd v Godfroy [1986] 1 WLR 1134. This is established at common law (see eg Barrett v Duckett above), and will be the de facto position for companies under CA 2006, s 263(3)(a). For the common law, see Smith v Croft (No 2) [1988] Ch 114: for companies now, see CA 2006, s 263(4). For a more detailed discussion of the criteria on permission applications, see the texts referred to in fn 118 above.

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14.43 Prior to the introduction, in the CA 2006, of the statutory code for derivative actions on behalf of companies (including, in particular, the mandatory requirements of s 263), the essential (judge-made, common law) test as to whether or not permission to continue such an action should be given was what an independent and impartial board of directors would do.153 The court: ‘… merely has to be satisfied that a reasonable board of directors could take the decision that the minority shareholder applying for permission to proceed would like it to take, and I do not think it would be right to shut out the minority shareholder on the basis of the court’s, perhaps inadequate, assessment of what it would do rather than a test which is easier to apply, which is whether any reasonable board could take that decision …. If no reasonable board would bring the proceedings, even though there is a prima facie case, then the court should not sanction the minority shareholder’s action.’154

In applying the common law to LLPs, the courts will need to adapt this test. Presumably, the essential test will be what an independent and impartial membership would do. In a large LLP with a management committee, or other governing body broadly similar to a board of directors, the test may be what an independent and impartial management committee would do.

153 154

Airey v Cordell [2007] Bus LR 391. Ibid at [66]–[67] (Warren J). This test continues, in effect, to play an important part in the court’s consideration under CA 2006, s 263, in that express reference is made in s 263 to what ‘a person acting in accordance with s 172 (duty to promote the success of the company)’ would do: s 263(2) (a) and (3)(b).

Chapter 15 DISCRIMINATION AND WHISTLEBLOWER PROTECTION

INTRODUCTION 15.1 LLP members have the benefit of statutory discrimination protections. Further, following the Supreme Court decision in Clyde & Co LLP v Bates van Winkelhof 1 (where it was held, in principle, that an LLP member may be a ‘worker’ under s 230(3)(b) of the Employment Rights Act 1996 (‘ERA 1996’)), an LLP member who is a worker also qualifies for whistleblower protections as well as other worker rights (which are considered further at 15.159–15.189 below). The law appears to be, however, that a person who is an LLP member cannot be an employee of the LLP,2 with the result that an LLP member will not qualify for those workplace protections and rights that apply only to employees, such as protection against unfair dismissal, redundancy rights and statutory maternity (although see 15.120 regarding the salaried members rules), paternity, adoption and unpaid parental leave rights (this list is not exhaustive). This chapter aims to provide an overview of the statutory quasi-employment protections available to LLP members.

DISCRIMINATION PROTECTION 15.2 The Equality Act 2010 (‘EqA 2010’) sets out specific discrimination protections for LLP members. Most EqA 2010 provisions came into force on 1 October 2010, for claims arising on or after that date, reforming and harmonising3 many of the preceding separate strands of anti-discrimination legislation4 which would previously have applied to LLP members. 15.3 The EqA 2010 provisions which specifically refer to LLPs and their members are set out in ss 45 and 46. The rationale of s 45 of the EqA 2010 is set out in the Explanatory Notes to the EqA 2010: ‘LLPs are distinct from general and limited partnerships, so separate provisions are needed to provide protection from discrimination, harassment and victimisation for their members’.

1 2 3 4

[2014] UKSC 32, [2014] 1 WLR 2047. See 9.27. See Chapter 9. Preamble to EqA 2010. Eg the Sex Discrimination Act 1975, the Race Relations Act 1976 and the Disability Discrimination Act 1995.

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15.4 By virtue of ss 45 and 46 of the EqA 2010, LLP members have the right not to suffer unlawful discrimination because of the following nine protected characteristics, as listed in the EqA 2010:5 (a) age; (b) disability; (c) gender reassignment; (d) marriage and civil partnership; (e) pregnancy (though note the comments on specific statutory maternity rights and LLP members in 15.110–15.120 below); (f) race (which includes colour, nationality, ethnic or national origins);6 (g) religion or belief (including a lack of religion);7 (h) sex (ie gender);8 and (i) sexual orientation. 15.5 Section 45 of the EqA 2010 states that it is unlawful for an LLP or a proposed LLP (ie persons proposing to incorporate an LLP with themselves as members) to discriminate against a person because of one of the protected characteristics set out in 15.4 above: (a) in the arrangements it makes for deciding to whom to offer a position as a member; (b) as to the terms on which it offers an individual a position as a member; or (c) by not offering the person a position as a member.9 15.6

An LLP may not discriminate against a member:

(a) (b)

as to the terms on which they are a member; in the way the LLP affords the member access, or by not affording the member access, to opportunities for promotion, transfer or training, or for receiving any other benefit, facility or service; (c) by expelling the member (see 15.7 below); or (d) by subjecting the member to any other detriment.10 15.7 It is unlawful to expel a member of an LLP because of one of the protected characteristics. The definition of expulsion in relation to an LLP includes the following circumstances: (a) by the expiry of any period (including a period expiring by reference to an event or circumstance);11 or (b) by an act of the person (including giving notice) in circumstances such that the person is entitled, because of the conduct of other members, to terminate the position without notice.12 5 6 7 8 9 10 11 12

EqA 2010, s 4. EqA 2010, s 9(1). EqA 2010, s 10(1). EqA 2010, s 11(a). EqA 2010, s 45(1). EqA 2010, s 45(2). EqA 2010, s 46(6)(a). EqA 2010, s 46(6)(b).

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15.8 Section 45 of the EqA 2010 also contains harassment13 and victimisation14 protections for LLP members (and prospective members), as well as a duty on the LLP or proposed LLP to make reasonable adjustments.15 15.9 An LLP member does not need to fulfil a length of service requirement in order to qualify for discrimination protections or to bring a claim in the Employment Tribunal. 15.10 In a discrimination claim, an LLP member may bring discrimination proceedings against an individual LLP member or agent of the LLP that he believes to have committed an unlawful act under the EqA 2010, as well as against the LLP itself.16 It is important that individuals are not named as respondents unless there are specific allegations of discrimination against them. Claimants must provide clear reasons for naming individual LLP members as additional respondents to the claim and ensure that such reasons are properly reflected in the pleadings.17

PROHIBITED DISCRIMINATORY CONDUCT 15.11 The types of unlawful conduct identified in the EqA 2010 include direct and indirect discrimination, harassment and victimisation. The main types of discriminatory treatment are summarised below (with regard to disability discrimination, there are also additional protections which are explained further at 15.130–15.158).

Direct discrimination 15.12 Direct discrimination occurs when a person treats another less favourably than they treat or would treat others because of a protected characteristic (outlined in 15.4 above, eg age, disability, gender reassignment etc).18 15.13 Exceptionally, direct age discrimination can be objectively justified, unlike the other protected characteristics (see 15.77). Direct age discrimination and its objective justification were considered in Seldon v Clarkson Wright and Jakes,19 which related to a general partnership under the Partnership Act 1890, but the case is also relevant in the context of LLPs (see 15.82–15.98 below). 15.14 An LLP member may also qualify for direct discrimination protection if the member is perceived to have a protected characteristic or because of the characteristics of another person, eg someone with whom the member associates

13 14 15 16 17 18 19

EqA 2010, s 45(3) and (4). EqA 2010, s 45(5) and (6). EqA 2010, s 45(7). EqA 2010, ss 45 and 110(1) and (2). Murray v Maclay Murray & Spens LLP [2018] IRLR 710. EqA 2010, s 13. [2012] UKSC 16, [2012] IRLR 590.

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(so-called perceived and associative discrimination protection).20 In Ead Solicitors LLP v Abrams,21 it was held by the Employment Appeal Tribunal that a claim for discrimination can be brought by a corporate member of an LLP in relation to the protected characteristic of its director. EU law has also established that associative discrimination protection exists in relation to indirect discrimination (see 15.16–15.17 below). 15.15 When litigating a direct discrimination claim, an LLP member will need to identify either a real or hypothetical comparator (with the exception of a pregnancy discrimination claim, where no comparator is required).22 There should be ‘no material difference between the circumstances’23 of the LLP member and the chosen comparator.

Indirect discrimination 15.16 Indirect discrimination occurs when a provision, criterion or practice (a so-called ‘PCP’) is applied which places a group of people with a shared protected characteristic (eg age, disability etc) at a particular disadvantage compared with people who do not share the protected characteristic. If a PCP disadvantages someone who shares that protected characteristic, it will be indirectly discriminatory unless it can be objectively justified.24 However, it is worth noting that there is a current inconsistency between UK and EU law, as EU case law has established that a claimant suffering the effects of a PCP does not necessarily need to have a protected characteristic in order to bring an indirect discrimination claim, so long as there is a group of people placed at a disadvantage by the PCP who share a protected characteristic.25 It remains to be seen how this particular difference in approach is reconciled by the UK courts; however, the UK courts do appear to be taking a broad approach in respect of the definition of disadvantage under section 19 of the EqA 2010.26 15.17 There is no protection under the EqA 2010 from indirect pregnancy (or maternity) discrimination.27 Any unlawful treatment in relation to either of those

20

EqA 2010, s 13(1) (direct discrimination is ‘because of a protected characteristic’ which can be because of the protected characteristic of the LLP member or another person). See EBR Attridge Law LLP and another v Coleman (No 2) UKEAT/0071/09 (which considered associative disability discrimination). 21 UKEAT/0054/15/DM. 22 EqA 2010, s 18(2)–(4). 23 EqA 2010, s 23. 24 EqA 2010, s 19(1)–(3). 25 CHEZ Razpredelenie Bulgaria AD v Komisia za zashtita ot diskriminatsias (Case C-83/14) EU:C:2015:480, [2015] WLR (D) 314. A supply of goods and services case in which an individual of non-Roma origin (ie having no protected characteristic) nonetheless suffered the effects of a PCP alongside a protected (and disadvantaged) group of Roma. 26 Essop v Home Office (UK Border Agency) [2017] UKSC 27. 27 There is no reference to ‘pregnancy and maternity’ as a relevant protected characteristic in EqA 2010, s 19(3).

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grounds would need to be brought as an indirect sex discrimination claim under the EqA 2010.

Harassment 15.18 Harassment occurs if an individual engages in unwanted conduct related to a relevant protected characteristic or unwanted conduct of a sexual nature, which has the purpose or effect of violating a person’s dignity or creates an intimidating, hostile, degrading, humiliating or offensive environment for that person.28 It is also harassment if an individual experiences less favourable treatment because of their rejection of, or submission to, conduct of a sexual nature, or conduct that is related to gender reassignment or sex, and such conduct has the purpose or effect of violating their dignity or creating an intimidating, hostile, degrading, humiliating or offensive environment for that person.29 15.19 In determining whether the conduct violates an individual’s dignity or creates an intimidating, hostile, degrading, humiliating or offensive environment for that person, the perception of the individual who has been harassed must be taken into account, as must the circumstances of the case and whether it is reasonable for the conduct to have that effect.30 15.20 The relevant protected characteristics for the purposes of the harassment provisions do not include pregnancy and maternity, or marriage and civil partnership,31 although it may be possible to bring a pregnancy and maternity harassment claim on the basis of the protected ground of sex, which is covered.

Victimisation 15.21 Victimisation occurs if an individual subjects another to a detriment because the other person has done a protected act, or it is believed that they have done or may do a protected act.32 A protected act is defined as: bringing proceedings under the EqA 2010; giving evidence or information in connection with proceedings under the EqA 2010; doing any other thing for the purposes of or in connection with the EqA 2010; or making an allegation (whether or not express) that a person has contravened the EqA 2010.33

Instructing, causing or inducing discrimination 15.22 It is also unlawful for a person (A) to instruct, cause or induce (directly or indirectly) or attempt to cause or induce someone (B) to discriminate against,

28 29 30 31 32 33

EqA 2010, s 26(1)–(2). EqA 2010, s 26(3). EqA 2010, s 26(4). EqA 2010, s 26(5). EqA 2010, s 27(1). EqA 2010, s 27(2).

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harass or victimise a third person (C). If either B or C is subjected to a detriment as a result of A’s conduct, proceedings may be brought by both B and C and by the Equality and Human Rights Commission (‘EHRC’) against A.34 The EHRC is a non-departmental statutory body.

Aiding discrimination 15.23 A person (A) must not knowingly help another (B) to discriminate, harass or victimise, unless A relies on a statement by B that the act for which the help is given does not contravene the EqA 2010 and it is reasonable for A to rely on this statement.35 In that regard, it is a criminal offence for B to make a statement on which A relies which is knowingly or recklessly ‘false or misleading in a material respect’.36

Former relationships 15.24 Section 108 of the EqA 2010 also prohibits discrimination and harassment in relationships that have ended.37 It is unlawful for a person (A) to discriminate or harass another (B) if the discrimination or harassment arises out of and is closely connected with a former relationship and the discrimination or harassment would, if it had occurred during the relationship, have contravened the EqA 2010. Section 108(7) of the EqA 2010 states that conduct is not a contravention of s 108 insofar as it also amounts to victimisation of B by A.38 However, case law has since established that post-employment victimisation is prohibited by the EqA 201039 (these provisions are likely also to apply in an LLP member context).

POTENTIALLY PERMISSIBLE DISCRIMINATORY TREATMENT 15.25 There are certain exemptions to the general position that discriminatory treatment is unlawful. As noted at 15.12–15.17 above, indirect discrimination40 and direct age discrimination41 may be lawful where the actions are a proportionate means of achieving a legitimate aim. In addition, the EqA 2010 provides other express exemptions to discriminatory treatment, such as: an occupational requirement (where the nature or context of the work requires an individual to be of a certain sex, age, race etc) where this can be objectively justified;42 positive action;43 and a

34 35 36 37 38 39

40 41 42 43

EqA 2010, s 111. EqA 2010, s 112(1) and (2). EqA 2010, s 112(3) and (4). EqA 2010, s 108. EqA 2010, s 108(7). Jessemey v Rowstock Ltd and another [2014] EWCA Civ 185, [2014] 3 All ER 409; subsequently confirmed in the Equality and Human Rights Commission’s Supplement to the Statutory Code of Practice on Services, Public Functions and Associations, at [3.12]. EqA 2010, s 19(2)(d). EqA 2010, s 13(2). EqA 2010, Sch 9. EqA 2010, s 158.

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statutory requirement44 (this list of exemptions is not exhaustive, and the details of the exemptions are outside the scope of this chapter).

TERRITORIAL SCOPE OF DISCRIMINATION LAW 15.26 The EqA 2010 (unlike the preceding legislation) is silent in relation to the territorial scope of discrimination law. However, the Explanatory Notes to the EqA 2010 provide some guidance: ‘As far as territorial application is concerned, in relation to Part 5 (work) and following the precedent of the Employment Rights Act 1996, the Act leaves it to tribunals to determine whether the law applies, depending for example on the connection between the employment relationship and Great Britain.’45

15.27 LLP members fall within s 45 of Part 5 of the EqA 2010 and, as such, these Explanatory Notes are relevant to them, notwithstanding that they do not have an employment relationship with the LLP. 15.28 It seems implicit, in the reference to the ERA 1996 in the Explanatory Notes, that the case law on the territorial scope of unfair dismissal law (determined under ERA 1996) will also be of importance in relation to discrimination claims. In Serco v Lawson46 the House of Lords differentiated three (or possibly four) categories of ‘employee’ for the purpose of questions of territorial jurisdiction under the ERA 1996: (a) The standard case of an employee working in Great Britain: this category concerns employees who are ‘ordinarily working’ in Great Britain at the time of their dismissal. (b) Peripatetic employees: if an employee’s ‘base’ is in the UK, they will ordinarily fall within the scope of the legislation. (c) Expatriate employees: employees posted abroad by a British employer for the purposes of a business in Great Britain (eg a foreign correspondent for a British newspaper) or an employee working for a political or social British enclave in a foreign country (eg a military base). (d) There may be others if they ‘have equally strong connections with Great Britain and British employment law’.47 15.29 Lord Hoffmann, who gave the leading judgment in the case, emphasised that each case must be considered on its own particular facts. 44 45 46

47

EqA 2010, Sch 22. Explanatory Notes, EqA 2010 (note no 15). Serco Limited v Lawson; Botham v Ministry of Defence; Crofts and others v Veta Limited and others and one other action [2006] UKHL 3, [2006] 1 All ER 823, [2006] IRLR 289. See also Duncombe v Secretary of State for Children, Schools and Families (No 2) [2011] UKSC 36, [2011] 4 All ER 1020, [2011] ICR 1312; Ravat v Halliburton Manufacturing and Services Ltd [2012] UKSC 1, [2012] IRLR 315, and Louise Merrett, ‘New approaches to territoriality in employment law’ (2015) Industrial Law Journal 53–74. Serco Limited v Lawson; Botham v Ministry of Defence; Crofts and others v Veta Limited and others and one other action [2006] UKHL 3, [2006] 1 All ER 823, [2006] IRLR 289.

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15.30 Some LLP members working overseas may fall in the third category, being frequently posted abroad to work in a satellite office, whilst maintaining a relationship with, and membership of, the UK LLP; or alternatively the fourth category, if they can establish equally strong connections with Great Britain and British employment law. 15.31 The position of LLP members was specifically considered by the Employment Tribunal in Bates van Winkelhof v Clyde & Co LLP.48 Ms Winkelhof was a member of Clyde and Co LLP and lived and worked in Tanzania. Her evidence in the case was that she was ‘predominantly based in Tanzania, overseeing operations there, but regularly worked in the London office of, and was first and foremost, a member of the first respondent’.49 15.32 The judgment states that: ‘There is no territorial jurisdictional limitation placed upon the rights conferred by the Equality Act 2010. It does not, for example, limit the Tribunal to claims only relating to members of limited liability partnerships who work in Great Britain’.50 15.33 Given the lack of case law on the EqA 2010 at the time of the decision, the Employment Tribunal referred to the case law which had been decided under the Sex Discrimination Act 1975 and/or the ERA 1996. The Employment Tribunal considered the authorities on territorial jurisdiction in respect of unfair dismissal, most notably Lawson v Serco,51 and applied these principles to the discrimination legislation under Part 5 (Work) of the EqA 2010. The Employment Tribunal commented that there was some debate as to whether Lawson v Serco applied to the EqA 2010, but determined it was relevant.52 15.34 Considering Lord Hoffmann’s category of ‘equally strong connections with Great Britain and British employment law’ (as set out above), the Employment Tribunal found that Ms Winkelhof had ‘very strong connections with Great Britain’ for reasons including (but not limited to): (a) (b) (c) (d) (e)

she worked at least partly in Great Britain; the LLP agreement was governed by English law; she visited London on a regular basis; she was mainly paid from London; and her invoices were generated from Great Britain.53

The Employment Tribunal therefore determined that it had jurisdiction to hear her claims of sex and pregnancy discrimination.54 48 49 50 51 52 53 54

Bates van Winkelhof v Clyde and Co and another ET/2200549/11. Bates van Winkelhof v Clyde and Co and another ET/2200549/11, at [41]. Bates van Winkelhof v Clyde and Co and another ET/2200549/11, at [49]. Lawson v Serco Ltd [2006] 1 All ER 823. Bates van Winkelhof v Clyde and Co and another ET/2200549/11, at [53]. Bates van Winkelhof v Clyde and Co and another ET/2200549/11, at [65]. Bates van Winkelhof v Clyde and Co and another ET/2200549/11, at [68]. If the Employment Tribunal had found that Ms Winkelhof was a ‘worker’ (within the meaning given in the ERA 1996), it would have had territorial jurisdiction to hear her whistleblowing claim: at [77].

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15.35 At the Employment Appeal Tribunal, the LLP argued that, because of the subsequent Supreme Court decision in Ravat v Halliburton Manufacturing and Services Ltd,55 the Employment Tribunal did not have jurisdiction to consider the claimant’s claim. In Ravat, Lord Hope referred to an employment relationship having ‘a stronger connection with Great Britain than with the foreign country where the employee works’ (which had ‘morphed’ the ‘equally strong connections’ question formulated by Lord Hoffmann in Lawson v Serco). However, the Employment Appeal Tribunal considered that, even if the Employment Tribunal had asked itself Lord Hope’s ‘stronger connections’ test, the same overall conclusion would have been reached (ie that the Employment Tribunal had territorial jurisdiction). The Court of Appeal upheld the Employment Appeal Tribunal’s decision on territorial jurisdiction.56 15.36 The territorial scope of discrimination law protections is a complex and frequently changing aspect of discrimination protections, and to outline all of the relevant cases in this area would be outside the scope of this chapter. Whether an LLP member is protected by discrimination legislation will ultimately depend on the factual matrix relevant at the time; and factors that have been considered for the purpose of deciding in favour of or against the territorial scope of particular cases should not be considered to be determinative. LLP members who fall outside the parameters of Lawson v Serco may still be protected by the EqA 2010 in light of the ‘Bleuse principle’ (Bleuse v MBT Transport Limited and Tiefenbacher).57 In Bleuse, it was established that, where there are directly effective rights derived from a European Directive (as would be the case with discrimination rights), the UK courts should extend those rights to those individuals who have rights conferred upon them by EU law, even if the scope of those rights would otherwise be limited to those based in the UK. There has been subsequent case law which has considered the Bleuse principle, and has given effect to rights derived from EU law.58 Although specifically considered in the context of whistleblowing protection (see 15.175), and based on very particular facts, the courts have also indicated the possibility of ‘gap-filling’ in certain circumstances where statutory regimes cannot be invoked for jurisdictional reasons, through the creation of a novel duty of care owed under common law.59 It is possible that the same novel duty of care might arise in the

55

[2012] UKSC 1, [2012] IRLR 315. Ravisy v Simmons & Simmons LLP and Taylor [2018] UKEAT 0085/18/OO; and Fuller v United Healthcare Services Inc & Anor [2014] UKEAT 0464/13/BA for examples of contrasting Employment Appeal Tribunal decisions (namely, that the Employment Tribunal did not have territorial jurisdiction to hear the Claimant’s claims) based on the particular facts of the case. 57 Bleuse v MBT Transport Limited and Tiefenbacher UKEAT/0339/07 and UKEAT/0632/06. 58 See Duncombe and others v Secretary of State for Children, Schools and Families [2010] IRLR 331 (CA) and Ministry of Defence v Wallis and another [2011] All ER (D) 97. Duncombe was subsequently overturned by the Supreme Court (Duncombe and others v Secretary of State for Children, Schools and Families (No 2) [2011] UKSC 36); however, the Supreme Court did not consider or address the Bleuse principle in its judgment. In relation to the application of EU law, see the European Union (Withdrawal) Act 2018, ss 1–7. 59 Rihan v Ernst & Young Global Ltd & others [2020] EWHC 901 (QB). The new duty of care considered to exist in Rihan was a duty to protect against economic loss, in the form of loss of future employment opportunity, by providing an ethically safe work environment, free from professional misconduct (or, indeed, criminal conduct) in a professional setting. 56 See

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context of discrimination claims in the future, within a small class of exceptional cases.60

TIME LIMITS FOR DISCRIMINATION CLAIMS 15.37 Typically, an LLP member has three months from the date of the discriminatory act within which to present a claim of discrimination to an Employment Tribunal61 (subject to the mandatory early conciliation process referred to below), or such other period as the Employment Tribunal considers ‘just and equitable’.62 If the discriminatory conduct continues over a period of time (as opposed to an isolated incident), the three-month period can (in appropriate circumstances) run from the end of the period of discriminatory conduct.63 An LLP typically has 28 days within which to present any response to a discrimination claim before the Employment Tribunal,64 subject to any extension of time which may be granted.65

MANDATORY EARLY CONCILIATION IN DISCRIMINATION CLAIMS 15.38 Introduced on 6 April 2014 and made mandatory from 6 May 2014, early conciliation (‘EC’) requires prospective claimants to consider conciliation before instituting most Employment Tribunal proceedings (defined as ‘relevant proceedings’),66 which include any discrimination and whistleblowing proceedings raised by LLP members. There are certain specified circumstances when a claim is exempt from the EC process,67 but usually a claim will not be accepted by an Employment Tribunal unless the complaint has first been referred to the Advisory, Conciliation and Arbitration Service (‘ACAS’) and a conciliation certificate has been issued.68 15.39 The conciliation process has an effect on any time limit for submitting a claim to an Employment Tribunal. When a prospective claimant makes contact with ACAS, this will ‘pause’ the statutory time limit for presenting a claim so that conciliation can take place69 (although, if the prospective claimant’s claim was already out of time before an EC form was submitted, it continues to be out of time). The time limit for submitting a claim will start to run again once the prospective

60 61 62 63 64 65 66 67 68 69

Rihan v Ernst & Young Global Ltd & others [2020] EWHC 901 (QB), at [620]. EqA 2010, s 123(1)(a). EqA 2010, s 123(1)(b). EqA 2010, s 123(3)(a). Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013 (SI 2013/1237), Sch 1, para 16(1). Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013, Sch 1, para 20. Employment Tribunals Act 1996, s 18A. Employment Tribunals (Early Conciliation: Exemptions and Rules of Procedure) Regulations 2014 (SI 2014/254), reg 3. Employment Tribunals Act 1996, s 18A(8). EqA 2010, s 140B.

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claimant receives the certificate that EC has ended.70 The rules relating to the extension of time limits are complex and should be considered carefully.

BURDEN OF PROOF IN DISCRIMINATION CLAIMS 15.40 The EqA 2010 provides guidance as to who bears the burden of proving discriminatory conduct. The starting point is that the LLP member, as the claimant, initially bears the burden of proof. 15.41 Section 136 of the EqA 2010 provides that, if there are facts from which the court could decide, in the absence of any other explanation, that a person contravened the provision concerned (ie the discrimination protections), the court must hold that the contravention occurred, unless the person shows that he did not contravene the provision.71 The effect of these provisions is that, if an LLP member establishes a prima facie case of discrimination, the burden of proof will shift to the LLP to prove that the alleged contravention did not occur. It should be noted that the burden is not shifted if the proceedings relate to a criminal offence under the EqA 201072 (where, instead, the criminal burden of proof of beyond reasonable doubt would apply). 15.42 The statutory language in s 136 of the EqA 2010 is important. The Employment Tribunal does not have to find that the conduct did take place; rather, in order for the burden of proof to shift to the LLP, it simply has to be satisfied that there is sufficient evidence to show that the discriminatory conduct could have taken place. 15.43 In Barton v Investec Henderson Crosthwaite Securities Limited73 (decided under the Sex Discrimination Act 1975), the EAT identified a two-stage approach to the burden of proof: (a)

Has the claimant proved facts from which inferences could be drawn that the respondents have treated the claimant less favourably on the grounds of the protected characteristic? (b) If so, can the respondent discharge the burden with a non-discriminatory explanation?74 15.44 Examples of the types of inference which could cause the burden of proof to shift were provided in the Barton decision, and included evasive answers on a discrimination questionnaire (see 15.197–15.198 below), overtly discriminatory conduct or comments, and a breach of a relevant code of practice.75 15.45 In order to discharge the burden of proof, the respondent will need to provide a non-discriminatory reason for the conduct. Barton sets out that, in order

70 71 72 73 74 75

ACAS – Early Conciliation (see: www.acas.org.uk/early-conciliation). EqA 2010, s 136(2) and (3). EqA 2010, s 136(5) and see Explanatory notes of EqA 2010. Barton v Investec Henderson Crosthwaite Securities Limited [2003] UKEAT 18_03_0304. Barton v Investec Henderson Crosthwaite Securities Limited [2003] UKEAT 18_03_0304, at [25]. Barton v Investec Henderson Crosthwaite Securities Limited [2003] UKEAT 18_03_0304, at [25].

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to discharge that burden, it is necessary for the respondent to prove, on the balance of probabilities, that the treatment was in no sense whatsoever on the grounds of a protected characteristic, since ‘no discrimination whatsoever’ is compatible with the Burden of Proof Directive.76 If the respondent provides such an explanation, the discrimination claim will fail. The Barton guidance has been approved, but finetuned, in a number of subsequent cases including (but not limited to) Igen Ltd v Wong,77 Madarassy v Nomura International plc78 and Hewage v Grampian Health Board.79 All these cases (other than Hewage) were decided under the predecessor legislation to the EqA 2010. 15.46 In Efobi v Royal Mail Group Ltd,80 the Employment Appeal Tribunal held that s 136 of the EqA 2010 had altered the position and that s 136(2) does not place any burden on a claimant to prove anything,81 but that view was rejected by the Court of Appeal in Ayodele v Citylink Ltd,82 in which the Court held that previous decisions such as Igen, as approved by the Supreme Court in Hewage, remained good law.83 Notwithstanding the Ayodele decision, it remains the case that there is some flexibility in respect of the two-stage approach, as evidenced by the Supreme Court’s observation in Hewage v Grampian Health Board84 that it is important not to make too much of the role of the burden of proof provisions. They will require careful attention where there is room for doubt as to the facts necessary to establish discrimination, but they have nothing to offer where the tribunal is in a position to make positive findings on the evidence one way or the other.85

REMEDIES 15.47 Section 124 of the EqA 2010 sets out the different remedies that an Employment Tribunal can award to a successful claimant in a discrimination claim. The Employment Tribunal may: ‘(a) make a declaration as to the rights of the complainant and the respondent in relation to the matters to which the proceedings relate; (b) order the respondent to pay compensation to the complainant; (c) make an appropriate recommendation.’86

76 77 78 79 80 81 82 83 84 85 86

Barton v Investec Henderson Crosthwaite Securities Limited [2003] UKEAT 18_03_0304, at [25(10)]. [2005] EWCA Civ 142. [2007] ICR 867. [2012] UKSC 37. [2017] UKEAT 0203/16/DA. The EAT decision was later overturned by the Court of Appeal in Royal Mail Group Ltd v Efobi [2019] EWCA Civ 18. The Supreme Court has given permission for Mr Efobi to appeal. [2017] EWCA Civ 1913. Ayodele v Citylink Ltd [2017] EWCA Civ 1913, at [87]–[106]; and see 15.46. [2012] UKSC 37. Hewage v Grampian Health Board [2012] UKSC 37, at [32]. EqA 2010, s 124(2).

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Declaration 15.48 A declaration is effectively a statement which acknowledges that an act of discrimination occurred. It is rare that there will be a stand-alone declaration in a discrimination case, without other remedies also being awarded. However, a declaration may be helpful to a successful LLP member who has suffered discrimination and may assist them in the job market.

Compensation 15.49 There is no cap placed on compensation awarded under the EqA 2010 in relation to discrimination claims. Section 124(6) of the EqA 2010 states that the Employment Tribunal should take into account the amount which could be awarded by the County Court under s 119 of the EqA 2010. Employment Tribunals need to apply tortious principles when deciding on the amount of compensation to be awarded. Practically, this means that an LLP member should be put in the position he would have been in if the discriminatory act or acts had not taken place. The award is predominantly to reflect the financial loss that the discriminatory conduct caused (and there needs to be a causal link between the discrimination and the loss). Compensation can be ordered by the Employment Tribunal to be paid to a successful LLP member by the LLP itself and, if applicable, other individual members or agents of the LLP.87 15.50 An LLP member would need to show loss of profit share and any other benefits as a result of the discriminatory conduct. Financial loss can be current and future. The LLP member will be expected to provide evidence of his losses to the date of the hearing and also his projected losses (subject to a duty to mitigate, as set out below). It is not uncommon (with high-value claims) for a job market expert to provide evidence as to how long it would take the LLP member to secure a comparable future role and the likely terms of that new position.

Duty to mitigate 15.51 In assessing loss, the Employment Tribunal considers whether the LLP member has complied with the obligation to mitigate his losses. The duty to mitigate follows principles arising from the common law duty to take reasonable steps to mitigate loss. Case law has determined that a claimant needs to make ‘reasonable efforts’ to mitigate his loss, which may require him, after time, to lower his sights in terms of job expectation. It will be expected that an LLP member who remains out of work will sign on with appropriate recruitment agents, apply for suitable positions and provide evidence of steps taken to mitigate his loss. Although the burden is on the LLP to show that the LLP member has failed to mitigate his loss, an LLP member needs to address and evidence what, if any, of these steps have been taken.

87

EqA 2010, s 110.

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Recommendation 15.52 The third type of remedy available to the Employment Tribunal under the EqA 2010 is the making of a recommendation. In effect, an appropriate recommendation is one that states that, within a specified period, the LLP should take specific steps to remove or minimise the adverse effect, of any matter to which the proceedings relate, on the LLP member or on any other person.88 Since 1 October 2015, when the Deregulation Act 2015 came into force, the Employment Tribunal has been unable to make recommendations that apply to the workforce in general. The breadth of the recommendation will be limited to making changes which assist a claimant only.89

Injury to feelings 15.53 In discrimination law, there is also a separate potential award for injury to feelings.90 This is for non-pecuniary loss to reflect the damage to a claimant’s feelings and the suffering he has endured. There is no formal limit on the amount to be awarded, but the case of Vento v Chief Constable of West Yorkshire Police91 provides guidance to the Employment Tribunal in terms of bands of awards; subsequent cases have increased these amounts.92 Since 5 September 2017, the Vento93 bands have been increased each year in line with inflation pursuant to guidance jointly published by the President of the Employment Tribunals (England and Wales) and the President of the Employment Tribunals (Scotland).94 The Court of Appeal also held in De Souza95 that the 10 per cent uplift applied to general damages in civil cases since April 201396 should similarly apply to Employment Tribunal awards in respect of non-pecuniary losses. In certain cases, it may also be appropriate for the Employment Tribunal to make a separate award for personal injury damages occasioned by the discrimination, such as psychiatric injury.97 15.54 Other awards available include aggravated damages (usually awarded to compensate the claimant as part of an injury to feelings award, but in practice accounted for as a separate head of loss) and, in rare cases, exemplary damages. Exemplary damages are awarded to punish the respondent and can be awarded in a discrimination claim where there has been oppressive, arbitrary or unconstitutional action by the servants of the government (or powers analogous to government

88

EqA 2010, s 124(3). Deregulation Act 2015, s 2 amending EqA 2010, s 124. 90 EqA 2010, s 124(2). 91 [2002] EWCA Civ 1871. 92 See Da’Bell v NSPCC UKEAT/0227/09. 93 Vento v Chief Constable of West Yorkshire Police [2002] EWCA Civ 1871. 94 See: www.judiciary.uk/wp-content/uploads/2015/03/vento-bands-presidential-guidance-20170905. pdf; and the fourth addendum applicable as at the date of writing: https://www.judiciary.uk/ wp-content/uploads/2013/08/Vento-bands-presidential-guidance-April-2021-addendum-1.pdf. 95 Eurides Pereira De Souza v Vinci Construction (UK) Ltd [2017] EWCA Civ 879, at [25]–[35]. 96 Pursuant to the Court of Appeal decision in Simmons v Castle [2012] EWCA Civ 1039. 97 Sheriff v Klyne Tugs (Lowestoft) Ltd [1999] IRLR 481. 89

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functions)98 or where the defendant’s conduct has been calculated to make a profit for themselves, which might well exceed the compensation payable to a claimant.99

EMPLOYMENT TRIBUNAL JURISDICTION AND ARBITRATION PROVISIONS IN AN LLP AGREEMENT – WHICH PREVAILS? 15.55 Many LLP agreements (particularly in the professional services sector) contain a compulsory arbitration clause, requiring that all disputes relating in any way to the LLP or its business must be pursued through confidential binding arbitration. One of the aims of such a clause is to keep a dispute between the LLP and any of its members private and confidential. However, the effectiveness of such clauses is limited by the statutory provisions of s 203 of the ERA 1996 and s 144 of the EqA 2010. 15.56 Section 203(1) of the ERA 1996 provides that a provision in an agreement is void if it tries to exclude or limit the operation of any provision of the ERA 1996, or prevents a person from bringing proceedings under the ERA 1996 before an Employment Tribunal (whistleblowing claims are brought under the ERA 1996 – see 15.159–15.175 below). Exceptions to this include (but are not limited to) where: a conciliation officer has taken action under s 18 of the Employment Tribunals Act 1996; there is a qualifying settlement agreement in place; or the parties have submitted to arbitration under an ACAS arbitration scheme.100 15.57 Section 144 of the EqA 2010 states that a term of a contract is unenforceable by a person in whose favour it would operate, insofar as it purports to exclude or limit a provision made under the EqA 2010 (discrimination claims are brought under the EqA 2010, as mentioned above). However, there are some exceptions which include (but are not limited to) where a contract which settles an Employment Tribunal claim has been made with the assistance of a conciliation officer, or where there is a qualifying settlement agreement.101 The exclusions also include where the parties submit to arbitration under an ACAS arbitration scheme.102 15.58 The issue of the enforceability of an arbitration agreement was considered in Clyde & Co LLP v Bates van Winkelhof.103 The LLP agreement contained a dispute resolution clause, which stated that members (including ‘outgoing members’, ie those who ceased to be a member for whatever reason) should, if the LLP’s management board failed to resolve the dispute, pursue their claims through arbitration. Ms Winkelhof – who claimed she had been discriminated against on the grounds of her sex and/or pregnancy (under the EqA 2010), as well as subjected to whistleblowing detriments (under the ERA 1996) – argued that the LLP’s dispute

98 99 100 101 102 103

Michalak v Mid Yorkshire Hospitals NHS Trust & Others 1810815/2008. Rookes v Barnard [1964] AC 1129. ERA 1996, s 203(2) and (5). EqA 2010, s 144(4). EqA 2010, s 144(6). [2011] EWHC 668 (QB).

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resolution clause was a breach of her mandatory rights under UK and EU law. The High Court agreed. Even a requirement to ‘stay’ her proceedings pending the outcome of the arbitration was judged to limit her ability to pursue her claims. The court found that merely stopping proceedings, or preventing them from continuing, falls within the statutory language. None of the contracting-out circumstances, as set out above, applied and, as such, the clause in the LLP agreement was deemed void. The drafting was absolute, and it was not possible to blue pencil the agreement in order to leave parts of the clause standing.

COMMON DISCRIMINATION ISSUES RELATING TO LLP MEMBERS 15.59 LLP members are protected from unlawful discrimination in respect of the nine protected characteristics outlined in 15.4, but there are some areas of unlawful discrimination that tend to arise more frequently in relation to LLPs and these are examined further below.

Sexual harassment and bullying Background 15.60 The #MeToo movement,104 which saw individuals speaking out about sexual assault and harassment, including in the workplace, brought sexual harassment and bullying issues within LLPs into sharp focus. As a result, sexual harassment issues have also come under greater regulatory scrutiny, with professional regulators105 taking a specific interest in sexual harassment allegations against their regulated members (which often include LLP members) and how those complaints are dealt with by regulated entities (including LLPs).

104

The catalyst for the #MeToo movement was the sexual harassment allegations which emerged against the film producer Harvey Weinstein in October 2017. 105 For example, the Solicitors Regulation Authority (SRA) and Financial Conduct Authority (FCA). See the SRA Upholding Professional Standards Report 2017/2018 (www.sra.org.uk/globalassets/ documents/19-07-25-Upholding-Professional-Standards-report-2017-18.pdf?version=49659f) where the SRA identified concerns around sexual harassment as a key theme. It reported that it had received 70 complaints between November 2017 and October 2018 about harassment in the workplace and had taken action to put in place a dedicated team to investigate workplace harassment concerns; 8% of the cases dealt with by the Solicitors Disciplinary Tribunal in 2019 involved sexual misconduct, see the Solicitors Disciplinary Tribunal Annual Report 2019 (www.solicitorstribunal.org.uk/sites/default/files-sdt/SDT%20Annual%20Report%20for%202019_ 1.pdf). According to a report in the Law Society Gazette dated 22 June 2020 (www. lawgazette.co.uk/news/sra-assesses-claims-of-sexual-misconduct-in-117-cases/5104712. article#:~:text=The%20Solicitors%20Regulation%20Authority%20is,36%20new%20incidents%20 since%20November), the SRA was at that time stated to be investigating 117 cases of alleged sexual misconduct in law firms. The FCA’s Executive Director of Supervision published a letter dated 28 September 2018 to the House of Commons’ Women and Equalities Committee stating that the FCA views sexual harassment as misconduct that falls within the scope of its regulatory framework and it is a matter that they are increasingly discussing with firms (www.fca.org.uk/ publication/correspondence/wec-letter.pdf).

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Relevant claims and liability 15.61 Allegations of unlawful harassment and bullying in LLPs and against LLP members mainly engage the discrimination, harassment and victimisation protections available under EqA 2010. In some cases, whistleblowing protections may also apply if an LLP member makes a protected disclosure relating to alleged wrongdoing and is subjected to a detriment, such as harassment and bullying, as a result of having made that disclosure.106 It is also possible for unlawful harassment to give rise to potential claims for civil and criminal harassment under the Protection from Harassment Act 1997, as well as other criminal107 and regulatory108 consequences, depending on the type of allegations made. Exploration of these potential liabilities is outside the scope of this chapter, and our consideration below, unless stated otherwise, relates to claims under the EqA 2010 and ERA 1996 where relevant. 15.62 Bullying and harassment are often conflated terms; however, there is currently no statutory definition of bullying that applies to LLP members or, indeed, to any employees or workers under English law.109 An LLP member may, however, be subject to an anti-bullying policy operated by the LLP, which sets out expected standards of behaviour within the LLP and deems any breach a disciplinary misconduct matter which could lead to expulsion, or other sanction, from the firm.110 15.63 Bullying or harassment is actionable by an LLP member under the EqA 2010 if it is related to a relevant protected characteristic (including sex) or is unwanted conduct of a sexual nature. Where harassment is because of the protected characteristic of sex (gender), it is known as harassment related to sex.111 Under the EqA 2010, where harassment is unwanted conduct of a sexual nature, it is categorised as sexual harassment.112 Both forms of harassment require the alleged perpetrator to have engaged in unwanted conduct which has the purpose or effect of (i) violating the complainant’s dignity, or (ii) creating an intimidating, hostile, degrading, humiliating or offensive environment for them. This is discussed further at 15.66–15.69 below.

106

For more on whistleblowing, see 15.159–15.175. Including, but not limited to, criminal offences concerning sexual assault, offensive communication, indecent exposure, and stalking. 108 For example, if the conduct is deemed to be a breach of professional codes of conduct or standards of behaviour to which the LLP member is subject. 109 However, a definition often cited in the employee context is contained in the ACAS Bullying and Harassment at Work Guide for Managers and Employees dated June 2014 (https://archive.acas. org.uk/media/306/Advice-leaflet---Bullying-and-harassment-at-work-a-guide-for-employees/pdf/ Bullying-and-harassment-at-work-a-guide-for-employees.pdf), which defines bullying as including ‘offensive, intimidating, malicious or insulting behaviour, an abuse or misuse of power through means intended to undermine, humiliate, denigrate or injure the recipient’. Examples given in the Guide include: spreading malicious rumours, picking on someone or setting them up to fail, exclusion, overbearing supervision or other misuse of power or position, making unfounded threats about job security, deliberately undermining a competent worker by overloading and constant criticism, and intentionally preventing promotion progression. 110 See 19.12 for discussion on exercising powers of expulsion. 111 EqA 2010, s 26(1). 112 EqA 2010, s 26(2). 107

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15.64 Other relevant claims under the EqA 2010 that an LLP member may typically seek to bring include: less favourable treatment for rejecting or submitting to harassment;113 and victimisation114 for any detriment they suffer because they have raised complaints, provided evidence or information or brought Employment Tribunal proceedings concerning sex-related or sexual harassment, or have done anything else in relation to the EqA 2010 (or that they may do so). 15.65 Both the LLP as an entity and individual LLP members in their personal capacity may be held liable for harassment or victimisation under the EqA 2010.115 The LLP can also be held vicariously liable for harassment or victimisation committed by its LLP members, unless the LLP can show that it took all reasonable steps to prevent the behaviour (known as the ‘reasonable steps’ defence).116 See 15.70 for suggested preventative steps that may potentially support an LLP’s reliance on the reasonable steps defence.

Sex-related or sexual harassment key principles – unwanted conduct 15.66 The Equality and Human Rights Commission’s (‘EHRC’) Technical Guidance to Sexual Harassment and Harassment at Work states that the word ‘unwanted’ means essentially the same as ‘unwelcome’ or ‘uninvited’ and the complainant need not express their objection117 for the conduct to be deemed unwanted.118 It can encompass a wide range of behaviour, including but not limited to spoken or written words or abuse, imagery, graffiti, physical gestures, facial expressions, mimicry, jokes, pranks, acts affecting a person’s surroundings or other physical behaviour.119 Further, the fact that the complainant may have joined in with or initiated similar behaviour is not a bar to a finding of harassment under the EqA 2010 (although it may be a relevant consideration).120 15.67 Any sex-related or sexual harassment need not be directed at the complainant. It may be directed at another person or no one at all, and there is no requirement for the complainant to be of the opposite sex to the alleged perpetrator.121 113

EqA 2010, s 26(3)(c). 15.21. 115 See 15.10. 116 EqA 2010, s 109. 117 See Insitu Cleaning Co v Heads [1995] IRLR 4, where the EAT rejected an employer’s argument that a man could not know whether his conduct was unwanted until it had been rejected. It said that would-be harassers cannot be allowed to ‘test the water’ with impunity to see whether their conduct was objectionable to potential victims if their conduct is serious enough to reasonably be considered as harassment. 118 EHRC, Technical Guidance to Sexual Harassment and Harassment at Work, at para 7.8 (www. equalityhumanrights.com/sites/default/files/sexual_harassment_and_harassment_at_work.pdf). It provides guidance to the law and best practice in tackling harassment but is not, as at the date of writing, a statutory code which an Employment Tribunal is required to take into account. It can nonetheless be used as evidence in proceedings by the Employment Tribunal. 119 Ibid. 120 See, for example, Munchkins Restaurant Ltd and another v Karmazyn and others UKEAT/0359/09, in which young female waiting staff participated in banter with the older, male proprietor as a coping strategy. The conduct was still found to be unwanted. By comparison, see Evans v Xactly Corporation Ltd UKEAT/0128/18 in which offensive comments were found not to be unwanted because the claimant actively participated in what the Tribunal found to be a ‘banter culture’. 121 Equality and Human Rights Commission (EHRC), Technical Guidance to Sexual Harassment and Harassment at Work, paras 2.15–2.18 and 2.21. 114 See

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Sexual harassment key principles – purpose or effect 15.68 For sex-related or sexual harassment to be made out, the alleged conduct must have had either the purpose or the effect of violating the complainant’s dignity or of creating an intimidating, hostile, degrading, humiliating or offensive environment for the complainant.122 In determining whether the second (that is, ‘effect’) test is met, each of the following must be taken into account: (a) the complainant’s perception; (b) the other circumstances of the case; and (c) whether it is reasonable for the conduct to have that effect.123 15.69 The ‘effect’ test is assessed from the complainant’s subjective viewpoint, and it does not matter whether or not it was the alleged perpetrator’s intention to create the proscribed environment; but there is also an objective element to the test, in that an Employment Tribunal will consider whether it was reasonable for the conduct to have had the complained-of effect.

Responding to allegations 15.70 It is best practice for an LLP124 to have a framework of policies applicable to LLP members, aimed at preventing and responding to complaints of harassment and bullying.125 Whilst the authors have seen an increase in LLP member-specific policies, many professional sector LLPs still lack this infrastructure, with appropriate supporting training, monitoring and enforcement. An effective anti-harassment and bullying policy should: include details of LLP member behaviour which is regarded as unacceptable; include information about how to make a complaint in respect of harassment and bullying; include a range of informal and formal approaches for dealing with complaints depending on their nature and (as far as reasonably possible and subject to legal and regulatory obligations) guided by the preference of the complainant; state clearly that victimisation of any kind will not be tolerated; and set out the range of potential consequences, including disciplinary action up to and including expulsion, for any breach by LLP members of the anti-harassment and bullying policy. That policy should be supported by related duties and powers contained in the LLP agreement, including without limitation an express power of suspension, and the ability to impose a range of financial and other sanctions for breaches, up to and including expulsion.126

Grievance and disciplinary processes 15.71 Whilst the ACAS Code of Practice on Disciplinary and Grievance Procedures (‘ACAS Code’)127 does not apply to LLP members, it provides useful

122

EqA 2010, s 26(1). EqA 2010, s 26(4)(a)–(c). 124 See fn 118, at para 5.34. 125 It is recommended by the EHRC that individual policies be established for different types of harassment – see fn 118, at para 5.4. 126 Ibid. 127 ACAS Code of Practice on disciplinary and grievance procedures, 11 March 2015 (https://archive. acas.org.uk/media/1047/Acas-Code-of-Practice-on-Discipline-and-Grievance/pdf/Acas_Code_of_ Practice_on_Discipline_and_Grievance.PDF). 123

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guidance for due process in this area.128 The authors suggest that, in appropriate cases, adopting the principles of the ACAS Code into grievance, disciplinary and other policies and processes which are LLP member specific or applicable, will support the LLP to: (i) ensure consistent, fair and transparent handling between LLP members; (ii) reduce the risk of related discrimination and whistleblowing detriment claims; and (iii) support the discharge of any duty of good faith that may be owed by the LLP to the LLP member to the extent that it may apply to the exercise of decisionmaking powers which may affect an LLP member’s rights and interests.129 15.72 Some key principles from the ACAS Code that an LLP may consider incorporating, as part of its formal response to harassment and bullying allegations, include: carrying out a formal thorough investigation (by an independent external or internal investigator); holding a separate formal grievance meeting; allowing the complainant to make representations before any decisions are made in respect of their grievance; allowing the complainant to be accompanied to a grievance meeting130 (LLPs are obliged to afford to LLP members, as workers, the right to be accompanied by a colleague or trade union representative at a grievance or disciplinary meeting in any event);131 decide on appropriate action in respect of the complainant’s grievance;132 and potentially provide the complainant with a right to appeal. The specific approach approved will always need to be reasonable and justified, based on the circumstances, size and resources of the LLP; and the LLP should also consider the EHRC Technical Guidance to Sexual Harassment and Harassment at Work in this regard.133 15.73 During an investigation, the LLP should ensure that the complaint is kept confidential by all parties involved, including witnesses (subject to any legal and regulatory obligations and limitations), and participants should be notified, where appropriate, that breach of confidentiality may amount to a disciplinary offence.134 Participants, including the alleged harasser, should be warned that any form of victimisation or retaliation against the complainant, witnesses or any others involved in the process will also amount to a disciplinary offence. 15.74 Further steps which may be taken by an LLP following the outcome of (or alongside) an investigation and grievance process include (without limitation): a disciplinary process and, where appropriate, proportionate disciplinary sanctions against the LLP member; arranging the appropriate support and counselling for the parties; arranging mediation for the parties to the extent that this is appropriate to the particular circumstances; and making an offer of redeployment, if feasible, where

128

The relevant guidance in respect of grievances in the ACAS Code should, in any event, be followed in respect of employee harassment and bullying allegations against an LLP member. 129 See 17.26–17.39. 130 Employment Relations Act 1999, s 10. 131 See 15.189. 132 Note that a regulated professional service LLP may have an obligation to report to its relevant regulatory body should any conduct related to harassment or bullying be found. However, consideration of the scope and applicability of such obligations is beyond the scope of this chapter. 133 See fn 118. 134 See fn 118, at paras 5.47–5.48.

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any relationship breakdown cannot be resolved through other means (although careful consideration will be required to ensure that this does not amount to unlawful victimisation of the complainant).135

Dealing with an accused LLP member 15.75 If an LLP’s internal investigation concludes that there is evidence to support the complainant’s allegations of harassment and bullying, the LLP will normally commence disciplinary proceedings against the LLP member accused, having regard to the LLP’s applicable policies and relevant provisions in their LLP members agreement. It would be advisable for procedural safeguards similar to those discussed at 15.70–15.72 to be considered in these circumstances. 15.76 An LLP may wish to consider suspending an LLP member during the investigation into the alleged misconduct or a subsequent disciplinary process. In many cases, the member concerned may be willing to consent to the suspension, but there is no inherent right to suspend and (in the absence of agreement) an LLP could only validly suspend where there is express or implied power to do so in the LLP agreement.136

Age discrimination 15.77 Age discrimination against LLP members is prohibited by the EqA 2010. Exceptionally for discrimination claims, direct age discrimination can be justified if the treatment is shown to be ‘a proportionate means of achieving a legitimate aim’,137 which is a two-step process of (1) identifying a legitimate aim; and (2) establishing that the means used to achieve the aim are both appropriate and (reasonably) necessary to achieve it.138 The same wording is used in the EqA 2010 in respect of justifying indirect age discrimination.139 However, following applicable European jurisprudence, different justification tests apply depending on whether the discriminatory treatment is direct or indirect.140 15.78 In the context of direct age discrimination claims, a number of legitimate aims have been recognised by the European Court of Justice; some of these aims (along with the European cases in which they were referred to) were helpfully outlined at paragraph 50(4) in the Supreme Court’s decision in Seldon v Clarkson Wright & Jakes (which is discussed further in 15.88–15.91 below): (a) promoting access to employment for younger people;141 (b) the efficient planning of the departure and recruitment of staff;142 135

See fn 118, at para 5.70. 17.3. EqA 2010, s 13(2). Seldon v Clarkson Wright and Jakes [2012] UKSC 16, [2012] IRLR 590, at [55]. EqA 2010, s 19(2)(d). Seldon v Clarkson Wright and Jakes [2012] UKSC 16, [2012] IRLR 590, at [50(7)], [51] and [52]. Félix Palacios de la Villa v Cortefiel Servicios SA, Case C-411/05, [2009] ICR 1111, David Hütter v Technische Universität Graz, Case C-88/08 [2009] All ER (EC) 1129 and Kücükdeveci v Swedex GmbH & Co KG, Case C-555/07, [2011] 2 CMLR 703, [2010] IRLR 346. Fuchs and another v Land Hessen, Joined Cases C-159/10 and C-160/10, [2011] IRLR 1043.

136 See 137 138 139 140 141

142

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(c) sharing out employment opportunities fairly between the generations;143 (d) ensuring a mix of generations of staff so as to promote the exchange of experience and new ideas;144 (e) rewarding experience;145 (f) cushioning the blow for long-serving employees who may find it hard to find new employment if dismissed;146 (g) facilitating the participation of older workers in the workforce;147 (h) avoiding the need to dismiss employees on the ground that they are no longer capable of doing the job which may be humiliating for the employee concerned;148 or (i) avoiding disputes about the employee’s fitness for work over a certain age.149 15.79 The measure used (eg the retirement age) to achieve the legitimate aim must also be appropriate and necessary in order to do so.150 15.80 In the context of professional practice LLPs, age discrimination issues often arise in the following scenarios: (a) mandatory retirement ages; (b) lockstep remuneration arrangements; and (c) the appointment or promotion of individuals to LLP membership being subject to (amongst other factors) the candidate possessing a minimum level of postqualification experience, thereby potentially discriminating indirectly against younger candidates. 15.81

These potential age discrimination issues are considered further below.

Mandatory retirement ages Seldon v Clarkson Wright & Jakes 15.82 The key case on partnerships and mandatory retirement ages is Seldon v Clarkson Wright & Jakes (‘CWJ’). The respondent firm, CWJ, was a regional firm of solicitors with a traditional inheritance-type practice. Whilst CWJ was a general

143

144

145 146 147 148 149 150

Petersen v Berufungsausschuss für Zahnärzte für den Bezirk Westfalen-Lippe, Case C-341/08, [2010] IRLR 254, Rosenbladt v Oellerking GmbH, Case C-45/09, [2012] All ER (EC) 288, Fuchs and another v Land Hessen, Joined Cases C-159/10 and C-160/10, [2011] IRLR 1043. Georgiev v Technicheski Universitet Sofia, Filial Plovdiv, Joined Cases C-250/09 & C-268/09 [2012] All ER (EC) 840, Fuchs and another v Land Hessen, Joined Cases C-159/10 and C-160/10, [2011] IRLR 1043. David Hütter v Technische Universität Graz, Case C-88/08 [2009] All ER (EC) 1129, Hennigs v Eisenbahn-Bundesamt; Land Berlin v Mai, Joined Cases C-297/10 and C-298/10, [2012] IRLR 83. Ingeniørforeningen i Danmark v Region Syddanmark, Case C-499/08 [2011], [2010] All ER (D) 99 (Oct). Fuchs and another v Land Hessen, Joined Cases C-159/10 and C-160/10, [2011] IRLR 1043, Mangold v Helm, Case C-144/04 [2006] 1 CMLR 1132. Rosenbladt v Oellerking GmbH, Case C-45/09, [2012 All ER (EC) 288. Fuchs and another v Land Hessen, Joined Cases C-159/10 and C-160/10, [2011] IRLR 1043. Seldon v Clarkson Wright and Jakes [2012] UKSC 16, [2012] IRLR 590, at [62].

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partnership under the Partnership Act 1890, the case is relevant to professional practice LLPs. 15.83 The facts of the case occurred prior to the introduction of the EqA 2010, when the Employment Equality (Age) Regulations 2006151 (the ‘Age Regulations’) were still in force. Regulation 30 of the Age Regulations provided for a retirement age of 65 for employees. This mandatory retirement age provision (which was phased out in 2011 and eventually abolished) never applied to LLP members or partners in a general partnership, so any mandatory retirement age had to be objectively justified by the firm.

Factual background 15.84 Mr Seldon was an equity partner in CWJ. He was compulsorily retired on 31 December 2006, the end of the year in which he reached 65 (as provided for by the partnership deed). It was of note that the partnership deed did not contain a power to expel a partner for underperformance or a performance management procedure152 (although CWJ was not seeking to justify Mr Seldon’s retirement on the ground of poor performance).153 Mr Seldon wished to continue working for CWJ after his retirement. His proposal that he become a consultant or salaried employee was rejected on the grounds that there was not a sufficient business case.154 He issued Employment Tribunal proceedings complaining that, contrary to the Age Regulations, (1) he had been directly discriminated against on grounds of age, and (2) he had been victimised in respect of the withdrawal of an ex-gratia offer that he be paid £30,000 upon retirement.155

Employment Tribunal (2007) 15.85 The Employment Tribunal dismissed the direct age discrimination claim. It held that the compulsory retirement provision was a proportionate means of achieving the following three legitimate aims: (a) ‘to ensure that associates are given the opportunity of partnership after a reasonable period as an associate and thereby ensuring that associates do not leave the firm’156 (the retention aim); (b) ‘to facilitate the planning of the partnership and workforce across the individual departments by having a realistic long term expectation as to when vacancies will arise’157 (the planning aim); and (c) ‘to limit the need to expel partners by way of performance management thus contributing to the congenial and supportive culture in the firm’158 (the collegiality aim).

151 152 153 154 155 156 157 158

SI 2006/1031. Seldon v Clarkson Wright & Jakes 1100275/2007/EB, at [19.5]. Seldon v Clarkson Wright & Jakes 1100275/2007/EB, at [12]. Seldon v Clarkson Wright & Jakes [2012] UKSC 16, at [8]. Seldon v Clarkson Wright & Jakes 1100275/2007/EB, at [1]. Seldon v Clarkson Wright & Jakes 1100275/2007/EB, at [51]. Seldon v Clarkson Wright & Jakes 1100275/2007/EB, at [53]. Seldon v Clarkson Wright & Jakes 1100275/2007/EB, at [54].

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15.86 The Employment Tribunal considered whether the compulsory retirement provision achieved the legitimate aims, which it considered that it did. For example, in respect of the collegiality aim, the ‘compulsory retirement age avoided the need to subject an underperforming partner who was approaching the age of 65 either to performance management leading to expulsion or to a confrontation …’.159 Therefore, although Mr Seldon suffered less favourable treatment as a direct consequence of his age, the Employment Tribunal held that the compulsory retirement age was justified (although Mr Seldon’s claim in respect of victimisation succeeded). Mr Seldon appealed.

Employment Appeal Tribunal (2008) 15.87 In 2008, the Employment Appeal Tribunal dismissed all grounds of appeal with the exception of one: the assumption that performance dropped off at 65 had no evidential support and involved stereotyping. The Employment Appeal Tribunal remitted the case to the same Employment Tribunal to address this question afresh. Mr Seldon appealed to the Court of Appeal and thereafter to the Supreme Court.

Court of Appeal and Supreme Court decisions (2010 and 2012) 15.88 The Court of Appeal and the Supreme Court considered similar issues and dismissed Mr Seldon’s appeal on both occasions. The three issues before the Supreme Court were: ‘(1) whether any or all of the three aims of the retirement clause identified by the Employment Tribunal were capable of being legitimate aims for the purpose of justifying direct age discrimination; (2) whether the firm has not only to justify the retirement clause generally but also their application of it in the individual case; and (3) whether the Employment Tribunal was right to conclude that relying on the clause in this case was a proportionate means of achieving any or all of the identified aims.’160

15.89 The Supreme Court held that the first two aims (retention and planning) were both directly related to the legitimate social policy aim of sharing out professional employment opportunities fairly between the generations (which had been recognised in previous European jurisprudence); and the collegiality aim limited the need to expel partners by way of performance management, which was directly related to the ‘dignity’ aims accepted by European case law. On this basis, the Supreme Court accepted the identified aims as legitimate. 15.90 The Supreme Court held that the justification tests for direct and indirect age discrimination were not identical. Direct age discrimination could only be justified by reference to those aims of the measure which are social policy objectives (which are of a public interest nature) and not relating to individual reasons of the employer’s situation. Nevertheless, the aims identified remained legitimate.

159 160

Seldon v Clarkson Wright & Jakes 1100275/2007/EB, at [59.8]. Seldon v Clarkson Wright & Jakes [2012] UKSC 16, at [14].

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15.91 The Supreme Court remitted the case to the original Employment Tribunal to determine whether the age of 65 was proportionate, ie both appropriate and (reasonably) necessary to achieve those aims and, in particular, whether 65 was an appropriate means of achieving the third aim or whether the first two aims were sufficient by themselves. The Supreme Court emphasised the importance of the Employment Tribunal considering this question as the law stood in 2006, when there was a designated retirement age of 65 for employees,161 and not as the law stood in 2012 (in light of the abolition of the mandatory retirement age for employees).

Employment Tribunal (second round) (2013) 15.92 The Employment Tribunal, on determining the remitted case, considered that the mandatory retirement age of 65 was an appropriate and reasonably necessary (ie proportionate) means of achieving the two legitimate aims of retention and planning. 15.93 Mr Seldon appealed again to the Employment Appeal Tribunal, chiefly on the ground that, if CWJ’s aims could have been achieved by a retirement age of 66, as suggested by the Employment Tribunal, the retirement age of 65 could not be justified.

Employment Appeal Tribunal (second round) (2014) 15.94 The Employment Appeal Tribunal upheld the Employment Tribunal’s decision and held that the Employment Tribunal had been entitled to conclude that 65 was an appropriate retirement age, noting that its statement of the law was ‘impeccable’. 15.95 With regard to Mr Seldon’s principal appeal ground, the Employment Appeal Tribunal noted that the fact that the Employment Tribunal may have identified a different date within the same age range did not mean that there had been an error of law. It was for the court to determine ‘where a balance lies: the balance between the discriminatory effect of choosing a particular age … and its success in achieving the aim held to be legitimate’.162 A date had to be chosen, and a particular date may not be any more or less appropriate than another point in time; this was the reality of setting a ‘bright line date’.

The effect of Seldon 15.96 The various decisions in Seldon do not have the effect that a retirement age of 65 will always be regarded by the courts as proportionate, nor indeed that it is necessarily proportionate to have a mandatory retirement age at all. The decisions in Seldon were based on the facts of that particular case, including the traditional inheritance-type nature of the CWJ practice and the fact that the statutory default retirement age was still in place in respect of employees at the relevant time.

161 162

Seldon v Clarkson Wright & Jakes [2012] UKSC 16, at [68]. Seldon v Clarkson Wright & Jakes UKEAT/0434/13/RN, at [27].

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Whether or not a court will find a retirement age proportionate will depend on the LLP being able to establish (with evidence) in the particular circumstances: (a) legitimate social policy aim(s) which the LLP is pursuing and which the retirement age progresses, such as workforce planning, staff retention, intergenerational fairness and dignity; (b) that the provision is a proportionate (ie an appropriate and (reasonably) necessary) means of achieving those aims, having regard to the reasonable needs, working practices and business considerations of the LLP at the relevant time; (c) that it balances the needs of the LLP, and of the older and younger members of the workforce; and (d) that there is no less discriminatory means of achieving the LLP’s legitimate aims (see 15.99–15.101 below as to what might amount to alternatives to a mandatory retirement age). 15.97 If a mandatory retirement clause in an LLP agreement is agreed by all the members, that may assist firms in reducing the risk of successful related age discrimination claims by the LLP members, but the Employment Tribunal in Seldon was explicit that consent was not determinative. 15.98 Any mandatory retirement age chosen by an LLP will need to be kept under regular review to ensure that the specific age chosen remains justifiable by the LLP, and factors including increases to the state retirement age are likely to be relevant to whether it remains justifiable. The LLP will need to ensure that there is supporting evidence to back up this justification. The LLP will not simply be able to rely on the fact that a chosen age is an historical arrangement and that it has always been this way.163

Alternatives to a mandatory retirement age 15.99 If the members of an LLP choose not to have a mandatory retirement age, consideration will need to be given as to how effectively to manage the retirement of older members who may no longer be performing in line with the requirements of the LLP. These alternatives could include: (a)

maintaining and consistently applying an up-to-date performance management policy for all members, and managing out of the equity those LLP members who fall below LLP equity member expectations, regardless of age or length of service of an LLP member; (b) having clear and regularly updated communication of performance expectations and targets to all LLP members; (c) conducting regular LLP member performance appraisals (ensuring performance monitoring is carried out across all age groups of members – there should not be a particular focus on the performance of older members); and (d) considering the use of memberships of a fixed tenure of, say, 20 years’ equity membership, so vacancies can be created (although there may still remain the

163

As to the time limit for commencing an Employment Tribunal claim in cases involving mandatory retirement dates, see Parr v Moore Stephens LLP 2200196/2019 and 2200243/2019.

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risk of an indirect age discrimination claim, albeit one that is potentially easier to justify than a direct age discrimination claim, as no social policy aim will be required). 15.100 If an LLP chooses to require a member of the LLP to cease to be a member, it should do so on the basis of a genuine non-discriminatory rationale, which is properly documented and which is the result of due process. Such a process will assist in minimising the risk of a successful discrimination claim. 15.101 Another option for LLPs is to maintain an open door policy on retirement. Such a policy should identify a range of options which the LLP may be willing to consider upon a voluntary (and confidential) application by any LLP member contemplating retirement. This might include part-time working on a phased basis, reduced responsibilities or an agreed package of support (paid for by the LLP) from career management experts to assist members to secure, for example, a portfolio of non-executive roles. Such an approach may provide some clarity for the LLP and also for the member himself or herself about the member’s plans.

Further impact of age discrimination in LLPs Lockstep profit-sharing arrangements 15.102 A lockstep profit-sharing system, which allocates to LLP members additional points in the profit share pool for every year of membership, can create indirect age discrimination risks for the LLP. Such a scheme would typically reward older LLP members (ie those who have longer service) more favourably and indirectly discriminate against younger members with less service. For age discrimination purposes, this type of scheme is governed by paragraph 10 of Schedule 9 to the EqA 2010. 15.103 When providing a different ‘benefit, facility or service’164 based on an individual’s length of service, a difference in treatment by the LLP is permitted under paragraph 10 of Schedule 9 to the EqA 2010 and will not constitute unlawful indirect age discrimination against younger LLP members, provided the length of service in question is five years or less. If an individual’s service exceeds five years, any difference in treatment relating to a benefit, facility or service may only be provided if the LLP ‘reasonably believes that doing so fulfils a business need’.165 This exception does not apply to benefits relating to the cessation of work (eg LLP member retirement payments).166 LLPs can choose to treat a period of service as either the length of time that a person has worked for the LLP at or above a particular level, or the total length of time that the person has been working for the LLP at any level.167 15.104 The EHRC Code provides examples of business needs, which ‘could include rewarding higher levels of experience, or encouraging loyalty, or increasing 164

EqA 2010, Sch 9, para 10(1). EqA 2010, Sch 9, para 10(2). 166 EqA 2010, Sch 9, para 10(7). 167 EqA 2010, Sch 9, para 10(3). 165

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or maintaining the motivation of long-serving staff’.168 The EHRC Code also states that the ‘test of “fulfilling a business need” is less onerous than the general test for objective justification for indirect discrimination’.169 15.105 An LLP’s lockstep remuneration system, even if modified, is therefore exempt if it operates a progression up the ladder of no more than five years. The system will be potentially discriminatory if the ladder operates over a period of more than five years (many professional service firms operate an eight- to ten-year progression to plateau). Such firms therefore need to be able to show that they reasonably believe that operating that longer service progression up the points ladder fulfils a business need of the LLP. They will need to review their lockstep system regularly, to ensure that there remains a business need for its use and that they have evidence that the scheme fulfils such business need. 15.106 If an LLP decides to alter its existing lockstep system, or indeed any other profit-sharing scheme which differentiates directly or indirectly between older and younger members, it will need to act judiciously. In Bloxham v Freshfields Bruckhaus Deringer,170 Freshfields reformed the partners’ pension scheme because of growing concerns relating to the perception of intergenerational unfairness inherent in the scheme.171 Amongst other concerns, Peter Bloxham complained that he had suffered less favourable treatment on the grounds of his age by virtue of certain transitional provisions relating to the reformed pension scheme. The Employment Tribunal held that, although the arrangements were (on the face of it) discriminatory, they could be justified. The reform of the pension scheme was a necessary aim and the means used were proportionate. Freshfields had made extensive efforts to consult with the partners about the proposed reforms before implementing any changes.

Appointing on the basis of post-qualification experience 15.107 If an LLP chooses to appoint or promote an individual to LLP membership, based on criteria including their level of post-qualification experience, this could potentially be indirect age discrimination, as those with more experience are likely to be older individuals. Any such practice would need to be justified for it to be lawful, namely by showing that it is a proportionate means of achieving a legitimate aim of the LLP.

Sex discrimination 15.108 LLP members have protections under the EqA 2010 not to be discriminated against because of their sex or because of their pregnancy or pregnancy-related illness. An LLP will also owe specific health and safety obligations to pregnant and

168

See www.equalityhumanrights.com/sites/default/files/documents/EqualityAct/employercode.pdf at page 195. 169 Ibid. 170 Bloxham v Freshfields Bruckhaus Deringer ET/2205086/2006. 171 Bloxham v Freshfields Bruckhaus Deringer ET/2205086/2006, at [19].

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breast-feeding LLP members, the details of which are set out primarily in health and safety legislation172 and are therefore outside the scope of this chapter. 15.109 The domestic provisions relating to sex and pregnancy discrimination which protect LLP members have their source in European law, including (but not limited to) the Equal Treatment Directive (Recast)173 and the Pregnant Workers Directive.174 These directives may be useful where domestic legislation does not appear to provide adequate rights to an LLP member.175

Pregnancy discrimination 15.110 The pregnancy discrimination protections which apply to LLP members are set out in s 18 of the EqA 2010, namely that an LLP member has the right not to be treated unfavourably in the protected period (see below) in relation to her pregnancy or because of an illness suffered by her as a result of it.176 15.111 There are two further subsections of the pregnancy and maternity provisions which the authors suggest will not apply to LLP members. These are s 18(3) and (4) of the EqA 2010, namely: ‘(3)  A person (A) discriminates against a woman if A treats her unfavourably because she is on compulsory maternity leave. (4)  A person (A) discriminates against a woman if A treats her unfavourably because she is exercising or seeking to exercise, or has exercised or sought to exercise, the right to ordinary or additional maternity leave.’

15.112 The law appears to be that a person cannot be a member of an LLP and employed by it.177 ‘Compulsory maternity leave’ is defined as the two weeks immediately after birth (four weeks for factory workers) when an employer is prohibited from permitting an employee to work. The provisions relating to ‘compulsory maternity leave’ refer only to an ‘employee’, which is defined as an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.178 The provisions do not, therefore, apply to LLP members179 (although there appears to be an inconsistency between UK and

172

See, for example, Management of Health and Safety at Work Regulations 1999, regs 3(1)(b) and 16. 173 2006/54/EC. 174 92/85/EEC. 175 See fns 57 and 58. 176 EqA 2010, s 18(2). 177 See Chapter 9. 178 Maternity and Parental Leave etc. Regulations 1999, regs 8 and 2. See also ERA 1996, ss 72(1), 230 and EqA 2010, s 213. 179 It is open to a person to contend that, having regard to the terms of any relevant agreement read in the light of the circumstances, she is not in law an LLP member, but rather an employee. In practice, such an argument may be more difficult if the relevant documents make it clear that the intention was that the person was to become a member, although see Uber BV v Aslam [2021]

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EU provisions, as Article 8 of the Pregnant Workers Directive requires ‘maternity leave of at least two weeks, allocated before and/or after confinement’ for pregnant workers, albeit the relevant definitions of ‘worker’ in Article 2 of the Directive refer to an ‘employer’, so it is not clear how this would apply in the context of an LLP and its female member).180 Similarly, national provisions concerning ordinary and additional maternity leave apply only to employees. The maternity protections at s 18(3) and (4) of the EqA 2010 apply expressly where the person is on compulsory maternity leave, or where she is exercising or has exercised etc a right to ordinary or additional maternity leave; as those rights only apply to employees, it appears that those specific maternity protections at s 18(3) and (4) of the EqA 2010 only apply to employees too. 15.113 The protected period for the pregnancy discrimination protection which does apply to LLP members (referred to above) is defined in s 18(6) of the EqA 2010 as commencing when the pregnancy begins. The protected period ends, for those entitled to ordinary and additional statutory maternity leave (ie employees), at the end of the additional statutory maternity leave period or, if the full additional statutory maternity leave period is not taken, when the woman returns to work.181 As LLP members are not employees and are therefore not entitled to statutory maternity leave,182 their protected period begins at the start of the pregnancy and ends at the end of the period of two weeks beginning with the end of the pregnancy.183 15.114 Section 18(7) of the EqA 2010 states that, if a woman is discriminated against because of her pregnancy during the protected period, she needs to make a claim under s 18 of the EqA 2010, rather than under s 13 of the EqA 2010 (ie which relates to direct sex discrimination).184 Effectively, this provision prevents a female LLP member from pursuing sex discrimination and pregnancy discrimination claims in respect of acts taking place at the same time; she has to rely on the specific pregnancy (and, where applicable to salaried members treated as ‘employed’, maternity) protections during the protected period. However, once the protected period has ended, if a woman is treated less favourably because of her pregnancy or maternity-related absence, this would fall under the sex discrimination provisions in the EqA 2010 (although note 15.116 below). 15.115 The provisions in s 18 therefore appear to create a potentially lower level of specific discrimination protection for female LLP members taking (non-statutory) maternity leave than for employees doing so. A female LLP member is likely to have to bring a separate sex discrimination claim in respect of any discrimination occurring after her protected period ends (two weeks after childbirth) which relates to her taking maternity leave thereafter. In such circumstances (ie less favourable treatment after the protected period), the LLP member will need to compare her

180 181 182 183 184

UKSC 5, per Lord Leggatt at [69]: the primary question in determining status for the purpose of employment and worker protections is one of statutory interpretation, not contractual interpretation. 92/85/EEC, Article 8. EqA 2010, s 18(6)(a). ERA 1996, ss 71, 73 and 230(1) and (2), which only apply to ‘employee’. EqA 2010, s 18(6)(b). EqA 2010, s 18(7).

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treatment to that of a sick man.185 In contrast, in a pregnancy discrimination claim (under s 18 of the EqA 2010) no comparator is required. It is not possible for a man to be a comparator, as a man cannot become pregnant. As a result, if a woman is treated unfavourably during or in respect of her protected period as a result of her pregnancy, she will automatically be deemed to have suffered from pregnancy discrimination.186 15.116 Section 18(5) of the EqA 2010 makes it clear that, if a woman suffers unfavourable treatment because of pregnancy in relation to the implementation of a decision (after the protected period has ended) which was in fact decided during the protected period, the treatment is, for the purposes of the EqA 2010, judged to have taken place within the protected period.187 By way of example, if senior management of an LLP decide, whilst a female LLP member is pregnant, to refuse on her return to work to give her key clients back to her, then despite senior management communicating that refusal outside the protected period, the female LLP member may be able to argue, with evidence, detrimental treatment because of her pregnancy if she can show that the decision was actually taken during the protected period. As mentioned above, even if the decision was taken outside the protected period, the female LLP member may well have sex discrimination protections on which she can also rely. 15.117 A list of examples of unfavourable treatment because of pregnancy (and maternity leave) can be found in the EHRC Code. They include treating a woman unfavourably during the protected period for the following (non-exhaustive) reasons: (a) the costs to the business of covering her work; (b) any absence due to pregnancy-related illness; (c) performance issues due to morning sickness or other pregnancy-related conditions; or (d) an assumption that a woman’s work will become less important to her after childbirth and giving her less responsible or less interesting work as a result.188

Profit share entitlement for members 15.118 It has been established that employees are not entitled to full pay when on maternity or pregnancy-related leave, provided they are entitled to an ‘adequate allowance’189 which, under UK domestic legislation, is provided as statutory maternity pay; and there is no reason to think that the position in relation to LLP members is any different. This right to an ‘adequate allowance’ is set out in the Pregnant Workers Directive190 and, given that it applies to workers, is likely to apply

185 186 187 188 189

190

Cox J in Lyons v DWP Jobcentre Plus UKEAT/0348/13, [2014] ICR 668. EHRC Employment Statutory Code of Practice, para 8.6. EqA 2010, s 18(5). EHRC Employment Statutory Code of Practice, paras 8.22 and 8.23. Gillespie and others v Northern Health and Social Services Boards, Department of Health and Social Services, Eastern Health and Social Services Board and Southern Health and Social Services Board, Case C-342/93, [1996] IRLR 214. 92/85/EEC, Article 11.

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to LLP members who are under an obligation to provide work or services to the LLP, although note 15.112 in relation to ‘the employee’ in this Directive. 15.119 In domestic legislation, an employee who satisfies the conditions set out in s 164 of the Social Security Contributions and Benefits Act 1992 (‘SSCBA 1992’) is entitled to statutory maternity pay. The relevant definition of an employee in the SSCBA 1992 refers to a woman who is: ‘(a) gainfully employed in Great Britain either under a contract of service or in an office (including elective office) with emoluments chargeable to income tax under Schedule E and (b) over the age of 16.’191

15.120 An LLP member is not employed under a contract of service, and so the starting point is that an LLP member will not satisfy the conditions necessary for an entitlement to statutory maternity pay. However, where an LLP member is deemed employed for tax purposes under the salaried members rules,192 she may be entitled to statutory maternity pay.193 A female member who is not entitled to statutory maternity pay is likely to be entitled to statutory maternity allowance (subject to the member fulfilling a number of eligibility criteria) on the basis that she is a ‘self-employed earner’.194 Maternity allowance is a social security benefit payable for 39 weeks, which is traditionally provided to self-employed or lower-income workers, who do not qualify for maternity pay. The Self Employed Workers Directive195 (which, as set out in Article 2, is applicable to ‘self-employed workers, namely all persons pursuing a gainful activity for their own account …’, whilst the Directive’s summary refers to ‘all persons pursuing a gainful activity for their own account, under the conditions laid down by national law, including … the professions’)196 assists with this eligibility for LLP members, as it sets out that Member States need to provide female self-employed workers with sufficient maternity allowance for a minimum of 14 weeks.197,198

Equal pay 15.121 The equal pay provisions of the EqA 2010 apply to a number of categories of individuals, including those employed under ‘a contract of employment, a contract of apprenticeship or a contract personally to do work’.199 Given the decision of the

191

Social Security Contributions and Benefits Act 1992, s 171. 23.77–23.91. 193 Social Security Contributions (Limited Liability Partnership) Regulations 2014 (SI 2014/3159), as amended by Social Security Contributions (Limited Liability Partnership) (Amendment) Regulations 2015 (SI 2015/607). 194 Social Security Contributions and Benefits Act 1992, s 35; and the Social Security Contributions (Limited Liability Partnership) Regulations 2014 (SI 2014/3159), as amended by SI 2015/607. 195 2010/41/EU. 196 See http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:em0035. 197 See fn 58. 198 Article 8(1). 199 EqA 2010, s 83(2)(a). 192 See

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Supreme Court in Clyde & Co LLP v Bates van Winkelhof,200 that a member of an LLP may be a ‘worker’ within the meaning of the ERA 1996, it may be that an LLP member will be treated as a person employed under a contract personally to do work (assuming such an obligation is imposed on the relevant member by the LLP agreement), although the position is not clear, given that the EqA 2010 deals separately in Part 5 with the position of partners and LLP members. This makes it at least arguable that the phrase ‘contract personally to do work’ in the EqA 2010 is intended to be narrower in scope than the phrase ‘contract … whereby the individual undertakes to do or perform personally any work or services for another party to the contract’ in s 230(3)(b) of the ERA 1996.201 15.122 The two key provisions of the equal pay provisions are (a) the sex equality clause and (b) the maternity equality clause: (a) The sex equality clause202 has the effect of modifying any term on which a person works to ensure that it is not less favourable than that of a comparator of the opposite sex. The second limb of the sex equality clause has the effect of adding in a new term if a person does not have the benefit of a term that their comparator does.203 Effectively, the sex equality clause’s purpose is to put the person on a level playing field with their comparator, whether that is to modify an existing term or add in an additional clause to working terms. This clause would not assist many LLP members because it is often the position that there is no term of a contract that differs as between members, all members usually being bound by the same LLP agreement. Frequently, remuneration decisions are not embedded in contractual documentation, such as offer letters or deeds of adherence, but rather are made on a year-to-year basis by remuneration committees and management. In the event that an LLP member was able to use the sex equality clause as the basis of an equal pay claim, an LLP would be able to defeat the impact of the sex equality clause if it can rely on the material factor defence.204 The LLP would have to show that the reason for difference in terms is a material factor which is not, in itself, discriminatory. (b) The maternity equality clause ensures that a woman who has taken a period of maternity leave is entitled to any pay rises or bonuses (pro-rated) paid out whilst she was on maternity leave. ‘Pay’, for the purposes of the maternity equality clause, is defined as: pay (including a bonus) in respect of times before the woman is on statutory maternity leave; pay in respect of times when she is on compulsory maternity leave; or pay in respect of times after the end of the protected period.205 There is no need for a woman to point to a comparator in relation to the maternity equality clause, and there is no material factor defence available to the LLP206 (see (a) above). However, as stated in 15.112 above, 200 201

202 203 204 205 206

[2014] UKSC 32. Although see Pimlico Plumbers Ltd v Smith [2018] UKSC 29, [2018] ICR 1511 at [13]–[15] where the EqA 2010, s 83(2)(a) definition of ‘employment’ was deemed to have substantially the same effect as the definition of a ‘worker’ and ‘worker’s contract’ in ERA 1996, s 230(3). EqA 2010, s 66(1). EqA 2010, s 66(2). EqA 2010, s 69. EqA 2010, s 74(7). EqA 2010, s 69.

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‘compulsory maternity leave’ and statutory maternity leave are not applicable to an LLP member,207 so it is unclear how the maternity equal pay concept and clause would apply, if at all, to LLP members.

Maternity leave for LLP members 15.123 LLP members are not employees, and so (as indicated in 15.112 above) are not entitled to ordinary or additional statutory maternity leave;208 nor are they entitled to statutory paternity, adoption or unpaid parental leave, which are available only to employees. However, as indicated in 15.112, the EqA 2010 does give protection to LLP members against unfavourable treatment in relation to a pregnancy (either because of the pregnancy or because of a pregnancy-related illness) during the protected period, ie during their pregnancy and for the two weeks following the end of the pregnancy.209 This is a particularly short period post-birth, especially if a pregnancy or birth is complicated and necessitates a longer recovery. 15.124 There is potential to argue that, by not offering female LLP members maternity leave, this could be indirect sex discrimination (as caring for a child tends to be undertaken by more women than men). If so, such a policy would have to be justified by the LLP. But there is no case law on this issue in relation to LLP members. 15.125 The EqA 2010 indicates that, once the protected period is over, the pregnancy protections no longer apply, and the woman will have to rely on sex discrimination protections under s 13 of the EqA 2010.210 Frequently, LLPs have policies that grant members a shorter period of paid maternity leave compared to other policies (for example, sick pay entitlement or policies that are applicable to employees). If a member is treated less favourably because of her pregnancy after the protected period (or any maternity-related absence) she may have sex discrimination protections. As mentioned in 15.115, in pursuing a sex discrimination claim, a female LLP member with ongoing health issues following the protected period will need to identify a male comparator who has been treated more favourably than her during a similar period of sick leave. An LLP member suffering from a pregnancy-related illness (post-birth) may also qualify for disability discrimination protection under the EqA 2010 if she satisfies the definition of disability for that purpose. LLPs should carefully review their practices and policies applicable to members, ensuring that any review takes account of the risk of direct and indirect discrimination because of sex and any other protected characteristics. 15.126 Common examples of direct sex discrimination (or pregnancy discrimination where occurring during the protected period) include: (a) failure to return clients (passed to another LLP member during maternity leave);

207

Maternity and Parental Leave etc. Regulations 1999, reg 8; ERA 1996, s 72(1); and EqA 2010, s 213. ERA 1996, ss 71 and 73, and Maternity and Parental Leave etc. Regulations 1999, regs 2, 4 and 5. 209 EqA 2010, s 18(6). 210 EqA 2010, s 18(7). 208

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failure to take account of the impact of maternity leave when assessing financial targets in the period immediately following the leave; failure to receive all necessary training opportunities missed during a period of maternity leave; or failure to receive an annual performance review whilst on maternity leave (this could affect a female LLP member’s right to receive a profit share increase, and also her relative assessment compared to male peers when members are being assessed for the purpose of selection of members for compulsory retirement from the LLP).

Shared parental leave and pay 15.127 The shared parental leave scheme is set out in ss 75E to 75K of the ERA 1996 and various regulations,211 and allows parents to opt to take shared parental leave during the first year of their child’s life. Similar provisions apply to adoptive parents. 15.128 The shared parental leave scheme does not apply to a female member of an LLP who is a mother, because the female member will not be able to satisfy the conditions in the Shared Parental Leave Regulations 2014: a mother’s entitlement depends (inter alia) upon her being able to satisfy the continuity of employment condition and that, in turn, depends upon the mother being an employee, which (as an LLP member) she will not be.212 However, a father or partner (who is employed elsewhere) may be entitled to shared parental leave where the mother is a member of an LLP, if the mother is entitled to statutory maternity pay or maternity allowance and the mother and the father/partner satisfy the other conditions.213 In this case, the employment and earnings test applicable to the mother is that set out in reg 36, which refers to employment as an employed or self-employed earner. The partner could be the child’s father, the female LLP member’s spouse, civil partner or partner.214 The position under the shared parental pay provisions appears to be the same.215

Flexible working requests 15.129 An LLP member is not eligible to make a request under the statutory flexible working scheme, which only applies to employees.216 However, LLP members have the right not to be discriminated against because of their sex; and, for example, if an LLP member makes a request to work part-time or flexibly for childcare reasons, this

211 212

213 214 215 216

Eg Shared Parental Leave Regulations 2014 (SI 2014/3050) and the Maternity Allowance (Curtailment) Regulations 2014 (SI 2014/3053). 2014/3050, regs 4(2) and 35. It should be noted that the maternity pay provisions and maternity allowance provisions operate in a different way and do not depend upon the LLP member establishing, as a matter of substantive law, that she is an employee: Social Security Contributions (Limited Liability Partnership) Regulations 2014. 2014/3050, reg 5. Shared Parental Leave Regulations 2014, reg 3. Shared Parental Pay (General) Regulations 2014 (SI 2014/3051), reg 5. ERA 1996, ss 80F–80I, and the Flexible Working Regulations 2014 (SI 2014/1398).

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may give rise to indirect discrimination as well as direct discrimination protections. By way of example, a female LLP member makes a request to work four days a week in the office and one day a week from home, to accommodate her childcare needs. Her request is refused by the LLP for business reasons. If the female LLP member can point to a male LLP member who is entitled to work from home one day a week, she may have a direct discrimination claim. She may also have an indirect discrimination claim if she can show that the LLP is imposing a provision, criterion or practice that is applied to everyone (the need to work in the office five days a week) and which puts women (sharing a disproportionate level of childcare responsibility compared to male colleagues) and also her personally at a particular disadvantage. The LLP would have to objectively justify its rationale and reasoning (for example, client demands require that members work in the office every day).

DISABILITY DISCRIMINATION 15.130 LLP members are protected: from direct disability discrimination; from discrimination arising from a disability; by the duty on an LLP to make reasonable adjustments; and by certain prohibitions on an LLP asking them health or disabilityrelated questions (which are considered further below). In addition, LLP members are also protected from indirect disability discrimination and harassment and victimisation relating to a disability.

What is a disability? 15.131 Under the EqA 2010, a person has a disability if he has a physical or mental impairment, and the impairment has a substantial and long-term adverse effect on his ability to carry out normal day-to-day activities.217 The emphasis should be on the effect of the impairment rather than its cause.218 15.132 This definition is broken down into four main components by the ‘Guidance on matters to be taken into account in determining questions relating to the definition of disability (EqA 2010)’ (the ‘Guidance’):219 (a) (b) (c) (d)

217

the person must have an impairment that is physical or mental; the impairment must have adverse effects which are substantial; the substantial adverse effects must be long-term; and the long-term substantial adverse effects must be effects on normal day-to-day activities.220

EqA 2010, s 6(1). Fag og Arbejde, acting on behalf of Karsten Kaltoft v Kommunernes Landsforening, acting on behalf of the Municipality of Billund [2015] ICR 322, [2015] IRLR 146, and Walker v Sita Information Networking Computing Ltd [2013] All ER (D) 317 (May). 219 The Guidance was issued in 2011 by the Office for Disability Issues under EqA 2010, s 6(5). The Office for Disability Issues was replaced by the UK Disability Unit on 1 November 2019. 220 Guidance on matters to be taken into account in determining questions relating to the definition of disability. 218

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15.133 Certain conditions are automatically deemed to be disabilities, including cancer, HIV and Multiple Sclerosis.221 Further, the EqA 2010 and the Equality Act 2010 (Disability) Regulations 2010 (the ‘Disability Regulations’) state that severe disfigurements and blindness automatically meet the test as well. Other conditions are automatically excluded, including kleptomania, pyromania and alcoholism.222 However, it may be possible to be classified as having a disability caused by one of the excluded conditions (for example, liver disease as a result of alcoholism).223 15.134 Case law has provided some assistance as to what constitutes a physical or mental impairment in accordance with the EqA 2010, as do the EHRC Code and the Disability Regulations. Past disabilities are also protected specifically under the EqA 2010.224 15.135 Each limb of the definition needs to be satisfied in order for a person to be classified as having a disability under the EqA 2010: (a) The meaning of ‘substantial’ is defined in the EqA 2010 as something ‘more than minor or trivial’.225 The meaning of ‘long-term’ is also defined in the EqA 2010 as an impairment that has lasted for at least 12 months, is likely to last for at least 12 months, or is likely to last for the rest of the life of the person.226 Recurring conditions also fall within this definition. (b) The Guidance sets out some factors which can be taken into account when determining if a condition has a substantial effect on a person’s day-to-day activities. Examples include the time taken to complete a day-to-day activity or the manner in which it is completed.227 (c) The impact of any medical treatment (even if it eliminates or reduces the symptoms) would not remove a person’s disabled status.228 15.136 The burden of proof lies with the LLP member to prove that he suffers from a disability. The Employment Appeal Tribunal has highlighted the importance of clear pleadings in this regard.229

Direct disability discrimination 15.137 The definition of ‘direct discrimination’ is set out at 15.12 above. It should be noted that it is not discrimination to treat disabled persons more favourably than one would treat a non-disabled person. A non-disabled person could not, therefore, make a discrimination claim on this basis.230 221 222 223 224 225 226 227 228 229 230

EqA 2010, Sch 1. Equality Act 2010 (Disability) Regulations 2010 (SI 2010/2128). ‘Guidance on matters to be taken into account in determining questions relating to the definition of disability (EA 2010)’, para A14. EqA 2010, s 6(4). EqA 2010, s 212. EqA 2010, Sch 1, para 2(1). ‘Guidance on matters to be taken into account in determining questions relating to the definition of disability (EA 2010)’, paras B1 and B2. EqA 2010, Sch 1, para 5(1). London Luton Airport Operations Limited v Levick UKEAT/0270/18/LA. EqA 2010, s 13(3).

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15.138 When making a direct disability discrimination claim, the disabled person needs to show a comparison with either a direct or a hypothetical comparator, and there must be no material difference between the circumstances relating to each case.231

Discrimination arising from a disability 15.139 Discrimination arising from a disability is defined in the EqA 2010 as occurring when a person treats a disabled person unfavourably232 because of something arising in consequence of the person’s disability, and it is not shown that the treatment is a proportionate means of achieving a legitimate aim.233 15.140 There is no need for the disabled person to identify a comparator in this type of claim. This provision was specifically included, as disabled persons often suffer discrimination as a result of something related to their disability, but not necessarily the disability itself. For example, if a member of an LLP takes a significant period of sickness absence and is then expelled from the LLP as a result, this would constitute discrimination arising from a disability. It was the sickness absence that prompted the expulsion, and not the actual disability. Unless the LLP can objectively justify this decision, there will be a finding of discrimination arising from a disability. Direct discrimination would not cover this scenario, as it was not the disability which caused the expulsion. A separate cause of action was therefore needed in the EqA 2010. 15.141 Discrimination arising from a disability cannot apply if the LLP did not know, or could not have reasonably known, that the person had a disability.234 The Court of Appeal confirmed in Robinson v Department of Work & Pensions235 that the use of ‘because of’ in s 15 of the EqA 2010 requires Tribunals to consider the thought processes (whether conscious or unconscious) of the putative discriminator, save in the most obvious case.236 The question of reasonableness in this context is one of fact and evaluation.237 Whilst knowledge of the disability itself is a requirement, it is not necessary for the LLP to have knowledge of the consequences of that disability to be liable under s 15 of the EqA 2010, if it treats the person unfavourably because of that consequence.238

Duty to make reasonable adjustments 15.142 There is an additional protection in the EqA 2010 disability provisions, namely a duty to make reasonable adjustments in order to accommodate a disabled LLP member’s needs in the workplace. 231

EqA 2010, s 23(1). See, in relation to ‘unfavourable treatment’, Williams v Trustees of Swansea University Pension and Assurance Scheme and another [2018] UKSC 65. In Williams, the Supreme Court held that the treatment in issue was not unfavourable as there was nothing intrinsically disadvantageous to it. 233 EqA 2010, s 15(1). 234 EqA 2010, s 15(2). 235 [2020] EWCA Civ 859. 236 See Dunn v Secretary of State for Justice [2018] EWCA Civ 1998; [2019] IRLR 298. 237 See A Ltd v Z [2019] IRLR 952, at [23], citing Donelien v Liberata UK Ltd [2018] EWCA Civ 129. 238 City of York Council v Grosset [2018] EWCA Civ 1105; A Ltd v Z [2019] IRLR 952. 232

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15.143 The duty to make reasonable adjustments comprises of three types of requirement: (a)

Where a provision, criterion or practice puts a disabled person at a substantial disadvantage in relation to a relevant matter in comparison with persons who are not disabled, to take such steps as it is reasonable to have to take to avoid the disadvantage. (b) Where a physical feature puts a disabled person at a substantial disadvantage in relation to a relevant matter in comparison with persons who are not disabled, to take such steps as it is reasonable to have to take to avoid the disadvantage. (c) Where a disabled person would, but for the provision of an auxiliary aid, be put at a substantial disadvantage in relation to a relevant matter in comparison with persons who are not disabled, to take such steps as it is reasonable to have to take to provide the auxiliary aid.239 15.144 Section 45(7) of the EqA 2010 specifically states that the duty to make reasonable adjustments applies to LLPs and proposed LLPs. 15.145 A PCP can include a wide range of scenarios; and the purpose of such a broadly drafted definition is to include as many informal practices as possible. The EHRC Code states this definition ‘should be construed widely so as to include, for example, any formal or informal policies, rules, practices, arrangements or qualifications including one-off decisions and actions’.240 LLPs should consider all of their practices, formal and informal, to ascertain whether or not they could fall within this definition. However, the Court of Appeal confirmed in Ishola v Transport for London241 that ‘however widely and purposively the concept of a PCP is to be interpreted, it does not apply to every act of unfair treatment of a particular employee’. The same will apply to claims brought by LLP members. 15.146 The EqA 2010 provides some examples of a physical feature, including: (a) a feature arising from the design or construction of a building; (b) a feature of an approach to, exit from or access to a building; (c) a fixture or fitting, or furniture, furnishings, materials, equipment or other chattels, in or on premises, or (d) any other physical element or quality.242 15.147 An auxiliary aid or service is something that will help the disabled person, and could include an item of computer equipment which has been adapted for the disabled person, or actual provision of written documents in Braille for a blind person. An auxiliary service could be provision of an actual service, which supports the disabled person’s needs (for example, a sign language interpreter for a deaf person).

239

EqA 2010, s 20(1)–(5). EHRC Employment Statutory Code of Practice, para 6.10. 241 [2020] EWCA Civ 112. 242 EqA 2010, s 20(10). 240

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15.148 The duty to make reasonable adjustments only arises if the disabled person has been placed at a substantial disadvantage. This is an important factor for LLPs when determining whether or not the duty has been triggered. The EqA 2010 defines substantial, as set out in 15.135 above, as more than minor or trivial. 15.149 The disabled member will also have to identify a comparator to demonstrate that they have been placed at a substantial disadvantage in relation to a relevant matter. In the context of a reasonable adjustment claim, this is ‘with persons who are not disabled’,243 although the courts have applied a narrower comparator test in a number of cases.244 15.150 To avoid substantial disadvantage in relation to a physical feature, statute indicates that the following can be considered: removing the physical feature in question, altering it, or providing a reasonable means of avoiding it.245 15.151 The EHRC Code must be taken into account by Employment Tribunals, and it contains factors which can be considered when determining whether an adjustment is reasonable or not.246 15.152 Under s 21 of the EqA 2010, an LLP would be found to have discriminated against an LLP member if it fails to make reasonable adjustments.

Costs of making the adjustments 15.153 Normally, the cost of making reasonable adjustments will be borne by an employer.247 However, there are specific provisions for LLPs in relation to the costs of making the adjustments. Schedule 8 to the EqA 2010, which relates to reasonable adjustments, specifically includes provisions for LLPs. The starting point is that, where an LLP or proposed LLP is required to take a step in relation to a disabled LLP member, the cost of taking the step is to be treated as an expense of the LLP; however, the extent to which the disabled LLP member should bear the cost is not to exceed such amount as is reasonable, having regard to their share in the profits.248 Essentially, if the LLP member is entitled to a share in the profits, they may be required to contribute to the cost of the adjustment in line with their profit share percentage.

Enquiries about disability and health 15.154 Section 60 of the EqA 2010 limits the questions about disability and health which can be made by a person prior to offering them work. Section 60(9) confirms that ‘work’ in this context includes a position as a member of an LLP. Section 60(10) 243

EqA 2010, s 20(3) and 20(4), and EHRC Employment Statutory Code of Practice, para 6.16. Griffiths v Secretary of State for Work and Pensions [2014] UKEAT/0372/13, [2014] Eq LR 545. EqA 2010, s 20(9). EHRC Employment Statutory Code of Practice, paras 6.28 and 6.33 (whilst the Code refers to ‘employer’, it is likely that it will apply as between an LLP and its members). EqA 2010, s 20(7). EqA 2010, Sch 8, para 8.

244 See 245 246 247 248

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confirms that a ‘reference to offering work is a reference to making a conditional or unconditional offer of work’. This section therefore prevents an LLP from asking a prospective LLP member questions about his disability and health, either (1) before offering the LLP member work or (2) before including the LLP member in a pool of applicants from whom the LLP intends to select a person as an LLP member.249 The EHRC Code confirms that questions relating to previous sickness absence are questions that relate to disability or health.250 15.155 It is common for LLPs to make a job offer conditional on satisfactory replies to health enquiries and checks but, as the EHRC Code notes, ‘employers must ensure that they do not discriminate against a disabled job applicant on the basis of any such response’.251 15.156 There are exceptions to the general prohibition on asking health and disability-related questions, set out in s 60(6) of the EqA 2010. These exceptions include the asking of health questions to establish, for example, whether the LLP member will be able to carry out a function intrinsic to the work concerned; and to monitor diversity in the range of persons applying to work at the LLP etc (this list is not exhaustive). The EHRC Code notes that these exceptions ‘should be applied narrowly because, in practice, there will be very few situations where a question about a person’s disability or health needs to be asked – as opposed to a question about a person’s ability to do the job in question with reasonable adjustments in place’.252 15.157 If an LLP contravenes s 60 of the EqA 2010, the burden of proof in a direct disability discrimination claim may shift to the LLP to show that it has not discriminated against the prospective LLP member.253 The EHRC also has an enforcement role254 and would be able to conduct an investigation if there was evidence that the LLP routinely asked prohibited questions when hiring LLP members.255

Permanent health insurance/long-term disability cover 15.158 Where an LLP provides its members with rights under a permanent health insurance (PHI) policy, and continued membership of the LLP is a condition of cover, it may be that a court would imply a term to the effect that any power in the LLP agreement permitting the LLP to terminate the membership of a member cannot be exercised during any period in which the member is in receipt of payments under the PHI policy or perhaps where the member is unable to work and there is anticipation of payments at the end of a deferral period. A term to that effect has been implied in an employment context.256 249 250 251 252 253 254 255 256

EqA 2010, s 60. EHRC Code, para 10.25. EHRC Code, para 10.39. EHRC Code, para 10.38. EqA 2010, s 60(5) and EqA 2010, Explanatory Notes. EqA 2010, s 60(2). EqA 2010, Explanatory Notes. Aspden v Webbs Poultry & Meat Group (Holdings) Ltd [1996] IRLR 521; although see the narrow interpretation of the decision in Reda v Flag [2002] UKPC 38 at [48] to [51].

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WHISTLEBLOWER AND OTHER ‘WORKER’ PROTECTIONS 15.159 The Supreme Court held in Clyde & Co LLP v Bates van Winkelhof that LLP members may be ‘workers’ within the meaning of s 230(3)(b) of the ERA 1996 (if they contractually undertake to do or perform personally any work or services for the LLP (see 9.23)) and therefore entitled to claim the protection of its whistleblowing provisions.257 It will also follow that LLP members who satisfy the definition of ‘worker’ will benefit from other ‘worker’ rights, including (without limitation) part-time worker protection and, potentially, equal pay rights (see 9.22–9.28). 15.160 Whistleblower protection is set out in Part IVA of the ERA 1996. An LLP member, as a worker, ‘has the right not to be subjected to any detriment, by any act, or any deliberate failure to act …’258 by the LLP on the ground that he has made a protected disclosure. Subject to certain defences, an LLP may be held liable for any detriment caused by its LLP members, and an LLP member may be held personally liable if he victimises259 his colleagues who have blown the whistle on potential malpractice or wrongdoing.260 15.161 In order to qualify for whistleblower protection, a number of statutory requirements must be fulfilled. The LLP member would need to make a ‘qualifying disclosure’ in accordance with s 43B of the ERA 1996, and the disclosure also needs to be a ‘protected disclosure’ in accordance with ss 43C to 43H of the ERA 1996.

Qualifying disclosure 15.162 The requirement of a qualifying disclosure is set out in s 43B of the ERA 1996. The requirement is defined as: ‘any disclosure of information which, in the reasonable belief of the worker making the disclosure, is made in the public interest and tends to show one or more of the following– (a) that a criminal offence has been committed, is being committed or is likely to be committed, (b) that a person has failed, is failing or is likely to fail to comply with any legal obligation to which he is subject, (c) that a miscarriage of justice has occurred, is occurring or is likely to occur,

257

The case did not clarify whether partners in a general partnership under the Partnership Act 1890 would be protected by the whistleblowing legislation. 258 ERA 1996, s 47B. An LLP member can bring a whistleblowing detriment claim including, but not limited to, in respect of the termination of their LLP membership. However, ERA 1996, s 49(6) provides that, in such cases, the amount of compensation awarded cannot be more than the LLP member would have been awarded if they had been an employee dismissed for having made a protected disclosure. 259 A fellow LLP member’s involvement in a decision to terminate the membership of an LLP member (for example, by way of an LLP member vote) may constitute actionable unlawful detriment under ERA 1996, s 47B(1A) and form the basis of a personal whistleblowing detriment claim against that voting LLP member as well as the LLP, if it can be shown that that decision was taken on the ground that the complaining LLP member had made a protected disclosure. 260 ERA 1996, s 47B(1A)–(1E).

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(d) that the health or safety of any individual has been, is being or is likely to be endangered, (e) that the environment has been, is being or is likely to be damaged, or (f) that information tending to show any matter falling within any one of the preceding paragraphs has been, is being or is likely to be deliberately concealed.’261

15.163 It is immaterial where in the world the malpractice occurred, occurs or would occur, and what law (whether UK or otherwise) applies to the malpractice in question.262 15.164 There is no whistleblowing protection ‘if the person making the disclosure commits an offence by making it’, eg under the Official Secrets Act 1989. 15.165 The public interest wording in s 43B of the ERA 1996 was inserted by the Enterprise and Regulatory Reform Act 2013 (‘ERRA 2013’) and applies only to disclosures made on or after 25 June 2013. The Government’s intention behind this amendment was to close the perceived ‘loophole’ created by the decision in Parkins v Sodexho,263 where the Employment Appeal Tribunal held that a disclosure could include a breach of a legal obligation which arises from the whistleblower’s own contract of employment. In Chesterton Global Limited v Nurmohamed,264 the Court of Appeal held that a disclosure about the breach of a worker’s own contract or another matter with a personal interest element may be capable of satisfying the public interest test. It confirmed that whether there is sufficient public interest (in the worker’s reasonable belief) in such mixed interest cases is a question for the Employment Tribunal to decide, on a consideration of all the circumstances of the particular case, having regard to factors including (but not limited to) the number of workers affected, the nature and extent of the interests affected, the nature of the wrongdoing disclosed, and the identity of the alleged wrongdoer. 15.166 Prior to 25 June 2013, a qualifying disclosure also had to be made ‘in good faith’ (except for disclosures made to a legal adviser). This good faith requirement was repealed by the ERRA 2013265 but remains relevant to disclosures prior to this date and also to whistleblower compensation (see 15.171–15.174 below).

Protected disclosure 15.167 It is a requirement that the qualifying disclosure is made to specified persons, as set out in the whistleblowing provisions. Depending on the identity of those persons to whom the disclosure is made, further conditions (varying in stringency) may apply in order for the whistleblower to have protection under the legislation. It is typical in the context of a professional practice LLP that a disclosure is made internally. However, disclosures can be made, for example, to those who have legal responsibility for the malpractice (other than an employer),266 261 262 263 264 265 266

ERA 1996, s 43B(1). ERA 1996, s 43B(2). [2002] IRLR 109. Chesterton Global Ltd v Nurmohamed [2017] EWCA Civ 979. Enterprise and Regulatory Reform Act 2013, s 18(1)(a). ERA 1996, s 43C(1)(b)(ii).

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legal advisers,267 MPs268 and prescribed persons (for those matters within their remit),269 eg the Financial Conduct Authority, Health and Safety Executive, HMRC, Information Commissioner etc (this list is not exhaustive).270 If a disclosure is made to others, such as the press or the police, it will be protected only in limited circumstances.271

Detriment 15.168 To bring a claim for whistleblowing detriment, an LLP member has to establish that they have been subjected to an unlawful detriment. Detriment is construed broadly and judged from the perspective of the worker. Whilst an unjustified sense of grievance will be insufficient, if a reasonable worker would or might take the view that they have been disadvantaged in the circumstances in which they have to or had to work, then detriment will be made out.272 In an LLP context, detriment can include a range of potential disadvantages, including involuntary exit with or without notice, disadvantageous treatment in relation to equity progression or other promotion, profit share allocation, access to work, business development and resources, and also exclusionary behaviour towards the whistleblower. 15.169 The detriment must be suffered ‘on the ground that’ the LLP member made a protected disclosure. The focus of the Employment Tribunal’s consideration will be on the ‘reason why’, as a subjective matter of fact, the LLP (or fellow LLP member) acted as they did. If the protected disclosure materially influences (that is, has more than a trivial influence on) the LLP’s (or fellow LLP member’s) conscious or unconscious reason for their treatment of the whistleblower, then the causal link will be satisfied.273

Time limits 15.170 Subject to the rules on mandatory early conciliation (outlined in 15.38–15.39 above), typically, an LLP member would have three months within which to present a whistleblowing complaint to an Employment Tribunal.274 The time limit begins with the date of the act, or failure to act, to which the whistleblowing complaint relates (or, where the act or failure to act is part of a series, the last of them).275 The Employment Tribunal can also consider a complaint ‘where it is satisfied that it was not reasonably practicable for the complaint to be presented before the end of that period of three months’.276 267 268 269 270 271 272 273 274 275 276

ERA 1996, s 43D. ERA 1996, s 43E. ERA 1996, s 43F. Public Interest Disclosure (Prescribed Persons) Order 2014 (relevant to disclosures made on or after 1 October 2014). ERA 1996, s 43G. Shamoon v Chief Constable of the Royal Ulster Constabulary (Northern Ireland) [2003] UKHL 11; Jesudason v Alder Hey Children’s NHS Foundation Trust [2020] EWCA Civ 73. Fecitt v Manchester NHS Trust [2011] EWCA 1190, [2012] IRLR 64. ERA 1996, s 48(3)(a). ERA 1996, s 48(3)(a). ERA 1996, s 48(3)(b).

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Remedies 15.171 If an LLP member is successful with a whistleblowing claim, the Employment Tribunal ‘shall make a declaration to that effect’ and ‘may make an award of compensation’.277 The amount of compensation is that which the Employment Tribunal considers ‘just and equitable in all the circumstances having regard to the whistleblowing claim and any loss attributable to it’.278 15.172 In Wilsons Solicitors LLP & Others v Roberts,279 the appellant LLP argued before the Court of Appeal that Mr Roberts, a former member of the LLP, was precluded from recovering post-termination losses for whistleblowing detriment, given that: (i) Mr Roberts had conceded before the Employment Appeal Tribunal that his purported acceptance of alleged repudiatory breaches by the LLP and other individual members of the LLP was of no legal effect following the decision in Flanagan v Liontrust Investment Partners LLP280 and did not give rise to a cause of action; and (ii) the LLP’s subsequent expulsion of him from the LLP was lawful and was not alleged to be an act of detriment.281 The Court of Appeal rejected the LLP’s argument and held that Liontrust was not determinative of the issue relating to compensation. The Court confirmed that the fundamental basis for the exercise of the Employment Tribunal’s jurisdiction is that the compensation should be ‘just and equitable’. Accordingly, an LLP member is not, as a matter of law, precluded from seeking to claim post-termination losses on the basis that those losses are attributable to pre-termination detriments.282 Whether an LLP member would successfully recover those losses was a question of fact for the Employment Tribunal to determine. In the instant case, Simler J in the EAT expressed it this way (and the Court of Appeal agreed with her reasoning): ‘… If the unlawful “victimisation” of the Claimant made his position untenable and led him to withdraw his labour, thereby exposing him to the likelihood of expulsion, it is hard to see why that should as a matter of law (or inevitable fact) be regarded as too indirect or unnatural a consequence to attract compensation in accordance with the statutory test, provided it is satisfied. In the particular circumstances asserted by the Claimant, this seems at least arguably, a natural and likely consequence of the unlawful conduct alleged.’283

15.173 There is no upper limit on the award of compensation. The Employment Tribunal may reduce any award of compensation by no more than 25% if it is just and 277 278 279 280 281 282

283

ERA 1996, s 49. ERA 1996, s 49(2). [2018] EWCA Civ 52. [2015] EWHC 2171 (Ch). It should be noted that, on appropriate facts, it would be open to an LLP member to seek to argue that their expulsion amounted to a detriment: see fn 272 above. See also Timis v Osipov [2018] EWCA Civ 2321, where the Court of Appeal held in relation to an employee that two of his co-workers could be personally liable for post-termination losses attributable to pre-termination detriments against him which consequentially caused his termination. It was clarified that such compensation would be subject to the usual rules about remoteness and discounting for contingencies (including the contingency that the employment might have terminated in any event). Wilsons Solicitors LLP v Roberts [2018] EWCA Civ 52 at [60]–[63].

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equitable to do so where ‘it appears to the Employment Tribunal that the protected disclosure was not made in good faith’.284 15.174 Typically, a successful LLP member whistleblower is awarded uncapped damages, based on his actual and future losses, if he is successful in showing at an Employment Tribunal that such treatment was an unlawful detriment by the LLP on the ground of the LLP member having blown the whistle on potential wrongdoing or malpractice. Any damages would be subject to the LLP member’s duty to mitigate his loss.285 Whistleblowing detriment claims are regarded by the courts as another type of discrimination claim, and so an injury to feelings award is also available (see 15.53–15.54), along with aggravated286 and exemplary damages, if appropriate.287

Territorial scope of whistleblowing law 15.175 The ability of an LLP member who ordinarily works wholly or partly outside Great Britain to bring a whistleblowing claim under the Employment Rights Act 1996 will be determined by the same tests established by the Supreme Court and House of Lords as set out at 15.26–15.36 above.288 Usually, that will involve considering whether there is a sufficiently strong connection with Great Britain and British employment law. In Rihan v Ernst & Young Global Ltd289 the claimant was not entitled to bring a whistleblowing claim under the ERA 1996 because he worked outside the UK,290 but Kerr J found there to be a duty of care that enabled the claimant to bring a claim for damages. Kerr J held that there was no reason why ‘the moral and professional integrity of the employee (or quasi-employee) should not be protected by a duty to take reasonable steps to provide an ethically acceptable work environment, free of criminal conduct … and free of professionally unethical conduct’.291

PART-TIME WORKER PROTECTION 15.176 The Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551) (‘the PTW Regs’) will apply to an LLP member who is a worker. Regulations 5 and 7(2) of the PTW Regs set out the key rights of part-time workers.292 284 285 286

287 288 289 290 291 292

ERA 1996, s 49(6A). ERA 1996, s 49(4). The Employment Appeal Tribunal case of Commissioner of Police of the Metropolis v Shaw [2012] IRLR 291 confirmed that ‘Aggravated damages are an aspect of injury to feelings’, but typically they are awarded as a separate head of compensation. Virgo Fidelis Senior School v Boyle [2004] ICR 1210, [2004] IRLR 268. Smania v Standard Chartered Bank [2015] ICR 436. [2020] EWHC 901 (QB). At [619]–[624]. At [621]. Whilst the PTW Regs refer in a number of places to ‘employer’ and ‘employed’ in the context of a ‘worker’ (eg regs 2(1), 2(2), 2(4), 3(2), 5(1), 6(1)), the authors consider that, on the basis of Clyde & Co LLP and another v Bates van Winkelhof [2014] UKSC 32, [2014] IRLR 641, the courts would in this context interpret ‘employer’ as applying vis-à-vis the relationship between an LLP and its members.

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15.177 The PTW Regs do not give LLP members a right to work on a part-time basis, but protection if they already do work part-time. Notwithstanding this, consideration should still be given as to whether the refusal of allowing, say, a fulltime female LLP member to reduce her hours due to childcare commitments, or to agree to the reduction of a disabled LLP member’s full-time hours, could amount to other unlawful discriminatory acts (eg indirect sex discrimination or disability discrimination). 15.178 A part-time LLP member has the right not to be treated by his or her LLP less favourably than the LLP treats a comparable full-time LLP member. There is no qualifying period of service needed to bring a claim under the PTW Regs. The less favourable treatment may relate to: (a) the terms of his contract; or (b) any other detriment in the form of any act, or deliberate failure to act, by the firm.293 15.179 This protection applies ‘only if the treatment is on the ground that the worker is a part-time worker, and the treatment is not justified on objective grounds’.294 The objective justification test is a similar test as is applied to indirect discrimination claims. 15.180 An appropriate full-time worker must be identified as a comparator in order for a part-time LLP member to establish less favourable treatment. In contrast to discrimination claims, the comparator is an actual and not a hypothetical individual (save in respect of a claim under reg 3(2) – see 15.183 below). 15.181 There are requirements set out in the PTW Regs which help to identify an appropriate comparable full-time worker. Both workers must: (a) (b) (c)

be employed by the same employer under the same type of contract;295 be engaged in the same or broadly similar work, having regard, where relevant, to whether they have a similar level of qualification, skills and experience;296 and work or be based at the same establishment or, if this is not possible, work or be based at a different establishment and satisfy (a) and (b) above.297

15.182 It is likely that the appropriate comparator for a part-time LLP member will be a full-time LLP member working at the same firm. 15.183 If an LLP member changes his or her work schedule to work part-time (whether on the same type of contract or not), having varied or terminated his previous full-time contract, he can compare his part-time terms to his or her

293

PTW Regs, reg 5(1). PTW Regs, reg 5(2). 295 PTW Regs, reg 2(4)(a)(i) (see also fn 292 above). 296 PTW Regs, reg 2(4)(a)(ii). 297 PTW Regs, reg 2(4)(b). 294

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full-time terms that applied immediately before.298 Similarly, under reg 4, if a worker who previously worked full-time returns to the same job or one at the same level as a part time worker after a period of absence of less than 12 months, he can compare his rights to the full-time terms that applied before the change or as if the contract includes that variation.299 15.184 The pro-rata principle should be applied when making the comparison, unless it is inappropriate.300 This is defined in the PTW Regs as follows: ‘Where a comparable full-time worker receives or is entitled to receive pay or any other benefit, a part-time worker is to receive or be entitled to receive not less than the proportion of that pay or other benefit that the number of his weekly hours bears to the number of weekly hours of the comparable full-time worker.’301

15.185 Regulation 7(2) of the PTW Regs sets out the right of workers not to be subjected to a detriment (ie victimised) by their employer (or, in this context, an LLP); for example, for having brought proceedings against them under the PTW Regs; for giving evidence or information in connection with a PTW claim; for alleging that the LLP has infringed the PTW Regs; or for refusing to forgo a right conferred on them by the PTW Regs (this list is not exhaustive). 15.186 An LLP member who has been treated less favourably or is subjected to a detriment can bring a claim to an Employment Tribunal, usually within three months of the date of the relevant treatment or detriment, or the last of them if the act or failure to act is part of a series,302 subject to the rules on mandatory early conciliation (see 15.38–15.39). An Employment Tribunal may consider a claim where it is out of time if, in all the circumstances, it is just and equitable to do so.303 Where an Employment Tribunal upholds a detriment claim, it can do any (or all) of the following: (a) Make a declaration as to the rights of the parties in relation to the matters to which the complaint relates.304 (b) Order the LLP to pay compensation to the LLP member305 which the Employment Tribunal considers is just and equitable,306 having regard to the less favourable treatment and any loss attributable to it.307 The LLP member is under a duty to mitigate those losses,308 and any compensation may be reduced to reflect his contributory conduct.309 (c) Recommend that the LLP take, within a specified period, action appearing to the Employment Tribunal to be reasonable, in all the circumstances of the case, 298 299 300 301 302 303 304 305 306 307 308 309

PTW Regs, reg 3(2). PTW Regs, reg 4. PTW Regs, reg 5(3). PTW Regs, reg 1(2). PTW Regs, reg 8(2). PTW Regs, reg 8(3). PTW Regs, reg 8(7)(a). PTW Regs, reg 8(7)(b). PTW Regs, reg 8(9). PTW Regs, reg 8(9)(a) and (b). PTW Regs, reg 8(12). PTW Regs, reg 8(13).

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to obviate or reduce the adverse effect on the complainant of any matter to which the complaint relates.310 If the LLP fails to do this, without reasonable justification, an order of further compensation may be made if the Employment Tribunal thinks that it is just and equitable to do so.311 15.187 An award of compensation under reg 5 of the PTW Regs cannot include an award for injury to feelings312 (see 15.186). However, as there is no regulation to the contrary, it may be possible for such an award to be made in a victimisation case under reg 7(2) of the PTW Regs. 15.188 If an LLP member considers that the LLP has infringed a right conferred on him or her by reg 5, the LLP member can request in writing a written statement, giving particulars of the reasons for the treatment. The LLP member is entitled to be provided with that statement within 21 days of his or her request.313 If it appears to an Employment Tribunal in any PTW Regs claim that the employer314 (or, in the context of an LLP, the LLP)315 ‘deliberately, and without reasonable excuse, omits to provide a written statement’ or it ‘is evasive or equivocal’, an Employment Tribunal ‘may draw any inference which it considers it just and equitable to draw, including an inference that the employer has infringed the right in question’.316

OTHER QUASI-EMPLOYMENT LAW PROTECTIONS 15.189 In addition to whistleblowing and part-time worker protections, LLP members who are ‘workers’ have a significant range of other quasi-employment protections available to them.317 LLPs should ensure that those members are treated in accordance with their rights as workers under, for example, the Working Time Regulations 1998, the National Minimum Wage Act 1998, the Employment Relations Act 1999 (in respect of a worker’s right to be accompanied to a disciplinary or grievance hearing if they reasonably request), and protection from unauthorised deductions under the ERA 1996. The position of LLP members under the Transfer of Undertakings (Protection of Employment) Regulations 2006318 is considered at 9.29–9.34. LLP members may also be considered ‘workers’ for the purpose of automatic pension enrolment.319

310 311 312 313 314 315 316 317 318 319

PTW Regs, reg 8(7)(c). PTW Regs, reg 8(14)(a). PTW Regs, reg 8(11). PTW Regs, reg 6(1). See fn 292 above. See fn 292 above. PTW Regs, reg 6(3). See Chapter 9. SI 2006/246. See www.thepensionsregulator.gov.uk/en/business-advisers/automatic-enrolment-guide-forbusiness-advisers/3-checking-who-to-enrol/director-exemptions-from-automatic-enrolment. However, the LLP is not obliged to (although it may) auto enrol members who are not treated for income tax purposes as salaried members, even if they are workers (Occupational and Personal Pension Schemes (Automatic Enrolment) (Miscellaneous Amendments) Regulations 2016, SI 2016/311, reg 4(3)).

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DISCRIMINATION LITIGATION – AN LLP MEMBER’S ACCESS TO INFORMATION Introduction 15.190 LLP members who have concerns that they have been treated in an unlawful way by their LLP, whether by unlawful discriminatory conduct, a whistleblowing detriment or otherwise, may have the opportunity to obtain information potentially relevant to their treatment from the LLP.320 An LLP member can submit a Data Subject Access Request (‘DSAR’) under the United Kingdom General Data Protection Regulation (‘UK GDPR’)321 and Data Protection Act 2018 (‘DPA 2018’) or an ‘informal’ discrimination questionnaire (which replaced the formal statutory discrimination process, which was repealed in April 2014). These are considered in brief below.

Information 15.191 A DSAR can be made to any organisation which determines the purposes for which, and the manner in which, any personal data are, or are to be, processed (defined as ‘controller’) under Article 15 of the UK GDPR. A DSAR enables an LLP member to find out, amongst other matters,322 what personal data the LLP holds about him, why that information is held and to whom it is disclosed.323 Personal data is defined under Article 4(1) of the UK GDPR as: ‘… any information relating to an identified or identifiable natural person; an identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier, or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person.’324

15.192 Broadly, the data would have to be wholly or partly processed by the LLP by automated means (eg by a computer) or be part of a ‘filing system’ to fall within the remit of an Article 15 request by an LLP member.325

320

321

322 323

324 325

An LLP member’s statutory rights of access to information under the UK GDPR and DPA 2018 are in addition to the rights of access to books and records of the LLP and to true accounts and full information of all things affecting the LLP that an LLP member has (unless otherwise agreed) under the default provisions contained in reg 7(7) and (8) of the Limited Liability Partnerships Regulations 2001, or otherwise contained in the LLP agreement. Prior to the UK leaving the EU, the EU’s General Data Protection Regulation (Regulation (EU) 2016/679) (‘EU GDPR’) was the operative legislation under which DSAR rights were derived in the UK. The EU GDPR was directly effective in the UK until the end of the Brexit transition period on 31 December 2020. As of 1 January 2021, the UK GDPR is the relevant legislation in this area. For most purposes, the UK GDPR incorporates by substantial replication the EU GDPR into UK domestic law (some changes have been made, which are beyond the scope of this book). UK GDPR, Article 15(1). ICO – Subject Access Code of Practice (https://ico.org.uk/media/for-organisations/documents/ 2259722/subject-access-code-of-practice.pdf). Whilst this Code of Practice is a useful guide, the reader should heed the ICO health warning in respect of this cited version, which at the time of writing had not yet been updated to reflect the DPA 2018 (or the UK GDPR). UK GDPR, Article 4(1). UK GDPR, Article 4(6).

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15.193 Case law has established that a collateral purpose for making such a request (for example, to obtain discovery of documents, or to assist pending or contemplated litigation or complaints against third parties) does not invalidate the request nor relieve the controller from their obligations in relation to it.326 But, if an LLP member seeks enforcement of their DSAR rights,327 any collateral purpose may be taken into account by the courts, amongst other things, when exercising their discretion as to whether to grant a compliance order against the LLP.328 Accordingly, an LLP member who is contemplating whether or not to pursue a discrimination claim (or other claim) against an LLP may submit a DSAR (by a written request) to the LLP for which he works or request that his representative submits a request on his behalf. 15.194 Unless an exemption applies to the disclosure provisions under Schedules 2–4 to the DPA 2018 (eg confidential references given by the controller, management forecasts likely to prejudice the conduct of the business if disclosed, or data protected by legal professional privilege etc – this list is not exhaustive), the LLP must comply with the request without undue delay and, in any case, within one month of receipt of the request. The LLP may be able to extend the response period by two months where necessary, taking into account the complexity329 (which, depending on the specific circumstances of the case, may include, for example, the need to obtain specialist legal advice or technical difficulties in retrieving the information)330 and the number of requests. Should the LLP extend the response period, it must notify the LLP member within one month of receipt and provide reasons.331 There is no limit on the number of requests which can be made by an individual, although, where an organisation has dealt with a DSAR request previously, it can charge a reasonable fee for dealing with the additional request or refuse to fulfil the request where it is, in its view, manifestly unfounded or excessive.332 15.195 The main remedy available to an LLP member who considers that there has been a breach of the UK GDPR and/or DPA 2018 provisions regarding the processing of his personal data is a request to the Information Commissioner (the body responsible for the enforcement of the UK GDPR and DPA 2018) to investigate whether the LLP has contravened the LLP member’s rights under the UK GDPR.333 As part of its investigations, the Information Commissioner may serve on the LLP an investigation notice requiring the LLP to provide information and/or an assessment 326

327 328

329 330

331 332 333

Dawson-Damer v Taylor Wessing LLP [2017] EWCA Civ 74, at [105]–[112]; Ittihadieh (Alireza) v 5-11 Cheyne Gardens RTM Company Ltd and Others; University of Oxford v Deer (Information Commissioner intervening) [2017] EWCA Civ 121, at [85]–[89]; although these cases were based on the old Data Protection Act 1998, the law in relation to subject access requests still appears to remain good law in respect of DSAR rights under the DPA 2018. An LLP member’s right to seek a compliance order for breach of their DSAR rights lies under DPA 2018, s 167. See 15.196 below. DB v General Medical Council [2018] EWCA Civ 1497. This case was also decided under the old Data Protection Act 1998 but it is likely to be considered applicable to DSAR claims under DPA 2018 too. UK GDPR, Article 12(3). See ICO Right of Access Guide for more examples of what might amount to a complex request (https://ico.org.uk/for-organisations/guide-to-data-protection/guide-to-the-general-data-protectionregulation-gdpr/right-of-access/). UK GDPR, Article 12(3). DPA 2018, s 53. UK GDPR, Article 77.

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notice which can (amongst other things) require the LLP to permit the Information Commissioner entry to their premises, to inspect documents and to interview specified members of staff.334 The Information Commissioner can also serve an LLP with an enforcement notice335 to take, or refrain from taking, specified steps to comply with its obligations under the DPA 2018 and/or UK GDPR.336 If an organisation infringes the UK GDPR, or fails to comply with an information, assessment or enforcement notice, the Information Commissioner may impose a substantial fine by way of a penalty notice.337 In serious cases of infringement, the Information Commissioner can issue fines of up to £17.5 million or 4% of the organisation’s annual turnover, whichever is the higher.338 15.196 An LLP member may also apply to the court to request compliance with the DSAR provisions339 and also for compensation from the LLP, under Article 82 of the UK GDPR, if the LLP member suffers material or non-material damage (which includes distress) due to the LLP’s breach of the UK GDPR. An LLP may be able to defend an Article 82 claim if the LLP can prove that it was not ‘in any way responsible for the event giving rise to the damage’.340 Further remedies are available for breaches of other rights under the UK GDPR, including (but not limited to) court orders to rectify, erase or restrict the processing of inaccurate personal data341 and financial sanctions.342

Informal request for information 15.197 Prior to 6 April 2014, LLP members who considered they had been discriminated against by their LLP could submit a statutory questionnaire to the LLP.343 The questionnaire enabled a prospective litigant to obtain information and identify relevant documentation, to understand whether he had been treated in a particular way and to explore the reasons for any alleged discriminatory acts. An LLP had eight weeks from the date of receipt of the questions within which to respond to this statutory questionnaire and, if it failed to do so or was evasive in its answers, adverse inferences could be drawn by an Employment Tribunal at a hearing.344 15.198 This statutory procedure was repealed on 6 April 2014 by the ERRA 2013 and was replaced by a non-statutory approach, the details of which are primarily contained in non-binding ACAS guidance.345 The guidance applies not just to

334 335 336 337 338 339 340 341 342 343 344 345

DPA 2018, Part 6, s 146. DPA 2018, Part 6, s 149. Subject Access Code of Practice (https://ico.org.uk/media/for-organisations/documents/1065/ subject-access-code-of-practice.pdf). DPA 2018, Part 6, s 155. UK GDPR, Article 83(5). UK GDPR, Article 79. UK GDPR, Article 82(3). UK GDPR, Articles 16, 17 (and Recitals 65 and 66) and 18(1). UK GDPR, Article 83. EqA 2010, s 138, repealed by ERRA 2013, s 66(1). EqA 2010, s 138(4), repealed by ERRA 2013, s 66(1). See https://archive.acas.org.uk/media/3920/Asking-and-responding-to-questions-of-discriminationin-the-workplace/pdf/Asking-and-responding-to-questions-of-discrimination-in-the-workplace.pdf.

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employers and employees but other workplace relationships, which would include those of an LLP and its members. There is no reference in the ACAS guidance to an Employment Tribunal’s ability to draw adverse inferences from an organisation’s failure to respond (as there was previously), although the ACAS guidance does state that an Employment Tribunal may look at whether a responder has answered questions, and how it has answered them, as a contributory factor in making its overall decision on the questioner’s discrimination claim.346 Furthermore, the ACAS guidance actively encourages employers to deal with the informal requests seriously and promptly, and emphasises that it is important to respond in a reasonable timeframe, but further clarification is not provided in the guidance.347

346 Ibid. 347 Ibid.

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Chapter 16 FUNDING AND PROFITS AND LOSSES

FUNDING 16.1 Like any business, the LLP will need working funds. These can be provided by way of either ‘equity’ or ‘debt’, that is to say, by way of members’ ‘capital’ or by way of loan to the LLP. Loans can, of course, be made by the members or by a bank or other third party (and with or without a charge over the LLP’s property to secure repayment). The LLP will also be able to raise funds by the issue of debentures.1 16.2 The legislation clearly recognises the concept of members’ capital,2 and also clearly recognises a distinction between this and sums advanced to the LLP by members by way of loan.3 A loan will (expressly or impliedly) carry terms as to repayment, and will constitute a debt of the LLP to the member (or third party) making it. The essence of a loan is the lending of a sum of money for a period with an obligation for repayment at some time and under some circumstances.4 Capital, on the other hand, is money invested in the business and exposed to the risk of loss. Subject to the effect of any terms in the LLP agreement providing for its return in specified circumstances, capital will not constitute a debt of the LLP to the member contributing it.5 In a liquidation, whilst a member will be able to prove, alongside other unsecured creditors, for a loan made by him to the LLP (subject to the specific terms of the loan), he will not be able to prove for his capital. He will only recover his capital in a liquidation if (and to the extent that) there are sufficient funds available after satisfaction of all the debts and obligations of the LLP.6

1

Charges and debentures are discussed in Chapter 6. See the Balance Sheet Formats in the two Limited Liability Partnerships (Accounts) Regulations 2008 (SI 2008/1912) (Small LLPs) and SI 2008/1913 (Large and Medium-sized LLPs); and also default rule (1) set out in 16.10. See 21.16. See HMRC v Hamilton & Kinneil (Archerfield) Limited [2015] UKUT 0130 (TCC) at [28] and McTear v Eade [2019] EWHC 1673 (Ch) at [118]. See also 33.2–33.8. 3 The Balance Sheet Formats referred to in fn 2 above require Loans and other debts due to members to be shown separately from Members’ capital (under Members’ other interests). The requirements of balance sheets are discussed further in 21.16–21.20. An LLP authorised by the FCA to carry on a ‘regulated activity’ will be subject to particular requirements as to maintaining a minimum level of capital: see generally 20.19–20.20. 4 See, for instance, In re Southern Brazilian Rio Grande do Sul Ry Co Ltd [1905] 2 Ch 78 at 83 and Champagne Perrier SA v HH Finch Ltd [1982] 3 All ER 713 at 717d-e. 5 See Lee v Neuchatel Asphalte Co (1889) 41 Ch D 1 at 23 and Verner v General and Commercial Investment Trust [1894] 2 Ch 239 at 264–5. 6 See further 33.3–33.9. If there is such a sufficiency in a winding up, then (and not before) the LLP will be a debtor to the members for their capital: see the references in fn 5 above. The SORP for LLPs of 2018 (see 21.15), para 63 requires the notes to an LLP’s accounts to explain where ‘Loans and other debts due to members’ shown in the balance sheet would rank in relation to other creditors who are unsecured in the event of a winding up. 2

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16.3 Whether funds provided by members are provided as capital or by way of loan will depend upon the terms agreed between the members. In the absence of an express or implied agreement designating the funds as capital, they will be treated as a loan, and as a debt owing from the LLP to the members providing the funds.7 The repayment of loans made by members (or, indeed, anyone else) to the LLP may be subordinated to the repayment of debts owed by the LLP to other parties, and may, for instance, be made contingent on the solvency of the LLP, or repayable out of a particular fund only. 16.4 There is no reason why capital cannot be designated, or loans made, in a foreign currency.8 16.5 As in a traditional partnership context, capital (a fixed cash sum or its equivalent contributed by members) is conceptually wholly distinct from the assets of the LLP, which may be variable from day to day. The following judicial statement, made in a traditional partnership context, is equally applicable to an LLP: ‘The capital of a partnership is the aggregate of the contributions made by the partners, either in cash or in kind, for the purpose of commencing or carrying on the partnership business and intended to be risked by them therein. Each contribution must be of a fixed amount. If it is in cash, it speaks for itself. If it is in kind, it must be valued at a stated amount. It is important to distinguish between the capital of a partnership, a fixed sum, on the one hand and its assets, which may vary from day to day and include everything belonging to the firm having any money value, on the other.’9

In a company context, there is also the same essential distinction between capital subscribed by the shareholders and the assets of the company. 16.6 Whilst an LLP’s working capital can be provided, wholly or in part, by contributions of ‘capital’ by the members, there is no requirement in the LLP legislation that members do contribute capital. A member cannot be required to contribute capital, or to increase a contribution (or to convert a loan into capital, or capitalise undrawn profits) in the absence of a provision in the LLP agreement requiring this (or enabling it to be required).10 It may be the case (depending

7

See, for instance, Seldon v Davidson [1968] 1 WLR 1083 (CA): the payment of money prima facie imports an obligation to repay it. The definition of Members’ capital in the SORP for LLPs of 2018 (see 21.15) is consistent with this: ‘Amounts subscribed or otherwise contributed by members that are classified as capital by the constitutional arrangements of the LLP’: para 17. 8 See, for instance, the discussion in Re Scandinavian Bank Group Plc [1988] Ch 87, relating to CA 1985, s 2(5)(a). CA 2006, s 542(3) now provides that a company’s share capital may be denominated in any currency (subject to an initial authorised minimum for a public limited company denominated in sterling or euros). An FCA-regulated LLP will, however, be subject to rules as to conversion of foreign denominated currency for regulatory capital purposes. 9 Nourse LJ in Reed v Young in the Court of Appeal (1983) 59 TC 196 at 215, quoted in Popat v Shonchhatra [1997] 1 WLR 1367 (CA) at 1371F–H; and see also Popat at 1372H – ‘capital’ in Partnership Act 1890, s 24(1) cannot be construed so as to include the partnership property. 10 See In re Bridgewater Navigation Co Ltd [1891] 2 Ch 317 at 327/8. Where an LLP is carrying on a trade (as opposed to a profession), the amount of capital contributed will be relevant to the amount of ‘sideways relief’ available to members in the event of the trade incurring a loss: see 23.75–23.81.

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ultimately on the width of any provision in the LLP agreement permitting a variation of the agreement) that a requirement that members contribute capital, or increase existing contributions, is not capable of being introduced (at least, so as to bind a dissentient member) by a majority (but not unanimous) vote pursuant to a power permitting variation of the agreement by a specified majority.11 An amendment by majority vote which allows a reduction in capital contributions (whether by way of payment back, or writing off after a loss suffered by the LLP) may be permissible;12 but this is not certain. 16.7 An LLP’s funding may be provided wholly by way of loans from members, or by way of loans from third parties. If, however, amounts of capital have been contributed, there is no objection in principle (subject to compliance with the relevant provisions and requirements of the LLP agreement) to these amounts at any time being wholly or in part reduced, by being returned to the members, or being converted into loans to the LLP (ie converted into debt owing by the LLP to the members), or being written off (for instance, in the event of a loss being suffered by the LLP).13 There are no statutory restrictions on reduction of capital by an LLP, or on an LLP itself purchasing the economic interests of a member in it. There may, therefore, be provision in the LLP agreement (as is common in traditional partnership agreements) for a member’s capital to be returned to him on his ceasing to be a member (or on some other event).14 Equally, and subject to the terms of the LLP agreement, the members may at any time agree that the capital contribution of all (or some) of them be reduced. Although there are no statutory restrictions on reduction of capital generally, caution will need to be exercised before an LLP does return capital to members, or converts capital into debt. The members will need to consider the solvency of the LLP. If the LLP is at the time insolvent, or of doubtful solvency, the interests of the creditors will be paramount,15 and will need to be fully taken into account in any decision. The individual taking a return of his capital (on ceasing to be a member or otherwise) will also need to bear in mind that the repayment of capital (or of a loan) to a member within a period of two years prior to winding up may be subject to ‘claw-back’ under s 214A of the IA 1986.16 In relation to a member dying or otherwise leaving, it is the authors’ view that he (or his estate) will not

11 See

Hole v Garnsey [1930] AC 472, in particular Lord Atkin at 493–496 and Lord Tomlin at 501, where a power for a three-quarters majority to amend the rules of an industrial and provident society was held not to permit an amendment to increase capital contributions. Lord Atkin at p 496 expressly left open whether the amendment was wholly void as being ultra vires, and so not binding on even the assenting majority, or was only not binding on the dissentient minority. 12 See Hole v Garnsey above at 488–490, and the cases cited. 13 Note also that CA 2006, s 996(2)(e) enables the court to order that the share of a member (which will include capital contributions made by him: see 8.18) shall be purchased by the LLP, without the need (required by s 996(2)(e) for companies) that the court also authorise a reduction of capital. 14 For instance, there may be a provision for a return of capital proportionate to a reduction in profit share. Note that an FCA-regulated LLP will be required to have a minimum level of capital, and to have in place certain restrictions on its repayment: see 20.19–20.20. 15 See West Mercia Safetywear Ltd v Dodd [1988] BCLC 250 and Official Receiver v Stern (No 2) [2002] 1 BCLC 119 (both director’s disqualification cases). 16 See 34.8–34.12.

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be entitled to a return of his capital in the absence of a positive agreement to that effect,17 whereas (and as stated in 16.2) a loan will necessarily carry terms (express or implied) as to repayment.18 16.8 Equally (again, subject always to the relevant provisions and requirements of the LLP agreement), funds originally provided by members by way of loan can be redesignated as capital contributed by them.19 As is discussed at 21.23(d), the SORP for LLPs20 provides that the annual accounts should disclose the policy under which members contribute or subscribe amounts to the LLP by way of equity or debt, and the policy under which their contributions and subscriptions are repayable by the LLP. 16.9 The fact that there can be contractual provisions in the LLP agreement for a member’s capital to be returned to him (most commonly, on his ceasing to be a member) leads to the distinction in principle between a contribution of capital and a loan (ie between equity and debt) not necessarily being wholly clear in any particular case. It is against this background that the SORP for LLPs requires an analysis for the purposes of an LLP’s accounts as to whether capital contributed by members to the LLP carries a financial liability on the part of the LLP to the member, or whether (in contra-distinction) the contribution is truly equity in the LLP. ‘A member’s participation right will result in a liability unless the LLP has an unconditional right to avoid delivering cash or other assets to the member: that is, unless the right to any payment or repayment is discretionary on the part of the LLP.’21 The result is that, where members have a contractual right to a return of their capital (for instance, in the event of retirement), members’ capital contributions will fall to be classified as giving rise to financial liabilities on the part of the LLP, and will be shown in the balance sheet under ‘Loans and other debts due to members’. Only where members have no entitlement to the return of their capital contributions will such contributions be shown as ‘Members’ capital’.22 This distinction in the accounting treatment of capital contributions having been noted, it needs to be borne in mind that the legal characteristics of contributions treated in the balance sheet as ‘Loans and other debts due to members’ will not necessarily accord with what might be expected from that treatment. A sum contributed as capital on the basis that any right to repayment (on, say, retirement) is to be subordinated to the repayment of sums owing to a specific third party creditor, or class of third party creditors, will not lose that subordinated status merely because proper accounting treatment requires it to be shown as a financial liability of the LLP.

17 18 19 20 21 22

See further Chapter 19. See further 19.22. As to the need for a provision in the LLP agreement regarding members’ capital contributions, see 16.6. Of 2018, para 69. See further 21.15. SORP of 2018, para BC8. See SORP of 2018, paras 32–34.

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16.10

303

Default rule (1)23 provides as follows:

‘All the members of a limited liability partnership are entitled to share equally in the capital and profits of the limited liability partnership.’

This is an adoption (with modifications) of s 24(1) of the Partnership Act 1890. The reference in it to ‘capital’ is to be interpreted, the authors suggest, in accordance with the meaning and effect of s 24(1) in the sense set out in 16.5.24 As appears from the rule, the default position will be that all contributions (in whatever shares) designated as capital will be owned equally by the members. If this is not what is desired, the LLP agreement should contain provisions as to entitlement to capital.25 It is worth noting here that there is no default provision for contributions of capital to carry interest; and they will only do so if the LLP agreement provides for interest on capital. 16.11 In relation to capital, default rule (1) will be relevant when a member leaves, or in the event of a surplus in a winding up of the LLP. As is discussed at 19.27–19.40, a member will have no automatic right to a return of his capital on his ceasing to be a member (and the LLP not going into liquidation) unless there is some agreement to that effect. The distribution of a surplus in a winding up (including members’ capital) is discussed at 33.8–33.9.

PROFITS AND LOSSES Profits 16.12 Profits (or losses) are an accounting measure of the LLP’s performance over a given period.26 At least one given period for an LLP, by reason of the accounting requirements of the CA 2006, is one year.27 The LLP agreement will make provision (either expressly or by default)28 as to the members’ respective shares in profits made by the LLP. When the profits for any year (or other chosen period) have been established, it will be a matter of interpretation of the LLP agreement as to when (and if) those profits (or some part of them) are to be divided amongst the individual members in accordance with the profit-sharing provisions and paid out (or whether, for instance, they are to be placed in reserves). The agreement may provide for the profits, when ascertained, automatically to be divided amongst the members and paid

23

As to the default rules generally, see 10.7–10.11. Hailes v Hood [2007] EWHC 1616 (Ch), at [53], the reference to capital in default rule (1) was expressly interpreted (without dissent) as having the same meaning as under s 24(1) of the 1890 Act. In reality, the slightest indication of an implied agreement between the members that their share in capital should correspond with their contributions to it will suffice to displace the default rule that they are entitled to share equally: see Popat v Shonchhatra [1997] 1 WLR 1367 at 1373B–C. The accounts might demonstrate such an agreement. See, for example, Reed v Young [1986] 1 WLR 649 (HL) at 654D. As to the accounting requirements, see Chapter 21. See default rule (1) set out in 16.10.

24 In

25

26 27 28

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out. Alternatively, the agreement may provide that a decision (by the membership, or some part of it) as to division is first required before members are to be entitled to call for payment by the LLP to them of their respective shares.29 16.13 As indicated above, the LLP agreement may provide for the automatic division and allocation of profits when the profits of the LLP for the relevant period have been established. But it is probably the position that default rule (1) set out in 16.10 does not itself have that consequence, and solely makes provision as to shares of profit if and when there is a decision to divide them.30 As has been mentioned at 10.6, the terms of an LLP agreement may be agreed by conduct; and, where the default rules are being relied upon to constitute the agreement, it may be that the members will in fact proceed on the basis of automatic division and allocation, and so create an agreement to that effect. 16.14 If the LLP agreement does provide for the automatic division and payment out of profits, the profits allocated to individual members in accordance with the agreed profit shares will be credited directly to the individual accounts of the members with the LLP and, subject again to the provisions of the LLP agreement,31 thereupon, in the authors’ view, become debts due from the LLP to the members.32 Where the LLP agreement provides for a separate decision to be made as to division, profits which have been ascertained but which have not been the subject of such a decision will be shown in the LLP’s balance sheet under ‘Other reserves’ (within ‘Members’ other interests’),33 and until allocated to the individual members will not constitute debts for which the members may sue or prove in a liquidation. 16.15 Members of professional and trading LLPs will usually expect to be entitled to drawings on account of profits during a financial year, with a balancing payment or repayment when the accounts for that year have been prepared and approved and the profits divided. This again is a matter for decision by the members. In the absence of agreement as to this, there is no default right to drawings on account of profit during the year.34 If there is provision for members to draw on account of profits not yet divided, such drawings will constitute loans by the LLP to the members receiving the drawings, and will, therefore, appear on the balance sheet of the LLP as indebtedness of members to the LLP. In these circumstances, over a period of a year (or more, namely until the accounts for the relevant financial year have been approved) considerable indebtedness on the part of the members to the LLP may

29

Analogous to the decision of a company to declare a dividend. As to restrictions on the distribution of profits, or sums on account of profits, by an LLP authorised by the FCA to carry on a ‘regulated activity’, see 20.20. 30 The legal opinion of Robin Potts QC, annexed as Appendix 5 to the SORP for LLPs of 2018, also takes the view that default rule (1) is solely concerned with shares of profit, and not division. 31 There may, for instance, be an agreement for members not to withdraw all profits allocated to them, and to redesignate part of such profits as capital. 32 In McTear v Eade [2019] EWHC 1673 (Ch), ICC Judge Jones expressed a contrary view: see 33.2–33.7. 33 See the SORP for LLPs of 2018, paras 24, 55 and 61. 34 The SORP for LLPs of 2018, para 69 requires the ‘Members’ Report’ to disclose the overall policy followed by the LLP in relation to members’ drawings, including an indication of the policy applicable where the cash requirements of the business compete with the need to allow cash drawings by members.

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build up. Some LLPs may wish to provide for quarterly (or other periodic) divisions of profit during a year in order to lessen this build up of members’ indebtedness. Such periodic divisions will need to be based on properly prepared and approved periodic accounts, ie on accounts which will be consistent with the year-end accounts.35 16.16 As with the word ‘capital’, the reference to ‘profits’ in default rule (1) is to be interpreted, the authors suggest, in accordance with the meaning and effect of s 24(1) of the Partnership Act 1890. ‘Profits’ will include capital profits, that is to say any profits on the realisation of assets of the LLP.36 As with income profits discussed above, the point at which an entitlement for an individual member to receive a share of any capital profits crystallises will be a matter for agreement.37 If an LLP agreement makes no clear distinction between shares of revenue profits and shares of capital profits, the latter will be shared in the same proportions as the former.38

Losses 16.17 An LLP may be a going concern but nevertheless making trading losses. Losses are conceptually quite distinct from the debts and liabilities of the firm, and from the assets which are available to meet them.39 If an LLP makes a trading loss in a particular period, some financial provision will need to be made to cover that loss, both in terms of appropriating the loss in the accounts and in actual cash terms. Consideration will need to be given to this in drafting the LLP agreement.40 16.18 What is the position in default of agreement as to covering trading losses? The liability of the members for the debts and liabilities of the LLP is limited, in the sense that in a winding up their liability to contribute for the benefit of creditors of the LLP is limited to what they have agreed to contribute.41 Consistently with this, default rule (1) does not adopt the second part of s 24(1) of the Partnership Act 1890, which provides that ‘All the partners … must contribute equally towards the losses … sustained by the firm’.42 It is not the default position for LLPs, therefore, that trading losses are to be shared amongst, or made good by, members in equal (or in any other) shares.43 If the LLP is trading at a loss, the members will, however, need 35

A withdrawal of a share of allocated profits will be potentially subject to ‘claw-back’ under IA 1986, s 214A in the event of the LLP going into liquidation: see the reference to ‘a share of profits’ in subs (2)(a). Such periodic accounts will not need to be audited. 36 See Robinson v Ashton (1875) 20 Eq 25 and Popat v Shonchhatra [1997] 1 WLR 1367 at 1373D and 1374B–1375A; and, see also, in a company context, In re Bridgewater Navigation Co Ltd [1891] 2 Ch 317 at 328–9 (‘the second question’). The relevance of default rule (1) in the event of a surplus in a winding up of the LLP is discussed in 33.8–33.9. 37 And see the discussion as to entitlement to a share of any increased (but not realised) value on cessation of membership in Chapter 19. 38 See Robinson v Ashton above. 39 See Reed v Young above at 654A. 40 See further 11.9. 41 Subject to ss 212–214A of the IA 1986 or any claim for breach of duty. See 8.15–8.17 and 34.8–34.13. 42 Section 24(1) of the 1890 Act is a default rule of internal management as to the allocation between partners of losses arising out of debts and liabilities for which, as against third parties, the partners are jointly (or jointly and severally) liable. 43 Losses may, however, give rise to tax relief for members; and may for this purpose be appropriated to members: see 11.9 and 23.75–23.81.

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to have in mind the provisions of ss 212 to 214A of the IA 1986;44 and ultimately the LLP may be put into liquidation. As a matter of accounting, where (as under the default rules) there is no provision in the LLP agreement for a trading loss to be allocated to individual members, the loss will be debited to ‘Other reserves’ (within ‘Members’ other interests’) on the balance sheet.45 If there is provision in the LLP agreement that losses (either generally, or of any specific nature, or up to any specific amount) are to be borne by the individual members, but there is no provision as to the shares amongst the members in which the losses are to be borne, the inference will be, it is suggested (and in the absence of anything to the contrary), that they are to be borne in the same shares as profits are divisible.46

44

For instance, fraudulent trading or wrongful trading: see Chapter 34. See the SORP for LLPs of 2018, para 61. ‘Other reserves’ may, as a result, be a negative figure. 46 See Re Albion Life Assurance Society (1880) 16 Ch D 83. 45

Chapter 17 THE BUSINESS AND AFFAIRS OF THE LLP: CONDUCT AND DECISION-MAKING

INTRODUCTION 17.1 This chapter concerns the conduct of the business and affairs of the LLP, and decision-making in respect of those matters. The first part of the chapter – 17.2 and 17.3 – is concerned with the entitlement of a member to participate in the business and affairs of an LLP. The second part – 17.4 to 17.46 – is concerned with decisionmaking. Internal issues as to decision-making (that is, issues arising among the members) in this context are concerned with the circumstances in which a member of an LLP can be bound in respect of a particular matter against his will. In general terms, two questions arise. First, who has the power to make particular decisions and what is the extent or scope of the relevant power?1 The first question will include determination of whether a power is subject to implied restrictions or fetters and, if so, in what way.2 Secondly, has the power been validly exercised?

PARTICIPATION IN THE BUSINESS AND AFFAIRS OF THE LLP 17.2 A member of an LLP has no inherent right, as a matter of law, to be involved in the conduct of the LLP’s business or the management of the LLP itself. Entitlement to participate in the business and management is a matter for the members to agree, and it is open to the members to make an agreement that excludes a member from participation in the LLP’s business and management. In the absence of agreement to the contrary, however, default rule (3) provides that:3 ‘(3) Every member may take part in the management of the limited liability partnership.’

The default right is limited to involvement in management and, given that there is no reference in default rule (3) to business, does not extend to a right to be involved in the conduct of the business itself. It seems clear that a distinction is drawn in the default rules between management of the LLP and its business. Default rules (4) and (6) provide: ‘(4) No member shall be entitled to remuneration for acting in the business or management of the limited liability partnership.’4 1 See

17.4–17.25. 17.26–17.46. As to the default rules generally, see 10.7–10.11. The essence of ‘remuneration’ referred to in default rule (4) is that it is consideration for work done or to be done. This can take many forms, and is not limited to a conventional direct payment: see Currencies Direct Ltd v Ellis [2002] 2 BCLC 482.

2 See 3 4

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The Law of Limited Liability Partnerships ‘(6) Any difference arising as to ordinary matters connected with the business of the limited liability partnership may be decided by a majority of the members, but no change may be made in the nature of the business of the limited liability partnership without the consent of all the members.’

Default rules (3), (4) and (6) are based on subss (5), (6) and (8) respectively of s 24 of the Partnership Act 1890. However, whilst default rule (6) follows closely subs (8) of s 24, default rules (3) and (4) differ materially from subss (5) and (6).5 As noted above, the default rules draw a distinction, which is not present in the corresponding provisions of the 1890 Act, between the ‘business’ of the LLP and its ‘management’. The differences from the 1890 Act provisions, and the distinction between ‘business’ and ‘management’, reflect the corporate nature and separate legal personality of LLPs, as distinct from the nature of a partnership as simply the aggregate of persons carrying on business together. The default rules are, perhaps, also a reflection of the potential in 2001 for LLPs to have many more members than partnerships had partners in 1890, leading to a greater likelihood of a division between members’ roles in the operation of the LLP’s business and in its internal management. These differences are examples of why ‘great caution needs to be exercised when attempting to extrapolate from the Partnership Act and authorities concerned with partnership in the traditional sense principles that can then be applied to LLPs’.6 17.3 Where a member has a right, under the LLP agreement, to be involved in the conduct of the LLP’s business, questions of construction or implication can arise as to the extent or duration of that right. Although each case will (of course) turn on a consideration of the terms of the relevant agreement, read in its context, it is likely to be difficult, particularly in cases where there is a detailed LLP agreement, to imply a term giving a member a right to a particular level of marketing or sales support, even where his remuneration or profit share depends upon the success or value of his contribution.7 It is open to members of an LLP to agree that a member can be suspended from having a role in business and management (for example, where allegations of misconduct are being investigated) or that a member’s right to be involved in business and management comes to an end on giving or receiving notice to leave the LLP.8 Whether (in the absence of the exercise of an express ‘garden leave’ provision) a member has a right to work during a notice period is a question of construction of the relevant provisions of the LLP agreement; as is the question whether the LLP is obliged to provide members with work to do.9

5

6 7

8 9

LLP Act 2000, s 15(c) provides that regulations may apply to LLPs any law relating to partnerships ‘with such modifications as appear appropriate’. Section 24(5) of the 1890 Act provides that ‘Every partner may take part in the management of the partnership business’: for the purposes of default rule (3), ‘the partnership business’ has become ‘the limited liability partnership’ (ie the corporate entity). Section 24(6) provides that ‘No partner shall be entitled to remuneration for acting in the partnership business’: for the purposes of default rule (4), ‘the partnership business’ has become ‘the business or management of the limited liability partnership’. Hilton and others v D IV LLP and others [2015] EWHC 2 (Ch) at [21]. See, for example, Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch) at [247]–[248]; and (in a different context) Archer v Nubuke Investments LLP [2014] EWHC 3425 (Ch) at [27]–[39]. In relation to garden leave, see 11.46–11.47. William Hill Organisation Ltd v Tucker [1999] ICR 291 and Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch) at [169]–[181].

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DECISION-MAKING 17.4 As with involvement in the business and management of an LLP, it is for the members to agree in what way decisions affecting the LLP and its business, assets and affairs are to be made. As will be seen below, the default position, in the absence of terms agreed by the members, is not very clear. This lack of clarity arises from the fact that the default rules do not make provision for all the types of decision that can arise during the life of an LLP.

Business connected matters 17.5 The default rules – default rule (6) – only make provision for the making of decisions as to matters connected with the business of the LLP. For the making of a decision as to the ‘ordinary matters’ to which it refers, the rule requires a majority of all the members, and not simply a majority of those present at a meeting of members. There is no inherent right for the chairman of a meeting of the members to have a casting vote in the event of an equality of votes: there is no common law right to a chairman’s casting vote.10 If the chairman of a meeting of the members (or any other person) is to have a casting vote, the default rules need to be varied to provide for this. What business-connected matters fall within ‘ordinary matters’ for the purposes of the rule will be a matter of fact, to be considered in the context of the LLP itself and current commercial practice. Given the closeness of default rule (6) to s 24(8) of the 1890 Act, it may be helpful to consider examples of ‘ordinary matters’ from the context of simple partnerships. These are said to include most decisions regarding the day-to-day conduct of the partnership’s business, including ‘the enlargement of a partner’s authority to bind the firm, the engagement and dismissal of staff, the choice of the firm’s bankers and accountants and the renewal of a lease of partnership premises’.11 17.6 As to non-ordinary matters connected with the business of the LLP, default rule (6) refers only to a change in the nature of the LLP’s business (which requires the consent of all the members). The question arises as to how a decision is to be made concerning a matter which is connected with the business of the LLP, but which is not an ‘ordinary matter’ and does not involve a change in the nature of the business. In the authors’ view, non-ordinary business connected matters require the consent of all members. This view also appears to be in accordance with the accepted interpretation of s 24(8) of the Partnership Act 1890 (upon which default rule (6) is based); and it is probably appropriate to have regard to this when considering the intended effect of the default rule. It appears to be the position under the 1890 Act that, as a result of subss (5) and (8) of s 24, and reflecting the pre-1890 law, any decision relating to the business of the partnership which is not an ‘ordinary matter’ requires the consent of all the partners, whether or not it concerns a change in the nature of the partnership business: in other words, in traditional partnerships, s 24(5) – which refers only to ‘the management of the partnership business’ – confers on each partner a right to take part in collegiate decision-making relating to the partnership business, and s 24(8) – referring to voting requirements in relation to the

10 11

Nell v Longbottom [1894] 1 QB 767 at 771. Lindley & Banks on Partnership (20th edn) (2017), para 15-05.

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partnership business – provides that a majority decision will prevail only in relation to ordinary matters, with any other decisions which relate to the business requiring the consent of all partners.12 17.7 As is discussed in more detail later in this chapter, the legislation, both in the default rules and in the primary statutory provisions, provides specifically for various matters to be decided by either ‘the limited liability partnership’ or ‘the members’ or ‘meetings of the members’.13 An issue of construction of default rule (6) which arises is whether such matters can, if in any particular case the facts support the conclusion, qualify as matters connected with the business of the LLP for the purpose of this rule (so that the consent requirements of the rule apply to them). Such matters might include, for instance, a change in the name of the LLP14 or the giving of consent for a member to derive a benefit from any transaction concerning the LLP.15 The view of the authors is that this is probably not the position, and that the intention of the legislation is that matters specifically referred to elsewhere in the legislation (including the default rules) as being matters to be decided by the LLP or by the members or by a meeting of the members do not fall within the rule.

Non-business connected matters 17.8 The core question which arises is how decisions concerning the management of the LLP are to be made if they do not fall within default rule (6); that is, where they are not business connected decisions. As has been said in 17.2, the default rules distinguish between the ‘business’ of the LLP and its ‘management’. Default rule (3) – ‘every member may take part in the management’ of the LLP – confers a right on each member to take part in such decision-making; but it does not answer the question whether a majority or unanimity is required for the making of the decision. It is convenient to consider the question, first, in relation to matters where the legislation (including the default rules) specifies the body to make a decision and, secondly, in relation to matters which are not expressly referred to in the legislation.

Legislative provisions 17.9 The legislation (including the default rules) expressly confers a number of powers and authorities, or obligations, relating to the affairs of the LLP on (a) ‘the limited liability partnership’ simpliciter, (b) ‘the members’ simpliciter, (c) ‘a meeting of the members of the limited liability partnership’ and (d) ‘the limited liability partnership at a meeting of the members of the limited liability partnership’. They include the following: (a)

‘the limited liability partnership’ (i) proposing a voluntary arrangement with its creditors;16

12 See

Lindley & Banks on Partnership (20th edn) (2017), para 15–09, and Lindley on Partnership (5th edn) (1888) at 313 and (6th edn) (1893) at 325. 13 See 17.9. 14 Under LLP Act 2000, Sch, Pt I, para 4(1), considered at 4.22. 15 Default rule (9), discussed at 13.11. 16 Under IA 1986, s 1(1), as modified and applied to LLPs by SI 2001/1090, reg 5, as subsequently amended: see 28.4.

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(ii)

applying to the court for an administration order, or appointing an administrator out of court;17 (iii) applying to the court under CA 2006, ss 895–89918 for a scheme of compromise or arrangement with its creditors, or between the LLP and its members;19 (iv) determining to go into a members’ or creditors’ voluntary liquidation20 (and appointing, or nominating, a liquidator in such a winding up);21 (v) conferring authority on a liquidator in a members’ voluntary winding up to receive, as consideration for the transfer of the business or property of the LLP to another company or LLP, interests in the transferee company or LLP;22 (vi) presenting a petition for winding up by the court;23 (vii) changing the name of the LLP;24 (viii) changing the registered office of the LLP;25 (ix) giving consent to a member carrying on any business of the same nature as and competing with the LLP;26 (x) giving consent for a member to derive a benefit from any transaction concerning the LLP;27 and (xi) determining that the auditor’s name should not be stated in published copies of the auditor’s report.28 (b) ‘the members’ (xii) Appointing the auditors (save in the specified circumstances where the power to appoint auditors is given by the CA 2006 to the designated members);29 (xiii) approving the annual accounts;30 (xiv) determining if a place other than the LLP’s registered office is where the LLP’s accounting records are to be kept;31 and

17

Under IA 1986, s 8 and Sch B1, para 12(1) or para 22, as modified and applied by SI 2001/1090, reg 5 and subsequently amended by the Enterprise Act 2002: see 29.5. 18 As modified and applied to LLPs by SI 2009/1804, reg 45, as amended by the Limited Liability Partnerships (Amendment etc) Regulations 2020, SI 2020/643. (The Limited Liability Partnerships (Amendment etc) Regulations 2020 were revoked with effect from 16 February 2021 by the Limited Liability Partnerships (Amendment etc) Regulations 2021, SI 2021/60, which introduced substitute amendments.) 19 See 36.2–36.3. 20 Under IA 1986, s 84(1), as modified and applied by SI 2001/1090, reg 5: see 31.1. 21 Under IA 1986, s 91, as modified and applied by SI 2001/1090, reg 5 (appointment in a members’ voluntary winding up) and s 100 (nomination in a creditors’ voluntary winding up). 22 IA 1986, s 110, as modified and applied by SI 2001/1090, reg 5: see 36.6. 23 Under IA 1986, as modified and applied by SI 2001/1090, reg 5, s 122(1)(a): see 31.10. 24 Under LLP Act 2000, Sch, Pt I, para 4, considered at 4.22–4.26. 25 Under CA 2006, s 87, as modified and applied by SI 2009/1804, reg 16, considered at 3.15. 26 Default rule (9), discussed at 13.11. 27 Default rule (10), discussed at 13.11. 28 Under CA 2006, s 506, as modified and applied by SI 2008/1911, reg 41, considered at 22.15. 29 Under CA 2006, s 485(4), as modified and applied by SI 2008/1911, reg 36: see 22.3. 30 Under CA 2006 s 414(1), as modified and applied by SI 2008/1911, reg 12: see 21.28. 31 Under CA 2006, s 388(1)(a), as modified and applied by SI 2008/1911, reg 6. Accounting records are discussed at 21.3–21.6.

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(xv)

determining if a place other than the LLP’s registered office is where the LLP’s books and records are to be available for inspection by members.32 (c) ‘a meeting of the members of the limited liability partnership’ (xvi) On the appointment (by the LLP) of a liquidator in a members’ voluntary liquidation, sanctioning the continuance of some or all of the powers of the members;33 and (xvii) if a vacancy occurs in the office of liquidator in a member’s voluntary winding up, filling the vacancy (subject to any arrangement with the creditors).34 (d) ‘the limited liability partnership at a meeting of the members of the limited liability partnership’ (xviii) Determining to authorise the liquidator in a voluntary liquidation to transfer the whole or part of the LLP’s business or property to another LLP or company in return for shares or interests in the transferee entity for distribution among the members.35 17.10 The nearest that the legislation comes to specifying a procedure regarding non-business connected decisions is in relation to items (xvi)–(xviii) above, in relation to which new provisions are introduced into the IA 1986 for LLPs.36 For the purpose of any of the meetings of members mentioned in those items, the (modified) IA 1986 provides that the quorum required for the meeting shall be any quorum required by the LLP agreement for meetings of members ‘and if no requirement for a quorum has been agreed upon the quorum shall be 2 members’.37 This provision clearly indicates that the decisions do not necessarily require the consent of all the members, in that only a quorum of members need be party to the decision-making. The IA 1986 also provides, in s 92(3)38 (applicable to all the meetings being discussed), that the meeting is to be held ‘in manner provided by this Act’ or by the LLP agreement, or in such manner as may, on application by any contributory or the liquidator, be determined by the court. Neither the IA 1986 nor the CA 2006 provides for the manner of holding meetings of the members of an LLP. 17.11 The CA 2006 and the IA 1986 as applying to companies provide, directly or indirectly, for the equivalent decisions for companies to those set out at (i)–(xviii) above to be taken by either a specified majority of the members or by a majority of the directors.39 There is much to be said in practice for the position being that the matters referred to in 17.9 (and other non-business connected decisions relating to 32 33 34 35 36 37

38 39

Under default rule (7), considered at 14.3–14.10. IA 1986, s 91(2), as modified and applied by SI 2001/1090, reg 5. IA 1986, s 92, as modified and applied by SI 2001/1090, reg 5. IA 1986, s 110(3)(a), as modified and applied by SI 2001/1090, reg 5. By SI 2001/1090, reg 5. IA 1986, s 91(3) (continuing the members’ powers), s 92(4) (filling a vacancy), s 110(3)(a) (transfer of business or property) and s 165(4A) (sanctioning exercise of liquidator’s powers), as modified and applied by SI 2001/1090, reg 5. These are all provisions inserted for LLPs. As modified and applied by SI 2001/1090, reg 5. The LLP legislation does not contain any equivalent to the general provisions in the CA 2006 as to resolutions and meetings of members (ss 281–287), or any equivalent to the CA 2006 model articles under s 20 (SI 2008/3229) as to decision-making by the directors.

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the management of the LLP) do not need to have the agreement of all the members of the LLP, and that the company position in this respect should be broadly followed. If unanimous agreement is required, a minority could bring crucial elements of the management of the LLP to a deadlock, not only to the detriment of the LLP and its members, but also (for instance, where the LLP is insolvent or of doubtful solvency) to the detriment of third parties dealing with the LLP, and in derogation of the members’ collegiate responsibility to creditors.40 This, it is suggested, is a result that the court would not countenance with equanimity. 17.12 In relation to decision-making by ‘the limited liability partnership’, and in the absence of any determinative provision in the LLP agreement, or statute or court order, the authors suggest that the answer as to how a valid decision is made is to be found in the common law as to decision-making by a corporate body through its members.41 On this basis, the matter will be decided by a (simple) majority of members attending a meeting of the members at which more than half of all the members are present. The legal principle as to the way in which corporate authority is exercised was stated by Wills J as follows in Merchants of the Staple of England v Governors & Company of the Bank of England in 1887:42 ‘The acts of a corporation are those of the major part of the corporators, corporately assembled …. This means that, in the absence of special custom, the major part must be present at the meeting, and that of that major part there must be a majority in favour of the act or resolution …. By ‘corporately assembled’ it is meant that the meeting shall be one held upon notice which gives every corporator the opportunity of being present …. The notice need not necessarily be special, but there must be such knowledge, or such means of knowledge, as to give each corporator the opportunity of attending.’

The reference by Wills J to the notice not needing to be ‘special’ is, the authors apprehend, a reference to the notice not needing to state what business is proposed to be transacted at the meeting. It is to be appreciated, however, that this lack of necessity to state the proposed business is only the default position, and will be replaced by any provision in the LLP agreement requiring the notice of a meeting to state, either generally or specifically, the nature of the proposed business.43

40 See 41

42

43

17.23. Regulation 7 of the LLP Regulations 2001, containing the default rules (1)–(10), states that the rules are ‘subject to the provisions of the general law’ as well as to the terms of any LLP agreement. In relation to partnerships, it was held in Patley Farm LLP v Brake [2017] 1 WLR 343 at [52] that an application for an administration order had to be made unanimously, in the absence of a provision in the partnership agreement to the contrary. See also Berry, ‘Square pegs and round holes: why company insolvency law is a bad fit for partnerships and LLPs’ (2018) 31(3) Insolvency Intelligence 88. (1887) 21 QBD 160 at 165. The case subsequently went to the Court of Appeal (at p 170 of 21 QBD); but this statement was not affected. See also Attorney-General v Davy (1741) 2 Atk 212, upholding a decision by a majority only of persons incorporated by a royal charter. ‘It cannot be disputed, that wherever a certain number are incorporated, a major part of them may do any corporate act; so if all are summoned, and part appear, a major part of those that appear may do a corporate act, though nothing be mentioned in the charter of the major part’: Lord Hardwicke LC, cited in Gore-Browne on Companies, para 11[1]. See, for instance, Normandy v Ind Coope & Co Ltd [1908] 1 Ch 84 and Young v Ladies’ Imperial Club Ltd [1920] 2 KB 523. If the nature of the proposed business is required to be stated, this must

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The notice must (save possibly in special cases, such as a member being so ill that he could not possibly attend) be given to every one of the members.44 The period of notice must be what is fair and reasonable in the particular circumstances.45 17.13 Whether or not matters specified in the primary legislation or the default rules as matters falling to be decided by ‘the members’ can be decided by a majority only of members is essentially a matter of construction of the relevant statutory provision or default rule.46 But the governing principle, it is suggested, is that, in the absence of an indication to the contrary, a decision taken by a majority of all the members will be valid;47 and that a majority of a quorum only (or of those members who attend a meeting) will not suffice unless there is a provision permitting a majority of a quorum only (or of those members who attend a meeting) to suffice for the making of the decision.48 As stated in 17.5, this is also the basis for decision making by the members as to ordinary matters connected with the business of the LLP set out in default rule (6). The authors suggest that it will also be the basis for decision-making by the designated members in relation to matters required or permitted by the legislation to be decided by them.49 17.14 The principles set out in 17.12 and 17.13 do result in a difference of procedure as to decisions by ‘the limited liability partnership’ and by ‘the members’, in that decisions by the former, but not by the latter, can be made by a majority of members at a quorate meeting, whilst a decision by the latter requires the agreement of a majority of all the members. This difference, however, between a decision by the corporate body itself and one by the corporators as members, appears to be built into the common law principles.

Other non-membership matters 17.15 In addition to the matters specified in 17.9, there will no doubt be many other matters relating to the management of the LLP which require a decision. One such matter, in particular, will be the timing of the division and allocation of profits amongst the members in their respective shares.50 The authors suggest that nonbusiness connected matters relating to the management of the LLP which are not specified in the legislation are to be seen as matters to be decided by ‘the members’,

be done fairly and not in any way misleadingly: see, for instance, Kaye v Croydon Tramways Co [1898] 1 Ch 358. 44 See In re Portuguese Consolidated Copper Mines Ltd (1889) 42 Ch D 160 and Young v Ladies’ Imperial Club Ltd above. 45 See, for instance, John Morley Building Co v Barras [1891] 2 Ch 386 at 393–4. 46 See, for instance, Perrott and Perrott Ltd v Stephenson [1934] Ch 171 and Bersel Manufacturing Co Ltd v Berry [1968] 2 All ER 552 (HL). 47 See York Tramways Co v Willows (1882) 8 QBD 685, esp at 695 and 698 regarding the appointment of directors by four out of seven subscribers to the memorandum, and the board meeting on 28 October 1880), and John Morley Building Co v Barras above (esp at 392 regarding the meeting on 12 January 1891). In York Tramways, Brett LJ said (at 698) ‘I know of no rule of law preventing the majority of a body from binding the minority.’ 48 See York Tramways Co v Willows above at 698 and In re Portuguese Consolidated Copper Mines Ltd above at 165 and 168. 49 The role of the designated members is discussed in Chapter 12. 50 See 16.12–16.13.

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and that a decision taken by a majority of all the members (as stated in 17.13) will be valid.51 It may be said against this view that at least some decisions, including the timing of the division and allocation of profits, are more properly to be seen (in default of any provision in the LLP agreement dealing with them) as corporate body decisions, equivalent to decisions by ‘the limited liability partnership’, with the result that the procedure for decision-making is that set out in 17.12.52 But the authors suggest that, for the purpose of making general decisions concerning the management of the LLP, the members are to be equated more to company directors than shareholders or other members embodying together the corporate entity (as discussed in the Merchants of the Staple of England case referred to in 17.12). To see decisions as to other management matters as decisions to be taken by ‘the members’ is consistent with, if not supported by, the terms of default rule (3), and brings a consistency to all decision-making that is not expressly reserved to ‘the limited liability partnership’ or concerned with membership matters.

Membership matters 17.16 The discussion in 17.4–17.15 relates to ordinary matters connected to the business of the LLP, and to other decisions relating (broadly speaking) to the management of the LLP. Such decisions, necessary to the implementation of the contract between the members to conduct their business through the LLP, are to be distinguished from decisions to alter the rights of the members (eg profit shares), or otherwise to vary the terms of that contract (contained either in a tailor-made LLP agreement or in the default rules). Any such alteration or variation, like any variation of a contract, will (unless the LLP agreement provides otherwise) require unanimity of the contracting parties.53

The Duomatic principle 17.17 If the approach to decision-making on behalf of the LLP set out in 17.12–17.15 is correct, or if there is an LLP agreement which provides for majority decisions at meetings of the members,54 all the members can give a fully-informed assent to a decision, without there actually being a meeting.55 In company law, this is known as the Duomatic principle.56 Equally, if there is a meeting at which all the members

51

See the cases cited in fn 42 above. As to the division and allocation of profits, for companies the CA 2006 model articles under s 20 (art 30 in Sch 1 to SI 2008/3229) provide (as the default position) that ‘the company may by ordinary resolution declare dividends’ but not exceeding the amount recommended by the directors. Table A (art 102) to the CA 1985 was to the same effect. 53 See generally, for instance, Chitty on Contracts (33rd edn) (2018), para 22–032. 54 As default rule (6) does in relation to ordinary business connected matters. 55 See In re Duomatic Ltd [1969] 2 Ch 365, Cane v Jones [1980] 1 WLR 1451 (‘… all the corporators, acting together, can do anything which is intra vires the company’: p 1459G), EIC Services Ltd v Phipps [2004] 2 BCLC 589 at [120]–[122] and [133]–[139] (Neuberger J) and Ciban Management Corporation v Citco (BVI) Limited [2020] UKPC 21 at [31] to [42]. That the Duomatic principle applies to LLPs as well as companies was confirmed by ICC Judge Jones in McTear v Eade [2019] EWHC 1673 (Ch) at [116]. 56 ‘… where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry 52

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are present, and they unanimously give their fully informed assent to a decision, that decision can, as a matter of procedure, validly be carried into effect although required formalities as to notice of a meeting and/or of the resolution have not been satisfied.57

Enforcement of individual members’ participation rights 17.18 If a member is wrongfully excluded from taking part in the management of the LLP, or from voting in relation to matters where he is entitled to participate in the decision-making, or if his vote is wrongfully excluded from the counting of votes, he will, at least generally speaking,58 be able to take proceedings in his own name (against the other members) for the wrong done to him as an individual,59 and to have his right to participate and/or to vote enforced, or to have the exclusion of his vote remedied.60 This will be the case whether his right to take part in the management of the LLP, or to vote, exists under the default rules or under the terms of a tailor-made LLP agreement.

Management committee 17.19 It is common for LLPs to have a management committee in which power is vested to decide much of what comprises both ‘matters connected with the business’ of the LLP and ‘management’ of the LLP as referred to in the default rules. The existence of a management committee needs to be sanctioned by the LLP agreement. In the absence of provision in the LLP agreement for matters to be decided by a committee, it will not be open to a majority of members to appoint a committee to manage the affairs of the LLP (or some of them).61 The composition and functions of any committee (general management or otherwise), and the ambit of its delegated authority (or the method for establishing that authority), also need to be set out in the LLP agreement. There should also be provision as to how matters are to be decided by the committee (for instance, by majority vote), and as to the quorum for a meeting of it. As with the statutory provisions relating to decisions by ‘the members’ of the LLP,62 in the absence of provisions as to procedure the issue whether the committee can act by majority vote, whether a quorum will suffice for decision-making and,

into effect, that assent is as binding as a resolution in general meeting would be’: Buckley J in Duomatic above at p 373. 57 In re Express Engineering Works Ltd [1920] 1 Ch 466. 58 The position may be less clear if the member has no profit share or other financial stake in the LLP: see Hayes v Bristol Plant Hire Co Ltd [1957] 1 WLR 499. 59 For any resultant wrong to the LLP, the cause of action will lie with the LLP. 60 See Pender v Lushington (1877) LR 6 Ch D 70 (shareholder’s right to have his vote counted), Pulbrook v Richmond Consolidated Mining Co (1878) LR 9 Ch D 610 (director’s right not to be excluded from discussion and voting at board meetings. ‘He has a right by the constitution of the company to take part in its management, to be present, and to vote at the meetings of the board of directors. He has a perfect right to know what is going on at these meetings’: Jessel MR at 612) and Hayes v Bristol Plant Hire Co Ltd [1957] 1 WLR 499 (director’s right not to be excluded). 61 This follows from default rule (3); and see also Kyshe v Alturas Gold Ltd (1888) 4 TLR 331 (it is not in the power of some only of the directors of a company to appoint a committee of themselves to deal with the company’s affairs to the exclusion of one of their number). 62 See 17.13.

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additionally, whether all the members of the committee must personally be party to the decision-making, will be essentially matters of construction of the provision establishing or enabling the committee. Again, as with statutory provisions, it is suggested that the general principle will be that, in the absence of any indication to the contrary, a valid decision may be taken by a majority of all the members of the committee, and that a majority of a quorum only (or of those who attend a meeting) will not suffice.63 Where the LLP agreement appoints, or enables the appointment of, a committee of named individuals (as is likely to be the case, if there is to be a committee), and there is no provision for the committee to act by a quorum, it may be a serious issue of construction of the agreement as to whether or not the committee may act otherwise than with all its members taking part in its deliberations (albeit that any decision may be reached by a majority only). The issue will arise because it is to be assumed that considerable confidence is reposed in each of the named individuals, and his participating in the committee’s deliberations.64 There will be no right for the chairman of the committee to have a casting vote, without provision to that effect.65 The committee will not have the power to appoint additional or replacement members of the committee without a provision to that effect.66 If the committee is to have power to delegate any of its powers to any other committee or sub-committee, that power needs to be contained in the LLP agreement. A power to delegate must be exercised bona fide (and not, for instance, for the purpose of excluding one or more members of the committee from the decision-making).67 As a general rule, where the management committee (or any other committee) delegates a power to a sub-committee, it can itself at any time resume the power delegated.68 17.20 If, under an LLP agreement, a management committee is given certain powers and discretions, there will be no inherent right for all the members of the LLP together by majority vote to direct the committee as to how it should exercise those powers or discretions, or to override a decision which the committee has properly taken. A provision in the LLP agreement expressly conferring certain powers of management on a committee of members will, in relation to the matters covered by the powers, inevitably vary default rule (3) set out above. There may be a power in the LLP agreement for a specified majority of the members to remove members of the committee, or to alter the matters entrusted to the committee; and these powers may, of course, be exercised. But they are not to be equated with a general power for a majority of the members (without exercising these last-mentioned powers) to

63

See the cases cited in 17.13, and (as to a decision of the majority of the committee sufficing) Re Liverpool Household Stores Association (1890) 59 LJ Ch 616 at 624. 64 See Brown v Andrew (1849) 18 LJQB 153 and Re Liverpool Household Stores Association above at 624 (in both of which cases the committee consisted of specified individuals). 65 See Nell v Longbottom [1894] 1 QB 767 at 771 referred to in 17.5. 66 Re Liverpool Household Stores Association above at 624. 67 Bray v Smith (1908) 124 LT Jo 293. 68 See Huth v Clarke (1890) 25 QBD 391 (‘… delegation does not imply a denudation of power and authority …. The word “delegation” implies that powers are committed to another person or body which are as a rule always subject to resumption by the power delegating, and many examples of this might be given. Unless, therefore, it is controlled by statute, the delegating power can at any time resume its authority.’: Lord Coleridge at 394) and Manton v Brighton Corporation [1951] 2 KB 393 (if there is power to revoke the authority of a committee as a whole, there is power to revoke the authority of any single member: p 404).

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usurp at any time the powers and discretions given to the committee by the LLP agreement.69 17.21 The conduct of committee members in the context of the CDDA 1986 is considered at 37.19–37.21.

Delegation of statutory duties and powers given to the members as a whole? 17.22 Certain duties in relation to the LLP’s annual accounts are imposed on the members of the LLP as a whole by the CA 2006. These are referred to at 13.29(a)–(c). The duties include preparing the annual accounts in compliance with the provisions of the CA 2006 (ie so that the accounts give a ‘true and fair view’ of the LLP’s financial position), and approving those accounts. An issue which arises in the present context is the extent to which the LLP agreement may validly provide that such duties are to be fulfilled and exercised by a limited number of the members only on behalf of the members as a whole, or that the members as a whole may decide at any point to delegate such duties and powers to a limited number of members only. The authors suggest that there is no objection in principle to such a provision. Whether or not such a provision will be wise, however, or may lead to potential liabilities for individual members who are not part of the limited number, will depend upon the particular circumstances of the LLP. The view may be taken by the members that the circumstances of the LLP are such that the members as a whole can reasonably delegate to (and rely on) a particular committee of members to act on behalf of all the members in preparing and/or approving the annual accounts. The risk will be that, in permitting the LLP agreement to provide that such matters shall be done by a committee, the members will be institutionalising their own view as to the reasonableness of reliance by the general body of members. Before permitting such provision in relation to the approval of the annual accounts, in order to avoid the risk of committing a criminal offence, the members will need to be satisfied that they are not, in permitting such a provision, being reckless as to whether or not those accounts comply with the requirements of the CA 2006, and are failing to take reasonable steps to secure compliance with those requirements or to prevent noncomplying accounts from being approved.70 17.23 As has been mentioned in 17.9(c)–(d), certain powers are given by the IA 1986, in a members’ voluntary winding up, to a meeting of the members of the LLP. These powers include sanctioning the continuance of the powers of the members in the winding up. The authors suggest that the effect of the express reference to a meeting is that it is indeed only a meeting of the members as a whole (albeit acting by

69

70

See, for instance, Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34; Gramophone and Typewriter Limited v Stanley [1908] 2 KB 89 at 105; John Shaw & Sons (Salford) Limited v Peter Shaw [1935] 2 KB 113 at 134; and Towcester Racecourse Co Ltd v The Racecourse Association Ltd [2003] 1 BCLC 260 at [18]–[19]. The position is similar to that for trusts. All the beneficiaries under a trust can together end the trust; but, while the trust continues to exist, the beneficiaries cannot dictate to the trustees how to exercise their discretion: see In re Brockbank [1948] Ch 206 and, for instance, Lewin on Trusts (20th edn) (2020), para 22–031. See CA 2006, s 414(4), as modified and applied to LLPs by SI 2008/1911, reg 12.

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a majority of all of them)71 which can exercise the power in question; and that there is no scope for a delegation of it to a limited number of members only.

Death of a member or assignment of his share 17.24 LLP Act 2000, s 7(2) provides that neither the personal representatives of a deceased member, nor the trustee in bankruptcy of a member, nor the assignee of a member’s share in the LLP, may ‘interfere in the management or administration of any business or affairs’ of the LLP. Section 7(2) is considered further at 8.21–8.23.

Effect of winding up 17.25 In the event of an LLP being wound up by the court under the IA 1986,72 the powers of the members to manage its business and affairs will cease. On a compulsory winding up, all the property and things in action to which the LLP is entitled are taken into the custody or control of the liquidator.73 Management becomes vested in the liquidator, who will have the powers set out in Sch 4 to the IA 1986.74 In the event of the LLP going into a voluntary winding up, on the appointment of a liquidator the powers of the members cease except to the extent that their continuance is sanctioned (i) in the case of a members’ voluntary winding up, by a meeting of ‘the members of the limited liability partnership’ summoned for the purpose (or by the liquidator),75 and (ii) in the case of a creditors’ voluntary winding up, by the liquidation committee (or, if there is no committee, by the creditors).76 From the commencement of a voluntary winding up, the LLP is to cease to carry on its business, except so far as may be required for its beneficial winding up.77 It is probably correct to say that in a compulsory or a voluntary winding up, and despite the powers of the members ceasing as mentioned above, the fiduciary obligations of a member to the LLP discussed in 13.8 continue in and for the purposes of the winding up.78

FETTERS ON DECISION-MAKING POWERS Introduction 17.26 This chapter has so far considered rights to participate in the conduct and management of an LLP and its business and affairs, and issues concerning who

71 See

17.13. Under IA 1986, s 122, as modified and applied to LLPs by SI 2001/1090, reg 5. See further 31.9–31.15. 73 IA 1986, s 144, as modified and applied to LLPs by SI 2001/1090, reg 5. 74 IA 1986, 167, as modified and applied to LLPs by SI 2001/1090, reg 5. 75 IA 1986, s 91(2), as modified and applied to LLPs by SI 2001/1090, reg 5, referred to in 17.9–17.10. 76 IA 1986, s 103, as modified and applied to LLPs by SI 2001/1090, reg 5. As to the residual powers of the members in a voluntary winding up where no liquidator has been appointed, see IA 1986, s 115, as modified and applied to LLPs by SI 2001/1090, reg 5. 77 IA 1986, s 87(1), as modified and applied to LLPs by SI 2001/1090, reg 5. 78 See Thompson’s Trustee v Heaton [1974] 1 WLR 605 (partnership in dissolution) and Condliffe v Sheingold [2007] EWCA Civ 1043 at [11] (company in a creditors’ voluntary winding up). 72

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(in the absence of contrary agreement) has power to make decisions relating to the business and affairs of the LLP. The following paragraphs consider the extent to which the law imposes duties or fetters in relation to decision-making powers that, on their express terms, appear absolute. The issues that arise in this regard, including questions as to proper purpose, are, the authors suggest, themselves questions as to the terms, scope or extent of a power (arising whether as a matter of construction or by term implied in fact or imposed by law). Traditionally, in a trust context, the exercise of a power for a proper purpose has been seen as a matter separate from the express or implied terms of a power.79 But Lord Sales has argued (extra-judicially) that the ascertainment of what is a proper purpose is properly seen as a question of construction or interpretation.80 Whether or not the ascertainment of the existence of fetters on otherwise broad powers is purely a question of construction, sight must not be lost of the fact that, conceptually, two separate questions arise: first, what is the scope and extent of the power (including fetters on the way in which the power can be exercised); and, secondly, has the power been properly exercised in accordance with those terms? So, for example, if a remuneration committee has power to divide a particular part of the profits of an LLP between members A, B and C, but, in fact, allocates the profit to D, the conclusion that the power has been invalidly exercised involves two steps: (1) determining that the power is, as a matter of scope, exercisable only in favour of A, B or C; and then (2) establishing that the power was, as a matter of fact, purportedly exercised in favour of a non-object, D. In any particular case, it may be that one or both of these steps are not in dispute, but that does not detract from the fact that there are two distinct analytical steps. Similarly, if, instead, the remuneration committee allocates the profit to B, but does so purely out of spite directed at A and C, there are, again, two steps to the analysis. The first is to ascertain what the remuneration committee is permitted to do: as a matter of construction of the power, the remuneration committee cannot exercise its power out of spite (an improper motive). The second is to determine, as a matter of fact, whether the power has been exercised outside the scope of the power. On this example, the factual enquiry (if there is a dispute) is as to the motive of the decisionmaker: did the committee act out of spite or not? 17.27 Where a contract or other instrument gives a person (or group of persons) power to affect the rights and obligations of others (without the consent, and often against the wishes, of the others), the law readily imposes constraints on what might otherwise be unfettered or absolute powers. The willingness of the law to impose such limitations includes purely contractual arrangements as well as those where the decision-maker acts in a fiduciary capacity. In Braganza v BP Shipping Limited, Lady Hale stated:81 ‘Contractual terms in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common. It is not for the courts to rewrite the parties’ bargain for them, still less to substitute themselves

79 80 81

See the three-part formulation stated by Lord Walker in Pitt v Holt [2013] 2 AC 108 at 135F–H. ‘Use of powers for proper purposes in private law’ (2020) 136 LQR 384. Cf Eclairs Group Ltd v JKX Oil & Gas Plc [2015] UKSC 71 per Lord Sumption at [30]. [2015] 1 WLR 1661 at [18]. Considered in the LLP context in Ingenious Games LLP v Revenue and Customs Commissioners [2019] UKUT 226 (TCC) at [609].

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for the contractually agreed decision-maker. Nevertheless, the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest. That conflict is heightened where there is a significant imbalance of power between the contracting parties as there often will be in an employment contract. The courts have therefore sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given.’

There is a wide range of circumstances in which the courts have recognised the need for some fetter to be placed on what might otherwise be a completely unfettered decision-making process.82 Whilst the precise content of the implication will always depend upon the terms of the relevant agreement read as a whole and in the light of the admissible context, the restraints or fetters that the court will imply are, at least broadly speaking, of two types. First, those that are directed at the bona fides (including subjective purpose or motive) of the decision-maker and which may be labelled ‘subjective fetters’; and, secondly, those that impose objective standards on 82

See, for instance: (a) in relation to the exercise of powers by trustees: Edge v Pensions Ombudsman [2000] Ch 602 at 627D–628E (decisions by pension scheme trustees), Imperial Group Pension Trust Limited v Imperial Tobacco Limited [1991] 1 WLR 589 and IBM United Kingdom Holdings Ltd v Dalgleish [2017] EWCA Civ 1212 (decisions by pension scheme employers), Scott v National Trust [1998] 2 All ER 705 at 717g–718a (charity trustee) (and see Lehtimaki v Cooper [2020] 3 WLR 461 on charitable company members) and Thomas on Powers, paras 6–187 to 6–200; (b) in relation to the expulsion of members: Gaiman v National Association for Mental Health [1971] Ch 317 at 336 (company limited by guarantee) and Royal Society for the Prevention of Cruelty to Animals v AG [2002] 1 WLR 448 at [36] (society); (c) the Hastings-Bass principle in trust cases, for example, Burrell v Burrell [2005] WTLR 313 at [13]–[25] (and Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108); (d) in relation to the exercise of powers by a committee of covenantors: Price v Bouch (1987) 53 P & CR 257; (e) in relation to the award of discretionary bonuses to employees: Clark v Nomura International plc [2000] IRLR 766, Horkulak v Cantor Fitzgerald International [2004] IRLR 942, Commerzbank AG v Keen [2007] IRLR 132 and Mallone v BPB Industries plc [2003] BCC 113; (f) in relation to the assessment of value of assets under a contract: Socimer International Bank Ltd (in liquidation) v Standard Bank [2008] 1 Lloyd’s Rep 558 at [60]–[66]; (g) in relation to implication of terms where a party to a commercial contract is given a contractual discretionary power: Abu Dhabi National Tanker Company v Product Star Shipping Ltd (The ‘Product Star’) [1993] 1 Lloyd’s Rep 397 at 404, Gan Insurance v Tai Ping Insurance [2001] 2 All ER (Com) 299, Paragon Finance plc v Nash [2002] 1 WLR 685 at [36]–[41], Lymington Marina Limited v MacNamara [2007] EWCA Civ 151 and Portsmouth City Council v Ensign Highways Limited [2015] EWHC 1969 (TCC); (h) in relation to the exercise of powers by syndicated loan holders: Redwood Master Fund Ltd v TD Bank Europe Ltd [2006] 1 BCLC 149; (i) in relation to exit consent by corporate bond holders: Assenagon Asset Management SA v Irish Bank Resolution Corp Ltd [2013] 1 All ER 495; (j) in relation to decisions by company shareholders: Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 (CA) at 671, Peters American Delicacy Co Ltd v Heath (1939) 61 CLR 457, Citco Banking Corporation NV v Pusser’s Ltd [2007] Bus LR 960 and Re Charterhouse Capital Ltd [2014] EWHC 1410 (Ch); (k) in relation to decisions by directors: Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821; and (l) in relation to LLP members: F&C Alternative Investments (Holdings) Ltd v Barthelemy [2012] Ch 613 at [217]–[220].

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the decision-maker (as to objective purpose, or process and/or outcome) and which may be labelled ‘objective fetters’.

Subjective fetters 17.28 Where parties agree that one or more of them should have particular decision-making powers which, once exercised, are binding on all the parties, it is for the person or persons in whom the power is vested to make the decision. In the event of a challenge, the court cannot substitute its own view of what is a correct or reasonable decision.83 Nevertheless, subject to any contrary indications in the relevant document, the law readily imposes an obligation that the power must be exercised in good faith.84 In an LLP context, there will, the authors suggest, generally be implied into the LLP agreement a requirement that a decision-making power must be exercised in good faith, whether the power is one exercisable by an individual member, a committee or by a majority vote of members. This obligation of good faith requires each member, when casting his vote, to act honestly, genuinely and for the relevant purpose.85 17.29 In a purely contractual (that is, non-fiduciary) context, the implied fetter will not impose an obligation on the decision-maker to exercise the relevant power in what the decision-maker considers to be the best interests of the other parties to the arrangement: that is to say, the decision-maker will be under no obligation to subordinate his own interests to those of the other parties to the contract, although he may be required to take their interests into consideration.86 Where the decision-maker acts in a fiduciary capacity, the appropriate implication will include an obligation to exercise the power in what the decision-maker considers to be the best interests of the principal or principals. So, in a company context, the obligation of a director is to act in what he considers to be the best interests of the company.87 17.30 Although shareholders in a company are not (usually) in a fiduciary relationship with each other, the law imposes a fetter on the exercise by them of their rights as shareholders, namely, they must exercise their powers ‘bona fide 83

See, for instance, Howard Smith Ltd v Ampol Ltd [1974] AC 821 at 832E–F, Scott v National Trust [1998] 2 All ER 705 at 708–9, Commerzbank AG v Keen [2007] IRLR 132 at [39] and Braganza above at [52]. 84 Braganza above at [22], citing inter alia Socimer International Bank Ltd v Standard Bank London Ltd [2008] Bus LR 1304 at [66]. See Horlick v Taylor [2018] EWHC 4034 (Ch), in which an interim injunction was granted to prevent a meeting of members taking place to vote on proposed amendments to the LLP agreement, where Barling J held that the claimant had a very good prospect of establishing a breach of an express duty of good faith. 85 Such an obligation of good faith will be imposed, even if the relevant member or members are not under general freestanding obligations of good faith, whether as between the members or between the members and the LLP: see 13.9 and 13.25. As to subjective proper purpose or motive, see Eclairs Group Limited v JKX Oil & Gas plc [2015] UKSC 71. See Thitchener v Vantage Capital Markets LLP [2019] EWHC 1576 (QB) at [108]. 86 See, in the context of the proper construction of express contractual obligations of good faith, F&C Alternative Investments [2012] Ch 613 at [255]–[259]. On the duties of LLP members generally, see Riley v Reddish LLP [2019] 6 WLUK 96 at [29]–[36]. 87 See Re Smith & Fawcett Ltd [1942] Ch 304 at 306, Howard Smith Ltd v Ampol Ltd [1974] AC 821, and Hunter v Senate Support Services Ltd [2005] 1 BCLC 175 at [150]–[190].

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for the benefit of the company as a whole’.88 This is, in turn, the application of a wider general principle ‘applicable to all authorities conferred on majorities of classes enabling them to bind minorities, namely that the power must be exercised for the purpose of benefiting the class as a whole, and not merely individual members only’.89 The law imposes such an obligation on shareholders even though the powers of shareholders, qua shareholders, may be seen (generally speaking) as ownership rather than management powers. Nevertheless, and perhaps unsurprisingly, it will often be difficult to identify – when considering a potential decision of shareholders of a company – a corporate or collective interest, and the courts have struggled to articulate how the implied fetter is to operate in such cases, particularly when it is borne in mind that the right to vote of an individual shareholder is, at least in respect of some matters, a right of property which that shareholder may exercise in his own separate interests, and that this interest will sometimes be, to a greater or lesser extent, in conflict with the interests of other members.90 The purpose of the relevant voting power will usually be to give effect to the shareholder’s own interests. 17.31 In a case concerning a special resolution to amend articles of association of a company, the Court of Appeal in Re Charterhouse Capital Limited91 set out a useful summary of the relevant principles. An alteration to a company’s articles, even if passed by the requisite majority of shareholders, may be challenged as invalid in certain circumstances.92 The principles are as follows: (a) The limitations on the exercise of the power to amend a company’s articles arise because, as in the case of all powers, the manner of their exercise is constrained by the purpose of the power and because the framers of the power of a majority to bind a minority will not, in the absence of clear words, have intended the power to be completely without limitation. These principles may be characterised as principles of law and equity, or as implied terms.93 (b) A power to amend will be validly exercised if it is exercised in good faith in the interests of the company.94 (c) It is for the shareholders, and not the court, to say whether an alteration of the articles is for the benefit of the company, but it will not be for the benefit of the company if no reasonable person would consider it to be such.95 88 See 89 90

91 92

93 94

95

Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 (CA), Citco Banking Corporation NV v Pusser’s Ltd [2007] Bus LR 960 and Staray Capital Limited v Cha, Yang [2017] UKPC 43. British America Nickel Corp Ltd v MJ O’Brien Ltd [1927] AC 369 at 371 (Viscount Haldane). See, for instance, Re Astec (BSR) plc [1998] 2 BCLC 556 at 584 (considering company shareholders) and Wilkinson v West Coast Capital [2007] BCC 717 at [299]–[300] (shareholders can vote in their own interests against company acquiring another business). [2015] EWCA Civ 536. At [90]. See Allen v Gold Reefs of West Africa Limited [1900] 1 Ch 656, Sidebottom v Kershaw Leese and Co Ltd [1920] 1 Ch 154, Shuttleworth v Cox Brothers & Co (Maidenhead) Ltd [1927] 2 KB 9, Peters’ American Delicacy Co v Heath (1939) 61 CLR 457, Greenhalgh v Arderne Cinemas Ltd [1952] Ch 286, Citco Banking Corp NV v Pusser’s Ltd [2007] UKPC 13, and Assenagon Asset Management SA v Irish Bank Resolution Corpn Ltd [2012] EWHC 2090 (Ch), [2013] Bus LR 266. At [90(1)]. At [90(2)]. See Horlick v Taylor [2018] EWHC 4034 (Ch), in which an interim injunction was granted to prevent a meeting of members taking place to vote on proposed amendments to the LLP agreement, where Barling J held that the claimant had a very good prospect of establishing a breach of a duty of good faith. At [90(3)].

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(d) The view of shareholders acting in good faith that a proposed alteration of the articles is for the benefit of the company, and which cannot be said to be a view which no reasonable person could hold, is not impugned by the fact that one or more of the shareholders was actually acting under some mistake of fact or lack of knowledge or understanding. In other words, the court will not investigate the quality of the subjective views of such shareholders.96 (e) The mere fact that the amendment adversely affects, and even if it is intended adversely to affect, one or more minority shareholders and benefit others does not, of itself, invalidate the amendment if the amendment is made in good faith in the interests of the company.97 (f) A power to amend will also be validly exercised, even though the amendment is not for the benefit of the company, because it relates to a matter in which the company as an entity has no interest but rather is only for the benefit of shareholders as such or some of them, provided that the amendment does not amount to oppression of the minority or is otherwise unjust or is outside the scope of the power.98 (g) The burden is on the person impugning the validity of the amendment of the articles to satisfy the court that there are grounds for doing so.99 17.32 The authors suggest that these principles are also applicable to decisionmaking in an LLP context, with the result that, subject to contrary agreement and subject to the objective fetters discussed below, the implied fetter will (usually) be that a decision-making power (whether a power of all the members, or of a committee of some members, or of one member) must be exercised in good faith (ie honestly, genuinely and for a proper subjective purpose or motive) and in what the member or members consider to be the best interests of the LLP; but that, where there is no identifiable corporate or collective interest, then if the power is exercised in good faith (ie honestly, genuinely and for a proper subjective purpose or motive), the decision will (subject to the application of the objective fetters discussed below) only be invalidated if the decision is oppressive.100 In considering the application of this suggested test, the following ought to be borne in mind: (a) A member will not be acting in accordance with his good faith obligation if he acts with a reckless disregard as to whether or not he is exercising his 96

At [90(4)]. At [90(5)]. 98 At [90(6)]. 99 At [90(7)]. And see, for instance, Rimer J in Redwood Master Fund Ltd v T D Bank Europe Ltd [2006] 1 BCLC 149 at [105]: ‘Proof of matters of this sort [eg the majority being motivated by malicious discrimination] may of course be difficult, and in many cases the complainants may have no independent evidence enabling them to level attacks on the exercise of the power on grounds such as these. They may, and usually will, be able to do no more than point to the manner of the exercise of the power and invite the inference that it is so manifestly disadvantageous, discriminatory or oppressive towards them that the only conclusion that can be drawn is that it must have been motivated by dishonest considerations inconsistent with a proper exercise of the power for the purpose for which it was intended. If the facts are strong enough, the court may well be prepared to draw such a conclusion’. 100 Re Charterhouse Capital Ltd above at [90(6)], Staray Capital Limited v Cha, Yang [2017] UKPC 43 at [31]–[38]. 97

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voting power truly for the purpose for which it was conferred.101 Equally, but depending upon the nature of the power and the context, a majority must not simply close its ears to what one member, or a minority, may say: the majority cannot, in effect, say that it does not care what one member, or a minority, may say. It will usually need to give the minority a proper opportunity to express its view.102 (b) Members are not required to wholly disregard their own interests. It may, the authors suggest, be of some help to draw a distinction between decisions taken by the members as co-owners of the LLP (equivalent to shareholders), and decisions taken by them as managers of the business (equivalent to directors).103 Indeed, some powers may properly be characterised as personal rights akin to property rights: for example, a power vested in a majority to determine to wind up the LLP. The authors suggest that, where such powers are vested in a majority, there remains an obligation to exercise the power in good faith (rather than the right being an unfettered power), but that a court will not intervene, save in extreme cases of oppression. (c) It is open to the members to agree to exclude or limit the scope of the implied fetter and to agree expressly that the power is capable of being exercised free of any good faith or other restraint.

Objective fetters 17.33 The focus of the analysis above has been on what the authors have characterised as subjective fetters. The basic question for the court in any dispute is not whether the decision is (objectively) right but whether it is lawful and valid and should be given effect to.104 This is particularly so in cases where the decisionmaker must take into account, assess and choose between competing interests.105 This reflects the fact that, when considering whether a decision can be impugned, the court will not take as its yardstick what decision it, the court, would have taken; but, rather, it will consider whether (subjectively) the decision-maker made a genuine and

101

See, for instance, J D v East Berkshire Community Health NHS Trust [2005] 2 AC 373 at [74]. Wall v London Northern Assets Corporation [1898] 2 Ch 469 at 480–1. This ‘does not mean that a minority who are bent on obstructing business and resolved on talking for ever should not be put down’ (Lindley MR at 481). 103 Examples of possible decisions subject to the good faith obligation which are not necessarily easy to categorise are the expulsion of a member (on which see further 19.12–19.13), varying the LLP agreement, and increasing members’ capital contributions. In regard to this last, members would be acting in breach of the obligation if a majority decision to increase capital contributions was made in order to exploit the financial weakness of a particular member or otherwise so as to dilute his position: see, for instance, Piercy v S Mills & Co Ltd [1920] 1 Ch 77 and Hogg v Cramphorn [1967] Ch 254 (both cases concerning a power for directors of a company to issue further shares), and Dalby v Bodilly [2005] BCC 627, concerning the sole director of a company, who was also one of two equal shareholders, allotting further shares to himself in order to dilute his co-shareholder. 104 See Scott v National Trust [1998] 2 All ER 705 at 708–709. 105 See Edge v Pensions Ombudsman [2000] 1 Ch 602 and Redwood Master Fund v TD Bank Europe Ltd above. As Sales J put it in F&C Alternative Investments (Holdings) Limited [2012] Ch 613 at [231], an LLP may be ‘the embodiment or bundling together of the sectional interests of’ its members. 102 See

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honest decision. Nevertheless, a decision-maker is not entirely free from objective restraint. 17.34 References in 17.28 to 17.32 to ‘proper purpose’ have been to the subjective purpose or motive of the power-holder. The authors suggest that ‘proper purpose’ is used in this context in two distinct ways. It is hornbook law that a power must not be used for an improper purpose, but sight is often lost of the fact that the proper purpose rule is concerned with both subjective and objective fetters on the exercise of a power.106 In relation to subjective improper purpose, Lord Sumption explained in Eclairs Group Ltd v JKX Oil and Gas plc:107 ‘The proper purpose rule has its origin in the equitable doctrine which is known, rather inappropriately, as the doctrine of “fraud on a power”. For a number of purposes, the early Court of Chancery attached the consequences of fraud to acts which were honest and unexceptionable at common law but unconscionable according to equitable principles. In particular, it set aside dispositions under powers conferred by trust deeds if, although within the language conferring the power, they were outside the purpose for which it was conferred … The principle has nothing to do with fraud. As Lord Parker of Waddington observed in delivering the advice of the Privy Council in Vatcher v Paull [1915] AC 372, 378, it “does not necessarily denote any conduct on the part of the appointor amounting to fraud in the common law meaning of the term or any conduct which could be properly termed dishonest or immoral. It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power”. The important point for present purposes is that the proper purpose rule is not concerned with excess of power by doing an act which is beyond the scope of the instrument creating it as a matter of construction or implication. It is concerned with abuse of power, by doing acts which are within its scope but done for an improper reason. It follows that the test is necessarily subjective. “Where the question is one of abuse of powers”, said Viscount Finlay in Hindle v John Cotton Ltd (1919) 56 Sc LR 625, 630, “the state of mind of those who acted, and the motive on which they acted, are all important”.’

17.35 This passage is directed at the state of mind or motive of the holder of the power: invalidity occurs not as a result of procuring an outcome that falls outside the prima facie limit of the power, but by doing something ostensibly permitted by the power but in a way that is infected by bad motive or mala fides. This is the sense in which the authors use the term in this section on ‘subjective fetters’. However, the term ‘proper purpose’ is also used in a different sense: it is used to help fix the outer limits of the power itself or to control the meaning of words that appear unlimited on their face. The proper purpose rule in this second sense may invalidate

106

The distinction may not be quite the same, but Lord Sales has (extra-judicially) described this in terms of ‘latent’ and ‘patent’ impropriety: ‘Use of powers for proper purposes in private law’ (2020) 136 LQR 384. 107 [2016] 3 All ER 641 at [15].

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a purported exercise of a power regardless of the subjective intent of the holder.108 So, for example, in Society of Lloyd’s v Robinson, Lord Steyn said:109 ‘… there is a well-established line of authority which holds that a power of amendment reserved in a trust must be exercised for the purpose for which it was granted: see Hole v. Garnsey [1930] A.C. 472. This principle is closely linked with the general proposition that the power must not be exercised beyond the reasonable contemplation of the parties on which Nourse L.J. founded his judgment. All this is hornbook law.’

17.36

In Hole v Garnsey,110 Lord Tomlin said:

‘In construing such a power as this, it must, I think, be confined to such amendments as can reasonably be considered to have been within the contemplation of the parties when the contract was made, having regard to the nature and circumstances of the contract. I do not base this conclusion upon any narrow construction of the word “amend” in Rule 64, but upon a broad general principle applicable to all such powers. If no such principle existed, I see no reason why a dairy society in Wiltshire should not by means of the exercise of such a power as the one under consideration find itself converted into a boot manufacturing society in Leicester …’

Lord Atkin stated:111 ‘If a man enters into association with others for a business venture, he commits himself to be bound by the decision of the majority of his associates on matters within the contemplated scope of the venture. But outside that scope he remains dominus, and cannot be bound against his will.’

17.37 Objective restraint is not limited to the exercise of a power for an objectively proper purpose. Subject to the terms of the relevant document, the law readily implies a fetter to the effect that a decision-making power must not be exercised in a way that is objectively irrational, arbitrary or capricious.112 In Braganza v BP Shipping Limited, Lady Hale accepted the parallel with public law decision-making and so-called Wednesbury unreasonableness, but emphasised that this test has two limbs:113 ‘The first limb focuses on the decision-making process – whether the right matters have been taken into account in reaching the decision. The second focuses on its outcome – whether, even though the right things have been taken into account, the result is so

108

109 110 111 112 113

Query whether exercising a power, such as a power of expulsion, in a way that constitutes direct or indirect discrimination for the purposes of the Equality Act 2010 renders the purported exercise invalid, as well as giving rise to a right to a remedy under the 2010 Act. [1999] 1 WLR 756 at 765. [1930] AC 472 at 500. [1930] AC 472 at 493. Braganza v BP Shipping Limited [2015] UKSC 17 at [17]–[37] and Staray Capital Limited v Cha, Yang [2017] UKPC 43 at [38]. At [19]–[24]. See Williams v Wilsons Solicitors LLP (29 June 2012), Briggs J at [49], IBM UK Holdings Ltd v Dalgleish [2017] EWCA Civ 1212 and Clark v Nomura International plc [2000] IRLR 766.

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17.38 In an LLP context, it seems likely (subject always to a consideration of the terms of the LLP agreement as a whole) that a court will impose the outcome aspect of the Wednesbury principle: that is, a decision will be invalid if it is ‘so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it’.114 But it is less clear whether it is appropriate to impose the decision-making process aspect of the Wednesbury principle. LLPs are not (of course) public bodies and ought not to be subject to the same level of decision-making scrutiny. Whilst each case will turn on the particular terms of the LLP agreement, the authors suggest that it will ordinarily be appropriate to imply requirements that invalidate a decision if (objectively) irrelevant matters are taken into account or (objectively) relevant matters are left out of account.115 However, the limit of the process limb needs to be kept in mind. The process limb is often described in terms – taking into account relevant matters and leaving out of account irrelevant matters – that suggest an inquiry as to compliance that the court undertakes in a binary way: the matter is either objectively relevant or irrelevant, and it has either been taken into account or not. But the application in this context of a ‘correctness standard’ is not appropriate, or at least will not usually be appropriate as a matter of construction of the LLP agreement or implied term. Where the contractual power expressly identifies matters that should or should not be taken into account, then obviously the contractual rules must be followed. But if it does not, then it will (usually, at least) be for the decision-maker to decide what to take into account and the decision will be respected, unless itself Wednesbury unreasonable.116 The authors suggest that this gives proper respect, in an LLP context, to the fact that the members have left the power or discretion to be exercised by the contractually agreed power-holder in circumstances in which it can be assumed that, if particular criteria or requirements are not laid down, the members are content for the powerholder to decide what to take into account and what to ignore. 17.39 If the decision maker takes into account an irrelevant factor, it will not necessarily follow that the decision will automatically be vitiated. Public law authorities suggest that the factor must have had a ‘substantial influence’ or, possibly, ‘material effect’ on the outcome, before a decision will be vitiated.117

114

Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374, 410 (Lord Diplock). Watson v Watchfinder.co.uk Ltd [2017] BLR 1309 (a shareholders’ agreement) and Shurbanova v Forex Capital Markets Ltd [2017] EWHC 2133 (QB) (a trading agreement with an online commodities broker). See, in relation natural justice, Dymoke v Association for Dance Movement Psychotherapy UK Ltd [2019] EWHC 94 (QB). 116 See R (Khatun) v Newham LBC [2004] EWCA Civ 55, where Laws LJ held that, ‘where a statute conferring discretionary power provides no lexicon of the matters to be treated as relevant by the decision-maker, then it is for the decision-maker and not the court to conclude what is relevant subject only to Wednesbury review’ at [35]; and Faieta v ICAP Management Services Ltd [2018] IRLR 227 at [69]. See also Re Charterhouse Capital Limited above at [90(4)] and 17.31. 117 Eg R (FDA) v Secretary of State for Work and Pensions [2013] 1 WLR 444. See, in an employment context, Faieta v ICAP Management Services Ltd [2018] IRLR 227. 115 See

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Reasons 17.40 An issue which arises is whether the decision-makers are required to give reasons for a decision to exercise, or not to exercise, a power given to them. In trust matters, the general rule is that, whilst a beneficiary has a right to inspect documents relating to the affairs of the trust (subject to the supervisory jurisdiction of the court), the trustees cannot be required (absent some positive obligation imposed on them by the instrument under which they act) to give reasons for the exercise by them of the power: the right to inspect documents does not extend to documents incorporating the reasons for the exercise of a power.118 It is also well established, in a company context, that directors having a power to refuse to register a transfer of shares are not bound to disclose their reasons for rejecting a transferee.119 The essential rationale for this approach to the giving of reasons is that, if reasons could be required, responsible individuals would not accept decision-making positions. A further aspect of the rationale is a consideration that the giving of reasons for a decision may be a recipe for litigation; and that there may, in any event, be several reasons which lead different members of the decision-making body to the same conclusion, so that there is no majority reason which can be given. If a decision is to be challenged as having been made capriciously, the onus is on the challenger to establish at least a prima facie case.120 The courts are, however, showing a willingness, where it is appropriate, to imply into a contract a term that reasons be given for a decision, or that information be supplied. In an employment context, the Court of Appeal has stated that the implied duty of trust and confidence between employer and employee includes a duty on the employer to supply the employee with an explanation of the reasons for paying or withholding a bonus;121 and, in the context of the sale of goods, the House of Lords has implied an obligation to supply information where business efficacy required such disclosure.122 The argument for such a term existing may be strengthened if default rule (8), or an equivalent provision, forms part of the LLP agreement.123 In practice, if the consequences of a decision are such that it is manifestly disadvantageous or oppressive to a member, the complainant may be able to raise a prima facie case and, if the decision-makers have been unwilling to

118 See

Re Londonderry’s Settlement [1965] Ch 918, Schmidt v Rosewood Trusts Ltd [2003] 2 AC 709, Breakspear v Ackland [2009] Ch 32 and Dawson-Damer and others v Taylor Wessing LLP [2020] 3 WLR 1. 119 In re Gresham Life Assurance Society (1872–73) LR 8 Ch App 446. See also Price v Bouch (1987) 53 P&CR 257 (a committee of mutual covenantors not obliged to give reasons for refusing consent to the building of a new house). 120 See Shuttleworth v Cox Brothers & Co (Maidenhead) Ltd [1927] 2 KB 9 (CA) and Citco Banking Corporation NV v Pusser’s Ltd [2007] Bus LR 960 (both cases concerned with the variation of articles of association) and Redwood Master Fund Ltd v T D Bank Europe Ltd above. 121 Commerzbank AG v Keen [2007] IRLR 132 (a City bonus case) at [44] and [110]; and, on a duty to give reasons for placing an employee on garden leave, see Faieta v ICAP Management Services Ltd [2017] EWHC 2995 at [77]–[84]. 122 J H Ritchie Ltd v Lloyd Ltd [2007] 1 WLR 670 (a Scottish case, concerned with the return of defective goods, and the giving of reasons for their defect). See also Greck v Henderson Asia Pacific Equity Partners (FP) LP [2008] CSOH 2 per Lord Glennie at [76]. 123 Default rule (8) is discussed at 13.38–13.39 and 14.18. It provides: ‘Each member shall render true accounts and full information of all things affecting the limited liability partnership to any member or his legal representatives’.

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provide reasons, it may not be difficult to persuade the court that they were acting in bad faith or in a way that is Wednesbury unreasonable. Against this, however, it needs to be borne in mind that, even if there is an obligation to give reasons, it does not necessarily follow that failure to give reasons results in the invalidity of the decision itself.

Consequences of invalidity 17.41 Four issues arise for consideration: first, whether an invalid decision is void or voidable; secondly, whether the court can remit the exercise of the power to the decision-maker for reconsideration or direct the decision-maker to exercise the power in a particular way; thirdly, whether a person adversely affected by an invalid exercise of a power can sue for damages or compensation; and, fourthly, whether the affected member can rely on the invalid decision as a ground for petitioning the court for unfair prejudice relief or the just and equitable winding up of the LLP.

Void or voidable? 17.42 A decision that is purportedly taken, but which is taken contrary to an implied subjective or objective fetter, is ‘invalid’. In a purely contractual case, invalidity renders the decision a nullity; it will simply be of no effect. Where the power is fiduciary, the position is less clear. A purported decision that is simply outside the scope of the power will similarly be a nullity, but a decision within the scope of the power but made in breach of duty is voidable rather than void.124 Whether or not the particular power can properly be characterised as fiduciary, the authors suggest that it would be convenient if an invalid exercise of a power resulted in a decision that is voidable rather than void, although it is acknowledged that the juridical route to that conclusion is not straightforward.

Re-exercise 17.43 Subject to its particular terms,125 where a power is purportedly but invalidly exercised, there is likely to be no reason why the holder of a power cannot choose to attempt to exercise the power again; and, where the object of a power has a right to a proper exercise of the power,126 then the court can probably, by way of a mandatory injunction, require the decision-maker to re-exercise the power.127 Where it is clear that a power can only properly be exercised in one particular way and that it would be a breach of duty for the power-holder not to exercise the power in that way, it may be possible for a court to order the power-holder to exercise the power accordingly, but, even if the court has such a power (which is by no means a straightforward

124

Pitt v Holt [2013] 2 AC 108 at [93] and [94]; and see Pollard, Pensions, Contracts and Trusts: Legal Issues on Decision Making (2020, Bloomsbury Professional), paras 63.7–63.48. 125 For example, where the exercise of the power is time limited: see Pollard, above, para 68.22. 126 For example, where a committee is required each year to decide how the profits of the LLP should be shared between the members. 127 See Pollard, above, chapter 68.

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question), the circumstances in which it would be appropriate to do so are likely to be rare.128

Compensation 17.44 Instead of seeking an order that the decision-maker re-exercise the power, an adversely affected member may be able to sue for compensation.129 Where the claim is one where the quantum depends upon the way in which the discretion ought to have been exercised (for example, where the power involves a discretionary division of profit), the court has to determine how the power would have been exercised. In Reinhard v Ondra LLP,130 Warren J held: ‘In carrying out that exercise, the court has the same unfettered discretion as Ondra which must be exercised reasonably. It is not to be assumed that the discretion would have been exercised so as to give the least possible benefit to a claimant if such an assumption would be unrealistic on the facts: see Rutherford v Seymour Pierce Ltd [2010] EWHC 375 (QB), [2010] IRLR 606 at [33], Nomura at [40] and Horkaluk v Cantor Fitzgerald International at [64] to [72]. However, on the facts of the present case, far from being unrealistic, it is clear to me that Ondra, had it acted in accordance with its obligations, would have awarded the minimum bonus which was proper. It will be for Mr Reinhard to persuade me that £50,000 was an irrationally or perversely low figure.’131

17.45 The assessment of the quantum of the loss suffered by an adversely affected member will involve an analysis of the consequences of the invalid exercise of the relevant power. So, for example, if an attempt is made to expel a member and the exercise of the expulsion power is invalid, then (without more) the relevant member will continue to be a member of the LLP. In an employment context, an employee faced with a wrongful dismissal is entitled to treat the dismissal as terminating the employment relationship and to sue for damages. This approach treats the wrongful dismissal as a repudiatory breach of contract that the employee is entitled to accept. But that route is not open to a member of an LLP, because the doctrine of repudiatory breach does not apply to LLP agreements.132 A member who is subject to an invalid attempt to expel, but who continues to be a member of the LLP, will continue to be entitled to his profit share and will not be entitled to sue for loss of future earnings. A member in that situation will have to decide whether to continue as a member, to exercise a right to cease to be a member (pursuant to either LLP Act 2000, s 4 or the terms of the LLP agreement) or to petition the court for unfair prejudice relief or the just and equitable winding up of the LLP. A voluntary decision to exercise a

128 See

Attorney-General v Kowalski [2015] SASC 123 per Blue J at [85]; Children’s Investment Fund Foundation (UK) v Attorney General [2020] UKSC 33, [2020] 3 WLR 461 per Lord Briggs at [205]–[235]. Cf Lady Arden at [174]–[199] (query the extent to which the court has power to direct a fiduciary to act in the absence of a breach or threatened breach of duty: see Lady Arden at [119]–[173]); and Pollard, above, paras 68.5–68.22. 129 See 10.48–10.49. 130 [2015] EWHC 26 (Ch) at [448]. 131 See also Pollard, above, paras 68.23–62.28. 132 See 10.32–10.44.

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right to cease to be a member will not necessarily prevent the member from suing for damages for loss of future profit share.133

Unfair prejudice and just and equitable winding up 17.46 The implementation of a purported decision, taken contrary to the subjective or objective fetters, may constitute ‘unfairly prejudicially’ conduct on the part of the implementing members. In a company context, such a breach will often lead to a petition to the court under CA 2006, s 994, or IA 1986, s 122(e) if there is no other satisfactory remedy or exit route for the oppressed minority. Section 994 (in a modified form) applies to LLPs, but its application can be excluded by the LLP agreement; and, in practice, many LLP agreements exclude it.134 In these circumstances, over time the above principles may take on more importance in the context of LLPs than they currently have in the context of companies. If the possibility of an application to the court under s 994 has not been excluded, it is worth noting, in the context of a general discussion as to good faith between members, the statement by Lord Hoffmann in O’Neill v Phillips, the leading case on the interpretation and application of s 994, to the effect that unfairness for the purposes of s 994 may consist not only in a breach of the agreed terms of association but also in using legal rights in a manner which equity would regard as contrary to good faith.135 Applications to the court under s 994 are discussed in Chapter 32.

133 See

10.49. 11.32. 135 [1999] 1 WLR 1092 at 1098A–B. 134 See

Chapter 18 THE MEMBER AND THE OUTSIDE WORLD

INTRODUCTION 18.1 In the case of a traditional partnership, where there is no legal entity separate from the individual partners contractually connected to each other, each partner is, on the principles of agency, liable for the contracts entered into, and the wrongs committed, by any other partner acting in the course of the partnership’s business.1 The cardinal feature of the LLP Act 2000 is that it creates a legal entity – the LLP – separate from the members. As previously discussed,2 the LLP is the principal, and the members are agents for it rather than agents for their co-members. The result is that, in accordance with the principles of agency (and LLP Act 2000, s 6), it is the LLP which is liable for the contracts entered into, and the wrongs committed, by any member acting within the scope of his actual or ostensible authority on behalf of the LLP.3 The existence of the LLP serves, therefore (in broad terms), to shelter the individual member from personal liability for the acts of another member (or an employee) carried out in the course of the business. This is one of the fundamental benefits to the individual member of incorporation as an LLP. 18.2 The position of the LLP as against the outside world has been considered in Chapter 5. The position which remains to be considered is that of the individual member as against third parties (eg suppliers or clients) with whom he is the individual dealing on behalf of the LLP.

CONTRACTS 18.3 As a general rule, where a member, as the agent of the LLP, makes a contract solely on behalf of the LLP, the member will not himself be liable under the contract to, nor himself be able to enforce the contract against, the other contracting party. But it must be clear from the contract that the member is contracting solely on behalf of the LLP; and it is important that any liability on the part of the member himself be expressly or impliedly negatived.4 It is perfectly possible for the contract to be so written that the member is himself liable and able to enforce the contract, either alone or concurrently with the LLP. The true position is to be gathered from the parties’ intention as determined by an objective construction of the contract in its

1

Generally speaking: see Partnership Act 1890, ss 5, 9 and 10. 3.1–3.4 and Chapter 5. See Chapter 5. A statement that the member is signing ‘for’ or ‘on behalf of’ the LLP should normally suffice: see Bowstead & Reynolds on Agency (21st edn) (2017), article 97, and The Swan [1968] 1 Lloyd’s Rep at 13 (Brandon J).

2 See 3 4

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surrounding circumstances in accordance with normal principles of construction of contracts.5

DEEDS 18.4 It has been mentioned previously that, as a general rule, in order for an LLP to be able to sue or be sued on a deed made inter partes, the LLP needs to be described as a party to the deed, and the deed needs to be executed in its name.6 Conversely, if a member is described as a party to the deed and executes it in his own name, even if he is described in the deed as acting on behalf of the LLP he will be personally liable (and entitled to sue) on it.7

TORTS 18.5 An agent acting on behalf of his principal can incur personal liability in tort, as well as impose attributed liability on his principal.8 The LLP Act 2000 expressly envisages the possibility of a member being personally liable to a third party as a result of a wrongful act or omission of his done in the course of the business of the LLP or with its authority.9

Negligence Negligence in the performance of services causing economic loss 18.6 The particular situation which is considered here is where the member, in carrying out his work on behalf of the LLP, is negligent and, as a result, the client or customer10 suffers economic loss. As in any situation of negligence, the key question when considering whether the individual member is personally liable to the client (in addition to the LLP being liable) is whether the member personally owed a duty of care to the client in respect of the kind of loss which the client has suffered.11 In the case of a traditional partnership, there is seldom any need to consider whether there

5

See, generally, Bowstead & Reynolds above, articles 98–99 or Chitty on Contracts (33rd edn) (2018), paras 31–083 to 31–085. As to the principles of construction of contracts, see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912F–913F (Lord Hoffmann); Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at [14]–[15] (Lord Hoffmann); Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at [14]–[30] (Lord Clarke); Arnold v Britton [2015] AC 1619 at [15]; and Wood v Capita Insurance Services Ltd [2017] AC 1173 at [8]–[15]. 6 At 4.11. 7 See Bowstead & Reynolds above, article 102. 8 See Bowstead & Reynolds above, article 113 and Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 at 835B–C. 9 LLP Act 2000, s 6(4), discussed at 5.22–5.23. 10 We will use the term ‘client’ hereafter to cover both client and customer. 11 See, for instance, South Australian Asset Management Corporation v York Montague [1997] AC 197 at 211G–212F.

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is a distinction for the partner dealing with a client’s matter between a direct duty of care owed by him, and the duty of care owed by the principals as a whole (ie the firm) of whom he is one. It is to be remembered, however, that an employee dealing with a client’s matter can owe a duty of care to the client, and be liable for a breach of that duty, even if in practice he is often not made a defendant to a claim.12 The answer to the question whether the negligent individual LLP member (or employee)13 personally owes a duty of care to the client in respect of the loss suffered will turn on the fundamental question – what was the relationship between the member (or employee) and the client? The fact that the contract for the services to be supplied to the client was solely between the client and the LLP will not necessarily preclude a duty of care on the member personally arising outside the contract.14 Whether there is in any case a duty of care owed by one person to another will depend upon the relationship between them: is the relationship such a special relationship as to give rise to a duty of care on the part of one to the other?15 18.7 Whether there is in tort a special relationship between A and B, leading to the existence of a duty of care on the part of A to B, is determined essentially by reference to the ‘incremental test’, by which novel categories of negligence are to be developed incrementally and by analogy with established categories. In Robinson v Chief Constable of West Yorkshire,16 Lord Reed distinguished (in his analysis of the duty question) between cases covered by established principles and novel cases. With regard to cases of the former type, he said that there are many situations in which it has been clearly established that a duty of care is or is not owed. In such cases, once the decision has been made that a duty of care is owed, then that decision will apply to all future cases of the same kind. As for novel cases, where the courts must go beyond established principles to determine whether a duty of care was owed, the characteristic approach of the common law in such situations is to develop incrementally and by analogy with established authority. The drawing of an analogy depends on identifying the legally significant features of the situations with which the earlier authorities were concerned. The courts also have to exercise judgement when deciding whether a duty of care should be recognised in a novel type of case. 18.8 In many cases involving a claim for economic loss, in particular in cases of liability in tort for negligent misrepresentation, the concept of an ‘assumption of responsibility’ is the foundation of liability.17 The ‘assumption of responsibility’ test

12

13 14 15 16 17

See, for instance, Fairline Shipping Corporation v Adamson [1975] QB 180 at 191A–B (Kerr J) and Punjab National Bank v de Boinville [1992] 1 WLR 1138 at 1154B–E (Staughton LJ). In the latter case, the employees (insurance brokers) were defendants, and were held liable as being in breach of their own duty of care. This was also the case with the employee surveyor in Harris v Wyre Forest District Council [1990] 1 AC 831. As to the position of an employee solicitor or legal executive, see Jackson & Powell on Professional Liability (7th edn) (2014), paras 11–043 and 11–102. In referring hereafter to the member of an LLP, we are referring also to an employee of an LLP. See, for instance, Fairline Shipping Corporation above at 190C–191B and White v Jones [1995] 2 AC 207 at 274C–E and 275A (Lord Browne-Wilkinson). See, for instance, Lord Goff in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 180C and Lord Browne-Wilkinson in White v Jones above at 271F–H, 272B–D and 274E–H. [2018] AC 736. NRAM Ltd v Steel [2018] 1 WLR 1190 at [24].

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originated with Hedley Byrne & Co Ltd v Heller & Partners Ltd.18 The question is whether in the particular circumstances there has been, objectively viewed,19 an acceptance or assumption by A of responsibility towards B for carrying out a task: where there has been such an acceptance or assumption of responsibility by A, there is attached by the law to it a duty owed by A to B to carry out the task with reasonable care; and, if there has been reliance20 by B on that assumption of responsibility, that reliance was reasonable,21 and that A should reasonably have foreseen that B would do so, there will be legal liability on the part of A to B for loss suffered by B as a result of the task not having been carried out with reasonable care.22 It seems clear that that approach is to be applied for the purpose of determining whether, in circumstances where a client has retained an LLP to provide services, and economic loss has resulted from the work being carried out negligently, an individual member of the LLP carrying out the work owed a personal duty of care to the client.23

Assumption of personal responsibility, and reliance on it 18.9 Whether the member is to be seen as assuming a personal responsibility (or, to put it another way, as being willing to be personally answerable)24 to the client for carrying out the work will depend upon whether such an assumption (or willingness) appears from an objective view of all the circumstances of the particular case:25 ‘The touchstone of liability is not the state of mind of the defendant. An objective test means that the primary focus must be on things said or done by the defendant or on his behalf in dealings with the plaintiff. Obviously, the impact of what a defendant says or does must be judged in the light of the relevant contextual scene.’26

Taking this ‘objective view’ as to whether there has been an assumption of responsibility gives the court scope to arrive at what it sees as the generally acceptable 18

[1964] AC 465. Henderson above at 181B and Customs & Excise v Barclays Bank above at [5] and [35]–[36]. 20 Reliance is generally required. The exception is the disappointed will beneficiary or similar who probably does not know of, and is not relying on, the solicitor drafting the document: White v Jones above at 268C–D (Lord Goff), 276F (Lord Browne-Wilkinson) and 294A–B (Lord Nolan). And see subsequently Carr-Glynn v Frearsons [1999] Ch 326 (CA) and Gorham v British Telecommunications Plc [2000] 1 WLR 2129 (CA). 21 See Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 at 836F–837B; and see the discussion of reliance in Hagen v ICI Chemicals and Polymers Ltd [2002] IRLR 31 at [105]–[127] (Elias J). 22 See, generally, Lord Goff in Henderson above at 180–181 and 193C, Lord Browne-Wilkinson in White v Jones above at 272–274 and Lord Steyn in Williams above at 834D–H. The assumption of responsibility is for the task, not an assumption of legal liability: see Lord Browne-Wilkinson in White v Jones at 273G–274B and Morritt LJ in Peach Publishing Ltd v Slater & Co [1998] PNLR 364 at 372E. The statements of the assumption of responsibility approach in the House of Lords in Customs & Excise v Barclays Bank above are consistent with this. 23 See Williams above, especially at 834F–G, and Customs & Excise v Barclays Bank above at [35] (Lord Hoffmann: ‘… in a case in which A provides information on behalf of B to C for the purpose of being relied upon by C, it is useful to ask whether A assumed responsibility to C for the information or was only discharging his duty to B’) and [83] and [92]–[93] (Lord Mance). 24 See Lord Steyn in Williams above at 838A–B. Lord Steyn also speaks of an ‘assumption of risk’: 838B. 25 See fn 19 above. 26 Lord Steyn in Williams above at 835F–H. 19

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and just result in the particular case. In Phelps v Hillingdon LBC,27 Lord Slynn, after referring to the test of assumption of responsibility being an objective one, said: ‘The phrase [assumption of responsibility] means simply that the law recognises that there is a duty of care. It is not so much that responsibility is assumed as that it is recognised or imposed by the law.’28

In Commissioners of Customs & Excise v Barclays Bank, Lord Hoffmann expressly recognised that questions of fairness and policy will arise in determining whether there has been an assumption of responsibility in any particular case.29 Effectively, answering this question will require a consideration of whether, in all the circumstances, it is just, fair and reasonable to impose a duty of care.30 It is in this context, it is suggested, that one must see the oft-quoted statement that the assumption of responsibility test obviates the need to embark upon an enquiry as to whether it is ‘fair, just and reasonable’ to impose liability.31 That enquiry will be subsumed within the ‘objective’ determination as to whether or not there has been the assumption of responsibility. 18.10 The above having been said, any general consideration of the issue of personal liability for negligence on the part of an individual member of an LLP must embrace a consideration of the important House of Lords decision in Williams v Natural Life Health Foods Ltd.32 The principles stated in Williams are fundamental to an assessment of whether in any particular case there will be personal liability for negligence on the part of an individual member of the LLP. The leading judgment in Williams was given by Lord Steyn, with whom the other Law Lords agreed. Natural Life Health Foods Ltd had been incorporated by a Mr Mistlin, on the strength of his expertise in the retail health food trade, in order to franchise the concept of retail health food shops. The claimants approached the company with a view to obtaining a franchise for such a shop. On the basis of a brochure and financial projections supplied to them by the company, they entered into a franchise agreement with it, and took a lease of a shop (from an unrelated third party). In the event, the turnover of the shop was substantially less than the projections which had been supplied by the company, and the claimants’ business ceased trading after 18 months. They sued the company (which was soon wound up) and Mr Mistlin. The company was held 27 28 29 30

31

32

[2001] 2 AC 619, concerning, inter alia, alleged negligence on the part of a local authority educational psychologist. Williams appears not to have been cited or referred to in Phelps. At 654D–F. See previous similar remarks in Smith v Bush [1990] 1 AC 831 at 862E–F (Lord Griffiths) and Caparo v Dickman above at 628F–H (Lord Roskill). Above, at [35]–[36]. See also Lord Mance in Customs & Excise v Barclays Bank above, at [93], and the recognition by Lord Bingham (at [4] and [15]), in the context of the ‘threefold test’, of the policy element in determining whether it is in all the circumstances of a case fair, just and reasonable to impose a duty of care. And see further, for instance, Lord Browne-Wilkinson in White v Jones above at 275D–276B referring to ‘fair, just and reasonable’ in the context of an assumption of responsibility, and May LJ in Merrett v Babb [2001] QB 1174 (CA) (considered further below at 18.12) at [41]. See Lord Goff in Henderson above at 181D–E: ‘… once the case is identified as falling within the Hedley Byrne principle, there should be no need to embark upon any further enquiry whether it is “fair, just and reasonable” to impose liability for economic loss’; and Lord Reed’s judgment in Robinson v Chief Constable of West Yorkshire [2018] AC 736. [1998] 1 WLR 830.

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to have given negligent advice. The issue in the House of Lords was whether, in addition to the company, Mr Mistlin was personally liable to the claimants for the loss resulting from that negligent advice. In considering this issue, Lord Steyn made it clear that, whilst the particular facts of Williams were concerned with the question of liability to a third party on the part of a director of a company, the applicable principles were not confined to companies and directors but applied equally to any issue as to the personal liability in tort to a third party of an agent who is acting on behalf of a principal with a separate legal identity.33 In the case of a director of a company (and the position will be similar in the case of a member of an LLP), the inquiry must be ‘whether the director, or anybody on his behalf, conveyed directly or indirectly to the [client] that the director assumed personal responsibility towards the [client]’.34 If this is conveyed to the client (and there is negligence) the next question will be whether the client was in fact relying on the director’s assumption of personal responsibility.35 This reliance will be essential if the client is to have a cause of action against the individual director. Additionally, this reliance on the individual director’s assumption of responsibility (objectively viewed) must be reasonable.36 One can substitute ‘the LLP member’ for ‘director’ in the foregoing sentences. 18.11 Applying these principles to Mr Mistlin’s position, the House of Lords held (reversing the trial judge and a majority Court of Appeal) that, on the facts, there was no assumption of personal responsibility by Mr Mistlin, although he was the owner and controller of the company, and the company’s brochure made clear that its expertise to provide advice was derived from him; and although also he had played a prominent part in the production of the projections supplied to the plaintiffs. Clearly central to this conclusion was the fact that there were no personal dealings between Mr Mistlin and the plaintiffs, who had dealt solely with an employee.37 ‘There were no exchanges or conduct crossing the line which could have conveyed to the plaintiffs that Mr Mistlin was willing to assume personal responsibility to them … I am also satisfied that there was not even evidence that the plaintiffs believed that Mr Mistlin was undertaking personal responsibility to them. Certainly, there was nothing in the circumstances to show that the plaintiffs could reasonably have looked to Mr Mistlin for indemnification of any loss.’38

Also material was the fact that documents sent to the claimants were on company notepaper.39 18.12 The subsequent case of Merrett v Babb in the Court of Appeal40 has been seen as difficult to reconcile with the approach of the House of Lords in Williams, where consideration of the facts focused largely on the degree of direct contact 33 34 35 36 37 38 39 40

At 835A–B. At 835H. Ie a reliance regardless of the corporate character of the company. See 836F–G and 837B. See 838C–D. Lord Steyn at 838C–D. See 833A–B. And see the reference at 835H–836B to Fairline Shipping v Adamson above. [2001] QB 1174. Leave to appeal to the House of Lords was refused by the Lords: [2001] 1 WLR 1859.

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between the claimants and Mr Mistlin. In Merrett v Babb a firm of surveyors was engaged by a building society to produce a valuation of a modest house, which valuation, in the usual way, was to be passed on to the prospective mortgagors (and purchasers) of the property. The valuation report was duly passed on to them, and it proved to be negligently inaccurate. The action was a claim by those mortgagors against the individual surveyor who had carried out the valuation, Mr Babb. A professionally qualified surveyor and valuer, he was a salaried employee of the firm. The mortgagors had no contact with him, and did not know who he was. (The copy of the valuation report which was supplied to them omitted both his name and the name of the firm.) They were not themselves the clients of the firm. Nevertheless, Mr Babb was held to be personally liable to them for the negligent valuation. He knew that the valuation would be relied on by the mortgagors, and he signed the report as a valuer in his personal capacity.41 On these facts, he was held by a majority of the Court of Appeal to have assumed responsibility to the mortgagors for the valuation. It is important to appreciate that the facts were very similar to two previous cases decided by the House of Lords, in which valuers engaged by mortgagees of modest houses were held liable in negligence to the mortgagors;42 and it is clear that particular policy considerations are in play in relation to responsibility for such valuations.43 Merrett v Babb, it is suggested, is best seen as an illustration of the importance of the ‘objectivity’ of the court’s approach to determining whether or not there has been an assumption of personal responsibility, and as a case involving particular policy considerations.44 18.13 The first issue in any particular case relating to an LLP, therefore, will be whether there has been an assumption of personal responsibility by the individual member, namely whether (to adapt Lord Steyn’s words quoted in 18.10) the member, or anybody on his behalf, has conveyed directly or indirectly to the client that the member has assumed personal responsibility for the work in hand towards the client. If this has been conveyed to the client, the second issue will be whether the assumption of personal responsibility by the member has, in fact, been relied on by the client, and relied on reasonably.45 Inevitably, in any dispute the court will be looking at the situation with hindsight, when loss has been suffered by the client and the court is considering whether a remedy against the individual member for that loss ought to be available.46 The criteria by which the reasonableness of reliance is to be 41

See the judgments at [5], [10], [44] and [61]–[63]. Smith v Bush and Harris v Wyre Forest DC reported together at [1990] 1 AC 829. 43 See May LJ at [13], [23] and [30] and Wilson J at [58] in Merrett v Babb. In Williams (at 837D), Lord Steyn described Smith v Bush and Harris v Wyre Forest DC as having been decided on special facts. See also Scullion v Bank of Scotland [2011] EWCA Civ 693. 44 It is to be remembered also that, in White v Jones [1995] 2 AC 207 (the disappointed will beneficiary case), the testator’s solicitor was held to have assumed a responsibility to the beneficiary, although the latter had had no contact with the solicitor: see 268D and 270B. 45 See First Bespoke Limited Partnership v Hadjigeorgiou (unreported) 12 June 2015 (Judge Raeside QC), in which the judge appears to have adopted this approach in determining whether the members of related LLPs had assumed personal responsibility for due diligence work by the LLP in respect of a loan facility. 46 Ie in legal terms, was there a duty of care to keep the claimant harmless from loss of this kind. And see Lord Goff in Henderson above at 186H, referring to the principle of ‘an assumption of responsibility coupled with reliance by the plaintiff which, in all the circumstances, makes it appropriate that a remedy in law should be available for such negligence’. 42

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assessed are not wholly clear from Williams. But given the clear connection between reliance on a person carrying out a task and indemnification by that person if the task is carried out negligently, it appears that an element at least (or way of looking at the matter) in determining whether it is reasonable for a client to rely on an assumption of personal responsibility by an individual member of an LLP will be whether it is reasonable for the client to rely on indemnification by that member personally in the event of negligence in the carrying out of the work on behalf of the LLP.47 And it may be also that a factor for the court in forming an objective view as to whether there has, in any event, been the initial assumption of responsibility will be whether the individual LLP member has shown a willingness to be personally answerable out of his own pocket.48 18.14 There is clearly scope for policy considerations to play a substantial part both in the objective view which is taken of all the particular circumstances when reaching a decision as to whether there has been an assumption of personal responsibility,49 and in determining whether reliance by the client on that assumption of responsibility (if existing in fact) was reasonable.50 The starting point, however, may be the one which appears to have been adopted by the New Zealand Court of Appeal in Trevor Ivory Ltd v Anderson51 (referred to by Lord Steyn in Williams), namely that where individuals have formed a limited liability entity, separate and distinct from its members, in accordance with legislative policy, the limitation of liability should not be undermined by an unreasonable finding of an assumption of personal responsibility on the part of a member. There is a balance to be found between giving proper recognition to the separate legal personality of the LLP and allowing an adequate remedy for the wrong done. There may, perhaps, be some similarity between the court’s approach to this issue and its approach to the issue of whether a director of a company should be personally liable for the costs of litigation in which the company is involved. In the latter case, the test is essentially whether the director was the ‘real party’ for whose benefit the litigation was conducted.52 The question which might be posed in the present context is whether, on similar principles, the member (or employee or consultant), as opposed to the LLP, was the ‘real acting or advising party’.

47

See Lord Steyn at 836G–837B. See Lord Steyn at 836H quoting La Forest J in the Canadian Supreme Court case of Edgeworth Construction v Kuehne Nagel International [1993] 3 SCR 206 at 212. And see also Lord Reid in Hedley Byrne v Heller [1964] AC 465 at 486. 49 See 18.9. 50 And see in this context Lord Steyn’s reference in Williams at 837D–E to ‘practical justice’. For a wider discussion as to the judicial approach to policy and discretion, see Clerk & Lindsell on Torts (21st edn) (2014), paras 8–12 to 8–21, especially paras 8–18 to 8–21. 51 [1992] 2 NZLR 517. The company was a one-man company which, through Mr Ivory, the major shareholder and managing director, carried on the business of an agricultural supplier and adviser. Acting by Mr Ivory, it gave negligent advice as to the use and application of a herbicide for the plaintiffs’ raspberry plantation, as a result of which negligent advice the raspberry plants had to be dug up. The Court of Appeal (reversing the trial judge) held that there had been no assumption of responsibility by Mr Ivory. There was merely ‘routine’ involvement by him for and through the company, and no singular feature which would satisfy the belief that he was accepting a personal commitment as opposed to the known company obligation (McGechan J at 532). 52 Goodwood Recoveries Ltd v Breen [2006] 1 WLR 2723 (CA), esp at [59]. 48

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Professional advisers 18.15 The issues discussed above will be essentially the same whether the LLP is a firm of professionals53 (eg accountants or solicitors) or non-professionals, and the crucial core question will still be – has there been an assumption of personal responsibility? But when considering the position of an individual member of an LLP of professionals, it is worth considering also the possibility of a fiduciary relationship being said to have arisen between a member personally and the client. A fiduciary relationship arises where one person has undertaken to act for or on behalf of another either generally or in a particular matter in circumstances which give rise to a relationship of trust and confidence.54 Most relationships between professional adviser and client are seen as fiduciary relationships.55 One effect of there being a fiduciary relationship is that a duty of care is imposed on the fiduciary in the carrying out of the matters in respect of which he has undertaken to act. The basis of this imposition is an assumption or acceptance of responsibility by him for those matters.56 In other words, the basis of this imposition is exactly the same as the basis for the imposition of the common law duty of care arising under the Hedley Byrne principle discussed in the foregoing paragraphs.57 18.16 Where the LLP is a firm of professionals, with an individual member advising the client on its behalf, there will be a fiduciary relationship between the LLP and the client. Whether there is, in addition, a fiduciary relationship between the individual member and the client giving rise to an individual duty of care will turn on whether (to use the language of fiduciary relationships)58 the individual member has undertaken to act for or on behalf of the client in the relevant matter in circumstances which give rise to a relationship of trust and confidence between him personally and the client. Strictly speaking, this should be seen as just another way of posing the crucial core question in the context of an LLP of professional

53

54 55

56 57

58

Note that no assumption of responsibility has been found in cases concerning professional services where there have been no direct dealings between the claimant and the defendant: see Rushbond Plc v JS Design Partnership LLP [2020] EWHC 1982 (TCC) at [36] and [40]. See Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at 18A–B, approved by the Privy Council in Arklow Investments Ltd v Maclean [2000] 1 WLR 594. See Lord Upjohn in Brown v IRC [1965] AC 244 at 265F–G: ‘a professional adviser, whether he be solicitor, factor, stockbroker or surveyor is of course in a fiduciary relationship to his client’. The relationship between solicitor and client has long been recognised as a fiduciary relationship: see, in addition, for instance, McMaster v Byrne [1952] 1 All ER 1362 (PC). See Lord Browne-Wilkinson in White v Jones above at 271G–H. See Lord Browne-Wilkinson in Henderson above at 205E–H (‘The liability of a fiduciary for the negligent transaction of his duties is not a separate head of liability but the paradigm of the general duty to act with care imposed by law on those who take it upon themselves to act for or advise others’) and in White v Jones above at 271D–H and 274F–H. In Medforth v Blake [2000] Ch 86 (CA), concerned with the scope of the duties of a receiver (including the duty of care), the court declined to distinguish between the answer at common law and in equity: see 102D–E. Although the duty arises out of the fiduciary relationship, the duty of care is not itself a fiduciary duty; and equitable compensation for breach of the duty is given on the same principles as common law damages: see Millett LJ in Bristol and West Building Society v Mothew above at 17C–H. ‘There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case’: ibid. See fn 54 above.

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advisers. To say that there is a fiduciary relationship between the member personally and the client is merely to attach the label ‘fiduciary’ to a relationship where an assumption of personal responsibility is seen – on an objective view – to have been accepted by the individual professional.59 Nevertheless, given the personal trust and confidence between client and individual adviser which in many situations is seen as the essence of a professional relationship, and given also the entrenched learning that the relationship between client and professional adviser is a ‘fiduciary relationship’,60 it may be that the courts will have a predisposition, at least in some professional contexts, to see trust and confidence having been reposed by the client in (and accepted by) the individual member personally, leading to there being a duty of care on that member personally (whether put in common law terms, or in terms of equity)61 in addition to the duty of care on the LLP.62 18.17 Even if an individual assumption of responsibility is found, however, there will still remain the issues of reliance on that individual assumption and, if there was reliance, whether it was reasonable.63

Excluding liability of the individual member in the retainer agreement 18.18 The obvious practical conclusion from the above discussion (at least for an LLP of professionals)64 is that, from the individual member’s point of view, consideration needs to be given to the terms of a retainer agreement, entered into when the LLP is first instructed, making clear that the client is dealing solely with

59

60

61 62

63 64

‘Although the historical development of the rules of law and equity have, in the past, caused different labels to be stuck on different manifestations of the duty, in truth the duty of care imposed on bailees, carriers, trustees, directors, agents and others is the same duty: it arises from the circumstances in which the defendants were acting, not from their status or description. It is the fact that they have all assumed responsibility for the property or affairs of others which renders them liable for the careless performance of what they have undertaken to do, not the description of the trade or position which they hold’: Lord Browne-Wilkinson in Henderson above at 205F–H. See fn 54 above; and see also, for instance, Conway v Ratiu [2006] 1 All ER 571 (CA) at [78] referring, in the context of solicitors, to the ‘intensely personal context of considerations of trust, confidence and loyalty’. In defence of the individual member, it will be said that there is indeed such a relationship, but the ‘professional adviser’ is the LLP. As to the possible relevance of a distinction between the existence of a common law duty of care and a duty in equity, see 18.19 discussing UCTA 1977. An example of such a judicial pre-disposition can be seen in Yazhou Travel Investment Co Ltd v Bateson [2004] HKCFI 258 (esp at [52]–[65]), a Hong Kong case involving a claim in negligence against two consultants to a firm of solicitors. After referring to Williams v Natural Life Health Foods, the judge said (at [54]): ‘I venture to suggest that in most cases, simply because of the personal nature of the solicitor-client relationship, there will be such a special relationship. The solicitor deals directly with the client, takes instructions from him and gives advice. The client sees the solicitor as ‘my solicitor’ and relies on him as such, whether he is a partner or an employee and indeed may continue to instruct the same solicitor if he moves to another firm, whether as partner or as employee. It is reasonable for him to rely on the solicitor with whom he deals. The solicitor sees the client as ‘my client’ and knows that the client will suffer injury if he makes a mistake in his professional work …. Necessarily the solicitor assumes responsibility and even if he is an employee the special relationship comes into being.’ For further consideration of the position in relation to LLPs of professionals, see Whittaker ‘Professional LLPs: Liability in Negligence after Merrett v Babb’ [2002] JBL 601. Save for such professionals as are referred to in 18.31.

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the LLP,65 and that there is no acceptance or assumption of responsibility by any member personally (as opposed to the LLP) for carrying out the relevant work, and no duty of care owed by any member personally (as opposed to the LLP) to the client. The direct contractual benefit of these provisions may be given to any member (or employee) of the LLP by reference to the Contracts (Rights of Third Parties) Act 1999. The question arises, however, as to the impact on such an agreement of the Unfair Contract Terms Act 1977, and also of the Consumer Rights Act 2015. It is convenient to consider the 1977 Act first.

The Unfair Contract Terms Act 197766 18.19 This Act (UCTA 1977) provides that a person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for a breach by him of any common law duty to take reasonable care or exercise reasonable skill (ie exclude or restrict his liability for common law ‘negligence’) except insofar as the term or notice satisfies the requirement of ‘reasonableness’ set out in the Act. This exception is itself subject to the saving that where the loss or damage is death or personal injury there can be no exclusion or restriction of liability at all.67 It is also provided that where a contract term or notice purports to exclude or restrict liability for such negligence, a person’s agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk.68 It is relevant to note that UCTA 1977 has no application to exclusions or restrictions of liability for breach of a duty of care arising in equity.69 If, therefore, a member were otherwise to be under an individual duty of care in equity (ie as a result of a fiduciary relationship arising between the client and him personally), but not at common law, the retainer agreement could exclude or restrict liability for breach of that duty of care without interference from UCTA 1977.70 It must be very doubtful, however, whether the courts would allow any distinction between common law and equity in this context to permit professionals (at least in the general run of work) to escape a restriction on clauses excluding liability for negligence which applies to non-professionals.71 This discussion of UCTA 1977, and the retainer letter, proceeds on the basis that if a duty of care on an individual member is to be found, it will be held to exist at common law.

65 See 66

67

68 69 70

71

18.3. The Act has been amended by the Consumer Rights Act 2015, which came into force on 1 October 2015. In summary, the Act does not apply to contracts between a trader and a consumer. A trader is somebody acting for purposes relating to that person’s trade, business, craft or profession. A consumer is deemed to be somebody acting for purposes wholly or mainly outside their trade, business, craft or profession. For a detailed analysis of the rules in relation to consumer contracts and consumer notices, see Chitty on Contracts above, chapters 15 and 38. UCTA 1977, s 2(1) and (2) with s 1(1)(b). The Act also applies in relation to contractual obligations to take reasonable care in the performance of the contract. The present discussion is concerned solely with the duty of care in tort, and assumes that there is no direct contractual obligation to take reasonable care owed by the individual member to the client. UCTA 1977, s 2(3). See the discussion in 18.15 and 18.16. But not (where the disclaimer is a term of the contract between the LLP and the client) without interference from the Unfair Terms in Consumer Contracts Regulations 1999. These Regulations do not distinguish between liabilities arising at common law or in equity. See the discussion in 18.15 and 18.16.

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18.20 The question is whether a statement in the retainer agreement72 to the effect that no individual member of the LLP accepts or assumes responsibility for carrying out the relevant work, and no personal duty of care arises, constitutes an exclusion or restriction by the relevant individual member or members73 of their liability (and, if it does, whether it satisfies the reasonableness test). It might be argued that UCTA 1977 cannot apply, on the basis of the following reasoning: what the Act prevents or impedes is the exclusion of liability for negligence; negligence is defined in the Act74 as the breach of a duty of care; this duty arises from an assumption of responsibility; what the retainer agreement is doing (if anything) is excluding such an assumption of responsibility and ensuing duty; therefore, there being no duty arising between the individual member and the client, there is in fact no exclusion of liability for breach of that duty because there is simply no duty. The courts have, however, emphasised that the substance of a contractual term or notice must be looked at in order to see whether it is an exclusion or restriction for the purposes of the Act.75 Specifically, the above line of reasoning has been rejected by the House of Lords in Smith v Bush.76 The House of Lords pointed, inter alia, to s 13(1) of the Act, which provides (so far as presently relevant) that to the extent that s 2 prevents the exclusion or restriction of any liability, it also prevents excluding or restricting liability by reference to terms and notices which exclude or restrict the relevant obligation or duty. 18.21 It appears, therefore, that in order to determine whether the duty of care of an individual member is being excluded for the purposes of UCTA 1977 (with the result that the ‘reasonableness’ of the exclusion needs to be established), the essential question is whether, regardless of the retainer letter, the individual member is – objectively viewed, and taking into consideration the matters referred to in 18.9–18.14 – assuming a personal responsibility to the client, ie would the individual member be assuming that responsibility but for what is said in the retainer letter.77 The practical result may perhaps be put as follows. The retainer letter will not of itself determine whether there is or is not a duty of care owed by any individual member or members of the LLP to the client, that is to say whether there is or is not (objectively viewed) any individual assumption of personal responsibility to the client. But the letter may conveniently provide evidence militating against a finding of an individual assumption of responsibility. 18.22 If the retainer does amount to an exclusion or restriction of liability for negligence, the application of UCTA 1977 means that there can be no exclusion or restriction by a member of liability for death or injury resulting from negligence.78 72

Which, it is being assumed, will be between the LLP and the client. Ie any member or members who actually do work for the client. 74 Section 1(1)(b). 75 See Phillips Products Ltd v Hyland [1987] 1 WLR 659 at 666B (Slade LJ) and Johnstone v Bloomsbury Health Authority [1992] QB 333 at 346C–E (Stuart-Smith LJ). 76 [1990] 1 AC 831 (concerned with the liability of building society surveyors to purchasers borrowing on mortgage): see Lord Templeman at 848C–849C, Lord Griffiths at 856E–857H and Lord Jauncey at 872H–874A. The above line of reasoning was accepted by the Court of Appeal in Harris v Wyre Forest DC [1988] QB 835, one of the two cases heard in the House of Lords (where the Court of Appeal was reversed) and reported under the title of Smith v Bush above. 77 This is the ‘but for’ test stated by Lord Griffiths in Smith v Bush above at 857D. 78 This will clearly be relevant to LLPs which are building contractors. 73

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In relation to other loss or damage (eg economic loss from negligent advice) there can be exclusion or restriction of liability if such exclusion or restriction is ‘reasonable’ in accordance with UCTA 1977, s 11. It is relevant at this stage to consider the legal status of the statement in the letter which negatives any duty of care arising on the part of any individual member. Assuming that the retainer agreement is a contract between the LLP and the client (albeit with individual members having the benefit of the exclusion provisions under the Contracts (Rights of Third Parties) Act 1999), and that the statement as to no assumption of personal responsibility, and no duty of care, on the part of a member has contractual effect, the requirement of reasonableness is that the term should have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties (ie the LLP and the client) when the contract was made.79 If, however, the statement made to the client is merely a notice, not having contractual effect, the reasonableness test is whether it is fair and reasonable to allow reliance on the notice, having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen.80 18.23 This is not the place to discuss extensively the test of reasonableness and its application.81 At whatever time the test falls to be applied, however, it is a broad general test.82 The onus will be on the member to show that the exclusion or restriction of liability was reasonable.83 In the same way as there is room for policy considerations to play a part when considering the question whether in a particular case a member has assumed a personal responsibility,84 so here also there is clear scope for a degree of policy consideration: is it reasonable to allow individual professionals as members of an LLP to exclude or restrict personal liability? The following statement by Lord Griffiths in Smith v Bush85 is to be noted: ‘I would not, however, wish it to be thought that I would consider it unreasonable for professional men in all circumstances to seek to exclude or limit their liability for negligence. Sometimes breathtaking sums of money may turn on professional advice against which it would be impossible for the adviser to obtain adequate insurance cover and which would ruin him if he were to be held personally liable. In these circumstances it may indeed be reasonable to give the advice upon a basis of no liability or possibly of liability limited to the extent of the adviser’s insurance cover.’

18.24 This statement was, of course, made before LLPs were in contemplation. Nevertheless, it is a judicial recognition that there are circumstances where an 79

Ie broadly speaking, at the beginning of the retainer and before the work is carried out: UCTA 1977, s 11(1). 80 UCTA 1977, s 11(3). 81 For a fuller discussion, see, for example, Chitty on Contracts (33rd edn) (2018), paras 15–096 to 15–115. See also Barclays Bank v Grant Thornton [2015] EWHC 320 (Comm) and Hirtenstein v Hill Dickinson LLP [2014] EWHC 2711 (Comm) at [173]–[180]. 82 ‘… the court must entertain a whole range of considerations, put them in the scales on one side or the other, and decide at the end of the day on which side the balance comes down’: Lord Bridge in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 at 815–816. And see also the factors enumerated by Lord Griffiths in Smith v Bush [1990] 1 AC 831 at 858–9. 83 UCTA 1977, s 11(5). 84 See 18.14. 85 [1990] 1 AC 831 at 859D–E.

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individual professional man can reasonably exclude or restrict his personal liability. In the case of an individual member of an LLP being considered here, unless the LLP seeks to exclude or unreasonably restrict its own liability there will be, in any event (and subject to issues of solvency), the LLP for the client to look to. It may be that in the light of this, and provided that the LLP has what is a reasonable level of insurance cover in the circumstances, the court will look favourably on an exclusion of personal liability on the part of the individual member. Alternatively, it may be that a restriction of personal liability up to a certain insurable limit for the individual member will be reasonable.86

The Consumer Rights Act 2015 18.25 The Consumer Rights Act 2015 applies to consumer contracts concluded and ‘consumer notices’ provided or communicated on or after 1 October 2015.87 Consumer-to-consumer and business-to-business contracts are not covered. The 2015 Act creates a series of controls on terms in consumer contracts, distinguishing broadly between terms which exclude or restrict liability under the new statutory terms in ‘goods contracts’, ‘digital content contracts’ and ‘services contracts’, which Part 1 of the Act sets out, and terms or notices which fall within a general framework of controls on the ground of unfairness in Part 2 of the Act. Broadly, Part 2 of the Act protects the consumer against contractual wording that could be used to give the business an unfair advantage. It requires that such wording should be: (a) fair – not weighting the contract unfairly against the consumer, or hidden away (in practice, the test is very similar to the test included in UCTA 1977); and (b) transparent (if written) – enabling the consumer to make informed choices (for instance, using clear, jargon-free language that consumers can understand). In broad terms, a provision in an agreement between an LLP and a consumer that purported to exclude the personal liability of a member would not be binding if it is an ‘unfair term’, and it would be unfair ‘if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer’, and that is to be assessed ‘(a) taking into account the nature of the subject matter of the contract, and (b) by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends’.88

Excluding liability of member of LLP of auditors 18.26 Sections 532–538 of the CA 2006 as enacted for companies contain, inter alia, restrictions and requirements to be satisfied before a company may validly enter into an agreement (a ‘liability limitation agreement’) with its auditor to exempt the auditor to any extent from liability that would otherwise attach to the auditor in connection with any negligence, default, breach of duty or breach of trust occurring in the course of the audit of the company’s accounts. The sections are concerned

86 87 88

See UCTA 1977, s 11(4), and the cases referred to in Chitty on Contracts above, para 14–087. For contracts made on or after 1 October 1999 and before 1 October 2015, the Unfair Terms in Consumer Contracts Regulations 1999 apply, as to which see the previous edition of this book. 2015 Act, s 62.

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essentially with exemptions from liability arising from a duty of care, or other duty, owed to the company in the course of the audit of the company’s accounts by its auditor. The authors suggest that, where the auditor of the company is an LLP, duly appointed in accordance with CA 2006, s 485 (private companies) or s 489 (public companies), there is no restriction under ss 532–538 on an agreement between the company and the LLP (eg in the retainer letter) excluding any personal duty of care (or otherwise) on the part of an individual member of the LLP, or exempting an individual member from any personal liability arising from the breach of a personal duty. The general issues discussed in 18.19–18.24 in relation to UCTA 1977 will, however, continue to be relevant.

Other torts causing economic loss 18.27 The reasoning in Williams is not expressly confined to the tort of negligence, and to determining whether an agent has assumed a personal responsibility for work being carried out with due care.89 It has subsequently been decided by the House of Lords, however, that this reasoning does not apply to liability for fraudulent acts done by an agent. In Standard Chartered Bank v Pakistan National Shipping Corp (No 2) the Court of Appeal had applied the reasoning in Williams to a claim brought against a director personally for a fraudulent misrepresentation made by him on behalf of his company. The false statement was attributed to the company: the issue was whether the director was personally liable as well. The Court of Appeal decided that he was not, because he never led the plaintiff bank to believe that he was assuming personal responsibility for the representation, and the bank believed that it was dealing with the company.90 The House of Lords reversed this, on the basis that a person cannot escape liability for his fraud by saying that he made it clear he was not personally liable.91

Joint liability with the LLP 18.28 A member of an LLP can in certain circumstances be liable to a third party as a joint tortfeasor with the LLP for the LLP’s tort. These circumstances will, in broad terms, be where the tortious act is to be seen as a joint act done by the member and the LLP in pursuance of a common purpose between them. This may, in particular, be the case where the member has ordered or procured the tortious act to be committed. The degree of participation in the act which is required from the member in order to make him liable as a joint tortfeasor with the LLP has been said (in the context of directors of companies) to be ‘elusive’, and to involve – at least in some cases – broad considerations of policy.92 Generally speaking, a member will not be treated as jointly liable with the LLP for the latter’s tort if he does no more than carry out the proper functions allotted to him in accordance with the LLP agreement for the purposes of the LLP’s management or business.93 The mere fact that a person is a

89

Lord Steyn at [1998] 1 WLR 830 at 835B–C refers simply to ‘personal liability in tort’. [2000] 1 Lloyd’s Rep 218. 91 [2003] 1 AC 959. 92 See C Evans Ltd v Spritebrand Ltd [1985] 1 WLR 317 (CA) at 330–1. 93 See, generally, MCA Records Inc v Charly Records Ltd [2003] 1 BCLC 93 (CA). 90

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member of an LLP will not of itself render him liable for torts committed by the LLP during his membership.94 18.29 Where a member, acting bona fide within the scope of his authority on behalf of the LLP, causes or procures the LLP to act in breach of a contract, he will not be personally liable in tort to the other contracting party for causing or procuring the breach.95

Individual status of certain professionals 18.30 Legislation provides that some professional positions can only be occupied by an individual (and not, therefore, by a partnership or a corporate body such as an LLP). Examples are an insolvency practitioner,96 the actuary of an occupational pension scheme,97 a cathedral architect98 or a receiver of the property of a company or LLP.99 In cases where such an individual is a member of an LLP, he will clearly assume a personal responsibility to the client; and will (subject to any exoneration clause) be personally liable in the event of his services being provided negligently. Similarly, an individual who is a member of an LLP and undertakes a trusteeship or directorship will be personally liable for his own wrongdoing in such positions.100 Whether or not the LLP will in addition be liable under LLP Act 2000, s 6(4) for the individual’s negligence or other wrongdoing is discussed at 5.24.

FIDUCIARY OBLIGATIONS 18.31 The possibility has been discussed in 18.15–18.16, in the context of the duty of care, of a fiduciary relationship arising between an individual member of an LLP of professionals and a client of the LLP, this possibility turning on whether the individual member has undertaken to act for or on behalf of the client in the relevant matter in circumstances which give rise to a relationship of trust and confidence between him personally and the client. It is to be appreciated that the question whether or not a personal fiduciary responsibility to a third party has been assumed by a member of an LLP may arise otherwise than in the context of potential liability for negligence, and otherwise than in the context of work to be done by an LLP of traditional professionals. It may, for instance, arise where money or property belonging to the third party and entrusted by him to the LLP has been turned to the LLP’s own benefit. The issue of personal responsibility and accountability in such a case will essentially turn upon the same question as set out above, although in this context the question has been phrased by the Court of Appeal as whether the

94

See, for instance, C Evans Ltd v Spritebrand Ltd above at 323H. Said v Butt [1920] 3 KB 497, discussed in Reeves v Sprecher [2007] 2 BCLC 614 at [27]–[32]. 96 See IA 1986, s 390. 97 See Pensions Act 1995, s 47. 98 See Cathedrals Measure 1999, ss 9(1)(f) and 35(1). 99 See IA 1986, s 30. 100 As to executors or trustees, see, for instance, Re Rogers (deceased) [2006] 1 WLR 1577 at [13]. 95 See

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individual has assumed a personal duty of loyalty to the third party with respect to the third party’s matter.101

LIABILITY IN AN INSOLVENT LIQUIDATION 18.32 As has been mentioned at 8.17, the members of an LLP may, in certain circumstances, find themselves exposed to personal liability to general creditors of the LLP in the event of the LLP going into insolvent liquidation.

101 See

Sinclair Investment Holdings SA v Versailles Trade Finance Ltd [2006] 1 BCLC 60, a decision in a company case on an application to strike out the pleading of a claim. As to loyalty being the core obligation of a fiduciary, see 13.9.

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Chapter 19 CESSATION OF MEMBERSHIP AND ITS CONSEQUENCES

INTRODUCTION 19.1 The cessation of a person’s membership of an LLP, and the requirement to give notice of it to the Registrar, have been mentioned in outline at 8.28–8.30. The purpose of this chapter is to consider the routes to cessation of a person’s membership in more detail, and then to consider the consequences of a cessation of membership.

CESSATION OF MEMBERSHIP Cessation by agreement or by ‘reasonable notice’ 19.2 Section 4(3) of the LLP Act 2000 provides that, in addition to ceasing to be a member by death or dissolution, a person may cease to be a member of an LLP in accordance with an agreement with the other members or, in the absence of agreement with the other members as to cessation of membership, by giving reasonable notice to the other members. Section 4(3), therefore, does two things: it entitles a member to retire in accordance with an agreement with the other members, and it provides a default right of retirement.1 This default right is for a member to retire, not for the other members to expel.2 19.3 Partnership law provides no equivalent default right to retire: a partner has no right to retire in the absence of an express or implied agreement with his partners.3 The explanation for this is that a partnership is the relationship which exists between all the partners together: there is no relationship between one partner and a separate entity. What partnership law does give, in a partnership at will, is the right for any member to dissolve the partnership (ie to bring the relationship to an end) and, prima facie at least, to have the assets sold and the business wound up. An LLP, however, continues to exist as the same corporate entity, notwithstanding that members have left or new members have joined. Given this, and the separate relationship between

1

2 3

We will use the expressions ‘retire’ and ‘retirement’ to mean ‘cease to be a member’ and ‘cessation of membership’. The provision for reasonable notice as to leaving could not have been contained in regulations made under LLP Act 2000, s 15(c) because, unlike the provisions of regs 7 and 8 of the LLP Regulations 2001 (ie the ‘default rules’), it is not any part of the ‘law relating to partnerships’, but is a de novo provision for LLPs and thus must find its place in the body of the Act as primary legislation. Expulsion is discussed in 19.12–19.13. Lindley & Banks on Partnership (20th edn) (2017), paras 24–105 to 24–107; Blackett-Ord, Partnership (6th edn) (2020), paras 16.33–16.37.

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each member and the corporate entity, it is, the authors suggest, appropriate that a person has a right to cease to be a member in the absence of an agreement with the other members as to leaving.4

By agreement 19.4 An agreement amongst the members as to retirement may form part of a general LLP agreement (ie it can be made in advance of an intended retirement).5 Alternatively, such an agreement can be made on an ad hoc basis as and when a member wishes to retire. As with a traditional partnership, if the members make an agreement which operates to restrict, or impose conditions on, the right to retire (for example, by fixing the necessary notice period or limiting the number of members who may leave during a particular period), a member will have to comply with the terms of that agreement in order to cease to be a member. 19.5 What is not entirely clear from the wording of s 4(3) is whether the members of an LLP are entitled to contract out of the s 4(3) default right altogether. Can the members agree that there will be no right of retirement at all, or no right of retirement during a specified period? If such a provision is agreed, the result will be that a member will only cease to be a member by death (in the case of an individual member), by dissolution (in the case of a corporate member), pursuant to an express power of expulsion, or on the dissolution of the LLP following winding up.6 Whilst an agreement containing an exclusion of the right to retire is likely to be rare, there may in particular circumstances be good commercial justification for it, especially in smaller LLPs. The issue on s 4(3) is whether the words ‘in the absence of agreement with the other members as to cessation of membership’ mean ‘in the absence of an agreement between the members allowing individual members to cease to be members’ or mean ‘in the absence of any agreement at all relating to cessation’. In other words, is an agreement that there shall be no right to retire an agreement ‘as to cessation’? The drafting of s 4(3) is unhappy; but it is suggested that an agreement that there shall be no right to retire is an agreement ‘as to cessation’. In principle, members should be entitled to make an agreement that they shall not be entitled to retire, and in the authors’ view they can do so.7 That analysis was accepted by Henry Carr J in Grupo Mexico Sab De CV v Registrar of Companies8 and is supported by the conclusion reached by the court in Thitchener v Vantage Capital Markets to the

4

5 6 7

8

Cf the position of a member of a company limited by guarantee. In the absence of a provision in the articles of association permitting him to do so, he cannot cease to be a member. And contrast also the position of a member of company limited by shares who can only cease to be a member by transfer of his shares: the articles of association of many private companies impose restrictions on the ability of members to transfer their shares, and members wishing to dispose of their shares may be forced to rely upon the unfair prejudice provisions of CA 2006, s 994. Thitchener v Vantage Capital Markets LLP [2019] EWHC 1576 (QB) at [100]. Or by an order for the purchase of his share in the LLP pursuant to CA 2006, s 994. See Chapter 32. Very careful thought will need to be given before such a term is agreed. If relations between the members break down and the majority are not prepared to agree to allow a dissatisfied member to leave, such a member may be forced to petition for relief under CA 2006, s 994 (if not also excluded by agreement under s 994(3)), or for the winding up of the LLP on the just and equitable ground pursuant to IA 1986, s 122(e): see Chapter 32. [2018] EWHC 1306 (Ch) at [99]–[100].

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effect that, where the members have agreed any terms as to cessation of membership, there is no scope for invoking s 4(3) (so that, on the facts of that case, the default right could not be invoked during the period of an agreed initial fixed term of membership).9

On reasonable notice 19.6 If there is no relevant agreement as to retirement (permitting it or excluding it), what period of notice will be regarded as reasonable? Clearly, this will vary from LLP to LLP, and may even vary between different members of the same LLP. It may also depend on the particular circumstances existing at the time of the notice. A longer period may be more reasonable for a long established member who has significant contact with clients than for a junior member who has little client involvement. Although a fixed default notice period in s 4(3) would have been somewhat arbitrary, the certainty of a fixed period (which could, of course, have been varied by agreement) might have been preferable to the uncertainty to which the reasonable notice requirement may well give rise.10 19.7 It is possible to identify some factors which are likely to be relevant in determining the reasonable period; but, until some judicial guidance is given, it is difficult to predict with any degree of confidence the approach that is likely to be taken by the courts. It is suggested that some or all of the following factors are likely to be relevant. (a)

The nature of the LLP’s business, and the role of the outgoing member in the business. Does the outgoing member have a significant involvement or contact with clients/customers? To what extent (as a matter of commercial reality) is the ‘goodwill’ of the business vested in the members generally or in the outgoing member? Is the member likely to take clients/customers with him? Does the LLP agreement impose restrictive covenants on outgoing members; and if it does not, is this material?11 (b) The length of time that the outgoing member has been a member. (c) The need for the LLP to replace the outgoing member, the ease with which this can be done and the length of time the replacement process is likely to take. (d) The notice periods imposed by other LLPs, firms or companies in the same business. This is likely to be of limited relevance, but it may provide some general guidance. For example, notice periods for professionals (both for partners and employees) tend to be longer than those for non-professionals. (e) The absence of an agreement as to the notice period. The court may infer from the fact that the members have not agreed a notice period that they did not

9

[2019] EWHC 1576 (QB) at [101]–[102]. Grupo Mexico SAB de CV v Registrar of Companies [2018] EWHC 1306 (Ch) at [101], Henry Carr J rejected an argument that members cannot agree to cease to be members of an LLP, and cannot cease to be members by giving notices to that effect to each other, if, in either case, the LLP would be left with no members as a result. Given that a restrictive covenant (if there is one) will in practice be in a written LLP agreement, and that a written LLP agreement is likely to provide for a fixed notice period for retirement, a consideration of the impact of restrictive covenants which are in place is in practice unlikely to arise in many cases.

10 In

11

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intend a long period. This may be particularly so if the LLP has no written agreement at all: a court may infer from the relative informality adopted by the members that they did not intend lengthy restrictions on leaving. (f) The solvency of the LLP. A member may wish to cease to be a member as a consequence of concluding that the LLP is insolvent and will not avoid going into insolvent liquidation. If a member takes such a view, and is unable to persuade his fellow members to implement appropriate steps (eg putting the LLP into creditors’ voluntary winding up), he may be exposing himself to liability pursuant to s 214 of the IA 1986 unless he ceases to be a member.12 In such circumstances, a court is likely to consider that a very short period of notice is reasonable. (g) The default provisions in partnership and employment law. A partner in a partnership at will can serve a notice dissolving the partnership without notice. The statutory minimum notice to be given by an employee is one week.13 This is likely to be of limited relevance but, again, tends to point towards shorter rather than longer notice periods. 19.8 It is suggested that, in general, courts are likely to favour shorter rather than longer notice periods in the absence of persuasive reasons to the contrary. Notice periods for partners in professional service firms tend to vary between about three months and one year. It is unusual to find shorter, but not that uncommon to find longer, periods. For example, some firms provide that at least one year’s notice must be given to expire at the end of the firm’s accounting period. The notice period in these cases can, therefore, be up to two years. It is suggested that the courts will tend to favour notice periods at the bottom end of this range for professionals, ie between three and six months. For non-professional service LLPs, it is suggested that the courts will tend to favour an even shorter period, ie perhaps about one month. It is to be stressed, however, that each case will turn on its own facts, and that no reliable view can be expressed until a body of case-law has developed.

Death/dissolution 19.9 The intention (or at least the assumption) behind the legislation appears to be that a member ceases to be a member on death (in the case of an individual member) or dissolution (in the case of a corporate member). LLP Act 2000, s 4(3) provides that ‘A person may cease to be a member … (as well as by death or dissolution) in accordance with an agreement with the other members …’. In the case of the dissolution of a corporate member, there can be no doubt that the dissolution causes a cessation of membership (although theoretically the membership, viewed

12

13

See Chapter 34. As an alternative to giving ‘reasonable notice’, the member may be able to present a winding-up petition as a creditor himself or a contributory (see the discussion at 31.18–31.25). Section 214(3) may provide some protection to a person who continues as a member in this situation (the protection being on the basis that, having sought to persuade his co-members to implement appropriate steps, the member has taken ‘every step with a view to minimising the potential loss to the LLP’s creditors … as he ought to have taken’); but this is far from clear. If he has been continuously employed for less than two years: where the continuous employment is over two years, and up to 12 years, the statutory minimum notice is one week’s notice for each year of continuous employment: Employment Rights Act 1996, s 86.

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as a bundle of rights and obligations, could vest in the Crown as bona vacantia).14 In the case of death, however, s 4(3) is to be contrasted with LLP Act 2000, s 7. Section 7(1) provides that s 7 applies where a member of an LLP has either ceased to be a member or (a) has died, (b) has become bankrupt or been wound up, (c) has granted a trust deed for the benefit of his creditors, or (d) has assigned the whole or part of his share in the LLP (absolutely or by way of charge or security). This appears, at least at first sight, to assume that death does not automatically cause cessation: if death causes a cessation, s 7(1)(a) would be unnecessary. Section 7(2) then provides that ‘in such an event’ the former member or (a) his personal representative, (b) his trustee in bankruptcy or liquidator, (c) his trustee under the deed for the benefit of his creditors, or (d) his assignee may not interfere in the management or administration of any business or affairs of the LLP. The authors suggest that the reference to death in s 7(1) is part of a rather clumsily expressed intention to provide in the section that the personal representative of a deceased member (as well as a living former member and trustee in bankruptcy or assignee, etc of a member) is not entitled to interfere in the management, etc of the LLP; and is not intended to negate the assumption behind s 4(3) that death causes a cessation in membership. The reference in subs (2)(a) to the personal representative of the former member is consistent with this. The reference at the beginning of subs (2) to ‘the former member’ is itself, however, rather clumsy, in that the persons referred to in paras (b)–(d) of sub-s (2) as not being entitled to interfere in the management of the LLP, etc are surely intended to include (consistently with paras (b), (c) and (d) of subs (1)) the trustee or assignee of a current member. The authors consider that, construing ss 4(3) and 7 together, the intention of the LLP Act is that death does cause an automatic cessation of membership for the member and his estate; and that the intended effect of s 7 is as if para (a) in each of subss (1) and (2) had been omitted, as if the introductory words of subs (1) had read ‘This section applies where a member of a limited liability partnership has either ceased to be a member (whether by death or otherwise) or’, and as if subs (2) had read as follows: ‘(2)  In such an event the former member (or his personal representative) or (b) the trustee in bankruptcy or … liquidator, (c) the trustee under the trust deed for the benefit of his creditors, or (d) the assignee of a member referred to in paragraphs (b)–(d) of subsection (1) may not interfere in the management or administration of any business or affairs of the limited liability partnership in that event.’

Bankruptcy/liquidation of a member 19.10 The bankruptcy of an individual member does not cause a cessation of his membership unless the LLP agreement provides for this, either automatically or at the election of the other members.15 If the bankrupt does not cease to be a

14 15

Under CA 2006, s 1012. This would be subject to the effect in such circumstances of LLP Act 2000, s 7(2), discussed at 8.21–8.25. It is, however, a criminal offence for a person who is an undischarged bankrupt to act as a member of an LLP except with the leave of the Court: CDDA 1986, s 11, as applied to LLPs by SI 2001/1090, reg 4. See also CDDA 1986, s 15.

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member, his share or interest in the LLP will vest in his trustee in bankruptcy on appointment.16 But the trustee has no right to become a member, and may not interfere in the management or administration of any business or affairs of the LLP.17 If the bankrupt member ceases to be a member, either because of a provision for compulsory retirement in the LLP agreement, or pursuant to an ad hoc agreement with the other members, the financial entitlement of the trustee will depend upon the terms of leaving agreed. The position if there is no agreement as to an outgoing member’s share is discussed in 19.27–19.40.18 19.11 The liquidation of a corporate member likewise does not result automatically in cessation of membership although, again, cessation can be agreed by the members. A liquidator may not interfere in the management or administration of any business or affairs of the LLP.19

Expulsion/compulsory retirement 19.12 In the absence of agreement between the members as to expulsion or compulsory retirement, a member cannot be expelled or required to retire. This is the effect of default rule (11)20 (adopting s 25 of the Partnership Act 1890) which provides as follows: ‘No majority of the members can expel any member unless a power to do so has been conferred by express agreement between the members.’

19.13 The exercise of a power of expulsion or compulsory retirement of a member is likely to be subject to both subjective and objective duties or fetters (which are discussed at 17.26–17.37), including a requirement of good faith.21 The role (if any) of procedural justice in the exercise of a power to expel (or compulsorily retire) a member is not wholly clear. In partnership law, a distinction has, historically, been drawn between powers that are triggered by some defined objective act, such as a material breach of the partnership agreement, where it is said that there is no need to

16

IA 1986, s 306. LLP Act 2000, s 7(2)(b), discussed further at 8.21–8.25. 18 Quaere whether, despite CDDA 1986, s 11, a bankrupt can voluntarily cease to be a member without the consent of his trustee after commencement of the bankruptcy if, by doing so, his share or interest would vest in the other members without financial compensation in full. Quaere also the effect of IA 1986, ss 339 and 340 (transactions at an undervalue and preference, as applied to LLPs by SI 2001/1090, reg 5) in relation to pre-bankruptcy agreements. Quaere also the application of the rules relating to forfeiture in the event that a member leaving because of his bankruptcy is not entitled to compensation for his share: see Krasner v Dennison [2001] Ch 76 (CA) and Rowe v Sanders [2002] BPIR 847. 19 LLP Act 2000, s 7(2)(b). 20 LLP Regulations 2001, reg 8, and cf Eaton v Caulfield [2011] BCC 386 at [23]–[25]. 21 See Williams v Wilsons Solicitors LLP 29 June 2012, Briggs J at [49]. And see further Gaiman v National Association of Mental Health [1971] Ch 317 (expulsion of a company member) at 330, Reda v Flag Ltd [2002] IRLR 747 (PC) (concerned with an employer company’s contractual right to dismiss an employee without cause) at [43], and Kovats v TFO Management LLP [2009] ICR 1140. This is also in accordance with partnership law: see Blisset v Daniel (1853) 10 Hare 493 and Lindley & Banks on Partnership above, paras 10.140–10.141. 17

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give the partner a right to make representations before the power is exercised; and powers where the decision-makers are exercising a discretion and, therefore, a quasijudicial function, where there is such a requirement.22 The authors question whether this distinction is appropriate: even where the power is exercisable for cause, the decision-makers have a discretion to decide whether to expel or not.23 Further, the traditional approach will need to be reconsidered in the light of the Supreme Court decision in Braganza v BP Shipping Limited,24 which is discussed at 17.34–17.37.

CONSEQUENCES OF CESSATION OF MEMBERSHIP Notification to the Registrar and cessation of agency 19.14 As is discussed in Chapters 5 and 8, where a person ceases to be a member (i) the LLP must ensure that notice of this is delivered to the Registrar within 14 days, and (ii) that person will (subject to any agreement to the contrary) cease to be the agent of the LLP and to have actual authority to bind the LLP.25

Obligations and rights of the outgoing member 19.15 Cessation of membership will result in the member ceasing to be subject to most of the obligations incidental to his membership, for instance, the obligation not to compete in business with the LLP26 and the statutory obligation to take all reasonable steps for securing that the LLP’s accounting records are preserved.27 The legislation does not, however, even in the default rules, make any express provision for the financial consequences of a person ceasing to be a member.28 Accordingly, in default of agreement between the members, an outgoing member has no express statutory right to receive any payment for the value of his ‘share’ in the LLP,29 either from the continuing members or from the LLP itself. As will appear from what is said in the following paragraphs, it is important that members agree (preferably in a written LLP agreement) not only how, and in what circumstances, persons will cease to be members, but also the financial consequences of cessation of membership. 19.16 Most modern partnership agreements provide for the outgoing partner’s share to vest in the continuing partners and for the outgoing partner to be entitled

22

Green v Howell [1910] 1 Ch 495. See, in this regard, Rennie v Rennie [2020] SLT 619 (a decision of the Court of Session (Outer House)) at [42]. 24 [2015] UKSC 17. 25 At 8.29 (notification to the Registrar) and 5.20 (cessation of agency). 26 See 13.9(b), subject to any restrictive covenant binding to him. 27 See 13.22(a). 28 An attempt was made by Lord Goodhart during the third reading of the Bill in the House of Lords to introduce a default provision entitling an outgoing member to receive from the LLP an amount equal to the value of his share in the capital and profits of the LLP, but the proposed amendment was defeated; see Hansard HL, vol 611, no 71, 6 April 2000, cols 1420–1427. 29 As to the legislation recognising that a member has a ‘share’ and ‘interests’ in the LLP, see 8.18. 23

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to be paid (in addition to his share of accrued profits) a sum representing his capital and/or his share of the firm’s assets. Partners are free to decide the basis upon which the amount of the outgoing partner’s entitlement is to be calculated. In professional practices, the entitlement of an outgoing partner is often limited to repayment of capital and does not include a share of the excess of the true value of the assets over their balance sheet value (ie unrealised capital profits).30 LLP agreements, especially for professionals, are likely to adopt a similar approach. In all cases where a member leaves an LLP, however, it will be sensible for him to have in mind the provisions of s 214A of the IA 1986 (adjustment of withdrawals).31 A member who believes that he is leaving a sinking ship will need to consider, at least, whether he wishes to take some or all of his luggage with him as he seeks to float away.

Potential financial interests 19.17 Before analysing what the position may be in the absence of any agreement as to the financial entitlement of an outgoing member, it is convenient to consider what in fact an outgoing member’s financial interests potentially are. It is suggested that they are the following: (a) (b)

a share of profits for a previously finished financial year; a share of profits for the current year in respect of the period to the cessation of his membership; (c) sums contributed by him (or credited to him) as capital; (d) sums advanced by him to the LLP by way of loan; (e) a share of the excess of the true value of the assets over their balance sheet value (ie unrealised capital profits); and (f) a share of any reserve (for instance, a tax reserve or a revaluation reserve).

(a) Share of profits for a previously finished year 19.18 An outgoing member’s entitlement to share in the profits of the business made by the LLP prior to his cessation of membership will depend on the agreement between the members as to sharing, and division, of profits.32 The default rule (having effect in the absence of any agreement as to profit sharing) is that all the members share equally in the profits.33 If an outgoing member leaves at the financial yearend, or after a financial year-end but before the profits for that financial year have been determined, it must be very unlikely that any agreement will provide that he is not entitled to a share of profits for that year on their division. This may, however, be subject to a provision as to retention of profits to a capital account or a reserve account. Given the statutory requirement for annual accounts (which must show, inter alia, the profit or loss for the year in question),34 and the fact that the outgoing

30

Issues can arise on the construction of financial provisions in a partnership agreement as to whether the outgoing partner is entitled to a share of goodwill or of unrealised capital profits: see, for instance, Re White (Dennis) Deceased [2001] Ch 393 (CA); Drake v Harvey [2011] 1 All ER (Comm) 344; and Ham v Ham [2013] EWCA Civ 1301. 31 See 8.17, and 34.6–34.10. 32 See 16.12–16.16. 33 Default rule (1): see 16.10. 34 CA 2006, s 394. Annual accounts are discussed in Chapter 21.

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member will have been a member of the LLP during the whole of financial year/ accounting period in question, the position under the default rule, it is suggested, will be that the outgoing member is entitled to his share of the profits for the previous financial year when those profits have been determined (and divided) in the same way as a continuing member.35 19.19 If profits for a previous year have been determined, and the entitlement of each member to receive his share in them has crystallised, and there is no agreement as to retention of them in the LLP,36 the outgoing member will be entitled to take such of his share as he has not yet drawn.37

(b) Share of profits for current year 19.20 If a member leaves during a financial year, the position may be less clear. Again, it must be very unlikely that any agreement will provide that he is not entitled to any share of profits for the financial year during which he leaves. But there may be a question of construction of the agreement as to whether he has a right to a timeapportioned share of the profits for the whole financial year during which he leaves (in which case the ascertainment of his entitlement will have to await the end of the financial year and the drawing up of the accounts), or he has a right to call for special accounts to be prepared for the period of the financial year up to the date of his ceasing to be a member. As mentioned in 19.18, the default rule is that all members are entitled to share equally in the profits. ‘Members’ in the rule, it is suggested, means members for the time being, ie at the time in respect of which one is applying the rule. It follows from this, it is suggested, that the position under the default rule (if applicable) is that special accounts should be drawn up to the date of the outgoing member’s cessation of membership for the purpose of calculating his share of profits during the time of his membership. Consistently with this, it is suggested that (unless there is some clear agreement to the contrary) an outgoing member has no right to share in profits made after he has ceased to be a member. There would seem to be no justification for construing ‘members’ in the default rule as including ‘former members’.

(c) Capital 19.21 As has been mentioned in 16.2, the legislation clearly recognises the concept of members’ capital. Where there is an LLP agreement, it is likely to provide a right to repayment of a member’s capital on his ceasing to be a member.38 Further, for FCA-authorised LLPs, there are special rules regarding the permanency of capital: these are discussed in 20.19–20.20. What is the position in default of agreement for repayment of capital contributed? Default rule (1) does not, in the authors’ view, contain any provision as to distribution or payment out of capital. All that it does is

35 See

16.12–16.14, and also Re White (Dennis) Deceased [2001] Ch 393 at [28]–[30] (Chadwick LJ) and [74] (Peter Gibson LJ), albeit construing a particular agreement. 36 Ie the undrawn profits are in his ‘current’ or ‘drawings’ account. 37 See 16.12–16.14. 38 As to the position where there is an agreement for repayment, but no indication of what a ‘member’s capital’ share is, see 16.10.

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to specify the share of each member; it includes no provision as to how and when that entitlement can be realised. The court may well strive to find an agreement that a leaving member is entitled to repayment of his capital; the slightest indication may be sufficient to justify the finding of an implied agreement.39 But if no agreement to this effect can be found, whether an outgoing member will be entitled to be paid out his capital will turn on the effect of his cessation of membership on his ‘share’ in the LLP. This is discussed in 19.27–19.31.

(d) Loans 19.22 Sums advanced by way of loan will be repayable according to the terms on which they were loaned.40

(e) Unrealised capital profits 19.23 For an outgoing member of a partnership, it is sometimes an issue of construction of the partnership agreement as to whether he is entitled to a share of the excess of the true value of the partnership assets over their balance sheet value.41 The assets of a partnership are owned by the partners; and in the absence of any agreement to the contrary they are owned in equal shares by all the partners.42 With an LLP, however, generally speaking the assets of the business will be owned by the corporate entity. When considering the position of a leaving member, therefore, one will be looking to see whether there is any agreed provision which entitles the outgoing member to a share of the surplus value of the LLP’s assets. Such a provision will need to do two things: first, appropriate to the outgoing member a share of the surplus value and, secondly, give him an entitlement to take it on leaving. Default rule (1) does neither of these things. The rule follows s 24(1) of the Partnership Act 1890 as to entitlement to share equally in the ‘capital and profits’ of the LLP. It is clearly established that in s 24 ‘capital’ does not include the assets of the partnership, but is confined to the capital properly so called.43 There seems no reason why default rule (1) should be interpreted differently, treating ‘capital’ (ie members’ capital) as including the assets of the LLP. Even if ‘capital’ could be so treated, there remains the point mentioned in 19.21 that the rule does not contain any provision as to distribution or payment out. Whether, therefore, an outgoing member will be entitled to a share of the surplus value of the assets of the LLP, and if so at what value, if there is no LLP agreement governing the position, will turn on whether any share in such

39

To adopt the words of Nourse LJ in Popat v Shonchhatra [1997] WLR 1367 at 1373B (in the context of displacing the default rule of s 24(1) of the Partnership Act 1890 that all partners are entitled to share equally in the capital). 40 Where money is loaned to the LLP without any stipulation as to the time of repayment, it will generally be repayable at once or, in practice, on demand: see, for instance, Chitty on Contracts (33rd edn) (2019), para 39–267. 41 See, for example, Re White (Dennis) Deceased [2001] Ch 393 (CA); and cf, in relation to the valuation of the entitlement, Drake v Harvey [2011] EWCA Civ 838, [2012] 1 All ER (Comm) 617. 42 This is a rule of general partnership law outside s 24(1) of the Partnership Act 1890: see Popat v Shonchhatra above at 1372F–G (Nourse LJ). The law relating to partnerships does not apply to LLPs except so far as expressly applied by statute: see 1.23–1.24. 43 See Popat v Shonchhatra above at 1372H–1373C.

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surplus value is appropriated to his ‘share’ in the LLP, and the effect of his cessation of membership on that ‘share’.44

(f) Reserve 19.24 Although the payment of income tax on an individual partner’s share of profits is that partner’s personal responsibility, some partnership agreements provide for part of a partner’s share of profits to be credited to a ‘tax reserve’ to be available when the tax falls due. The position as to tax on the share of profits of an individual member of an LLP will be the same as for a partner in a traditional partnership.45 It may be, therefore, that some LLP agreements will have similar ‘tax reserve’ provisions. If there is a tax reserve, it is difficult to imagine that there will not be, as a matter of express or implied agreement, an entitlement for the outgoing member to be paid the amount reserved in respect of his liability, either immediately or as and when the tax becomes due. 19.25 In relation to any other reserve (for instance, a revaluation reserve), in the absence of any agreement as to entitlement, an outgoing member’s entitlement will turn on what that reserve represents and the principles applicable to the underlying item represented.

LLP in liquidation 19.26 IA 1986, s 127 provides that, in a winding up by the court, any disposition of the LLP’s property which is made after the commencement of the winding up is, unless the court otherwise orders, void. The commencement of the winding up is the time of the presentation of the winding-up petition or if, before the presentation of the petition, the LLP has determined to go into voluntary winding up, the time of such determination.46 Payment by the LLP of any sums in satisfaction of the interests set out in 19.17 will involve a disposition of the LLP’s property. The commencement of a compulsory winding up of the LLP will, therefore, have a material effect on the entitlement of an outgoing member to realise his financial entitlement. The remainder of this chapter proceeds on the basis that there is no winding up of the LLP.

NO AGREEMENT AS TO ENTITLEMENT ON CESSATION 19.27 As has appeared from 19.18–19.20, and 19.22, an outgoing member is likely to have little or no difficulty in establishing in principle his entitlement to his share of any profits of the business made prior to the date of his leaving, and to the repayment of loans made by him to the LLP. But difficult questions arise as to an outgoing member’s entitlement to repayment of his capital, and to a share of the surplus value of assets, where the LLP agreement does not deal with the issue of such entitlement. As has been discussed previously, the legislation does envisage that a member has a

44 45 46

See further 19.27–19.31. See generally, on taxation, Chapter 23. IA 1986, s 129, as applied to LLPs by SI 2001/1090, reg 5.

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‘share’, and ‘interest’, in the LLP.47 This fact of itself, however, does not take matters very far. There remains to be decided how the composition of a share is determined, and whether the legislation gives it any particular rights and entrenched existence in relation to a member leaving. 19.28 Two questions arise. First, in the absence of any agreement dealing with entitlement on cessation, is a leaving member entitled to receive (from the LLP or from his fellow members) a payment representing the value of his ‘share’ in the LLP, or that part of his share which is not covered by any agreement; and, secondly, if not, what is the effect of cessation of his membership on a member’s ‘share’?

Does a leaving member have a right to payment for the value of his ‘share’? 19.29 A member’s share is the bundle of contractual or statutory rights and obligations incidental to his membership of the LLP.48 Does the legislation contain any deemed contractual provision (or other inherent provision) as to what a ‘share’ comprises? Does the legislation contain any deemed contractual right (or other inherent right) for a leaving member to be entitled to a payment representing his ‘share’? As to the first of these questions, the nature and extent of a member’s rights and obligations will probably vary, depending upon the point in time at which, and the context in which, they are being considered. There is no definition, or comprehensive statement, in the legislation of what a member’s ‘share’ comprises. 19.30 As to the second of the above questions, s 4(3) of the LLP Act 2000 is the only serious candidate for containing an entitlement for an outgoing member to receive some ‘share’ on leaving. This subsection gives a member the right to retire ‘in accordance with an agreement with the other members’ or, in the absence of an agreement as to the cessation of his membership, the right to retire by giving reasonable notice to the other members.49 In partnership law, a partner cannot retire from the partnership unless there is some agreement between the partners to that effect:50 if there is such an agreement, but no agreement as to the financial consequences, it appears to be implied from the agreement for retirement that the outgoing partner’s share or interest in the partnership assets vests in the continuing partners in exchange for the outgoing partner becoming entitled to a sum equal to the value of his share of the partnership assets.51 Can it be said that the reasonable notice right in s 4(3) constitutes, in default of any other agreement as to cessation of membership, a deemed term of the agreement between members, or between members and the LLP; and, if so, that there is to be implied into it a provision (similar to that which appears to be implied in partnership law) that the member leaving under it is entitled to a sum equal to the value of his ‘share’? In the authors’ view, there are strong arguments against this. First, the wording of s 4(3) does not lend itself easily

47 See

8.18. Reinhard v Ondra LLP [2015] EWHC 26 (Ch) at [57]. 49 See 19.2–19.8. 50 See fn 3 above. If the partnership is a partnership at will, he can, of course, dissolve it. 51 See Sobell v Boston [1975] 1 WLR 1987. 48

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to being viewed as containing deemed contractual terms. The right to give reasonable notice applies ‘in the absence of agreement with the other members’. This suggests that the right is more a freestanding statutory right. And this view is consistent with the first part of the subsection, where the reference to ‘an agreement with the other members’ suggests that the subsection is not itself to be treated as the term of an agreement. Secondly, the reasonable notice right in s 4(3), and whatever implied term it may carry, does not apply in all cases where, in the absence of any agreement as to cessation of membership, a person ceases to be a member. It does not apply to a person ceasing to be a member by reason of death. It is unlikely that the legislation was intended to give rise to different financial consequences for a person ceasing to be a member upon reasonable notice and a person ceasing to be a member on death. Thirdly, if there is agreement amongst the members as to the ability of members to leave, but no agreement as to financial entitlement on leaving, it is difficult to see any scope for s 4(3) applying; and it is unlikely that the legislation contains a deemed term as to financial entitlement where there is no agreement as to the ability of a member to leave, but does not contain the term where there is agreement as to the ability to leave. Finally, if the subsection does provide a right to payment, it is difficult to say whether the obligation to make the payment falls on the continuing members or on the LLP.52 19.31 The view of the authors is that, on a proper construction of the LLP legislation, if a member exercises his right to cease to be a member, whether under the LLP agreement or under s 4(3), without there being an agreement as to the financial consequences between him and the continuing members, he has no automatic right to payment for the value of his ‘share’; and, specifically, he has no automatic right to payment of his capital or a share in the surplus value of the LLP’s assets. The position will be the same for the estate of a person who ceases to be a member by reason of death.

Does the ‘share’ of a leaving member survive cessation? 19.32 If an outgoing member has no automatic right to payment of the value of his ‘share’ on his ceasing to be a member, what is the effect of cessation on his ‘share’? There are two possibilities: either the outgoing member continues to be entitled to a ‘share’ in the LLP, notwithstanding that he has ceased to be a member, or the outgoing member’s ‘share’ is determined on cessation. 19.33 In addressing this question, it is necessary to examine what is meant by a ‘share’ or ‘interest’ in an LLP in more detail. As has been mentioned in 19.29, the legislation does not contain a definition of a ‘share’ or ‘interest’, but does contemplate that a ‘share’ or ‘interest’ is (potentially) capable of transfer.53 Consequently,

52

53

There is also the problem of seeking to imply into the Act, where there is possible ambiguity, what would in effect be a statutory substantive right for a leaving member (or his estate) to be paid out in circumstances where the Government refused to accept an amendment which would have provided such a right in default of agreement: see fn 28 above. LLP Act 2000, s 7(1), discussed at 8.21. See also, for example, CA 1985, ss 432(4), IA 1986, s 127 and CA 2006, s 996(2)(e). (Default rule (5) provides that no person can voluntarily assign an ‘interest’ in an LLP without the consent of all existing members.)

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whatever ‘share’ or ‘interest’ may mean in any particular context, it would appear that ownership of a ‘share’ or ‘interest’ can become vested in someone other than the member himself.54 It does not follow from this, however, that a ‘share’ or ‘interest’ can survive the cessation of membership and be vested in a non-member. Assuming, as we are, no relevant terms in the LLP agreement, a ‘share’ in an LLP is no more than the bundle of the rights and obligations incidental to membership,55 and an ‘interest’ is one or more of such rights. That being the case, the existence of a ‘share’ or ‘interest’ in an LLP is dependent on the continuation of the relationship between the member and the LLP (ie the membership) from which the rights and obligations originated.56

Comparison with companies and partnerships Company limited by guarantee 19.34 The position of a member of a company limited by guarantee (without a share capital) is not, in this regard (that is to say, as to the existence of his ‘share’ being dependent on the continuation of his membership), dissimilar to that of a member of an LLP. Under art 22 of the CA 2006 model articles for a company limited by guarantee,57 a member may at any time withdraw from membership of the company by giving at least seven days’ notice to the company, and membership is not transferable and ceases on death. Although the company does not have a share capital, a member of such a company owns a ‘share’ of the company in the sense that he has a right, as a member, to share in any distribution of profit (in proportion to the amount of his guarantee) made by the company, or to share in the company’s surplus assets on a winding up.58 If, however, the member ceases to be a member by giving notice, his right to participate in any distributions must come to an end, and the subsequent profits or surplus are distributable amongst the current members at the relevant time.

Company limited by shares 19.35 In the case of a company limited by shares, a share is the expression of the proprietary relationship between the shareholder and the company (ie a share gives the shareholder proportionate ownership of the company) and comprises a bundle of rights and duties.59 In Borland’s Trustee v Steel,60 Farwell J defined a ‘share’ as: ‘the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting

54

55 56 57 58 59 60

As well as being capable of voluntary assignment, the share or interest may also vest in nonmembers by operation of law, for example, in a trustee in bankruptcy of a member pursuant to IA 1986, s 306: see LLP Act 2000, s 7(1)(b). Reinhard v Ondra LLP [2015] EWHC 26 (Ch) at [57]. See further the discussion in 8.18–8.20. SI 2008/3229, Sch 2. See generally, in relation to companies limited by guarantee, Palmer’s Company Law, paras 2.012–2.015. Palmer’s Company Law, paras 6.001 and 6.002. [1901] 1 Ch 279, at 288.

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of mutual covenants entered into by all the shareholders inter se in accordance with [s 33 of the CA 2006]. The contract contained in the articles of association is one of the original incidents of the share. A share is not a sum of money … but is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or a less amount.’

19.36 Although a share in a company limited by shares is clearly a form of property (namely, a chose in action), the bundle of rights and obligations that comprise that share are nevertheless merely incidents of the shareholder’s membership of the company. The difference between a company limited by shares, on the one hand, and a company limited by guarantee, or an LLP or a partnership, on the other, is that (subject to restrictions in the company’s articles) a member of a company limited by shares is entitled to transfer his shares to another person, and that person is entitled to become registered as a member.61 Nevertheless, the ‘share’ is still a bundle of rights incidental to membership. The transferee becomes a member on registration; the transferor does not cease to be a member until the transferee has become registered.62

Partnership 19.37 In partnership law, a partner is free (subject to any contrary agreement) to assign his share in the partnership absolutely or by way of charge.63 However, the effect of such an assignment is extremely limited. An assignee does not, as a result of the assignment, become a partner or acquire the right to become a partner: the assigning partner continues to be a partner until his death, expulsion or retirement. An assignee is not entitled to interfere in the management or administration of the partnership business or affairs, or to require accounts of any transaction or to inspect the books. An assignee’s right is limited, by statute, to an entitlement to receive the share of profits to which the assigning partner would have been entitled and, on a dissolution, to the share of assets to which the assigning partner is entitled as between himself and the other partners.64 If, therefore, a partner ceases to be a partner (and the continuing partners carry on the business) in circumstances in which the outgoing partner is not entitled to compensation, the rights of an assignee, being incidental to the partner’s membership of the firm, will come to an end.

LLPs 19.38 Is there anything in the LLP legislation which, expressly or by implication, contemplates that a member’s share or interest will continue even if his membership has ceased? It is the authors’ view that there is not.65 Indeed, as has been seen, default rule (1) provides that the members are to share equally in the capital and profits of the LLP. Assuming that ‘members’ in the rule means ‘members for the time being’,66 the rule would seem to be inconsistent with any suggestion that an outgoing member has

61

Palmer’s Company Law, para 6.403. Palmer’s Company Law, para 7.015. 63 Partnership Act 1890, s 31. 64 Ibid. 65 This is consistent with the analysis of Warren J in Reinhard v Ondra LLP at [57]. 66 See 19.20. 62

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any interest in the capital or profits of the LLP on an ongoing basis or in the assets on a winding up.

Conclusion 19.39 It is the view of the authors that, if a member leaves (or ceases to be a member by death) without any agreement as to the financial consequences, his capital will accrue to the other members, and the surplus value of the assets will remain with the LLP until appropriated to members.67 19.40 While these issues as to financial entitlement on leaving remain unresolved, a member who is contemplating retirement, in circumstances where there is no agreement providing for the financial consequences of retirement, will obviously be wise to seek to agree terms with the other members before giving his notice. If satisfactory terms cannot be agreed, his only remedy may be to present a petition to the court under s 994 of the CA 2006 (unfair prejudice) while still a member,68 or under s 122(1)(e) of the IA 1986 (just and equitable winding up) as a contributory or creditor.69

67 68 69

This conclusion was accepted as correct in Hailes v Hood [2007] EWHC 1616 (Ch) (at [60] and [67]). Provided that his right to do so has not been written out by agreement under s 994(3). See Chapter 32.

Chapter 20 UK FINANCIAL SERVICES REGULATION AND LLPs

INTRODUCTION 20.1 The current UK financial services regime touches on LLPs in several ways. First, LLPs in the financial sector may need to be authorised by the UK Financial Conduct Authority (FCA), or possibly the UK Prudential Regulation Authority (PRA),1 and will as a result need to comply with a raft of financial regulations. Secondly, certain LLPs may themselves be collective investment schemes, in which case persons operating them in the UK may need to be FCA-authorised, or a suitable exemption will need to be found. 20.2 The UK regulatory regime is ever-changing and increasingly complex. This work touches only on a few key UK financial regulatory topics that are likely to affect LLPs. It is far outside the scope of this work to cover everything within financial services regulations potentially relevant to LLPs, and this work should be read in that light. References for further reading and more in-depth analysis have been included in this chapter wherever possible. Because the law and practice are changing so quickly in this area, the primary sources should always be checked.

REGULATED ACTIVITIES AND THE NEED FOR AUTHORISATION 20.3 The main legislation here is the Financial Services and Markets Act 2000 (FSMA 2000). The cornerstone of the legislation, the ‘general prohibition’,2 requires that any person carrying on a regulated activity in the UK must either be an exempt person or be authorised. To require authorisation, the activity must be carried on by way of business,3 that is to say the person carrying it on must be in the business of carrying on that type of activity; and it must also be carried on in the UK.4 20.4 Failure to be authorised by the FCA when authorisation is required is a criminal offence, leading to possible imprisonment for up to two years, or a fine, 1

2 3 4

The vast majority of LLPs that need to be authorised will, in practice, be FCA-authorised rather than PRA-authorised. The latter would be relevant only for banks and a few other major financial institutions. Consequently, the remainder of this chapter deals only with FCA authorisation. FSMA 2000, s 19. Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 (SI 2001/1177). FSMA 2000, s 19. See also s 418 of FSMA 2000 for the extended range of circumstances in which activity is carried on in the UK, and also Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, art 72, and general FCA Guidance in its Handbook at PERG 2.4.

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or both.5 Claiming to be authorised when not in fact authorised is also a criminal offence.6 In addition to these criminal sanctions, where any agreement is made between parties, one of whom is not authorised when required to be so, and the agreement is made in the course of the carrying on of a regulated activity by that party, it is unenforceable against the other parties. Those other parties are also entitled to claim recovery of any money or other property originally transferred by them under the agreement, and compensation for loss sustained by them as a result of having parted with it.7 This means, in practice, that a person breaching the general prohibition could be liable to make good losses suffered by its customers and counterparties, as well as being at risk of criminal sanctions. 20.5 What amounts to a regulated activity is set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO).8 The tests for what constitute these activities are very complex, and detailed analysis of what activity is caught is outside the scope of this work.9 Very broadly, and subject to further legislation, case law and FCA guidance, the categories of regulated activity include: •• •• •• •• •• •• ••

5 6 7

8

9 10 11 12 13 14 15 16 17

accepting deposits;10 issuing electronic money (eg pre-paid cash cards);11 effecting and carrying out contracts of insurance;12 dealing in investments as principal;13 dealing in investments as agent;14 participating in emissions auctions;15 arranging deals in investments,16 including arranging regulated mortgage contracts, home reversion plans or home purchase plans,17 operating a multilateral trading facility (ie a facility for cross-trading orders in investments

FSMA 2000, s 23. FSMA 2000, s 24. FSMA 2000, ss 26–29. Note that the court has discretion to allow enforcement of such an agreement and/or to declare that funds are not recoverable and/or that damages are not payable, in each case if it considers it just and equitable: see FSMA 2000, s 28. SI 2001/544, as amended from time to time, including by the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017 (SI 2017/488), which was a part of the UK implemention of Directive 2014/65/EU and the Markets in Financial Instruments Regulation (EU) No 600/2014 (together, ‘MiFID II’). The key new regulated activities arising from MiFID II in the RAO included the act of operating an organised trading facility and the extension of financial instruments to include certain commodity derivatives and certain emission allowances consisting of any units recognised for compliance with the requirements of Directive 2003/87/EC (Emissions Trading Scheme). The new legislation also introduced a transparency regime for the commodity derivative markets and allowed the FCA to require information on commodity derivative positions. There is general guidance on this topic in FCA Guidance in its Handbook at PERG 2. RAO, art 5, subject to arts 6–9AC, 72A, 72AA and 72G. RAO, art 9B, subject to arts 9C–9G. RAO, art 10, subject to arts 11–12A, 72A and 72AA. RAO, art 14, subject to arts 15–20, 66, 68–72AA and 72H. RAO, art 21, subject to arts 22, 24, 67–72B, 72AA, 72D, 72G and 72H. RAO, art 24A, subject to art 24B. RAO, art 25, subject to arts 26–28, 29, 30–33, 34, 35, 36, 66–72D, 72G and 72H. RAO, art 25A, subject to arts 26, 27, 28A, 29, 29A, 33, 33A, 36, 66, 67, 72, 72A, 72AA, 72G and 72I; and RAO, arts 25B and 25C, subject to arts 26, 27, 28A, 29, 29A, 33, 33A, 36, 66, 67, 72, 72A, 72AA and 72G.

UK Financial Services Regulation and LLPs

•• •• •• •• •• •• •• •• •• •• •• •• •• •• •• ••

18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

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by clients),18 operating an organised trading facility,19 and arranging regulated sale and rent back agreements;20 credit broking;21 operating an electronic system for lending;22 managing investments, ie carrying out discretionary investment management;23 assisting in the administration and performance of an insurance contract;24 debt adjusting, debt-counselling, debt-collecting and debt administration;25 regulated claims management activity;26 safeguarding and administering investments, ie providing custody services;27 sending de-materialised instructions for investment transactions;28 managing a UCITS fund or acting as a trustee or depositary of a UCITS fund;29 managing an alternative investment fund (AIF) or acting as a trustee or depositary of an AIF;30 establishing, operating and winding up a collective investment scheme;31 establishing, operating or winding up a stakeholder pension scheme or a personal pension scheme;32 providing basic advice on stakeholder products to retail customers;33 advising on investments;34 advising on regulated mortgage contracts, regulated home reversion plans, regulated home purchase plans or regulated sale and rent back agreements;35 advising on syndicate participation at Lloyd’s, managing the underwriting capacity of a Lloyd’s syndicate, and arranging deals in contracts of insurance underwritten at Lloyd’s;36 entering as provider into a funeral plan contract;37 entering into as lender, or exercising lender rights under, a regulated credit agreement;38

RAO, art 25D, subject to arts 72, 72AA and 72H. RAO, art 25DA. RAO, art 25E, subject to arts 26, 27, 28A, 29, 29A, 33, 33A, 66, 67, 72, 72A, 72AA and 72GA. RAO, art 36A, subject to arts 36B–36G, 72A, 72G and 72I. RAO, art 36H, subject to arts 36I and 36IA. RAO, art 37, subject to arts 38, 39, 66, 68, 69, 72A, 72AA, 72C and 72H. RAO, art 39A, subject to arts 39B, 39C, 66, 67, 72A–72D, 72AA, 72G and 72H. RAO, arts 39D, 39F and 39G, subject to arts 39H, 39K, 39L, 72A, 72G and 72H; and RAO, art 39E, subject to arts 39H–39KA, 39L, 72A, 72G and 72H. FSMA s 22(1B), subject to the exclusions in RAO, arts 89N–89W. RAO, art 40, subject to arts 41–44, 66–69, 71, 72A, 72AA, 72C and 72H. RAO, art 45, subject to arts 46–50, 66, 69, 72A, 72AA and 72H. RAO, arts 51ZA and 51ZB, subject to arts 51A, 72A, 72AA and 72H. RAO, art 51ZC, subject to arts 51A, 51ZF, 72A, 72AA and 72H; and RAO, art 51ZD, subject to arts 51A, 72A, 72AA and 72H. RAO, art 51ZE, subject to arts 51A, 51ZG, 72A, 72AA and 72H. RAO, art 52, subject to arts 52A, 72A, 72AA and 72H. RAO, art 52B, subject to art 52C. RAO, art 53, subject to arts 54, 54B, 55, 66–70, 72, 72A, 72B, 72AA, 72D and 72H. RAO, arts 53A, 53B, 53C and 53D, subject to arts 54, 55, 66, 67, 72A, 72AA, 72G and 72I. RAO, arts 56–58, subject to arts 58A, 72A and 72AA. RAO, art 59, subject to arts 60, 60A, 72A and 72AA. RAO, art 60B, subject to exemptions under arts 60C–60H and exclusions under arts 60I–60K, 72A, 72G and 72I and FCA Guidance.

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entering into as owner, or exercising owner’s rights under, a regulated consumer hire agreement;39 entering into as lender, or administering, a regulated mortgage contract;40 entering into as plan provider, or administering, a regulated home reversion plan;41 entering into as home purchase provider, or administering, a regulated home purchase plan;42 entering into as agreement provider, or administering, a regulated sale and rent back agreement;43 certain activities of reclaim funds;44 and providing information in relation to, and administering, a specified benchmark.45

20.6 There are further authorisation requirements for certain business types, such as those that provide payment services, which are outside the scope of this work.46 An overview of certain changes arising from the UK’s exit from the EU is included in 20.37. 20.7 LLPs are commonly used by fund and investment managers, and investment advisors, in both the institutional and retail markets. Of most practical significance for such businesses are likely to be the regulated activities of arranging investments, investment management, investment advice and establishing, operating and winding up collective investment schemes, as well as acting as UCITS managers or managers of AIFs. It is, of course, well within the bounds of possibility that LLPs may be used for other regulated activities; and there is no FSMA restriction on LLPs being so used (other than in relation to certain insurance activities). The analysis in the following paragraph, however, focuses on the above-mentioned specific activities only. 20.8 ‘Investments’ are defined to include a range of financial instruments,47 including shares, debt instruments, warrants, fund interests, and futures, options and other derivatives. Many of the regulated activities are defined as activities carried on with respect to investments, so that: (a) Arranging transactions in investments, ie bringing about transactions in investments between parties (without actually being party oneself) is prima facie a regulated activity. This catches, for example, stockbrokers, and also fund managers and independent financial advisors who arrange transactions for their funds or clients. There are, however, some exemptions for, inter alia, activities which do not bring about a transaction (in that the transaction would

39 40 41 42 43 44 45 46 47

RAO, art 60N, subject to exemptions under arts 60O–60Q and exclusions under arts 60R, 72A and 72G and FCA Guidance. RAO, art 61, subject to arts 62, 63, 63A, 66, 72, 72A, 72AA, 72G and 72I. RAO, art 63B, subject to arts 63C, 63D, 63E, 66, 72, 72A, 72AA and 72G. RAO, art 63F, subject to arts 63G, 63H, 63I, 66, 72, 72A, 72AA and 72G. RAO, art 63J, subject to arts 63K, 63L, 63M, 66, 72, 72A, 72AA and 72G. RAO, art 63N. RAO, art 63O, subject to arts 63P–63R and Sch 5. See Payment Services Regulations 2009 (SI 2009/209) and Directive (EU) 2015/2366, the second Payment Services Directive. Set out in RAO, arts 73–89.

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have gone ahead anyway), and for introductions to FCA-authorised persons with a view to those persons providing advice or exercising independent discretion in the course of investment management. It should be noted, however, that there are two types of arranging within the RAO, namely arrangements that bring about a transaction, and the more nebulous concept of ‘making arrangements with a view to a person who participates in them buying, selling, subscribing for or underwriting investments’.48 This catches persons who put in place arrangements that enable others to deal in investments. While there are exemptions for communications providers and the like,49 this limb is construed widely.50 (b) Advising on investments, ie giving advice to persons in their capacity as investor or potential investor on the merits of entering into a particular investment transaction, is prima facie a regulated activity. Independent financial advisors and fund advisors (as many hedge fund managers are technically) are, for example, covered by this. There are fewer exemptions here, but the nature of the regulated activity means that generic advice (such as ‘buy equities’), or advice to persons not in their capacity as investors or potential investors, is not caught. (c) Managing investments, ie exercising discretion in entering into investment transactions on behalf of clients as part of an investment management business, is prima facie a regulated activity. Again, fund managers will be covered by this. (d) Establishing, operating and winding up collective investment schemes is a distinct regulated activity. This will, typically, cover fund managers administering or running their funds from within the UK. It may also cover the activity of running an LLP itself if the LLP amounts to a collective investment scheme, although there may well be an exemption available.51 (e) The activity of managing an AIF was introduced in art 51ZC of the RAO, and in the Alternative Investment Fund Managers Regulations 2013 (AIFM Regs)52 which, together with the Fund sourcebook in the FCA Rules, in turn implemented the Alternative Investment Fund Managers Directive (AIFMD),53 and are all further subject to the EU Alternative Investment Fund Managers Regulation (the Level 2 AIFMR),54 as incorporated post-Brexit into UK law by the European Union (Withdrawal) Act 2018, the Withdrawal Agreement between the UK and the EU, and the Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2019 (see 20.37) (all taken together, referred to in this work as the ‘AIFMD regime’). The AIFMD regime sets

48

RAO, art 25(2). RAO, art 27. 50 See, for example, FCA’s Sourcebook at PERG 8.32. 51 See 20.22–20.30. 52 SI 2013/1773. See also the Alternative Investment Fund Managers (Amendment) Regulations 2013 (SI 2013/1797), the Alternative Investment Fund Managers Order 2014 (SI 2014/1292), the Alternative Investment Fund Managers (Amendment) Order 2014 (SI 2014/1313) and the Alternative Investmemt Fund Managers (Amendment) Regulations 2018 (SI 2018/134). 53 Directive 2011/61/EU. 54 Commission Delegated Regulation (EU) No 231/2013 supplementing AIFMD. On 22 October 2020, the European Commission launched a public consultation to review the AIFMD legislation. 49

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out the regime for managers of investment funds that do not fall within the UCITS Directives, covering the way that UK fund managers market, operate and manage their funds. A detailed analysis of the AIFMD regime is outside the scope of this work, but 20.9–20.12 provide a broad outline to the extent relevant to UK managers. In addition, an LLP itself may in some circumstances be an AIF, in which case particular care is needed, as the person managing it or marketing interests in it may need authorisation, or at least to comply with additional regulatory requirements.55 20.9 The AIFMD regime is relevant to anyone (an AIFM) who manages and/or markets an AIF. The RAO and FSMA 2000 require such a person, if they manage any AIF from within the UK, or, in some circumstances, manage from overseas an AIF established in or marketed in the UK,56 to be authorised by the FCA with appropriate permissions. There are then detailed requirements in the AIFM regime about how such management should be conducted and how the manager should be organised. Also caught is anyone who markets an AIF in the UK, whether from within the UK or outside it, and there are strict prohibitions on such marketing unless certain regulatory requirements are met. AIFMD also establishes a passporting regime throughout the European Economic Area (EEA), whereby AIFMs established and authorised in one EEA Member State are, following a simple procedure, able to be deemed authorised in other EEA Member States for managing or marketing AIFs (and certain other limited activities). From 1 January 2021 (ie following the end of the Brexit transition period), these passporting rights will not apply between the UK and the EEA Member States.57 20.10 The term ‘AIF’ catches a wide range of undertakings, many of which display fund-like characteristics, but it can also cover other vehicles too, including an LLP, depending on the constitution and activities of the LLP and its members. An AIF is defined as ‘a collective investment undertaking, including investment compartments of such an undertaking, which (a) raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and (b) does not require authorisation pursuant to art 5 of the UCITS Directive’. AIFs can be open or closed ended, and can have any legal form (including by contract or trust or under statute). There are exemptions for, amongst other things, certain types of pension fund, holding companies, and some types of securitisation vehicle. Each of the elements of the definition of AIF, and some of the exemptions, have been the subject of detailed guidance and industry practice.58 Some of the key points are addressed below,59 but a full analysis of what constitutes an AIF is outside the scope of this work. 55 See

20.31–20.36. See FSMA 2000, s 418(5B), read with art 4.1(z) of AIFMD, for the situations where management activity outside the UK still comes within the jurisdictional scope of the FSMA authorisation requirements. 57 There are currently certain equivalence regimes/memoranda of understanding in place regarding the marketing of funds in the UK, between Hong Kong and Australia. As these mutual recognition framework regimes have only been recently introduced, they should be analysed with caution. 58 See FCA’s Sourcebook at PERG 16 and also the Guidelines on key concepts of the AIFMD issued by the European Securities and Markets Authority (ESMA/2013/600). 59 At 20.31–20.35. 56

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20.11 Every AIF has an AIFM, and has only one AIFM. The AIFM is the person who performs risk management or portfolio management for the AIF.60 Where there is no external person performing the AIFM roles, the AIFM can be the AIF itself. So, in the case of an LLP, the LLP itself can be its own AIFM (ie as a self-managed AIF). What constitutes risk management and portfolio management is again a complex matter, with guidance given by the FCA.61 An AIFM can delegate certain of its functions,62 but not to the extent that it becomes a ‘letterbox entity’ whereby it has delegated more of its risk management and/or portfolio management functions than it has retained.63 Where an AIFM has become a letterbox entity, it is likely that the FCA will view the delegate as the AIFM for the purposes of the AIFMD regime, which, given the requirements that apply to AIFMs, can have very significant adverse consequences.64 20.12 AIFMs authorised by the FCA65 are subject to a number of requirements, including: •• •• •• •• ••

••

60

General requirements arising from being FCA-authorised.66 Significant limitations on other business that the AIFM can conduct.67 Requirement for every AIF to have an independent depositary.68 Regulatory capital requirements for the AIFM.69 Conduct of business rules, including acting in the best interests of the AIF or its investors and the integrity of the market, due diligence on investments, acting honestly, fairly and with due skill, treating investors in the AIF fairly (including rules as to fund side letters), directed commission/inducements rules, order management rules, transaction reporting, best execution and order aggregation.70 Control over remuneration structures, and in particular bonus arrangements, for senior staff within the AIFM.71

AIFM Regs, reg 4. In PERG 16, for example. 62 But either the delegate must be authorised and subject to supervision for its asset management functions, or the FCA must have approved such delegation – see AIFM Regs, reg 26 and also FUND 3.10 in the FCA Sourcebook. There are also detailed restrictions on delegation (and liability consequences) at AIFMD, art 20 and Level 2 AIFMR, arts 75–82. 63 See Level 2 AIFMR, art 82. 64 For example, the wrong entity would then have the AIFM authorisation, the delegate may be prohibited from marketing the AIF, and the delegate may find itself having to meet a compliance burden that is far more onerous than it expected or is able to comply with. 65 There is a separate regime for small AIFMs, meaning those with assets under management below a certain threshold, and this regime is lighter, but this text focuses on the wider requirements applicable to full-scope AIFMs. 66 See 20.13–20.20. 67 AIFMD, art 6 and Fund 1.4 of the FCA Sourcebook. 68 There are many detailed rules on the depositary’s functions, and liability position, which are likely to drive the way in which the AIFM operates in practice – see AIFM Regs, regs 29–32, AIFMD, art 21, the FCA Sourcebook at FUND 3.11, and Chapter 4 of the Level 2 AIFMR. 69 AIFMD, art 9, Level 2 AIFMR, arts 12–15 and various parts of FCA’s Sourcebooks including GENPRU. 70 Level 2 AIFMR, arts 17–29 and significant parts of FCA’s FUND Sourcebook. 71 AIFMD, art 13 and SYSC 19B in the FCA Sourcebook. 61

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•• •• •• •• ••

•• •• ••

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Rules regarding management of conflicts of interest and appointment of prime brokers.72 Requirement to have and operate an appropriate risk management function meeting detailed requirements.73 Requirement to have and operate an appropriate liquidity management system.74 Limitations on the ability of AIFs to invest in securitisation instruments.75 Organisational requirements for AIFMs including the need for appropriate compliance and internal audit functions, control and safeguard arrangements for data processing, internal resources requirements, controls over personal account dealing, rules about the management or governing body of the AIFM and record-keeping requirements.76 Requirements for independent valuation of the assets of the AIF.77 Transparency requirements, including content requirements for marketing materials, content requirements for the AIF’s annual report, and reporting to the FCA, and requirements around the use and reporting of leverage in the AIF.78 Private equity reporting requirements (namely, reporting acquisitions of control of private companies to shareholders, directors, the FCA and employee representatives), and limitations of capital reductions and similar distributions from private companies acquired by AIFs within the previous two years (the so-called ‘asset stripping’ rules).79 Controls over marketing of AIFs in the EEA.80

OBTAINING FCA AUTHORISATION AND BEING FCAAUTHORISED 20.13 Becoming and being FCA-authorised is not for the faint-hearted. It requires specialist advice, and significant human, systems and capital resources, as well as the ability to stay on top of and digest, and fully comply with, the ever-changing compliance requirements. The consequences of failing to meet the FCA’s expected standards can be severe, including heavy monetary penalties, public censure, compensation awards and the revocation of authorisation. These sanctions can be applied not only to authorised firms but also, under the senior managers and certification regime which became applicable from 9 December 2019 to firms solely authorised by the FCA (SMCR) (see 20.17), to their senior management personally.

72 73 74 75 76 77 78 79 80

AIFMD, art 14, Level 2 AIFMR, arts 30–37, also 20, 80 and 91 and various parts of FCA’s FUND Sourcebook including FUND 3.8. AIFMD, art 15, Level 2 AIFMR, arts 38–45 and FUND 3.7 in the FCA Sourcebook. AIFMD, art 16, Level 2 AIFMR, arts 46–49 and FUND 3.6 in the FCA Sourcebook. AIFMD, art 17, Level 2 AIFMR, arts 50–56 and FUND 3.5 in the FCA Sourcebook. AIFMD, art 18, Level 2 AIFMR, arts 57–66 and art 22, and various parts of the FCA Sourcebook AIFMD, art 19, Level 2 AIFMR, arts 67–74 and FUND 3.9 in the FCA Sourcebook AIFMD, arts 22–25, Level 2 AIFMR, Chapter 5 and FUND 3.2, 3.3 and 3.4 of the FCA Sourcebook. AIFMD, arts 26–30 and Part 5 of the AIFM Regs. AIFMD, Chapter VI and Part 6 of the AIFM Regs. For UK authorised AIFMs, this amounts to a passporting regime for the relevant AIF into the relevant target countries, but also a myriad of detailed rules which are outside the scope of this work. This work only addresses the position for UK authorised AIFMs – AIFMs established overseas will be subject to further rules, both under their own governing law and under a further AIFMD marketing regime in the UK.

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20.14 In order to obtain FCA authorisation, an application must be made to the FCA. There is a prescribed application pack on the FCA’s website, with different forms required depending on the type of business to be conducted, the applicant’s legal structure and various other factual points. The pack must be completed insofar as it applies to the applicant, signed, and sent to the FCA, together with the various supporting documents81 required and a non-refundable application fee. Completing the application forms themselves, before even submitting to the FCA, can take several weeks, and the FCA has six months from the date of receipt of a completed application to make its determination.82 Certain application forms will need to be completed or reviewed by the accountants of the applicant. Applicants may wish to meet with the FCA at an early stage, before submitting the application pack, to discuss the proposed business and compliance arrangements, especially if there is something unusual in the proposed arrangements. 20.15 Throughout the authorisation process, and until authorisation is achieved, care should be taken to ensure that the applicant firm does not inadvertently carry on a regulated activity: authorisation is only effective when given, and can never be presumed until unconditionally granted. Note that agreeing to carry on a regulated activity is itself a regulated activity. 20.16 are:83

All applicants must meet the FCA’s threshold conditions at all times. These

(a)

Location of offices – a firm that is a UK-constituted body corporate, including an LLP, must have its head office and any registered office in the UK. (b) Effective supervision – the applicant must be capable of being supervised by the FCA, having regard to all the circumstances, including the nature of its activities, the complexity of its products, the way it is organised and its position in any group structure, its close links,84 and how it is supervised from a regulatory capital perspective.

81

82 83

84

Including a business plan which must comply in format with the FCA’s prescribed form, staff reporting lines and, in the case of an LLP, ownership structure, the LLP agreement, various financial reports and information about controllers and persons with similar close links to the LLP. Close links are discussed further in 20.16, Condition (b). In the case of an incomplete application, the FCA has 12 months. Due to the tight definition of ‘complete’, many applications are ‘incomplete’ for these purposes. There are different threshold conditions for different types of firms, including for FCA-authorised firms, PRA-authorised firms and for insurance companies. This section only considers the position for FCA-authorised firms. For further detail, see ss 55B and 55C of, and Sch 6 to, FSMA 2000 and FCA’s Sourcebook entitled Threshold Conditions (COND). The FCA needs to be satisfied that the close links with another person of an applicant for authorisation, or of an already-authorised firm, are not likely to prevent the FCA’s effective supervision of the applicant or firm. In addition, where a close link is subject to the law of a territory that is not an EEA Member State, the FCA needs to be satisfied that neither that foreign law, nor any deficiency in its enforcement, would prevent the FCA’s effective supervision of the applicant or firm. Any member of an LLP controlling or holding 20 per cent or more of the voting rights or equity of the LLP will be a close link, as will be any entity that qualifies as a parent undertaking or subsidiary undertaking or parent undertaking of a subsidiary undertaking or subsidiary undertaking of a parent undertaking – and so care needs to be taken to establish that member’s location, and the law of its establishment to which it is subject.

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(c)

Appropriate resources – a firm must have appropriate resources for the regulated activities it carries on. This involves an assessment of the nature and scale of the business to be carried on, the risks to the continuity of the services to be provided, any group relationships the firm has and their potential impacts, how liabilities are provisioned for and how risk is managed (both within the firm and within any wider group of which it forms part), the skills and experience of its management, and whether the firm has enough non-financial resources to comply with any requirements that the FCA may impose on it. (d) Suitability – a firm must satisfy the FCA that it is a ‘fit and proper’ person to be granted the authorisations it is applying for, having regard to all the circumstances, including its connection with any person, the nature of the proposed regulated activities, the need to ensure that its affairs are conducted in an appropriate manner, having regard to the interests of consumers and the integrity of the UK financial system, whether the firm is complying with the FCA’s requests for information, whether the firm’s management have adequate skills and experience and have acted and may be expected to act with probity, whether the business will be conducted in a sound and prudent manner, and the need to ensure that the business cannot be used for a purpose connected with financial crime. (e) Business model – the firm’s strategy for carrying on business must be suitable for a firm carrying on the relevant types of regulated activities, having regard to whether the business model is compatible with the firm’s business being managed in a sound and prudent manner, the interests of consumers, and the integrity of the UK financial system. 20.17 All FCA-authorised firms are required under SMCR to register certain individuals with the FCA.85 This includes, amongst others, in the case of an LLP, those carrying on the partner function, being all members (unless they play no part in the management of the firm and therefore do not meet the definition of being a senior manager)86 and potentially persons who are not members of the LLP but are appointed to direct the firm’s affairs or are members of the firm’s governing body or are persons in accordance with whose directions or instructions (not being advice given in a professional capacity) the members are accustomed to act,87 a compliance officer, a money laundering reporting officer and, if the firm falls into the SMCR category of being an ‘enhanced firm’ rather than a ‘core firm’ or a ‘limited scope firm’, anyone with primary responsibility for apportioning and overseeing significant responsibilities. The registered senior managers are then required to be allocated one or more of the specific responsibilities set out in the SMCR.88 Other persons at the firm will no longer need to be individually approved by the FCA. However, the FCA-authorised firm will be required to assess annually the fitness and propriety of individuals who carry out for the firm one or more of eight prescribed certification functions (for example, certain of those individuals who give investment advice, or deal in or arrange deals in investments, or manage investments, for customers). One individual can fulfil more than one of these roles (for instance, it is common for 85 86 87 88

See SYSC 23, SUP 10C and related parts of the FCA Sourcebook. See SUP 10C.5.18/19 of the FCA Sourcebook. See SUP 10C.5.16 of the FCA Soucebook. See SYSC 23, Part 4 of Annex 1.

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the compliance and money laundering functions to be taken on by the same person). The number of, and roles held by, the senior managers will depend on the size of the firm. As a general rule, the FCA tends to be keen to see at least two individuals registered for a firm at all times, but larger firms will be required to fill more senior manager functions and allocate more responsibilities among those senior managers than smaller firms. Once registered, individuals are subject to rules on standard of conduct, training and competence (including examination requirements for some), and the FCA’s disciplinary processes, which can include a variety of sanctions, such as significant fines, public censure and/or removal and banning from the UK financial services industry. Senior managers also have a statutory duty of responsibility if the firm breaches an FCA requirement in the area for which they are responsible and it is shown that the individual did not take reasonable steps to prevent or stop the breach.89 20.18 Authorised firms must comply with the FCA’s Principles for Business,90 which are: (1) Integrity – a firm must conduct its business with integrity. (2) Skill, care and diligence – a firm must conduct its business with due skill, care and diligence. (3) Management and control – a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. (4) Financial prudence – a firm must maintain adequate financial resources. (5) Market conduct – a firm must observe proper standards of market conduct. (6) Customers’ interests – a firm must pay due regard to the interests of its customers and treat them fairly. (7) Communications with clients – a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. (8) Conflicts of interest – a firm must manage conflicts of interest fairly, both between itself and its customers, and between a customer and another client. (9) Customers: relationships of trust – a firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment. (10) Clients’ assets – a firm must arrange adequate protection for clients’ assets when it is responsible for them. (11) Relations with regulators – a firm must deal with its regulators in an open and co-operative way, and must disclose to its regulator appropriately anything relating to the firm of which that regulator would reasonably expect notice. These Principles are set at a very high level, and are elaborated upon by rules, guidance and other communications91 by the FCA. A firm can be disciplined by the

89 90 91

FSMA 2000, s 66A. FCA Sourcebook entitled Principles for Business (PRIN). Firms are expected to follow guidance given not just in the Handbook or Rules and Guidance, but also in newsletters, FCA bulletins and other occasional publications. The FCA is even entitled to expect firms to comply with guidance given in speeches and the like by its staff.

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FCA if it is clear that a Principle has been breached, even if the firm has not actually breached or failed to follow any FCA rules or guidance, and indeed it is now often the case that FCA disciplinary action is founded on breach of the Principles rather than a specific rule. 20.19 It is beyond the scope of this work to elaborate in detail on all the FCA requirements, which cover organisational requirements to conduct of business standards, training and competence requirements, anti-money laundering obligations, protection of client assets, regulatory capital requirements, requirements for FCA pre-consent to change of control of the FCA-authorised firm, and numerous other matters. However, one particularly awkward area for LLPs is the regime relating to financial resources. All FCA-authorised firms must have a minimum level of capital, and capital of a certain quality, ready to absorb losses if necessary. The requirements are largely set out in the FCA’s General Prudential Sourcebook (GENPRU) and Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU). A firm’s financial resources must at all times exceed its financial resources requirement. The latter is calculated in a number of ways, depending on the nature and size of the firm’s business and the risks it takes, as well as the methodology it uses for modelling those risks. The former (ie its financial resources) is calculated by reference to the firm’s capital, taking into account equity and equity-like capital (so-called Tier 1, which has to account, generally, for at least 50 per cent of a firm’s regulatory capital), subordinated debt, and other items such as capitalised profits. 20.20 There are some special rules regarding capital of partnerships92 (including LLPs) which require, amongst other things, that (in relation to LLPs): (a)

an LLP’s capital has to be permanent, ie not repayable, unless either the FCA grants a waiver, or equivalent capital is introduced at the same time as such repayment; and this is the case even if there is an excess of Tier 1 capital over the capital required; (b) an LLP’s capital must not be subject to any kind of automatic or guaranteed annual profit share or ‘coupon’; and (c) amounts withdrawn from an LLP cannot exceed the relevant year’s profits; or, if they do exceed such profits, the difference is treated as a deduction from Tier 1 capital. This means that FCA-authorised LLPs, in practice, have to run a ‘protected capital’ account, which cannot be reduced without FCA consent. When a member wishes to retire, he cannot be repaid his capital out of such protected capital unless equivalent capital is introduced at the same time.93 Alternatively, he has to sell his LLP interest. There can be no ‘guaranteed’ profit share, and amounts paid out if the LLP is not profitable enough eat away pound-for-pound at the LLP’s regulatory capital. This presents difficulties for LLPs in making regular payments or basic profit allocations to their members; and, practically speaking, profit distribution decisions need to be left to a remuneration or similar committee which does not exercise its discretion in 92 93

See, in particular, GENPRU 2.2.93 to 2.2.100, as well as GENPRU 2.2.62 and 2.2.83(2). The FCA is, however, prepared to entertain waiver applications here where there is already a substantial excess of capital, even after the repayment.

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a ‘guaranteed’ or automatic way. Paying out profit shares where there are insufficient profits, or on account of future profits, effectively means that the capital of the LLP has to be increased at the time the profit shares are paid out.

OTHER REGULATORY REQUIREMENTS 20.21 There are, of course, a variety of general financial regulatory requirements to which a firm must pay heed, whether an LLP or not. These include, by way of example: (a) the UK financial promotion regime, which regulates invitations and inducements to carry on regulated activity or enter into a transaction relating to investments;94 (b) anti-money laundering and suspicious transaction reporting requirements;95 (c) market abuse and insider dealing restrictions;96 and (d) requirements to notify substantial shareholdings and controls on short selling of listed securities.97 None of these is of any more or any less note to an LLP than to any other business structure, and it is outside the scope of this work to expand upon them.

COLLECTIVE INVESTMENT SCHEMES 20.22 The UK98 regulatory regime extends to the establishing, operating and winding up of collective investment schemes, and to the marketing of them. Although the ‘collective investment scheme’ definition is intended to catch funds and fundlike structures, the breadth of the drafting could also catch LLPs used as holding vehicles or joint venture structures, and even in some cases ordinary operating LLPs. If an LLP is caught, the establishment, operation and winding up of it would be a regulated activity which, as seen in the foregoing paragraphs,99 if carried on by way of business in the UK, would require FCA authorisation. Communications inviting or inducing persons to participate in the LLP would also be restricted, in that such communications would need to come within an exemption in the financial promotion

94

See FSMA 2000, ss 21 and 238 and the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529) and the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060). 95 See Proceeds of Crime Act 2002, Money Laundering Regulations 2007 and FCA rules and guidance in section 6.3 of the Senior Management Arrangements, Systems and Controls. 96 See FSMA 2000, ss 118–131A and the FCA’s Code of Market Conduct (to be found on its website in the MAR Sourcebook). 97 See Regulation (EU) No 236/2012 of the European Parliament and of the Council (the Short Selling Regulation). 98 The regime here is UK-specific, and (save for the AIFM Regime) not currently replicated across Europe. 99 See 20.3 et seq.

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regime. This is because making such communications in or into the UK without being exempted would also be a criminal offence.100 20.23

A ‘collective investment scheme’ is defined in s 235(1) of FSMA 2000 as:

‘… any arrangements, with respect to property of any description, including money, the purpose or effect of which is to enable the persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income’

Arrangements are caught only where: ‘… the persons who are to participate (‘participants’) do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or give directions.’101

Arrangements are also only caught where they have either or both of the following characteristics: ‘(a) the contributions of the participants and the profits or income out of which payments are to be made to them are pooled; (b) the property is managed as a whole by or on behalf of the operator of the scheme.’102

There are then 21 exemptions (ie for arrangements which would otherwise be collective investment schemes) set out in the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001,103 which include: (1) arrangements operated otherwise than by way of business;104 (2) arrangements entered into for commercial purposes relating to an existing business;105 and (3) bodies corporate.

100 101 102

103 104 105

See FSMA 2000, ss 19 and 24–26, and the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529). FSMA 2000, s 235(2). FSMA 2000, s 235(3). In Asset Land Investment Plc and another v The Financial Conduct Authority [2016] UKSC 17, Lord Sumption held at [90]:‘The fundamental distinction which underlies the whole of section 235 is between (i) cases where the investor retains entire control of the property and simply employs the services of an investment professional (who may or may not be the person from whom he acquired it) to enhance value; and (ii) cases where he and other investors surrender control of their property to the operator of a scheme so that it can be either pooled or managed in common, in return for a share of the profits generated by the collective fund’. SI 2001/1062. Schedule, para 4. Schedule, para 9, as amended by the Financial Services and Markets Act 2000 (Collective Investment Schemes) (Amendment) Order 2008 (SI 2008/1641), and the Financial Services and Markets Act 2000 (Collective Investment Schemes) (Amendment) (No 2) Order 2008 (SI 2008/1813).

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As to (3) above, LLPs, although bodies corporate, are specifically excluded from the exemption.106 20.24 The tests for a collective investment scheme are intended to be construed widely, and, while ‘cogent’ evidence that there is a collective investment scheme is required, a civil standard of proof is applied, even though the need for authorisation for establishing, operating or managing a collective investment scheme has criminal sanctions. It should also be noted that, while an arrangement may not be a collective investment scheme at its outset, it can become one later on, or vice versa.107 20.25

It can be seen that the definition could catch LLPs used in several ways:

(a) an LLP used as an investment structure, whereby several members together hold an asset through the LLP; (b) an LLP used as a joint venture operating entity; and (c) an LLP of professionals conducting business together. In each case (i) the LLP is an arrangement, (ii) the arrangement is with respect to the LLP’s property, ie its goodwill, work-in-progress, equipment, cash, intellectual property, or in the case of a specific asset-holding vehicle, that asset, etc,108 (iii) the purpose of the arrangement is to enable the members of the LLP to receive profits and income109 from the management of the property (ie the business of the LLP), (iv) the members may not have day-to-day control of the management of the property (see 20.27–20.28), (v) the contributions of the members and their profits are pooled, (vi) the LLP may be operated by way of business (see 20.29), and (vii) the LLP may not be entered into for commercial purposes wholly or mainly related to an existing business (see 20.30). 20.26 If an LLP is a collective investment scheme, the person(s) establishing it (its first members) and the person(s) operating it on an ongoing basis (for instance, a management committee created under the LLP agreement) would, if in the UK, on the face of it, need authorisation. In many cases, this is both unlikely to be practical, and unlikely to be the result intended by the FCA, HM Treasury or Parliament. To avoid this need for authorisation, it is important to establish an LLP in such a way that it falls outside the definition of a ‘collective investment scheme’.110 106 107 108 109

110

Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001 (SI 2001/1062), Sch, para 21. The exclusion of LLPs is in para 21(2). FCA v CAL [2014] Bus LR 1452 and [2015] Bus LR 767 at [80]. It is not necessary that the property of the scheme be investments or financial instruments: see the Court of Appeal decision in FCA v Fradley [2006] 2 BCLC 616. It is not inherent to the nature of a collective investment scheme that profits or income payable should be uncertain in fact or amount: see the Court of Appeal decision in Anderson v Sense Network Ltd [2019] EWCA Civ 1395 at [73], where it was held (on an obiter basis) that there was a collective investment scheme (in that case, a Ponzi-type arrangement), notwithstanding that the returns promised were fixed irrespective of whether profits or income were received. Failure to have the correct authorisation for establishing, operating and winding up a collective investment scheme is a criminal offence and can have civil consequences too. There have, indeed, been several cases where persons establishing or operating them have fallen foul of this – see, for example, the case of Crawley, Walker, Forsyth, Daley, Petrou, Peters, Hawkins and Mitchie, reported

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Day-to-day control over management 20.27 If all the participants have day-to-day control over the management of the property of the LLP, it cannot be a collective investment scheme.111 There are two central points to consider in this regard. First, in assessing whether an LLP is a collective investment scheme, it is important to note that the absence or existence of day-to-day control needs to be a feature of the arrangements from the outset, as well as there needing to be an absence or existence of day-to-day control in practice.112 In the Supreme Court case of Asset Land Investment Plc v The Financial Conduct Authority, Lord Carnwath (with whom Lords Mance, Clarke, Sumption and Hodge agreed) held that ‘it is necessary to consider the mechanisms by which the participants on the one hand or the operator on the other manage or have management control over the property’.113 ‘Control’ is not ‘confined to legal control’114 and, instead, the ‘substance of the arrangements’ needs to be considered.115 Equally, if the parties delegate certain activities, this does not in itself negate the question of control.116 20.28 Secondly, each participant must be involved in the management on a dayto-day basis. In Russell-Cooke Trust Company v Elliott,117 Laddie J said: ‘Just because one or more investors have a right to be consulted or can give directions, does not mean that they have control over the management of the property. In colloquial terms, what the subsection is directed towards is identifying who is or will be “minding the shop” on a day to day basis. It may be that the person who is involved on a day to day basis is answerable to someone higher up the chain on whose behalf he is acting. But it is the former, not the latter, who has day to day control.’118

It is clear that all the participants, not just some of them, must have day-to-day control.119 Where voting power is concentrated in the hands of one, or a limited on FCA’s website on 1 June 2015, with significant prison sentences for each of the individuals and, from 1 November 2016, being prohibited from performing any function in relation to a regulated activity. While the behaviour of the individuals concerned in this case was rather egregious, the boundaries of the collective investment scheme definition have nonetheless been drawn widely. 111 FSMA 2000, s 235(2). 112 See Brown v InnovatorOne Plc [2012] EWHC 1321 (Comm) at [1168]–[1170]: ‘The purpose or object of the legislation and the regulatory regime created pursuant to the legislation would be easily defeated if the court felt obliged to rely solely upon a strict view of the legal rights and duties created by the documentation and was required to ignore the realities of the scheme as it was designed to operate in practice’ (at [1170], quoting an Australian case). In Asset Land Investment Plc and another v The Financial Conduct Authority [2016] UKSC 17, Lord Sumption at [94] placed emphasis on the prospective nature of the test to be applied, including ‘in whom would control be vested were control to be required’ and that ‘the critical point is that the absence of day-to-day control in subsection (2) has to be a feature of the arrangements. This is necessarily prospective, viewed from the time when the arrangements are made’. 113 [2016] UKSC 17 at [58]. 114 Ibid. 115 [2016] UKSC 17 at [61]. 116 Ibid. 117 [2001] All ER (D) 197 (July). 118 At [20], a case on s 75 of the Financial Services Act 1986 (the predecessor to s 235) which is identical in all material respects. 119 Financial Services Authority v Fradley [2005] EWCA Civ 1183, [2006] 2 BCLC 616 at [46]; Financial Services Authority v Asset Land Investment Plc [2016] UKSC 17 at [95].

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number only, of the members, for example where there is one member with voting control, and the others collectively still only make a minority, while one always has to consider each case on its facts, it is highly unlikely that all of the members can be considered to have day-to-day control, ie s 235(2) is very likely to be satisfied. The existence of ‘sleeping partners’, whose interest is purely financial, is likely to make satisfying this requirement even more difficult, although each case needs to be analysed on the facts, having regard to the nature of the assets and the extent of the management that they need in practice. Purely financial partners might, in some cases, still have strong enough voting rights as to give them very clear ‘control’ over the minding of the shop, but it has to be beyond merely being consulted or giving directions.120

Operated by way of business 20.29 Another key question to consider is whether the LLP is operated by way of business, within the sense of FSMA 2000 and, in particular, the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001.121 The latter provides that: ‘a person is not to be regarded as carrying on by way of business an activity to which paragraph 2 applies [which includes the regulated activity of establishing, operating and winding up a collective investment scheme] unless he carries on the business of engaging in one or more such activities’122

One possible argument, on this test, is that, in setting up and operating an LLP, a person is only carrying on the business of establishing, operating and winding up a collective investment scheme if that person is in the business of setting up and operating such schemes, as opposed to just setting up and operating the one LLP that is to be the person’s vehicle for the provision of, say, professional services. There is judicial authority in the context of tax as to what amounts to ‘business’;123 and, on the basis of this, it may be possible to conclude that a particular single LLP used for ordinary business purposes is neither established nor operated (whether by all the members together, or by a management committee) by way of business within FSMA 2000, with the result that it is exempted by para 4 of the Schedule to the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001124 from being a collective investment scheme. With no judicial authority, this is not an argument that one would want to rely solely upon; but it does merit consideration. The analysis will also depend heavily on the facts; and so each situation needs to be separately considered carefully. This argument may be particularly pertinent for a professional practice structured as an LLP, where the day-to-day control over

120

121 122 123 124

In other words, the facts on the question of day-to-day control over management would have to be clearly distinguishable on the facts from the arrangements in the cases mentioned above, including Russell-Cooke. SI 2001/1177. At para 3(1). See, for instance, Lord Diplock’s comments in the Privy Council decision in American Leaf Blending Co Sdn Bhd v Director-General of Inland Revenue [1979] AC 676. SI 2001/1062.

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management test cannot be relied upon but where clearly none of the members is in the business of operating collective investment schemes; but less so for an LLP used as an investment structure where one of the members is an asset manager and has set it up or operates it as an investment vehicle.

Commercial purposes for which entered into 20.30 A third key question is whether an LLP can fall within the exemption contained in para 9 of the Schedule to the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001.125 This exemption is made rather complicated by some transitional arrangements (which are not explored in this work); but, essentially, it provides, in the present context, that an LLP is not a collective investment scheme if each of its participants, at the time of becoming a member of the LLP, carries on a business (which is not itself a regulated activity, and which itself is separate from the business of the LLP), and enters into the LLP for commercial purposes wholly or mainly related to that business. An example might be two operating companies forming an LLP as a joint venture vehicle to further their respective businesses. Again, the application here will depend on individual fact-patterns. It would not, for example, cover new LLPs where some of the new members have not carried on a (non-regulated) business previously but instead are newly established companies or are individuals who have been employed by some other entity carrying on that business. Nor is it likely to be of any assistance in relation to professional service firms where the members are not likely to be conducting businesses of their own.

ALTERNATIVE INVESTMENT FUNDS 20.31 Much as it is possible for an LLP to be a collective investment scheme, with attendant regulatory requirements, so is it possible for an LLP to be an alternative investment fund (AIF). If an LLP is an AIF, then as seen above126 it will by definition have an alternative investment fund manager (AIFM), which may be external or one of the members themselves; and if that AIFM manages the AIF in the UK or it markets interests in the AIF in the UK and elsewhere, it may need authorisation, and to comply with a range of regulatory requirements. 20.32 As has been seen above,127 an ‘AIF’ is defined as ‘a collective investment undertaking, including investment compartments of such an undertaking, which (a) raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and (b) does not require authorisation pursuant to art 5 of the UCITS Directive’. Most of these elements are subject to detailed further analysis, and each element should be considered when determining whether a particular LLP is an AIF.

125 Ibid. 126 At

20.11. 20.10.

127 See

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‘Collective investment undertaking’ 20.33 To be an AIF, the undertaking must be a ‘collective investment undertaking’. The European Securities and Markets Authority (ESMA) has issued guidance on the meaning of this term,128 as has the FCA.129 An LLP will certainly be an ‘undertaking’ for these purposes. For it to have ‘collective investment’ characteristics, it will also: (a)

not have a general commercial or industrial purpose. A ‘general commercial or industrial purpose’ is defined in the ESMA Guidelines, and means the purpose of pursuing a business strategy which includes characteristics such as running predominantly (i) a commercial activity, which involves the purchase or sale (or exchange) of goods or commodities and/or supply of non-financial services,130 (ii) an industrial activity involving the production of goods or construction of properties, or (iii) a combination thereof; (b) pool together capital raised from its investors for the purpose of investment with a view to generating a pooled return for those investors. There are a number of concepts here, also elaborated upon by ESMA in the same Guidelines, but the most important, for present purposes, is whether capital is ‘raised’ from an undertaking’s investors. A wide test is applied to this, in that it includes ‘the commercial activity of taking direct or indirect steps … to procure the transfer or commitment of capital by one or more investors to the undertaking for the purposes of investing it in accordance with a defined investment policy’. Key to this is that capital raising involves the AIFM, or someone on its behalf, going out and finding investors to put in capital. This can be distinguished from a structure where two (or more) parties come together and decide among themselves to form a vehicle and put capital in. In the latter case, there is less likely to be capital raising and hence less likely to be an AIF;131 and (c) be the case that the investors in the undertaking – as a collective group – have no day-to-day discretion or control.132 This test is also elaborated in the ESMA Guidance, to include ‘direct and ongoing power of decision – whether exercised or not133 – over operational matters relating to the daily management of the undertaking’s assets and which extends substantially further than the ordinary exercise of decision or control through voting at shareholder meetings on matters such as mergers or liquidation, the election of shareholder representatives, the appointment of directors or auditors or the approval of annual accounts’.

128 129 130

131 132 133

Guidelines on key concepts of the AIFMD issued by the European Securities and Markets Authority (ESMA/2013/600). At PERG 16 in its Sourcebook. It should be noted that a financial business will likely fail the test for a general commercial or industrial purpose, as the test only extends to the supply of non-financial services. For LLPs conducting a financial business, a different solution would have to be found. There is further FCA guidance on this in its Sourcebook at PERG 16.2. This view is supported by FCA Guidance at Qs 2.46 to 2.50 in PERG 16.2 of its Sourcebook. Giving one, or a limited number only, of the investors discretion or control does not result in the entity not having collective investment characteristics. Note that this is in contrast to the equivalent collective investment scheme test under Brown v InnovatorOne Plc [2012] EWHC 1321 (Comm).

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Raising capital with a view to investment 20.34 To be an AIF, the undertaking must also raise capital from a number of investors. The question of capital raising is discussed above at 20.33(b). If an undertaking is not prohibited, under its constitution or under applicable law, from having more than one investor, it will ‘raise capital from a number of investors’, even if in fact it has only one investor.134 Of course, an LLP will very likely (but not inevitably) have more than one investor.135 20.35 The capital must be raised with a view to investing it in accordance with a defined investment policy for the benefit of the investors. ‘Defined investment policy’ is also the subject of detailed guidance in the ESMA Guidelines, including a number of non-conclusive factors pointing towards there being a ‘defined investment policy’, including that: •• •• •• ••

the policy is fixed before investors’ commitments to invest become binding on them; the policy is set out in a document that is part of or referenced in the undertaking’s constitution; there is a legally enforceable obligation on the person managing the undertaking to follow the policy; and the policy includes investment guidelines, such as investment strategy, asset class, geographical focus, and leverage restrictions amongst other things.

Use of an LLP 20.36 It is useful, at this point, to return to the situations where an LLP might be used, set out in 20.25 above: ••

134

An LLP used as an investment structure, whereby several members together hold an asset through the LLP, may well be an AIF on these tests, unless all its members together exercise day-to-day discretion or control (noting that this has to be close daily control, not a few limited voting rights),136 or there was no capital raising from a number of investors.137 It should, however, be noted that there is further FCA Guidance in its Sourcebook in PERG 16.2, not mirrored in the ESMA Guidelines, on several other circumstances where an undertaking is not likely to be treated by the FCA as an AIF, for UK purposes. For example, a vehicle (including an LLP) issuing debt may well not be considered to be an AIF under FCA Guidance.138

ESMA Guidance, as mentioned above. It should be noted that the FCA Guidance in its Sourcebook at PERG 16.2 Q2.11, which is not mirrored in the ESMA Guidance, raises the possibility that a limited partnership with one limited partner with a substantial capital contribution and one general partner with a nominal £1 contribution could still be considered (if there is appropriate wording in its constitution) to raise capital from only one investor and so not be an AIF. It would appear that there is no reason why the same logic could not apply to an LLP where one member has only very nominal capital and the other has a substantive one. 136 See 20.33(c). 137 See 20.33(b). 138 See Q2.44 at PERG 16.2 in FCA’s Sourcebook. But note that this is FCA Guidance only, and a similar view may well not be taken in the English courts or in other countries around the EU. 135

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••

••

387

An LLP used as a joint venture operating entity may well not be an AIF, on the basis that all its members have day-to-day discretion or control (again, close daily control, not merely voting power), and/or because it has a general commercial or industrial purpose, and/or because there was no capital raising, and/or no defined investment policy. Similarly, an LLP of professionals conducting business together may well not be an AIF, because it has a general commercial or industrial purpose, and/or no capital raising, and/or no defined investment policy.

It will be seen that the vast majority of LLPs should fall outside the definition of AIF, one way or another, provided care is exercised in setting them up and drafting the relevant documents, but that some LLPs used as investment vehicles or other financial businesses may be caught, and special attention will be required in those cases.

Brexit 20.37 On the UK leaving the EU (‘Brexit’) and expiry of the transition period, the EU financial services rules applicable to LLPs have, in broad summary, been incorporated into UK law as they applied at the end of the transition period. This has been achieved through what is known as ‘retained EU law’ from EU treaties and EU law as implemented through the European Union (Withdrawal) Act 2018 (the Withdrawal Act), or as part of what is known as ‘relevant separation agreement law’ from the Withdrawal Agreement between the UK and the EU, again as implemented through the Withdrawal Act. This has been supplemented by a number of statutory instruments. Of particular relevance to this work are the Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2019,139 amending the Alternative Investment Fund Managers Regulations 2013140 and, where applicable, statutory instruments related to MiFID141 and MiFID II.142 FCA-authorised UK LLPs will no longer be able to benefit from a passporting regime that allowed the firm to conduct various types of regulated activities, eg managing or marketing AIFs or MiFID business throughout the EEA jurisdictions as it chooses. Specific advice will need to be taken with respect to each EEA jurisdiction in which an FCA-authorised UK LLP wants to carry on regulated business. The FCA has suggested that, post-Brexit, non-legislative material produced by European Supervisory Authorities (such as guidelines and recommendations) in relation to EU law should continue to be followed, albeit interpreted in light of Brexit.143

139

SI 2019/328. SI 2013/1773. 141 Markets in Financial Instruments Directive (Directive 2004/39/EC), as amended and supplemented since then, including by Commission Regulation (EC) No 1287/2006. 142 Directive 2014/65/EU and the Markets in Financial Instruments Regulation (EU) No 600/2014. 143 www.fca.org.uk/publication/policy/ps19-05.pdf. The FCA has also suggested that market participants should continue to ‘have regard to’ opinions and questions and answer documents issued by the European Supervisory Authorities. 140

388

Chapter 21 ACCOUNTS AND AUDIT

INTRODUCTION 21.1 Accounts are required to be prepared for each financial year of the LLP.1 These are the LLP’s ‘annual accounts’.2 The obligation to prepare these accounts is an obligation of the members.3 21.2 Subject to modifications made by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008,4 Parts 15 and 16 of the CA 2006, dealing with accounts and audit, apply to LLPs.5 This chapter considers (i) the accounting records which an LLP must keep, (ii) the accounts which must be prepared, and approved and filed, for every LLP for each of its financial years beginning on or after 1 October 2008, and (iii) the auditing requirements which must be met in relation to those accounts. This chapter is concerned principally with an LLP’s individual accounts prepared in accordance with the provisions of the CA 2006 and UK GAAP6 (as opposed to accounts prepared in accordance with international accounting standards and the relevant provisions of the CA 2006), and does not consider the detailed requirements which must be met in relation to group accounts.7 The appointment and position of auditors is considered separately in Chapter 22.

ACCOUNTING RECORDS 21.3 An LLP must keep adequate accounting records, that is to say accounting records which are sufficient (a) to show and explain the LLP’s transactions, (b) to disclose with reasonable accuracy, at any time, the financial position of the LLP at that time, and (c) to enable the members to ensure that any accounts required to be prepared comply with the requirements of the Act.8 The accounting records must, in particular, contain (i) entries from day to day of all sums of money received and

1 2 3 4 5 6 7 8

CA 2006, ss 394–397, as modified and applied to LLPs by SI 2008/1911, reg 9. CA 2006, s 471, as modified and applied to LLPs by SI 2008/1911, reg 29. CA 2006, s 394, as modified and applied to LLPs by SI 2008/1911, reg 9. SI 2008/1911. The Regulations set out in full the text of Parts 15 and 16 of the CA 2006, together with other relevant provisions of that Act, as applied to LLPs in their modified form. As to the date of 1 October 2008, see SI 2008/1911, reg 2. Ie the body of applicable general accounting standards: see further 21.15. There is a fuller discussion of accounting and auditing for LLPs in Collings, Accounts and Audit of Limited Liability Partnerships (5th edn, Bloomsbury Professional, 2017). CA 2006, s 386(1)–(2), as modified and applied to LLPs by SI 2008/1911, reg 6. This obligation is to be seen as an obligation falling on all the members: Secretary of State v Hall and Nuttall [2009] BCC 190 Ch D at [17] (a case on the CA 1985 predecessor to CA 2006, s 386). As to the meaning

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expended by the LLP, and the matters in respect of which the receipt and expenditure takes place, and (ii) a record of the assets and liabilities of the LLP.9 If the LLP’s business involves dealing in goods, the accounting records must also contain (iii) statements of stock held by it at the end of each of its financial years, (iv) all statements of stocktakings from which any such statement of stock has been or is to be prepared, and (v) except in the case of goods sold by way of ordinary retail trade, statements of goods sold and purchased, showing the goods and the buyers and sellers in sufficient detail to enable all these to be identified.10 A parent LLP which has a subsidiary undertaking in relation to which the above requirements do not apply (eg because the subsidiary is not a UK company or LLP) must still take reasonable steps to secure that the subsidiary keeps accounting records sufficient to ensure that any accounts of the parent LLP required to be prepared under the CA 2006 comply with the requirements of the Act.11 21.4 The accounting records are to be kept at the LLP’s registered office, or at such other place as the members think fit; and are at all times to be open to inspection by the members.12 All accounting records which the Act requires an LLP to keep (ie as set out in 21.3) must be preserved for a period of three years from the date on which they were made.13 If any accounting records are kept outside the UK, accounts and returns with respect to the business dealt with in those accounting records must be sent to, and kept at, a place in the UK, and must also be open at all times to inspection by the members.14 These accounts and returns sent to the UK must be such as to (a) disclose with reasonable accuracy the financial position of the business in question at intervals of not more than six months, and (b) enable the members to ensure that the accounts required to be prepared under the Act comply with the requirements of the Act.15 21.5 If an LLP fails to keep adequate accounting records as set out in 21.3, or fails to comply with the requirements set out in 21.4 (save as to preservation of records for a period of three years, mentioned separately below) an offence is committed by

9 10 11 12

13

14 15

of ‘accounting records’, in DTC (CNC) Ltd v Gary Sargeant & Co [1996] 1 WLR 797 (accountants asserting a lien for unpaid fees over accounting records of a company) these were said ordinarily to include sales invoices, purchase invoices, cheque books, paying-in books and bank statements (which were the documents in dispute in the case). Once a document is created as an accounting document within s 386, it does not lose that status because an accountant collates the information contained in or derived from it, and transposes such information onto some other document: ibid at 803E–F. CA 2006, s 386(3), as modified and applied to LLPs by SI 2008/1911, reg 6. CA 2006, s 386(4), as modified and applied to LLPs by SI 2008/1911, reg 6. CA 2006, s 386(5), as modified and applied to LLPs by SI 2008/1911, reg 6. CA 2006, s 388(1), as modified and applied to LLPs by SI 2008/1911, reg 6. See also, in similar terms, default rule (7) of the Limited Liability Partnership Regulations 2001, para 7. As to the nature and exercise of the right of members to inspect the LLP’s accounting records, see further 14.3–14.17. CA 2006, s 388(4), as modified and applied to LLPs by SI 2008/1911, reg 6 (subject to any rules made under s 411 of the IA 1986: see s 388(5)). There are also obligations under TMA 1970 to keep tax records: see 23.20. CA 2006, s 388(2), as modified and applied to LLPs by SI 2008/1911, reg 6. See fn 12 above. CA 2006, s 388(3), as modified and applied to LLPs by SI 2008/1911, reg 6.

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every member of the LLP who is in default.16 The meaning of ‘in default’ for the purposes of Parts 15 and 16 of the CA 2006 is discussed at 22.29. It is a defence for a member charged with such an offence to show that he acted honestly and that in the circumstances in which the LLP’s business was carried on the default was excusable.17 As to the requirement that accounting records be preserved for a period of three years, a member commits an offence if he fails to take all reasonable steps for securing compliance by the LLP with this requirement or intentionally causes any default by the LLP in so preserving the accounting records.18 The defence that he acted honestly, and that in the circumstances in which the LLP’s business was carried on the default was excusable, is not available to a member in respect of the requirement as to preservation of accounting records.19 21.6 The accounting records may be kept in hard copy or electronic form, and may be arranged in such manner as the members think fit (provided that the information in question is adequately recorded for future reference);20 but if they are kept in electronic form, they must be capable of being reproduced in hard copy form.21 If the records are kept otherwise than in bound books, adequate precautions must be taken to guard against falsification, and to facilitate the discovery of falsification.22

FINANCIAL YEAR 21.7

The ‘financial year’ of an LLP is determined as follows:

(1) The first financial year of an LLP begins on the date of its incorporation;23 and ends (unless the LLP alters this date under the procedure mentioned in (2) to (4) below) on the last day of its first accounting reference period, namely the last day of the month in which the first anniversary of its incorporation falls (which is the LLP’s first ‘accounting reference date’),24 or such other date, not more than seven days before or after the first accounting reference date, as the members may determine.25

16

17 18 19 20 21 22

23 24 25

CA 2006, s 387(1) or 389(1), as modified and applied to LLPs by SI 2008/1911, reg 6. On conviction on indictment, a member is liable to imprisonment for a term not exceeding two years or a fine (or both); and on summary conviction, he is liable to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum (or both): s 387(3) or 389(4). CA 2006, s 387(2) or 389(2), as modified and applied to LLPs by SI 2008/1911, reg 6. CA 2006, s 389(3), as modified and applied to LLPs by SI 2008/1911, reg 6. The penalties on conviction are the same as stated in fn 16 above: s 389(4). See CA 2006, s 389(1) and (2), as modified and applied to LLPs by SI 2008/1911, reg 6, not referring to s 388(4). CA 2006, ss 1134(a) (‘accounting records’) and 1135, as modified and applied to LLPs by SI 2009/1804, reg 74. CA 2006, s 1135(2), as modified and applied to LLPs by SI 2009/1804, reg 74. CA 2006, s 1138, as modified and applied to LLPs by SI 2009/1804, reg 74. If an LLP fails to take such precautions, an offence is committed by every member who is in default. As to the meaning of ‘in default’ for the purposes of these provisions, see 22.29. CA 2006, ss 390(2)(a) and 391(3), as modified and applied to LLPs by SI 2008/1911, reg 7. CA 2006, s 391(2), as modified and applied to LLPs by SI 2008/1911, reg 7. CA 2006, s 390 with s 391(2) and (3), as modified and applied to LLPs by SI 2008/1911, reg 7.

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(2) However, the first financial year (and accounting reference period) can be shortened to less than a year, or extended to more than a year, by altering the first accounting reference date. This is subject to the proviso that the first financial year must end on a date more than six months from (and beginning with) the date of incorporation,26 and must not last for a period of more than 18 months from (and beginning with) the date of incorporation.27 (3) To take an example, if an LLP is incorporated on 15 March 2015, its first financial year begins on 15 March 2015 and ends on 31 March 2016 (or, if the members so decide, another date which is within seven days either side of 31 March 2016). This first financial year can, however, be shortened or extended so as to end, for example, on 30 September 2015 or 31 August 2016. (4) The procedure for the first financial year being shortened or extended as mentioned above is that the LLP gives notice to the Registrar in the prescribed form specifying a new accounting reference date.28 This notice does not have to be given by any particular time (so that, in the example given in (3) above, it can be given before or after 31 March 2016) save that it must be given before the expiration of nine months from the first anniversary of the incorporation of the LLP.29 To follow the example given in (3) above, notice altering the first financial year must be given by the LLP at the latest by 15 December 2016 (with, if notice is given on the last available date, the accounts and auditors’ report for the altered first financial year). (5) Subsequent financial years begin with the day immediately following the end of the previous financial year and end with the last day of the next accounting reference period (ie the LLP’s accounting reference date for subsequent financial years) or such other date, not more than seven days before or after the accounting reference date, as the members may determine.30 In other words, financial years are successive periods of 12 months, ending on the LLP’s accounting reference date with a seven-day leeway at the discretion of the members. (6) Like the first financial year, any subsequent financial year can be shortened or extended by notice given to the Registrar, either during or after the end of the financial year in question, specifying a new accounting reference date.31 There appears to be no limit as to how short a subsequent particular financial year

26 27 28 29

30 31

CA 2006, s 391(3) with s 392(1) and (2)(a), as modified and applied to LLPs by SI 2008/1911, reg 7. CA 2006, s 391(3) with s 392(1) and (2)(b), as modified and applied to LLPs by SI 2008/1911, reg 7. CA 2006, s 392(1) and (2), as modified and applied to LLPs by SI 2008/1911, reg 7. Ie the period within which, under CA 2006, s 442(3), as modified and applied to LLPs by SI 2008/1911, reg 17, the LLP’s accounts and auditors’ report for its first financial year must be delivered to the Registrar: see CA 2006, s 392(4), as modified and applied to LLPs by SI 2008/1911, reg 7. This period for delivery may (in respect of any financial year) be extended by the Secretary of State if for any special reason he thinks fit, on an application made by the LLP before the expiry of the nine-month period: CA 2006, s 442(5), as modified and applied to LLPs by SI 2008/1911, reg 17. Consequent on such an extension, notice to shorten or extend the first financial year may possibly be given after the nine-month period. CA 2006, ss 390(3) and 391(4), as modified and applied to LLPs by SI 2008/1911, reg 7. CA 2006, s 392(1) and (2), as modified and applied to LLPs by SI 2008/1911, reg 7.

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(or, more accurately, accounting reference period) can be; but, unless the LLP is in administration under Part 2 of the IA 1986, it cannot be extended so as to exceed 18 months.32 To be effective to specify a new accounting reference date, a notice to the Registrar must be given before the expiration of the period allowed for delivering to the Registrar the accounts and auditors’ report for the financial year as it exists before any notice has been given,33 and provided also that if a financial year has previously been extended by giving notice to the Registrar specifying a new accounting reference date, a notice altering the accounting reference date again to extend a subsequent financial year cannot be given less than five years after the end of the financial year which was previously extended (save that the Secretary of State can waive this restriction in any particular case and save also that this restriction does not apply, inter alia, where an LLP is in administration under Part 2 of the IA 1986).34 (7) The members of a parent LLP must secure that, except where in their opinion there are good reasons against it, the financial year of each of its subsidiary undertakings coincides with the LLP’s own financial year.35

INDIVIDUAL ACCOUNTS: IAS AND NON-IAS 21.8 As mentioned in 21.1, individual accounts are required to be prepared for each financial year of the LLP.36 These accounts may either be prepared in accordance with UK-adopted international accounting standards (IAS),37 or in accordance with the detailed provisions of the CA 2006 (and accompanying statutory instruments) and UK GAAP for ‘non-IAS individual accounts’.38 This chapter is essentially concerned with non-IAS accounts. If an LLP does adopt international accounting standards for a financial year, then provided it has not changed the basis of accounting in the previous five years, all subsequent individual accounts of the LLP must be in accordance with UK-adopted IAS unless there is a ‘relevant change of circumstance’,

32 33

34

35 36

37

38

CA 2006, s 392(5), as modified and applied to LLPs by SI 2008/1911, reg 7. Ie before the expiration of nine months from the end of the financial year, as specified in CA 2006, s 442, as modified and applied to LLPs by SI 2008/1911, reg 17: see CA 2006, s 392(4), as modified and applied to LLPs by SI 2008/1911, reg 7. CA 2006, s 392(3), as modified and applied to LLPs by SI 2008/1911, reg 7. The other situation where the restriction does not apply is where the LLP is a subsidiary or parent of another UK undertaking if the new accounting reference date coincides with that of the other UK undertaking or, where that undertaking is not a company or an LLP, with the last day of its financial year: ibid. CA 2006, s 390(5), as modified and applied to LLPs by SI 2008/1911, reg 7. CA 2006, s 394, as modified and applied to LLPs by SI 2008/1911, reg 9. However, certain dormant subsidiaries are exempt under ss 394A to 394C from the need to prepare and file accounts. See 21.25. Ie the international accounting standards within the meaning of Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards that have been adopted for use within the UK by virtue of the International Accounting Standards and European Public Limited-Liability Company (Amendment etc) (EU Exit) Regulations 2019, SI 2019/685: CA 2006, 474(1), as modified and applied to LLPs by SI 2008/1911, reg 32. CA 2006, s 395(1), as modified and applied to LLPs by SI 2008/1911, reg 9. The framework requirements for non-IAS individual accounts are specified in CA 2006, s 396, as modified and applied to LLPs by SI 2008/1911, reg 9, which refers to the Accounts Regulations mentioned in 21.13.

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namely unless at any time during or after the first IAS year (a) the LLP becomes a subsidiary undertaking of another undertaking that does not prepare IAS individual accounts, (b) it ceases to be a subsidiary undertaking, (c) it ceases to be an LLP with securities admitted to trading on a UK regulated market, or (d) a parent undertaking of the LLP ceases to be an undertaking with securities admitted to trading on a UK regulated market.39 Where IAS individual accounts are prepared, they must state the part of the UK in which the LLP is registered, the LLP’s registered number and the address of its registered office and, where it is in liquidation, the fact that it is being wound up. The notes to the accounts must also state that the accounts have been prepared in accordance with UK-adopted IAS.40 IAS individual accounts will still need to provide certain information required to be included by the CA 2006.41 21.9 Whether the LLP’s individual accounts are IAS or non-IAS accounts, they must give a true and fair view of the assets, liabilities, financial position and profit or loss of the LLP.42 This is the core principle and overriding objective of the statutory rules relating to LLP accounts.

NON-IAS INDIVIDUAL ACCOUNTS 21.10 The accounting requirements imposed on LLPs in the case of non-IAS individual accounts are largely dependent on the size of the LLP and the nature of its business. For a particular accounting regime to apply, the LLP must first ‘qualify as’ a particular type of LLP, and then must not be excluded from that regime. An LLP may qualify as something other than a ‘Large LLP’ in any financial year if it satisfies two or more of the following criteria: Maximum turnover Medium-sized LLP43 Small LLP44 Micro-entity45

39

40 41

42 43 44 45

Maximum balance sheet total

Maximum number of employees

£36m

£18m

250

£10.2m

£5.1m

50

£632,000

£316,000

10

CA 2006, s 395(3) and (3A), as modified and applied to LLPs by SI 2008/1911, reg 9. If, having changed to preparing non-IAS individual accounts following a relevant change of circumstance, within five years the members again prepare IAS individual accounts for the LLP, a change back to non-IAS individual accounts requires a ‘relevant change of circumstance’ again as above: s 395(4), as modified and applied to LLPs by SI 2008/1911, reg 9. CA 2006, s 397, as modified and applied to LLPs by SI 2008/1911, reg 9. For instance, information about related undertakings, off-balance-sheet arrangements and employees, as required by ss 409, 410A and 411, as modified and applied to LLPs by SI 2008/1911, reg 11. CA 2006, s 393(1), as modified and applied to LLPs by SI 2008/1911, reg 8. CA 2006, s 465(3), as modified and applied to LLPs by SI 2008/1911, reg 26. CA 2006, s 382(2), as modified and applied to LLPs by SI 2008/1911, reg 5. CA 2006, s 384A(4), as modified and applied to LLPs by SI 2008/1911, reg 5A. The micro-entity provisions are a subset of the small LLP regime, and accordingly many of the provisions that apply to small LLPs will also govern micro-entities.

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For the purposes of these qualifying conditions: (a)

if an LLP’s financial year is not in fact a year, the maximum figure for turnover is to be proportionately adjusted;46 (b) ‘turnover’ means the amounts derived from the provision of goods and services falling within the LLP’s ordinary activities, after deduction of trade discounts, value added tax and any other taxes based on the amounts so derived;47 (c) the balance sheet total means the aggregate of the amounts shown as assets in the balance sheet;48 and (d) the number of employees means the average number of persons employed by the LLP in the year determined on a monthly basis, ie by dividing the relevant annual number of employees by the number of months in the financial year, where the relevant annual number of employees is found by ascertaining for each month in the financial year the number of persons employed under contracts of service by the LLP in that month (whether throughout the month or not) and adding the monthly totals together.49 A parent LLP can only qualify as a micro-entity or a small LLP if the group headed by it qualifies as a small group in relation to that year,50 and as a medium-sized LLP if the group qualifies as a medium-sized group.51 21.11 In an LLP’s first financial year, the requirement is that the LLP should meet the conditions in that year. In respect of subsequent financial years, however, account is taken of the preceding financial year as well. The effect of this is that it is possible for an LLP to qualify for a particular regime, despite not meeting the qualifying conditions in that financial year. Specifically: (a) An LLP will qualify for medium-sized LLP status if either (1) it meets the qualifying conditions in that year and the preceding year (whether or not it actually qualified in the previous year), or (2) it meets the qualifying conditions in that year, and qualified as medium-sized in the previous year (whether or not it actually met the conditions in that year), or (3) it met the qualifying conditions in the previous year and qualified in the previous year.52 (b) An LLP will qualify (or cease to qualify) for micro-entity or small LLP status if it meets (or ceases to meet, as appropriate) the relevant test for two consecutive years.53

46 47 48 49 50 51 52 53

CA 2006, ss 465(4) (medium), 382(4) (small) and 384A(5) (micro), as modified and applied to LLPs by SI 2008/1911, regs 26, 5 and 5A respectively. CA 2006, s 474(1), as modified and applied to LLPs by SI 2008/1911, reg 32. CA 2006, ss 465(5) (medium), 382(5) (small) and 384A(6) (micro), as modified and applied to LLPs by SI 2008/1911, regs 26, 5 and 5A respectively. CA 2006, ss 465(6) (medium), 382(6) (small) and 384A(7) (micro), as modified and applied to LLPs by SI 2008/1911, regs 26, 5 and 5A respectively. In accordance with the requirements and conditions for qualifying as a small group contained in CA 2006, s 383, as modified and applied to LLPs by SI 2008/1911, reg 5. In accordance with the requirements and conditions for qualifying as a medium-sized group contained in CA 2006, s 466, as modified and applied to LLPs by SI 2008/1911, reg 26. CA 2006, s 465(1) and (2), as modified and applied to LLPs by SI 2008/1911, reg 26. CA 2006, ss 382(1)–(2) (small) and 384A(1)–(3) (micro), as modified and applied to LLPs by SI 2008/1911, regs 5 and 5A respectively.

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21.12 However, even if an LLP qualifies as a medium-sized LLP, small LLP or micro-entity, the appropriate accounting ‘regime’ remains subject to certain exclusions: (a)

The medium-sized LLP regime does not apply to an LLP if, at any time within the financial year to which the accounts relate, it was any of the following: (i) a traded LLP, (ii) an LLP that has permission under Part 4 of FSMA 2000 to carry on a regulated activity or that carries on insurance market activity, (iii) an e-money issuer, or (iv) a member of an ineligible group (as a result of the activities of one or more of the members of that group).54 (b) The small LLP regime does not apply to an LLP if, at any time within the financial year to which the accounts relate, it was any of the following: (i) a traded LLP, (ii) an authorised insurance company, a banking LLP, an e-money issuer, a MiFID investment firm or UCITS management company, an LLP that carries on insurance market activity, or a pension master trust scheme funder, or (iii) a member of an ineligible group.55 (c) The micro-entity provisions do not apply to an LLP if, at any time within the financial year to which the accounts relate, (i) the LLP is excluded from the small LLP regime on any of the grounds set out in (b) above,56 (ii) if the UK had remained within the EU, the LLP would have been an investment undertaking, financial holding undertaking, credit institution or insurance undertaking as defined under various specified provisions of EU law,57 or (iii) the LLP is a parent LLP that prepares group accounts or, whilst not a parent LLP, its accounts are included in consolidated group accounts for that year.58 21.13 Whichever regime applies, the accounts must state the part of the UK in which the LLP is registered, the LLP’s registered number and the address of its registered office and, where it is in liquidation, the fact that it is being wound up.59 The accounts must comprise a balance sheet as at the last day of the financial year and a profit and loss account.60 The balance sheet must give a true and fair view of the state 54

55

56 57

58 59 60

CA 2006, s 467, as modified and applied to LLPs by SI 2008/1911, reg 26. An ineligible group is defined in s 467(2)–(3). A traded LLP is defined in CA 2006, s 474(1), as modified and applied to LLPs by SI 2008/1911, reg 32 as an LLP any of whose transferable securities are admitted to trading on a regulated market. Note that, unlike the definition of ‘traded company’ in the same section, this definition was not modified by Brexit legislation (specifically SI 2019/145, reg 20) to refer only to a UK regulated market. That may or may not be a drafting error. CA 2006, s 384, as modified and applied to LLPs by SI 2008/1911, reg 5. A banking LLP, a MiFID investment firm and a UCITS management company are all defined in CA 2006, s 474(1), as modified and applied to LLPs by SI 2008/1911, reg 32. A scheme funder is defined in Pension Schemes Act 2017, s 39(1). An ineligible group is defined in CA 2006, s 384(2)–(3), as modified and applied to LLPs by SI 2008/1911, reg 5. CA 2006, s 384B(1)(a), as modified and applied to LLPs by SI 2008/1911, reg 5A. CA 2006, s 384B(1)(b)–(e), as modified and applied to LLPs by SI 2008/1911, reg 5A. The relevant provisions of EU law are Article 2(14)–(15) of Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, Article 4(1)(1) of Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms, and Article 2(1) of Council Directive 91/674/EEC on the annual accounts and consolidated accounts of insurance undertakings. CA 2006, s 384B(2), as modified and applied to LLPs by SI 2008/1911, reg 5A. CA 2006, s 396(A1), as modified and applied to LLPs by SI 2008/1911, reg 9. CA 2006, s 396(1), as modified and applied to LLPs by SI 2008/1911, reg 9.

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of affairs of the LLP as at the end of the financial year, and the profit and loss account must give a true and fair view of the profit or loss of the LLP for the financial year.61 Subject to the overriding obligation to present a true and fair view of the position, the LLP’s individual accounts must comply with whichever is applicable to the LLP of the Small Limited Liability Partnerships (Accounts) Regulations 2008 (‘the Small Accounts Regulations’, which include provisions applicable to micro-entities)62 or the Large and Medium-sized Limited Liability Partnerships (Accounts) Regulations 2008 (‘the Large and Medium Accounts Regulations’)63 in relation to the form and content of the balance sheet and the form and content of the profit and loss account, and as to additional information to be provided by way of notes to the accounts.64 We refer in this chapter to these two statutory instruments together as ‘the Accounts Regulations’. The overriding obligation to present a true and fair view can be seen from the provisions in the CA 2006 that: (a) where compliance with the provisions of the Accounts Regulations, and any other provisions made by or under the CA 2006 as to matters to be included in the accounts or in notes to the accounts, would not be sufficient for the balance sheet or profit and loss account to give a true and fair view, the necessary additional information must be given in the accounts or in a note to them;65 and (b) if in special circumstances compliance with any of the provisions referred to in (a) above is inconsistent with the requirement to give a true and fair view, the accounts are to depart from the provision in question to the extent necessary to give a true and fair view (with particulars of any such departure, and the reasons for it and its effect, being given in a note to the accounts).66 21.14 Part 2 of Schedule 1 to each of the Accounts Regulations contains considerable detail as to the information which is to be included in the accounts. Paragraphs 11–15A of each of these schedules set out the essential accounting principles to be followed in preparing all non-IAS annual accounts (subject to the overriding provisions in the CA 2006 referred to in 21.13(a) and (b)): (1) The LLP is to be presumed to be carrying on business as a going concern. (2) Accounting policies and measurement bases are to be applied consistently from one financial year to the next. (3) The amount of any item is to be determined on a prudent basis, and in particular: (a) only profits realised at the balance sheet date are to be included in the profit and loss account;

61

62 63 64 65 66

CA 2006, s 396(2), as modified and applied to LLPs by SI 2008/1911, reg 9. In the case of an LLP that qualifies as a micro-entity, the micro-entity accounting items included in the LLP’s accounts will be presumed to give the true and fair view that is required: CA 2006, s 396(2A), as modified and applied to LLPs by SI 2008/1911, reg 9. As a result, s 396(4)–(5) referred to immediately below does not apply in relation to the micro-entity minimum accounting items. As to the micro-entity minimum accounting items, see 21.24. SI 2008/1912. SI 2008/1913. CA 2006, s 396(3), as modified and applied to LLPs by SI 2008/1911, reg 9. CA 2006, s 396(4), as modified and applied to LLPs by SI 2008/1911, reg 9. CA 2006, s 396(5), as modified and applied to LLPs by SI 2008/1911, reg 9.

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(b) all liabilities which have arisen in respect of the financial year to which the accounts relate or a previous financial year are to be taken into account, including those which only become apparent between the balance sheet date and the date on which it is signed on behalf of the members of the LLP; (c) all provisions for diminution of value must be recognised, whether the result of the financial year is a profit or a loss; (d) at the balance sheet date, a provision must represent the best estimate of the expenses likely to be incurred or, in the case of a liability, of the amount required to meet that liability; and (e) provisions must not be used to adjust the values of assets. (4) All income and charges relating to the financial year to which the accounts relate are to be taken into account, without regard to the date of receipt or payment. (5) In determining the aggregate amount of any item, the amount of each individual asset or liability that falls to be taken into account is to be determined separately. (6) The opening balance sheet for each financial year must correspond to the closing balance sheet for the preceding financial year.

Accounting standards and SORP 21.15 As a general rule (but not a rigid rule), the overriding statutory obligation for an LLP to present a true and fair view of its position in its accounts will involve the accounts following any applicable ‘accounting standard’.67 Save where the LLP is subject to the small LLP regime (including micro-entities), or qualifies as medium-sized in relation to the financial year in question, the notes to its accounts must state whether the accounts have been prepared in accordance with applicable accounting standards, and must also give particulars of any material departure from those standards, and the reasons for it.68 The ‘accounting standards’ being referred to are the statements of standard accounting practice which have been issued by the Financial Reporting Council (FRC) in relation to non-IAS accounts, and which are relevant to the LLP’s circumstances and to its accounts.69 In addition to itself issuing general purpose standards, the FRC authorises particular other bodies to issue more detailed guidance for accounting in particular industries or sectors. This more detailed guidance is issued in the form of Statements of Recommended Practice (SORPs).70 A SORP for accounting by LLPs was first issued in May 2002 by the Consultative Committee of Accountancy Bodies (CCAB). The current applicable SORP for LLPs was issued in December 2018 and takes account of updates to

67 See 68

69 70

Lloyd Cheyham & Co Ltd v Littlejohn & Co [1987] BCLC 303 at 313: the standards will be very strong evidence of what is the proper standard which should be adopted. Schedule 1, para 45 of the Large and Medium Accounts Regulations, SI 2008/1913, together with reg 4 (exemption for medium-sized LLPs). The Small Accounts Regulations, SI 2008/1912, do not contain this provision as to statement of compliance. CA 2006, s 464, as modified and applied to LLPs by SI 2008/1911, reg 25. SORPs are recommendations for specialised industries or sectors. They are not issued by the FRC, but they supplement accounting standards which have been issued by the FRC, and other legal and regulatory requirements.

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FRS 102 effected in 2017. The CCAB is recognised by the FRC for this purpose.71 Accordingly, and as a general rule, in order to present a true and fair view, the annual balance sheet and profit and loss account of an LLP will need to follow the recommendations of the SORP for LLPs, together with the body of general accounting standards which are relevant to the LLP’s circumstances and accounts.72 This body of general accounting standards is known as the UK Generally Accepted Accounting Practice (UK GAAP).73 Where more than one accounting policy would meet the requirements of UK GAAP, the LLP should adopt that policy which is most appropriate to its circumstances. This work is not the place to set out an extensive account of what the SORP for LLPs provides.

Formats 21.16 The balance sheet to be prepared for each financial year must follow the appropriate regime. For large and medium-sized LLPs, that is one of the two balance sheet formats set out in section B of Part 1 of Sch 1 to the Large and Medium Accounts Regulations in the sense of showing the items listed in the chosen format in the order and under the headings and sub-headings contained in it; and the profit and loss account for each financial year must similarly follow either Format 1 or Format 2 profit and loss account set out in section B.74 For small LLPs, that is likewise one of the two balance sheet formats set out in section B of Part 1 of Sch 1 to the Small Accounts Regulations (as to which certain abridgements are permitted, where appropriate to the cirumstances of an LLP’s business),75 and for micro-entities, that is one of the formats set out in section C of Part 1 of Sch 1. Having chosen to adopt one of the two permissible formats in each regard, the LLP must continue to use that format (for non-IAS individual accounts) for subsequent financial years unless there are, in the opinion of the members, special reasons to change; and, if there is a change in the format adopted, particulars of the change are to be disclosed, and the reasons for it explained, in a note to the balance sheet or profit and loss account in which the changed format is first adopted.76 21.17 The permissible formats are not, however, complete straightjackets. Indeed, attention has been drawn in 21.9 to the overriding objective of the accounts

71 72

73

74 75 76

The SORP states that the CCAB will keep it under review for changes in accounting practice and new developments. The Foreword to Accounting Standards published by the FRC in March 2018 states as follows (para 5): ‘The whole essence of accounting standards is to provide for recognition, measurement, presentation and disclosure for specific aspects of financial reporting in a way that reflects economic reality and hence provides a true and fair view’. UK GAAP comprises the financial reporting standard principally found in FRS 102 or, in the case of micro-entities, FRS 105. These two standards replace the collection of standards formerly found in Statements of Standard Accounting Practice (SSAPs), Financial Reporting Standards and Urgent Issues Task Force (UITF) Abstracts and, more recently, the FRSSE (the financial reporting standard for smaller entities) which is now found in section 1A of FRS 102. Sch 1, Part 1, section A, paras 1–1A of the Large and Medium Accounts Regulations, SI 2008/1913. Sch 1, Part 1, section A, paras 1–1C of the Small Accounts Regulations, SI 2008/1912. Ibid, para 2(1) and (2), and (with respect to micro-entities) Sch 1, Part 1, section A, para 2A of the Small Accounts Regulations, SI 2008/1912.

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of an LLP being to give a true and fair view of its financial position and of its profit and loss. Schedule 1 to each of the Accounts Regulations expressly provides that an item required by the formats to be shown may be shown in greater detail than the relevant format requires, and that items representing or covering the amount of any asset or liability, or income or expenditure, not otherwise covered by any item listed in the relevant format, may be included.77 Scope is also expressly given for adapting the arrangement and headings of a format where the special nature of the LLP’s business so requires;78 and for combining what would otherwise be separate items.79 21.18 The two alternative formats of balance sheet for each category of LLP contained in the Accounts Regulations lead to the same information for that category of LLP being shown, whichever format is adopted. This is not necessarily the case with the profit and loss account; but the accounts prepared for members will in any event show, inter alia, turnover and profit or loss for the financial year before members’ remuneration and profit shares.80 In addition to the specific requirements set out in the relevant Accounts Regulations and SORP, the notes to the accounts must give information about related undertakings81 and any material off-balance-sheet arrangements to which the LLP has been party,82 and state the average number of persons employed (ie under contracts of service) by the LLP in the financial year.83 The amount of information required is dependent on the size of the LLP.

Abridged accounts 21.19 Where appropriate to the circumstances of an LLP’s business, the members of a qualifying small LLP (provided that they all agree) may draw up only an abridged balance sheet, containing only the headline entries84 from either of the two alternative balance sheet formats in the Small Accounts Regulations.85 They may also draw up an abridged profit and loss account, under which various heads of profit and loss may be grouped as a single item called ‘gross profit or loss’.86 If the balance sheet or profit and loss account is abridged, the designated members must deliver to

77

78 79 80

81

82

83

84 85 86

Ibid, para 3(1) and (2): save that the following are not to be treated as assets in any balance sheet: (a) preliminary expenses; (b) expenses of, and commission on, any issue of debentures; and (c) costs of research. Ibid, para 4(1). Ibid, para 4(2). Ie items 1 and either 20 (Format 1) or 22 (Format 2) for small, medium and large LLPs, and items A and H for micro-entities (in respect of which there is only one permitted format for a profit and loss account). CA 2006, s 409, as modified and applied to LLPs by SI 2008/1911, reg 11. The information required is set out in the Large and Medium Accounts Regulations, SI 20080/1913, reg 5 or the Small Accounts Regulations, SI 2008/1912, reg 7 (group accounts only), as appropriate. CA 2006, s 410A, as modified and applied to LLPs by SI 2008/1911, reg 11. The nature and business purpose of the arrangements must be stated. Additionally, large and medium-sized LLPs must state the financial impact of such arrangements on the LLP. CA 2006, s 411, as modified and applied to LLPs by SI 2008/1911, reg 11. Additionally, large and medium-sized LLPs must break down the average number of employees by category, and disclose total staff costs. Ie the entries in Sch 1, Part 1, section B that are preceded by a letter and a roman numeral. SI 2008/1912, Sch 1, Part 1, para 1A(1). SI 2008/1912, Sch 1, Part 1, para 1A(2).

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the registrar a statement by the LLP that all the members of the LLP have consented to the abridgement.87 21.20 A qualifying small LLP may also adapt one of the balance sheet formats in Section B so as to distinguish between current and non-current items in a different way from that adopted in that format. They may also adapt one of the profit and loss account formats. In either case, the information given must be at least equivalent to that which would have been required by the use of such format but for its adaptation, and the presentation of those items must be in accordance with generally accepted accounting principles or practice.88

Reports 21.21 A strategic report must be prepared for any LLP that is either a traded LLP or a banking LLP.89 Where an LLP is a parent LLP that prepared group accounts (see 21.26), the report must be a consolidated one relating to all of the undertakings included in the consolidation.90 The report must contain a fair review of the LLP’s business – that is to say, a balanced and comprehensive analysis of the development and performance of the LLP’s business during the financial year and the position of that business at the end of the year, consistent with the size and complexity of the business – and a description of the principal risks and uncertainties facing the LLP.91 If appropriate, the review should use financial key performance indicators and include references to, and additional explanations of, amounts included in the LLP’s annual accounts.92 The strategic report must be approved by the members and signed on their behalf by a designated member.93 Members of an LLP commit an offence if they fail to comply with the requirement to produce a strategic report or if they approve a report that does not comply with the Act.94 Furthermore, a member of an LLP is liable to compensate the LLP for any loss suffered by it as a result of any untrue statement in a strategic report, or the omission from a strategy report of anything required to be included within it, if the member knew the statement to be untrue or misleading or was reckless to that fact, or knew the omission to amount to dishonest concealment of a material fact.95 21.22 Unless the LLP is exempted, the members of an LLP must also prepare an energy and carbon report for each financial year of the LLP.96 Such a report details 87 88 89

90 91 92 93 94 95 96

CA 2006, s 444(2A), as modified and applied to LLPs by SI 2008/1911, reg 17. SI 2008/1912, Sch 1, Part 1, para 1B. CA 2006, s 414A(1)–(2), as modified and applied to LLPs by SI 2008/1911, reg 12A. A ‘traded LLP’ is one whose transferable securities are admitted to trading on a regulated market. Both ‘traded LLP’ and ‘banking LLP’ are defined in CA 2006, s 474, as modified and applied to LLPs by SI 2008/1911, reg 32. By definition, a small LLP cannot be either: see CA 2006, s 384, as modified and applied to LLPs by SI 2008/1911, reg 5. CA 2006, s 414A(3), as modified and applied to LLPs by SI 2008/1911, reg 12A. CA 2006, s 414C(1)–(2), as modified and applied to LLPs by SI 2008/1911, reg 12A. CA 2006, s 414C(3)–(5), as modified and applied to LLPs by SI 2008/1911, reg 12A. CA 2006, s 414D(1), as modified and applied to LLPs by SI 2008/1911, reg 12A. CA 2006, s 414A(4)–(5) and 414D(2)–(3), as modified and applied to LLPs by SI 2008/1911, reg 12A. CA 2006, s 463, as modified and applied to LLPs by SI 2008/1911, reg 24A. CA 2006, s 415(1), as modified and applied to LLPs by SI 2008/1911, reg 12B.

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an LLP’s greenhouse gas emissions, energy consumption and steps taken to achieve energy efficiency.97 Where group accounts are prepared, the report must be prepared by the parent entity, and the report must be a consolidated report relating to all of the members of the group.98 The test for exemption is expressed in terms that mirror the test for a medium-sized LLP, and accordingly the obligation is one that only applies to large LLPs. The same civil liability attaches to a member responsible for an untrue or misleading statement in an energy and carbon report as applies in the case of such a statement in a strategic report.99 21.23 The Accounts Regulations do not adopt the requirements contained in the Companies Act with respect to the preparation of a directors’ report. Formerly, the SORP for LLPs provided for the annual accounts to include a ‘report to the members’ (the Members’ Report), though this requirement was removed with effect from January 2015, following complaints that the SORP was thereby ‘gold plating’ the regulations. Nevertheless, matters that might otherwise have been set out in a Members’ Report still need to be disclosed in the financial statements themselves, and a Members’ Report may therefore provide a suitable vehicle for such disclosure. In particular, the following information is required to be included in the accounts:100 (a) the principal activities of the LLP and its subsidiary undertakings, indicating any significant changes during the year; (b) an indication of the existence of any branches outside the UK; (c) the identity of anyone who was a designated member during the year; and (d) the policy of the LLP regarding members’ drawings and the subscription and repayment of amounts subscribed or otherwise contributed by members.

Micro-entity LLPs 21.24 Micro-entity accounts contain significantly less information than those prepared under the small LLP regime, though the requirements are also much less flexible. Micro-entity accounts are prepared with a simplified balance sheet (in either of the two formats permitted by the Small Accounts Regulations) and profit and loss account.101 No notes to the accounts are required, other than details of financial commitments, guarantees and contingencies102 and the matters specifically required by CA 2006, relating to off-balance-sheet arrangements and the average number of employee, addressed at 21.18. These are the ‘minimum accounting items’ that are required for micro-entity accounts,103 and which are presumed to give the true and fair view required by CA 2006, s 396(2).104 The alternative accounting rules and fair value accounting principles that apply to other methods of accounting, and which allow some flexibility in terms of how assets are valued etc, do not apply to LLPs 97 98 99 100 101 102 103 104

SI 2008/410, Sch 7, paras 20A–20K, by way of CA 2006, s 416(2), as modified and applied to LLPs by SI 2008/1911, reg 12B. CA 2006, s 415(2)–(5), as modified and applied to LLPs by SI 2008/1911, reg 12B. CA 2006, s 463, as modified and applied to LLPs by SI 2008/1911, reg 24A. SORP paras 30–31. SI 2008/1912, Sch 1, Part 1, section C. SI 2008/1912, para 5A and Sch 1, Part 3, para 55. CA 2006, s 474, as modified and applied to LLPs by SI 2008/1911, reg 32. CA 2006, s 396(2A), as modified and applied to LLPs by SI 2008/1911, reg 9.

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adopting the micro-entity regime,105 with the result that items may appear in the accounts on a different basis than they would under other regimes.

Dormant subsidiary LLPs 21.25 In respect of any year in which an LLP (a) is a subsidiary undertaking of a parent undertaking106 established under the law of any part of the UK, and (b) has been dormant throughout the whole of that year, it is exempt from the requirement to prepare107 or to file108 individual accounts. The circumstances for exemption arise in relation to a financial year where, for that year: (a) all of its members agree to the exemption;109 (b) the parent undertaking gives a statutory guarantee of the debts and liabilities to which the subsidiary LLP is subject as at the last day of the financial year in which the subsidiary LLP is seeking exemption;110 (c) it is included in consolidated accounts prepared by the parent undertaking;111 (d) documentary evidence in support of the matters set out above is delivered to the Registrar on or before the deadline for filing the LLP’s annual accounts;112 and (e) it was not, at any time within the financial year in question, any of the following: (i) a traded LLP, (ii) an authorised insurance company, a banking LLP, an e-money issuer, a MiFID investment firm or UCITS management company, or an LLP that carries on insurance market activity,113 or (iii) an employers’ association as defined in the Trade Union and Labour Relations (Consolidation) Act 1992.114

GROUP ACCOUNTS 21.26 Subject to certain exemptions (for instance, where the LLP is itself a wholly-owned subsidiary undertaking and certain conditions are met,115 or in most 105 106

107 108 109 110

111

112 113 114 115

SI 2008/1912, para 3(1A). An ‘undertaking’ is (a) a body corporate or partnership, or (b) an unincorporated association carrying on a trade or business, with or without a view to profit: CA 2006, s 1161(1). As to the meaning of ‘parent’ and ‘subsidiary’ undertaking, see CA 2006, s 1162 (together with Sch 7), as modified and applied to LLPs by SI 2008/1911, reg 52. CA 2006, s 394A(1), as modified and applied to LLPs by SI 2008/1911, reg 9. CA 2006, s 448A(1), as modified and applied to LLPs by SI 2008/1911, reg 19A. CA 2006, s 394A(2)(a) (preparation) and s 448A(2)(a) (filing), as modified and applied to LLPs by SI 2008/1911, regs 9 and 19A. CA 2006, s 394A(2)(b) (preparation) and s 448A(2)(b) (filing), as modified and applied to LLPs by SI 2008/1911, regs 9 and 19A. Requirements as to the form of undertaking are set out in CA 2006, ss 394C and 448C, as modified and applied to LLPs by SI 2008/1911, regs 9 and 19A. CA 2006, ss 394A(2)(c)–(d) (preparation) and 448A(2)(c)–(d) (filing), as modified and applied to LLPs by SI 2008/1911, regs 9 and 19A. These provisions contain certain technical requirements as to the parent undertaking’s accounts. CA 2006, ss 394A(2)(e) (preparation) and 448(2)(e) (filing), as modified and applied to LLPs by SI 2008/1911, regs 9 and 19A. As to the meaning of these terms, see fns 54 and 55 above. CA 2006, ss 394B (preparation) and 448B (filing), as modified and applied to LLPs by SI 2008/1911, regs 9 and 19A. CA 2006, s 399(3) and ss 400–402, as modified and applied to LLPs by SI 2008/1911, reg 10.

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cases where the LLP is subject to the small LLP regime), if at the end of a financial year an LLP is a ‘parent LLP’,116 the members are obliged to prepare group accounts for the LLP and its subsidiaries, in addition to the LLP’s individual accounts for the year.117 Similarly to an LLP’s individual accounts, the group accounts of a parent LLP may be prepared either in accordance with international accounting standards (‘IAS group accounts’) or as non-IAS group accounts.118

IAS group accounts 21.27 Once an LLP has adopted international accounting standards for its group accounts for a financial year, all subsequent group accounts of the LLP for the following five years must be in accordance with UK-adopted IAS unless there is a ‘relevant change of circumstance’, namely unless at any time during or after the first IAS year (a) the LLP becomes a subsidiary undertaking of another undertaking that does not prepare IAS group accounts, (b) the LLP ceases to be an LLP with securities admitted to trading on a UK regulated market, or (c) a parent undertaking of the LLP ceases to be an undertaking with securities admitted to trading on a UK regulated market.119 As with an LLP’s individual accounts, where group accounts are prepared in accordance with IAS, those accounts must state the part of the UK in which the LLP is registered, the LLP’s registered number and the address of its registered office and, where it is in liquidation, the fact that it is being wound up. The notes to the accounts must also state that the accounts have been prepared in accordance with UK-adopted IAS.120 21.28 Where IAS group accounts are prepared, the individual accounts of each of the subsidiary undertakings that is itself required to have individual accounts prepared under the CA 2006 must be prepared using the same financial reporting framework as each other (except to the extent that in the opinion of the members of the parent LLP there are good reasons for not doing so); but the individual accounts of the parent LLP, if also prepared in accordance with IAS, need not be prepared using the same financial reporting framework as the individual accounts of its subsidiaries.121

116

117

118 119

120 121

A ‘parent LLP’ is an LLP that is a parent undertaking: CA 2006, s 1173(1), as modified and applied to LLPs by SI 2008/1911, reg 55. An ‘undertaking’ is (a) a body corporate or partnership, or (b) an unincorporated association carrying on a trade or business, with or without a view to profit; CA 2006, s 1161(1), as modified and applied to LLPs by SI 2008/1911, reg 52. As to the meaning of ‘parent’ and ‘subsidiary’ undertaking, see fn 106 above. ‘Wholly owned subsidiary’ has the meaning given in s 1159(2): see ss 474(1), as modified and applied to LLPs by SI 2008/1911, reg 32, and 1159(4) (as enacted for companies and all bodies corporate). CA 2006, s 399(2), as modified and applied to LLPs by SI 2008/1911, reg 10. If an exemption applies, so that there is no obligation to prepare group accounts, the members may nevertheless do so if they wish: CA 2006, s 399(4), as modified and applied to LLPs by SI 2008/1911, reg 10. CA 2006, s 403(1), as modified and applied to LLPs by SI 2008/1911, reg 10. CA 2006, s 403(3) and (3A), as modified and applied to LLPs by SI 2008/1911, reg 10. If, having changed to preparing non-IAS group accounts following a relevant change of circumstance, the members again prepare IAS group accounts for the LLP, a change back again to non-IAS group accounts within five years requires a ‘relevant change of circumstance’ again as above: s 403(4), as modified and applied to LLPs by SI 2008/1911, reg 10. CA 2006, s 406, as modified and applied to LLPs by SI 2008/1911, reg 10. CA 2006, s 407, as modified and applied to LLPs by SI 2008/1911, reg 10.

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Non-IAS group accounts 21.29 Non-IAS group accounts must state the part of the UK in which the parent LLP is registered, the LLP’s registered number and the address of its registered office and, where it is in liquidation, the fact that it is being wound up. The accounts must also comprise (a) a consolidated balance sheet dealing with the state of affairs of the parent LLP and its subsidiary undertakings, and (b) a consolidated profit and loss account dealing with the profit and loss of the parent LLP and its subsidiary undertakings.122 These consolidated accounts must give a true and fair view of the state of affairs as at the end of the financial year, and of the profit or loss for the financial year, of the undertakings included in the consolidation as a whole, so far as concerns members of the LLP.123 Subject to the overriding obligation to present a true and fair view of the position, and as in the case of individual accounts, group accounts must comply with the provisions of either the Small Accounts Regulations or the Large and Medium Accounts Regulations as to the form and content of the consolidated balance sheet and the consolidated profit and loss account, and as to additional information to be provided by way of notes to the accounts.124 21.30 With a view to ensuring that group accounts meet the overriding obligation of presenting a true and fair view, there are similar requirements in relation to group accounts as to additional information and departure from the statutory provisions as are set out at 21.13(a) and (b) in relation to individual accounts.125 All of the subsidiary undertakings of the LLP must be included in the consolidation, save that (and subject to compliance with accounting standards) a subsidiary undertaking may be excluded (i) if its inclusion is not material for the purpose of a true and fair view,126 (ii) where severe long-term restrictions substantially hinder the exercise of the rights of the parent LLP over the assets or management of the undertaking, (iii) extremely rare circumstances mean that the information necessary for the preparation of group accounts cannot be obtained without disproportionate expense or undue delay, or (iv) the interest of the parent LLP is held exclusively with a view to subsequent resale.127

AUDIT AND AUDITORS’ REPORT 21.31 Unless the LLP is exempt from audit as a qualifying small, subsidiary or dormant LLP,128 the annual accounts of an LLP (ie its individual accounts and any group accounts, and whether IAS or non-IAS)129 must be audited; and the auditors

122 123 124 125 126 127 128 129

CA 2006, s 404(1), as modified and applied to LLPs by SI 2008/1911, reg 10. CA 2006, s 404(2), as modified and applied to LLPs by SI 2008/1911, reg 10. CA 2006, s 404, as modified and applied to LLPs by SI 2008/1911, reg 10. There are similar provisions in subs (4) and (5) of s 404 to subs (4) and (5) of s 396, set out at 21.13(a) and (b). CA 2006, s 404(4) and (5), as modified and applied to LLPs by SI 2008/1911, reg 10. But two or more undertakings may be excluded only if they are not material taken together. CA 2006, s 405, as modified and applied to LLPs by SI 2008/1911, reg 10. CA 2006, s 475, as modified and applied to LLPs by SI 2008/1911, reg 33. Exemptions from audit for small, subsidiary and dormant LLPs are considered at 21.51–21.54. CA 2006, s 471, as modified and applied to LLPs by SI 2008/1911, reg 29.

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are to make a report on the accounts to the members.130 This report must include the identity of the LLP whose annual accounts are the subject of the audit, a description of the accounts including the period that they cover, a description of the financial reporting framework that has been applied in their preparation (ie IAS or non-IAS), and also a description of the scope of the audit identifying the auditing standards in accordance with which the audit was conducted.131 The report must, further, state clearly whether in the auditor’s opinion the accounts: (a) give a true and fair view (i) in the case of an individual balance sheet, of the state of affairs of the LLP as at the end of the financial year, (ii) in the case of an individual profit and loss account, of the profit or loss of the LLP for the financial year, and (iii) in the case of group accounts, of the state of affairs as at the end of the financial year, and of the profit or loss for the financial year, of the undertakings included in the consolidation as a whole, so far as concerns members of the LLP;132 (b) have been properly prepared in accordance with the relevant financial reporting framework; and (c) have been prepared in accordance with the requirements of the CA 2006.133 The report must be either unqualified or qualified, and must include a reference to any matters to which the auditors wish to draw attention by way of emphasis without qualifying the report.134 21.32 In preparing their report, the auditors are to carry out such investigations as will enable them to form an opinion as to (i) whether adequate accounting records have been kept by the LLP, and returns adequate for their audit have been received from branches not visited by them, and (ii) whether the LLP’s accounts are in agreement with the accounting records and returns.135 If the auditors (or, where there is more than one auditor appointed, any of the them) are of the opinion that adequate accounting records have not been kept, or that returns adequate for their audit have not been received from branches not visited by them, or that the LLP’s accounts are not in agreement with the accounting records and returns, that fact is to be stated in their report.136 21.33 The auditors have a right of access at all times to the LLP’s books, accounts and vouchers (in whatever form they are held), and are entitled to require such

130 131 132

133 134 135 136

CA 2006, s 495(1), as modified and applied to LLPs by SI 2008/1911, reg 39. CA 2006, s 495(2), as modified and applied to LLPs by SI 2008/1911, reg 39. In the case of an LLP which qualifies as a micro-entity, the micro-entity minimum accounting items are presumed to give a true and fair view: CA 2006, s 396(2A), as modified and applied to LLPs by SI 2008/1911, reg 9. However, the auditor must have regard to any provision of an accounting standard relevant to any item of information in the accounts that is additional to the micro-entity minimum accounting items: CA 2006, s 495(3A)–(3B), as modified and applied to LLPs by SI 2008/1911, reg 39. As to the micro-entity minimum accounting items, see 21.24. CA 2006, s 495(3), as modified and applied to LLPs by SI 2008/1911, reg 39. CA 2006, s 495(4), as modified and applied to LLPs by SI 2008/1911, reg 39. CA 2006, s 498(1), as modified and applied to LLPs by SI 2008/1911, reg 40. CA 2006, s 498(2), as modified and applied to LLPs by SI 2008/1911, reg 40.

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information or explanations as they think necessary for the performance of their duties as auditors to be provided to them from (a) any member or employee of the LLP, (b) any person holding or accountable for any of the LLP’s books, accounts or vouchers, (c) any subsidiary undertaking of the LLP which is a body corporate incorporated in the UK, (d) any officer, employee or auditor of any such subsidiary undertaking or any person holding or accountable for any books, accounts or vouchers of any such subsidiary undertaking or (e) any person who fell within (a) to (d) above at a time to which the information or explanations required by the auditors relate or relates.137 21.34 A person listed in 21.33 who fails to comply with a requirement for information or explanations from the auditors without delay commits an offence, unless it was not reasonably practicable for him to provide the required information or explanations.138 If a person knowingly or recklessly makes to the auditors a statement (whether written or oral) which conveys or purports to convey any information or explanations which the auditors require, or are entitled to require as auditors, and which is misleading, false or deceptive in a material particular, he is guilty of an offence leading to liability to imprisonment or a fine, or both.139 Where a parent LLP has a subsidiary undertaking that is not a body corporate incorporated in the UK, the auditors of the parent LLP may require it to obtain such information or explanations as they may reasonably require for the purposes of their duties as auditors from any of (a) the undertaking, (b) any officer, employee or auditor of the undertaking, (c) any person holding or accountable for any of the undertaking’s books, accounts or vouchers, and (d) any person who fell within (b) or (c) above at a time to which the information or explanations relates or relate.140 If so required, the parent LLP must take all such steps as are reasonably open to it to obtain the information or explanations from the person concerned.141 If a parent LLP fails to comply with a requirement from the auditors, an offence is committed by the LLP and by every member of the LLP who is in default.142 A statement made by any of the persons mentioned in this paragraph in response to a requirement from the auditors may not be used in evidence against him in criminal proceedings except proceedings for an offence as mentioned above.143 It is also the position that a person cannot be compelled to disclose information in respect of which a claim to legal professional privilege could be maintained in legal proceedings.144 21.35 If it be the case that the auditors have failed to obtain all the information and explanations which, to the best of their knowledge and belief, are necessary for

137 138 139 140 141 142

143 144

CA 2006, s 499(1) and (2), as modified and applied to LLPs by SI 2008/1911, reg 40. CA 2006, s 501(3), as modified and applied to LLPs by SI 2008/1911, reg 40. The penalty is a fine on summary conviction: s 501(5). CA 2006, s 501(1) and (2), as modified and applied to LLPs by SI 2008/1911, reg 40. CA 2006, s 500(1) and (2), as modified and applied to LLPs by SI 2008/1911, reg 40. CA 2006, s 500(1)–(3), as modified and applied to LLPs by SI 2008/1911, reg 40. CA 2006, s 501(4), as modified and applied to LLPs by SI 2008/1911, reg 40. The penalty is a fine on summary conviction: s 501(5). As to the meaning of ‘in default’ for the purposes of these provisions, see 22.29. CA 2006, ss 499(3) and 500(4), as modified and applied to LLPs by SI 2008/1911, reg 40. CA 2006, ss 499(4) and 500(5), as modified and applied to LLPs by SI 2008/1911, reg 40.

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the purpose of their audit, this fact is to be stated in their report.145 If the members have prepared accounts in accordance with the small LLP regime, and in the auditors’ opinion they were not entitled to do so, the auditors are to state that fact in their report.146 Where there is more than one auditor appointed, the report must state whether these facts are agreed, and must include the opinions of any auditor who is not in agreement, giving the reason for any disagreement.147 21.36 In the case of an LLP within the medium-sized regime, there is to be stated in a note to the accounts the amount of the auditors’ remuneration for the auditing of those accounts, including, where the remuneration includes benefits in kind, the nature and estimated money-value of those benefits. In the case of larger LLPs, the note must provide this information, as well as stating any remuneration receivable by any associate of the auditors, and must additionally state any remuneration (including the nature and estimated money-value of any benefits in kind) receivable by the auditors (or by an associate of them) for the supply of other services to the LLP or any associate of it in respect of the period being audited.148 21.37 The auditors’ report is to state the name of the auditors and is to be signed by them and dated.149 Where the auditors are an individual, the report must be signed by that individual. Where the auditors are a firm, the report must be signed by the senior statutory auditor in his own name, for and on behalf of the auditors.150 The senior statutory auditor is the individual identified in accordance with CA 2006, s 504.151 Every copy of the auditors’ report that is, by or on behalf of the LLP, published, issued or circulated, or otherwise made available for public inspection, in a manner calculated to invite members of the public generally, or any class of members of the public, to read it, must (a) state the name of the auditors and, where the auditors are a firm, the name of the person who signed it as senior statutory auditor, or (b) if the conditions contained in CA 2006, s 506 for omission of the relevant name are met, state that a determination has been made and notified to the Secretary of State in accordance with that section.152

145 146 147 148

149 150

151

152

CA 2006, s 498(3), as modified and applied to LLPs by SI 2008/1911, reg 40. CA 2006, s 498(4), as modified and applied to LLPs by SI 2008/1911, reg 40. CA 2006, s 498(5), as modified and applied to LLPs by SI 2008/1911, reg 40. CA 2006, s 494, as modified and applied to LLPs by SI 2008/1911, reg 38, together with the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008, SI 2008/489. Part 3 of these Regulations, requiring disclosure of liability limitation agreements between a company and its auditor, is not applied to LLPs: see CA 2006, s 494, as modified by SI 2008/1911, reg 38. CA 2006, s 503(1), as modified and applied to LLPs by SI 2008/1911, reg 41. CA 2006, s 503(2) and (3), as modified and applied to LLPs by SI 2008/1911, reg 41. A ‘firm’ is ‘any entity, whether or not a legal person, that is not an individual and includes a body corporate, a corporation sole and a partnership or other unincorporated association’: CA 2006, s 1173, as modified and applied to LLPs by SI 2008/1911, reg 55. As to the possibility of auditors entering into liability limitation agreements, see 22.34. As modified and applied to LLPs by SI 2008/1911, reg 41. He is not, by reason of being named or identified as senior statutory auditor or by reason of having signed the report, subject to any civil liability to which he would not otherwise be subject: s 504(3), as modified and applied to LLPs by SI 2008/1911, reg 41. CA 2006, s 505(1) and (2), as modified and applied to LLPs by SI 2008/1911, reg 41. If a copy of the report is circulated, published or issued without the auditor’s name being stated (and omission

Accounts and Audit

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APPROVAL OF THE ANNUAL ACCOUNTS 21.38 The LLP’s annual accounts (whether individual accounts or group accounts, and whether IAS or non-IAS accounts) are to be approved by the members and signed on behalf of all of them by a designated member.153 The signature is to be on the balance sheet;154 and every copy of the balance sheet that is circulated, published or issued is to state the name of the person who signed it on behalf of the members.155 The accounts are not to be approved by the members unless the members are satisfied that the accounts give a true and fair view of the assets, liabilities, financial position and profit or loss of the LLP or group.156 If annual accounts are approved which do not comply with the requirements of the CA 2006, every member who knows that they do not comply, or is reckless as to whether they comply, and fails to take reasonable steps to secure compliance with those requirements or, as the case may be, to prevent the accounts from being approved, is guilty of an offence and liable to a fine.157

FILING ACCOUNTS WITH THE REGISTRAR 21.39 A copy of the annual accounts in respect of each financial year, together with the auditors’ report on those accounts (save where the LLP is exempt from audit and the members have taken advantage of the exemption) and the energy and carbon and strategic reports (where required),158 must be delivered to the Registrar.159 The accounts for a financial year which an LLP is required to deliver to the Registrar are the LLP’s ‘statutory accounts’.160 21.40 The copy of the balance sheet that is delivered to the Registrar must state the name of the person who signed it on behalf of the members;161 and the copy has not been permitted under s 506), the LLP and every designated member of it who is in default is guilty of an offence and liable to a fine: CA 2006, s 505(3), as modified and applied to LLPs by SI 2008/1911, reg 41. As to the meaning of ‘in default’ for the purposes of these provisions, see 22.29. The conditions for omission of the auditor’s name are discussed at 22.15. 153 CA 2006, s 414(1), as modified and applied to LLPs by SI 2008/1911, reg 12. As to the possibility of delegation by the members of approval of the accounts, see 17.22. 154 CA 2006, s 414(2), as modified and applied to LLPs by SI 2008/1911, reg 12. 155 CA 2006, s 433(1), as modified and applied to LLPs by SI 2008/1911, reg 16. Any energy and carbon report that is published must also be similarly signed. If a copy of the balance sheet or energy and carbon report is published, etc without the required statement of the signatory’s name, the LLP itself and every member of it who is in default commits an offence and is liable to a fine: CA 2006, s 433(2)–(3). As to the meaning of ‘in default’ for the purposes of these provisions, see 22.29. 156 CA 2006, s 393, as modified and applied to LLPs by SI 2008/1911, reg 8. 157 CA 2006, s 414(4) and (5), as modified and applied to LLPs by SI 2008/1911, reg 12. 158 See 21.22. 159 CA 2006, s 441 with s 444 (LLPs within the small LLPs or micro-entity regime) or s 445 (medium-sized LLPs) or s 446 (other LLPs), as modified and applied to LLPs by SI 2008/1911, regs 17–19. The duty of delivering the accounts is on the designated members of the LLP: see further 21.42. 160 CA 2006, s 434(3), as modified and applied to LLPs by SI 2008/1911, reg 16. 161 CA 2006, s 444(6) (small LLPs) or 445(5) (medium-sized LLPs) or 446(3) (other LLPs), as modified and applied to LLPs by SI 2008/1911, regs 17–19. For the sanction for contravention, see 21.43.

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of the auditors’ report must state the name of the auditors and (where the auditors are a firm) the name of the person who signed it as senior statutory auditor or, if the conditions in CA 2006, s 506 for omitting their name have been met,162 must state that a determination has been made and notified to the Secretary of State in accordance with s 506.163 21.41 The period allowed for delivering the statutory accounts and any required reports to the Registrar is nine months after the end of the relevant financial year,164 save that: (a) if the relevant financial year is the LLP’s first accounting reference period and is a period of more than 12 months, the period allowed is whichever is the longer of nine months from the first anniversary of the incorporation of the LLP or three months from the end of the accounting reference period;165 (b) if the LLP shortens its financial year (ie by notice under CA 2006, s 392),166 the period for delivering the accounts and report is whichever is the longer of the period applicable under what has been said above or three months from the date of the notice of the shortening;167 and (d) the Secretary of State may in any case by notice in writing to the LLP extend the period by such further period for up to 12 months from the end of the relevant accounting period if for any special reason he thinks fit to do so on an application made to him before the expiry of the period otherwise allowed.168 21.42 If the accounts and required reports are not delivered to the Registrar within the relevant period, every person who was a designated member of the LLP immediately before the end of the financial year in question is guilty of an offence and liable to a fine (and for continued contravention, to a daily fine).169 It is a defence for a designated member charged with such an offence to prove that he took all reasonable steps for securing that the accounts and report would be delivered within time.170 If the accounts and required reports have not been filed within the relevant period, and a notice is served on the designated members by any member or creditor of the LLP, or the Registrar,171 requiring compliance with the statutory provisions, and the designated members fail to make good the default within 14 days after the service of a notice on them, the court may, on the application of any member or creditor, or the Registrar, make an order directing the designated

162

These conditions are considered at 22.15. CA 2006, s 444(7) (small LLPs) or 445(6) (medium-sized LLPs) or 446(4) (other LLPs), as modified and applied to LLPs by SI 2008/1911, regs 17–19. 164 CA 2006, s 442, as modified and applied to LLPs by SI 2008/1911, reg 17. 165 CA 2006, s 442(3), as modified and applied to LLPs by SI 2008/1911, reg 17. 166 See 21.7(4) and 21.7(6). 167 CA 2006, s 442(4), as modified and applied to LLPs by SI 2008/1911, reg 17. 168 CA 2006, s 442(5)–(5A), as modified and applied to LLPs by SI 2008/1911, reg 17. Rules for calculating the above periods are set out in CA 2006, s 443, as modified and applied to LLPs by SI 2008/1911, reg 17. 169 CA 2006, s 451, as modified and applied to LLPs by SI 2008/1911, reg 22. 170 CA 2006, s 451(2), as modified and applied to LLPs by SI 2008/1911, reg 22. But it is not a defence for a designated member to prove that the accounts and report were not, in fact, prepared as required by the Act: CA 2006, s 451(3), as modified and applied to LLPs by SI 2008/1911, reg 22. 171 CA 2006, s 452(1), as modified and applied to LLPs by SI 2008/1911, reg 22, appears to assume that any of these may serve a notice. 163

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members (or any of them) to make good the default within such time as may be specified in the order.172 21.43 In addition to liability of the designated members as set out in 21.42 for failure to deliver the annual accounts and required reports within the permitted time, if the accounts and reports are not delivered within such time, the LLP itself is automatically liable to a civil penalty (recoverable by the Registrar and to be paid by him into the Consolidated Fund). The amount of the penalty is to be determined by reference to the length of the period between the end of the period allowed for delivering the accounts and report and the day on which they are delivered, as follows:173 Length of period Not more than one month More than one month but not more than 3 months More than 3 months but not more than 6 months More than 6 months

Penalty £150 £375 £750 £1,500

If there was a failure to comply with filing requirements in relation to the previous financial year of the LLP, the penalty is double the above figures.174 Similarly to the position for designated members, it is not a defence for the LLP to prove that the accounts and report in question were not in fact prepared as required by the CA 2006.175

Filing derogation for small LLPs 21.44 Where a qualifying small LLP (including a micro-entity) prepares non-IAS accounts, it is permitted to meet its filing obligations by delivering to the Registrar (and so having its statutory accounts in the public domain) a balance sheet only. The filing of a profit and loss account is therefore optional, although, if one is filed, any required auditors’ report must also be filed.176 If the LLP does choose to exercise this right not to file a profit and loss account, the copy of the balance sheet filed with the Registrar must contain, in a prominent position, a statement that the LLP’s annual accounts have been delivered to the Registrar in accordance with the provisions applicable to LLPs subject to the small LLP regime.177 The balance

172

CA 2006, s 452, as modified and applied to LLPs by SI 2008/1911, reg 22. The court’s order may provide that all costs of and incidental to the application are to be borne by the members (ie not simply the designated members): ibid. 173 CA 2006, s 453, as modified and applied to LLPs by SI 2008/1911, reg 22, together with Companies (Late Filing Penalties) and Limited Liability Partnerships (Filing Periods and Late Filing Penalties) Regulations 2008 (SI 2008/497), reg 4(2) and (3). The Registrar has only a limited discretion as to whether or not to pursue recovery of the penalty: see R (POW Trust) v Chief Executive and Registrar of Companies [2003] 2 BCLC 295 at [14]. 174 Ibid. 175 CA 2006, s 453(4), as modified and applied to LLPs by SI 2008/1911, reg 22. 176 CA 2006, s 444(1)–(2), as modified and applied to LLPs by SI 2008/1911, reg 17. 177 CA 2006, s 444(1)(b) and (5), as modified and applied to LLPs by SI 2008/1911, reg 17.

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sheet filed with the Registrar must state the name of the person who signed it on behalf of the members.178

CIRCULATION AND PUBLICATION OF ACCOUNTS 21.45 A copy of the LLP’s annual accounts (together with a copy of the auditors’ report on those accounts and any energy and carbon report) is to be sent to every member of the LLP, and also to every holder of any debentures issued by the LLP, not later than the end of the period for the filing of the accounts or, if earlier, the date on which the accounts are actually delivered to the Registrar.179 Where copies are sent out over a period of days, the day on which copies are sent out means the last day of that period.180 In addition to the above entitlement to receive copies of the accounts, a member of the LLP and any holder of the LLP’s debentures is entitled to be provided, on demand and without charge, with a copy (ie single copy) of the LLP’s last annual accounts and the auditors’ report on those accounts.181 If a demand made in exercise of this entitlement is not complied with within seven days, the LLP and every member who is in default is guilty of an offence and liable to a fine (and, for continued contravention, to a daily default fine).182 21.46 If an LLP publishes any of its statutory accounts,183 they must be accompanied by the relevant auditors’ report (unless the LLP is exempt from audit and advantage has been taken of this exemption).184 An LLP which publishes non-statutory accounts185 for any financial year must publish with them a statement indicating:

178 179

180 181

182 183 184

185

CA 2006, s 444(6), as modified and applied to LLPs by SI 2008/1911, reg 17. CA 2006, s 423(1), as modified and applied to LLPs by SI 2008/1911, reg 13. Copies need not be sent to a person for whom the LLP does not have a current address, namely an address which the person has notified to the LLP as one at which documents may be sent to him and where the LLP has no reason to believe that documents sent to him will not reach him: see s 423(2) and (3). If default is made in the sending out of copies of the accounts (and auditor’s report), the LLP and every member of it who is in default is guilty of an offence and liable to a fine: CA 2006, s 425, as modified and applied to LLPs by SI 2008/1911, reg 14. As to the meaning of ‘in default’ for the purposes of these provisions, see 22.29. CA 2006, s 423(4), as modified and applied to LLPs by SI 2008/1911, reg 13. CA 2006, s 431(1) and (2), as modified and applied to LLPs by SI 2008/1911, reg 15. If the request is for a copy in hard copy form, such a copy is to be provided: see, as to hard copies and electronic form copies being requested, Part 4 of the Companies (Company Records) Regulations 2008 (SI 2008/3006), and CA 2006, ss 1134 and 1137, as modified and applied to LLPs by SI 2009/1804, reg 74. CA 2006, s 431(3) and (4), as modified and applied to LLPs by SI 2008/1911, reg 15. Ie the accounts for a financial year required to be filed with the Registrar under CA 2006, s 441, as modified and applied to LLPs by SI 2008/1911, reg 17: see 21.39. CA 2006, s 434(1), as modified and applied to LLPs by SI 2008/1911, reg 16. The sanction for breach is liability to a fine for the LLP and for every member who is in default: CA 2006, s 434(4)–(5). As to the meaning of ‘in default’ for the purposes of these provisions, see 22.29. ‘Publishing’ here means publishing, issuing or circulating or otherwise making available for public inspection in a manner calculated to invite members of the public generally, or any class of members of the public, to read it: CA 2006, s 436, as modified and applied to LLPs by SI 2008/1911, reg 16. Ie any balance sheet or profit and loss account relating to, or purporting to deal with, a financial year of the LLP, or an account in any form purporting to be a balance sheet or profit and loss

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(a) that they are not the statutory accounts; (b) whether statutory accounts dealing with the financial year in question have been delivered to the Registrar; (c) whether there is an auditors’ report on the statutory accounts for the year, and if so, whether the report was qualified or unqualified, or included a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, or contained a statement under CA 2006, 498(2) (accounting records or returns inadequate or accounts not agreeing with records and returns), or s 498(3) (failure to obtain necessary information and explanations).186 The LLP must not publish with the non-statutory accounts any auditors’ report on the statutory accounts.187

REVISION OF ACCOUNTS AND REPORTS 21.47 If it appears to the members of the LLP that any annual accounts did not comply with the requirements of the CA 2006 (ie the accounts do not give a true and fair view of the LLP’s position), the members may prepare revised accounts.188 Where copies of the (non-complying) accounts have already been sent out to members or delivered to the Registrar as the statutory accounts, the revisions are to be confined to the correction of those respects in which the accounts did not comply with the requirements of the Act, and to the making of any necessary consequential alterations.189 Revised accounts are to be prepared as at the date of the original (defective) accounts, and must be approved by the members (and signed by a designated member), after an auditors’ report on them, in the same way as the original accounts.190 On the revised accounts being approved, the provisions of the CA 2006 (eg as to filing with the Registrar under CA 2006, s 441,191 and circulating copies to members and debenture holders under CA 2006, s 423)192 have effect as if the revised accounts were, as from the date of their approval, the annual accounts of the LLP in place of the original accounts.193 Where copies of the previous (defective) accounts have been filed with the Registrar, or have been circulated under CA 2006, s 423, the members must, before approving the revised accounts, cause certain statements as to the revisions to be placed in a prominent position in the revised accounts and must, when approving the revised accounts, cause the date on which

186

187

188

189 190 191 192 193

account for a group headed by the LLP relating to, or purporting to deal with, a financial year of the LLP, otherwise than as part of the LLP’s statutory accounts: CA 2006, s 435(3), as modified and applied to LLPs by SI 2008/1911, reg 16. CA 2006, s 435(1), as modified and applied to LLPs by SI 2008/1911, reg 16. The sanction for breach is the same as for publishing statutory accounts without the relevant auditor’s report: CA 2006, s 435(5). CA 2006, s 435(2), as modified and applied to LLPs by SI 2008/1911, reg 16. The sanction for breach is the same as for publishing statutory accounts without the relevant auditor’s report: CA 2006, s 435(5). CA 2006, s 454(1), as modified and applied to LLPs by SI 2008/1911, reg 23 together with the Companies (Revision of Defective Accounts and Reports) Regulations 2008 (SI 2008/373), applied to LLPs by the modified s 454(3). CA 2006, s 454(2), as modified and applied to LLPs by SI 2008/1911, reg 23. Regs 4 and 7 of SI 2008/373 referred to in fn 188 above. As modified and applied to LLPs by SI 2008/1911, reg 17. See 21.39. As modified and applied to LLPs by SI 2008/1911, reg 13. See 21.45. Regulation 10 of SI 2008/373 referred to in fn 188 above. Where copies of the original accounts were circulated under CA 2006, s 423, the period within which the revised accounts and report must be so circulated and filed is 28 days from the date of their approval by the members: reg 12.

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the approval is given to be stated in them.194 If the (original) accounts which have been filed with the Registrar do comply with the provisions of the CA 2006, there is no right for the members, nevertheless, to prepare revised accounts in order to take out extraneous or superfluous material subsequently discovered to be embarrassing in some way; and the court does not have any inherent jurisdiction to permit the filing of revised accounts beyond what is permitted by CA 2006, s 454.195 21.48 There is also power for the Secretary of State, where it appears to him that there is, or may be, a question whether the accounts (or revised accounts) filed with the Registrar comply with the requirements of the CA 2006, to give notice to the members of the LLP indicating the respects in which it appears that such a question arises or may arise, and specifying a period of not less than one month for the members to give an explanation of the accounts or prepare revised accounts.196 The Secretary of State’s sanction, if no satisfactory explanation is given or if revised accounts complying with the requirements of the CA 2006 are not prepared, is to apply to the court.197 The application will be for a declaration that the accounts in question do not comply with the requirements of the CA 2006, and for an order requiring the members of the LLP to prepare revised accounts.198 If the court makes such an order, it can also give consequential directions (including directions as to auditing, and the members bringing the making of the order to the notice of people likely to be relying on the previous, non-complying, accounts);199 and it can also, if it finds that the accounts did not comply with the CA 2006 (and whether or not it makes an order requiring revised accounts) order that all or any of the costs of the application, and of the reasonable expenses incurred by the LLP in connection with

194

195 196 197 198

199

Reg 4(2) of SI 2008/373 referred to in fn 188 above. In the case of a revision by replacement, the revised accounts must state (i) that the revised accounts replace the original annual accounts for the financial year (specifying it), (ii) that they are now the statutory accounts of the company for that financial year, (iii) that they have been prepared as at the date of the original annual accounts and not as at the date of revision and accordingly do not deal with events between those dates, (iv) the respects in which the original annual accounts did not comply with the requirements of the CA 2006, and (v) any significant amendments made consequential upon the remedying of those defects. In re a Company (No 007466 of 2003) [2004] 1 WLR 1357 (on CA 1985, s 245). CA 2006, s 455, as modified and applied to LLPs by SI 2008/1911, reg 23. CA 2006, s 455(4), as modified and applied to LLPs by SI 2008/1911, reg 23. CA 2006, s 456(1), as modified and applied to LLPs by SI 2008/1911, reg 23. An application for this relief can also be made by the Conduct Committee of the FRC: s 456(1). Notice of the application is to be given by the applicant to the Registrar: CA 2006, s 456(2). HM Revenue & Customs may disclose information to the Conduct Committee for the purpose of facilitating the Conduct Committee (i) taking steps to discover whether there are grounds for an application to the court under s 456 or (ii) deciding whether to make such an application: s 458(1). There are restrictions on the further use or disclosure of such information: s 458(3)–(6), as modified and applied to LLPs by SI 2008/1911, reg 24. The Conduct Committee can also, if it has suspicions as to whether an LLP’s accounts comply with the CA 2006, require information from the LLP, or any member, employee or auditor of it: s 459, as modified and applied to LLPs by SI 2008/1911, reg 24. There are restrictions on the further disclosure of any information so obtained by the Conduct Committee: ss 460–461, as modified and applied to LLPs by SI 2008/1911, reg 24. CA 2006, s 456(3), as modified and applied to LLPs by SI 2008/1911, reg 23.

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or in consequence of the preparation of revised accounts, be borne by all or some of the members who were party to the approval of the defective accounts.200 21.49 The above provisions apply equally to the revision of any energy and carbon report or strategic report that the LLP may be required to produce.201

ACCOUNTS IN EUROS 21.50 The amounts set out in the annual accounts may also be shown in the same accounts translated into euros.202 At the same time as the statutory accounts are filed with the Registrar, an additional copy of the accounts in which the amounts have been translated into euros may be filed. Whether euros are shown in the principal accounts, or there are separate euro accounts filed, the amounts must have been translated at the exchange rate prevailing on the date to which the balance sheet is made up, and the rate must be disclosed in the notes to the accounts.203 For the purposes of the provisions of the CA 2006 relating to the publication of statutory accounts, or non-statutory accounts, discussed in 21.46, an additional copy of the accounts in euros which has been filed with the Registrar is treated as statutory accounts of the LLP.204

EXEMPTIONS FROM AUDIT REQUIREMENTS 21.51 In certain circumstances, a small, subsidiary or dormant LLP is exempted from the requirement of the CA 2006 relating to the audit of its accounts.205

Small LLPs 21.52 For small LLPs (including micro-entities), the circumstances for exemption arise in relation to a financial year where, for that year: (a) (b)

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201 202 203 204 205 206

it qualifies as a small LLP in relation to that financial year;206 its balance sheet contains a statement by the members to the effect that (i) for the year in question, the LLP was entitled to the exemption, and (ii) the members

CA 2006, s 456(4) and (5), as modified and applied to LLPs by SI 2008/1911, reg 23. For this purpose, every member of the LLP at the time of the approval of the accounts is taken to have been a party to the approval unless he shows that he took all reasonable steps to prevent that approval: ibid. In making a costs order against members, the court is to have regard to whether the members party to the approval of the defective accounts knew or ought to have known that the accounts did not comply with the requirements of the CA 2006, and it may exclude one or more members from the order, or order the payment of different amounts by different members: s 456(5). Notice of the result of the application to the court is to be given to the Registrar by the applicant: s 456(6). CA 2006, ss 454–456, as modified and applied to LLPs by SI 2008/1911, reg 23. CA 2006, s 469(1), as modified and applied to LLPs by SI 2008/1911, reg 28. CA 2006, s 469(2)–(3), as modified and applied to LLPs by SI 2008/1911, reg 28. CA 2006, s 469(4), as modified and applied to LLPs by SI 2008/1911, reg 28. CA 2006, ss 477–481, as modified and applied to LLPs by SI 2008/1911, regs 34, 34A and 35. See CA 2006, s 477(1) and (4), as modified and applied to LLPs by SI 2008/1911, reg 34.

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acknowledge their responsibilities for complying with the requirements of the CA 2006 with respect to accounting records and the preparation of accounts;207 (c) it was not, at any time within the financial year in question, any of the following: (i) an LLP whose securities are admitted to trading on a UK regulated market,208 (ii) an authorised insurance company, a banking LLP, an e-money issuer, a MiFID investment firm or UCITS management company, or an LLP that carries on insurance market activity, or a pension master trust scheme funder,209 or (iii) an employers’ association as defined in the Trade Union and Labour Relations (Consolidation) Act 1992;210 and (d) if it was, during any part of the year, a group LLP (ie a parent or a subsidiary undertaking), either (i) the group itself meets certain conditions as to its size and eligibility, or (ii) throughout the whole of the period or periods during the year when it was a group LLP, it was both a subsidiary undertaking and dormant.211

Subsidiary LLPs 21.53 An LLP which is a subsidiary of a parent undertaking212 established under the law of any part of the UK is capable of being exempt from audit.213 For a subsidiary LLP, the circumstances for exemption arise in relation to a financial year where, for that year: (a) all its members agree to the exemption;214 (b) the parent undertaking gives a statutory guarantee of the debts and liabilities to which the subsidiary LLP is subject as at the last day of the financial year in which the subsidiary LLP is seeking exemption;215 (c) it is included in consolidated accounts prepared by the parent undertaking;216 (d) documentary evidence in support of the matters set out above is delivered to the Registrar on or before the deadline for filing the LLP’s annual accounts;217 and (e) it was not, at any time within the financial year in question, any of the following: (i) a traded LLP, (ii) an LLP that is an authorised insurance company, a banking LLP, an e-money issuer, a MiFID investment firm or UCITS management

207

208 209 210 211 212 213 214 215

216 217

CA 2006, s 475(2)–(3) and 477(5), as modified and applied to LLPs by SI 2008/1911, regs 33–34. The statement must appear on the balance sheet above the required signature of a designated member on behalf of all the members: s 475(4). Whether intentionally or not, this is not the same thing as a ‘traded LLP’ as defined by s 474(1): see fn 54 above. As to the meaning of these terms, see fns 54 and 55 above. CA 2006, s 478, as modified and applied to LLPs by SI 2008/1911, reg 34. CA 2006, s 479, as modified and applied to LLPs by SI 2008/1911, reg 34. As to the meaning of ‘undertaking’, ‘parent’ and ‘subsidiary’, see fn 106 above. CA 2006, s 479A(1), as modified and applied to LLPs by SI 2008/1911, reg 34A. CA 2006, s 479A(2)(a), as modified and applied to LLPs by SI 2008/1911, reg 34A. CA 2006, s 479A(2)(b), as modified and applied to LLPs by SI 2008/1911, reg 34A. Requirements as to the form of undertaking are set out in s 479C, as modified and applied to LLPs by SI 2008/1911, reg 34A. CA 2006, s 479A(2)(c)–(d), as modified and applied to LLPs by SI 2008/1911, reg 34A. These provisions contain certain technical requirements as to the parent undertaking’s accounts. CA 2006, s 479A(2)(e), as modified and applied to LLPs by SI 2008/1911, reg 34A.

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company, or an LLP that carries on insurance market activity, or a pension master trust scheme funder,218 or (iii) an employers’ association as defined in the Trade Union and Labour Relations (Consolidation) Act 1992.219

Dormant LLPs 21.54 An LLP is ‘dormant’ during any period in which it has no significant accounting transaction, that is to say any transaction that is required to be entered in its accounting records in accordance with CA 2006, s 386 (discussed in 21.3). In determining whether or when an LLP is dormant, there is to be disregarded any transaction consisting of the payment of a fee to the Registrar on a change of its name, a penalty for failure to file accounts or a fee to the Registrar for the registration of an annual return.220 For a dormant LLP, the circumstances for exemption arise in relation to a financial year where for that year: (a) it has been dormant since its foundation, or it has been dormant since the end of the previous financial year and (i) it is entitled to prepare accounts in accordance with the small LLP regime or would be so entitled but for having been a member of an ineligible group, and (ii) is not required to prepare group accounts;221 (b) its balance sheet contains a statement by the members to the effect that (i) for the year in question the LLP was entitled to the exemption, and (ii) the members acknowledge their responsibilities for complying with the requirements of the CA 2006 with respect to accounting records and the preparation of accounts;222 and (c) it was not, at any time within the financial year in question, any of the following: (i) a traded LLP, (ii) an LLP that is an authorised insurance company, a banking LLP, an e-money issuer, a MiFID investment firm or UCITS management company, or that carries on insurance market activity.223

218 219 220 221 222

223

As to the meaning of these terms, see fns 54 and 55 above. CA 2006, s 479B, as modified and applied to LLPs by SI 2008/1911, reg 34A. CA 2006, s 1169, as modified and applied to LLPs by SI 2008/1911, reg 53. CA 2006, s 480, as modified and applied to LLPs by SI 2008/1911, reg 35. CA 2006, ss 475(2)–(3) and 480(3), as modified and applied to LLPs by SI 2008/1911, regs 33 and 35. The statement must appear on the balance sheet above the required signature of a designated member on behalf of all the members: s 475(4). CA 2006, s 481, as modified and applied to LLPs by SI 2008/1911, reg 35. As to the meaning of these terms, see fns 54 and 55 above.

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Chapter 22 THE APPOINTMENT AND POSITION OF AUDITORS OF LLPs

INTRODUCTION 22.1 Every LLP, save for those small, subsidiary or dormant LLPs which qualify for exemption from audit requirements,1 must each financial year appoint auditors for the purpose of having its annual accounts audited.2 The auditors are to make a report on those accounts to the members.3 For an audit that satisfies the requirements of the CA 2006, the auditor appointed must meet certain statutory requirements.4

APPOINTMENT 22.2 Auditors will need to be appointed for each financial year of the LLP unless the designated members reasonably determine otherwise on the ground that audited accounts are unlikely to be required (eg because the LLP will be exempt from audit requirements).5 Auditors may only be appointed as set out in CA 2006, ss 485 to 486A (discussed in 22.3–22.8).6 22.3 Assuming that auditors are required, and save in respect of the LLP’s first financial year, the appointment must be made before the end of the period of 28 days beginning with the earlier of (a) the end of the period for the filing with the Registrar of the accounts and auditors’ report for the previous financial year and (b) the date on which the accounts and auditors’ report for the previous financial year are sent out to the members under CA 2006, s 423.7 This is referred to in the legislation as the ‘period for appointing auditors’.8 22.4 Generally speaking, it is for the members to appoint the LLP’s auditors. They may do so during the period for appointing auditors, or subsequently if the LLP ought to have appointed auditors during that period but failed to do so. They may

1

Ie under CA 2006, ss 477–481, as modified and applied to LLPs by SI 2008/1911, regs 34–35: see 21.51–21.54. 2 CA 2006, s 475, as modified and applied to LLPs by SI 2008/1911, reg 33. The CA 2006 refers throughout to ‘the auditor’ (although it also allows for the possibility that an LLP might have multiple auditors or firms of auditors); but, on the basis that an LLP’s accounts will usually be audited by a firm, the authors have adopted the plural. 3 CA 2006, s 495, as modified and applied to LLPs by SI 2008/1911, reg 39, discussed in 21.31. 4 See 22.11–22.13. 5 CA 2006, s 485(1), as modified and applied to LLPs by SI 2008/1911, reg 36. 6 CA 2006, s 485(5), as modified and applied to LLPs by SI 2008/1911, reg 36. 7 CA 2006, s 423, as modified and applied to LLPs by SI 2008/1911, reg 13. See 21.45. 8 CA 2006, s 485(2), as modified and applied to LLPs by SI 2008/1911, reg 36.

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also do so where the power of appointment lies with the designated members, but the designated members have failed to act.9 22.5 The power of appointment lies with the designated members during the LLP’s first financial year at any time before the LLP’s first period for appointing auditors, or during a subsequent year prior to the period for appointment of auditors if the LLP, being exempt from audit, does not have auditors. The designated members may also fill any casual vacancy should one occur.10 22.6 Where the appointment of auditors is required, but none is appointed by either the members or the designated members, the Secretary of State may make the appointment.11 If there is a failure on the part of the LLP to appoint auditors where required before the end of the period for appointing auditors (other than in the LLP’s first financial year), the LLP must within one week of the end of that period give notice to the Secretary of State that his power to appoint auditors has become exercisable.12 22.7 Although an LLP will usually have a free hand in the choice of auditors, an LLP that is a ‘public interest LLP’ is subject to detailed statutory governance with respect to the procedure for the appointment of auditors by the LLP’s members.13 Public interest LLPs are LLPs whose securities are admitted for trading on a UK regulated market, and credit institutions as defined by EU Regulation.14 Before a public interest LLP appoints auditors, its audit committee15 (if it has one) must make a first and second choice recommendation to the designated members. Unless the committee is recommending the reappointment of the existing auditors with the agreement of the designated members,16 the committee must first carry out a selection procedure by tender in accordance with the EU Audit Regulation.17 In turn, the designated members must make a proposal for appointment to the members. Where the designated members differ from the audit committee, the alternative auditors that they recommend must have participated in the selection procedure

9 10 11 12

13 14

15

16 17

CA 2006, s 485(4), as modified and applied to LLPs by SI 2008/1911, reg 36. CA 2006, s 485(3), as modified and applied to LLPs by SI 2008/1911, reg 36. CA 2006, s 486, as modified and applied to LLPs by SI 2008/1911, reg 36. CA 2006, s 486(2), as modified and applied to LLPs by SI 2008/1911, reg 36. If the LLP fails to give such notice, the LLP, and every designated member who is in default, commits an offence, and is liable on summary conviction to a fine, and for continued contravention to a daily default fine: s 486(3)–(4). As to the meaning of ‘in default’ in the present context, see 22.29. As set out in CA 2006, ss 485A–485C, as modified and applied to LLPs by SI 2008/1911, reg 36. CA 2006, s 494A, as modified and applied to LLPs by SI 2008/1911, reg 38B. Note that, whilst reg 38B prefers the term ‘public interest entity’, reg 46 uses the term ‘public interest LLP’. For consistency, the authors will refer to a ‘public interest LLP’ throughout. An ‘audit committee’ is defined in CA 2006, s 494A, as modified and applied to LLPs by SI 2008/1911, reg 38B, by reference to rules made by the Financial Conduct Authority and the Prudential Regulation Authority. CA 2006, s 485A(7), as modified and applied to LLPs by SI 2008/1911, reg 36. CA 2006, s 485A(4), as modified and applied to LLPs by SI 2008/1911, reg 36. The Audit Regulation is defined as EU Regulation 537/2014: see CA 2006, s 1173, as modified and applied to LLPs by SI 2008/1911, reg 55. It takes effect as UK domestic law under European Union (Withdrawal) Act 2018, s 3.

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and the designated members must give reasons for the disagreement.18 Where the LLP does not have an audit committee, the selection procedure is carried out by the designated members themselves.19 22.8 Auditors of public interest LLPs also have a maximum term of office under the EU ‘mandatory firm rotation’ rules. There are various transitional arrangements that apply where the auditors were first appointed in a financial year beginning prior to 17 June 2016, but in the case of auditors first appointed in a financial year after that date, the basic requirement is that an LLP must conduct the tender process at least every 10 years and rotate auditors at least every 20 years.20 The auditors’ regulatory body, the Financial Reporting Council (‘FRC’), has a statutory discretion to extend the maximum period in any given case for up to two years.21 Auditors who have completed a maximum engagement period (or who are a member of the same ‘network’ as any auditors who have done so) may not be reappointed for a further four years.22

TERM OF OFFICE 22.9 The auditors (whenever and by whomever appointed) in respect of any financial year hold office in accordance with the terms of their appointment, subject to the requirements that (a) they do not take office until any previous auditors have ceased to hold office and (b) they cease to hold office at the end of the next ‘period for appointing auditors unless they are reappointed.23 22.10 If no auditors have been appointed by the end of the period for appointing auditors, any auditors in office immediately before that time are deemed to be reappointed24 unless: (i) the LLP agreement requires actual reappointment; (ii) the requisite percentage of the total voting rights in the LLP give notice25 to the LLP that the auditors should not be reappointed; (iii) the members have determined that they should not be reappointed; (iv) the designated members have determined

18 19 20 21

22

23 24 25

CA 2006, s 485A(6)–(7), as modified and applied to LLPs by SI 2008/1911, reg 36. CA 2006, s 485B, as modified and applied to LLPs by SI 2008/1911, reg 36. CA 2006, s 494ZA, as modified and applied to LLPs by SI 2008/1911, reg 38A. CA 2006, s 494ZA(2)–(4), as modified and applied to LLPs by SI 2008/1911, reg 38A. The FRC is the ‘competent authority’ for this purpose: see CA 2006, s 1173, as modified and applied to LLPs by SI 2008/1911, reg 55. CA 2006, s 485C, as modified and applied to LLPs by SI 2008/1911, reg 36. An auditor’s ‘network’ means an association which co-operates in various defined ways: see CA 2006, s 494A, as modified and applied to LLPs by SI 2008/1911, reg 38B. CA 2006, s 487(1), as modified and applied to LLPs by SI 2008/1911, reg 36. CA 2006, s 487(2), as modified and applied to LLPs by SI 2008/1911, reg 36. Under CA 2006, s 488, as modified and applied to LLPs by SI 2008/1911, reg 36. The notice may be in hard copy or electronic form. It must be authenticated by the persons giving it, and it must be received by the LLP before the end of the LLP’s accounting reference period immediately preceding the time when the deemed reappointment would have effect: s 488(3). The ‘requisite percentage’ of the total voting rights is 5%, or such lower percentage as is specified for this purpose in the LLP agreement: s 488(2). The giving of such a notice will only halt the automatic re-appointment, and so lead to the requirement for an actual decision by the members as to whether or not to re-appoint. It will not act as a veto on re-appointment.

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(on the basis that audited accounts for the forthcoming year are unlikely to be required) that no auditors should be appointed for the financial year in question; or (v) their appointment is precluded by the maximum engagement rules applicable to public interest LLPs.26 If there is to be a new appointment, it is to be made by the members (and should be made during the period for appointing auditors mentioned above).27 If no appointment is made by the members (and there is no deemed reappointment), as already noted the Secretary of State may appoint auditors for the LLP.28

REQUIREMENTS FOR APPOINTMENT AS AUDITORS 22.11 Auditors of an LLP appointed under Part 16 of the CA 2006 (ie as discussed above) are ‘statutory auditors’ for the purposes of the CA 2006.29 They are therefore subject to the regime set out in Part 42 of the CA 2006. In order to be eligible to be appointed as statutory auditors of an LLP, an individual or firm30 must be a member of a recognised supervisory body (such as the ACCA or ICAEW) and be eligible for appointment under the rules of that body.31 If the individual or firm becomes at any time during his or its term of office ineligible for appointment, he or it must immediately resign the office (with immediate effect) and give notice in writing to the LLP that he or it has resigned by reason of being ineligible for appointment.32 Where an English or Northern Ireland partnership (or a partnership constituted under any other law where a partnership is not a legal person) is appointed as statutory auditors, the appointment is, unless a contrary intention appears, the appointment of the firm as such and not of the individual partners.33 22.12 There must be the necessary independence of the auditors from the LLP being audited. An individual or firm may not act as statutory auditors if (i) he or it is a member34 or employee of the LLP or a partner or employee of a member or employee of the LLP, or is a partnership of which a member or employee of the LLP is a partner or (ii) he or it is an officer35 or employee of a parent or subsidiary undertaking of the LLP, or a partner or employee of such an officer or employee, or is a partnership of which such an officer or employee is a partner,36 or (iii) there 26

CA 2006, s 487(2), as modified and applied to LLPs by SI 2008/1911, reg 36. CA 2006, s 485(4), as modified and applied to LLPs by SI 2008/1911, reg 36. 28 See 22.6. 29 SI 2008/1911, reg 48. 30 Ie any entity, whether or not a legal person, which is not an individual, including a body corporate, a corporation sole and a partnership or other unincorporated association: CA 2006, s 1261. 31 CA 2006, ss 1212–1213. As to recognised supervisory bodies (and the requirements for recognition), see s 1217 with Sch 10. Eligible auditors will appear on the register of auditors provided for by CA 2006, s 1239. 32 CA 2006, s 1213(2). 33 CA 2006, s 1216(1)–(2). As to what happens if the partnership ceases, see s 1216(3)–(6), discussed at 7.19. 34 ‘Officer’ in CA 2006, s 1214 in relation to an LLP includes a member: see the definition of ‘officer’ in s 1261. 35 See fn 34 above. 36 CA 2006, s 1214(1)–(3). There are criminal sanctions for acting as auditors in breach of these independence requirements: s 1215(2)(a). For the meaning of parent, and subsidiary, undertaking, see CA 2006, s 1162 with Sch 7 (applied to s 1214 by s 1261(1)). 27

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exists between the individual or firm (or an associate of him or it) and the LLP (or an associated undertaking of the LLP) a connection of such a description as is specified by regulations made by the Secretary of State (or the FRC as his delegate under CA 2006, s 1252).37 If at any time during their term of office statutory auditors become in breach of the independence requirements set out above, they must resign their office with immediate effect and give notice in writing to the LLP that they have resigned by reason of their lack of independence.38 22.13 If the auditors who are appointed do not satisfy, for any part of the period during which the audit is conducted, the requirements set out in 22.11 as to eligibility to be appointed, or as to the necessary independence set out in 22.12, the Secretary of State may direct the LLP to retain other auditors who do satisfy those requirements to conduct a second audit of the accounts or to review the first audit and to report (giving their reasons) whether a second audit is needed.39 If the Secretary of State does make such a direction, he must send a copy of it to the Registrar.40 The LLP is guilty of an offence if it fails to comply with such a direction within 21 days of it being given.41 If the direction is that new auditors should review the first audit and provide a report, the LLP must send a copy of the report of the new auditors to the Registrar, and, if the report states that a second audit is needed, take the necessary steps to have that second audit carried out.42 The LLP is guilty of an offence if it fails to carry out these requirements.43

DUTIES, AND RIGHTS, OF THE AUDITORS 22.14 The content of the auditors’ report, the investigations which the auditors must carry out in preparing their report, and the rights of auditors to information are considered in 21.31–21.37. In addition to their rights to information, the auditors are entitled to receive all notices of, and other communications relating to, any meeting which a member of the LLP is entitled to receive where any part of the business of the meeting concerns them as auditors, are entitled to attend any meeting of the LLP where any part of the business of the meeting concerns them as auditors and are entitled to be heard at any meeting which they attend on any part of the business of the meeting which concerns them as auditors.44 37

38 39 40 41 42 43 44

CA 2006, s 1214(4). The power has been delegated to the FRC under SI 2012/1741. No such regulations have yet been made, although the FRC also imposes ethical standards that promote independence in its regulatory capacity. For the meaning of ‘associate’ for these purposes, see s 1260. An ‘associated undertaking’ for these purposes is a parent undertaking or subsidiary undertaking of the LLP, or a subsidiary undertaking of a parent undertaking of the LLP: CA 2006, s 1214(6). CA 2006, s 1215(1). There are criminal sanctions for contravening this requirement to resign: s 1215(2)(b). CA 2006, s 1248(1)–(3). CA 2006, s 1248(4). CA 2006, s 1248(5)(a). As to possible concurrent commission of an offence by a member of the LLP, see s 1255(1). CA 2006, s 1248(6). CA 2006, s 1248(7)–(8). As to possible concurrent commission of an offence by a member of the LLP, see s 1255(1). CA 2006, s 502(1), as modified and applied to LLPs by SI 2008/1911, reg 40. If the auditors are themselves a firm, the attendance is by an individual authorised by the firm in writing to act as its representative at the meeting: CA 2006, s 502(2). As to the meaning of ‘firm’, see fn 30 above.

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OMITTING THE NAME OF THE AUDITORS 22.15 Reference is made in 21.37 to the requirement that the auditors’ report must state the name of the auditors or, where the auditors are a firm, the name of the person who signed it as senior statutory auditor, and to the requirement that every copy of the report that is published is similarly to state the name of the auditors or of the senior statutory auditor or, if the conditions contained in CA 2006, s 506 for omission of any of their names are met, that a determination has been made and notified to the Secretary of State in accordance with that section. The conditions for omitting the name of the auditors, or the senior statutory auditor, from published copies of the report, including from the copy of the report filed with the Registrar, are that the LLP (a) considering on reasonable grounds that statement of the name would create or be likely to create a serious risk that the auditors or senior statutory auditor in question, or any other person, would be subject to violence or intimidation, has determined that the name should not be stated, and (b) has given notice of the determination to the Secretary of State, stating the name and registered number of the LLP, the financial year of the LLP to which the report relates, and the name of the auditors and/or senior statutory auditor, as appropriate.45 It is clear from these provisions that, if the auditors’ name is to be omitted from published copies of the auditors’ report, the determination to do this has to be made (by the LLP) on a year-by-year basis.

FIXING THE AUDITORS’ REMUNERATION 22.16 As discussed in 21.36, the amount of the auditors’ remuneration for the auditing of the accounts must be stated in a note to the accounts of any LLP required to have an audit. The remuneration46 of the auditors for the auditing of the accounts is to be fixed by the designated members, or in such manner as the members may determine,47 save that the remuneration of auditors appointed by the Secretary of State48 is to be fixed by the Secretary of State.49

TERMINATION OF APPOINTMENT 22.17 The auditors may at any time before their term of office expires have their appointment as auditors terminated and be removed from office by the members.50 This is without prejudice, however, to any right of the auditors to compensation or damages payable to them in respect of the termination of their appointment, or the termination of any appointment terminating with that as auditors.51 For the purpose of determining the amount of any such compensation or damages, no account is to

45 46 47 48 49 50 51

CA 2006, s 506(2), as modified and applied to LLPs by SI 2008/1911, reg 41. Including expenses and any benefits in kind: CA 2006, s 492(3) and (4), as modified and applied to LLPs by SI 2008/1911, reg 37. CA 2006, s 492(1), as modified and applied to LLPs by SI 2008/1911, reg 37. Ie under CA 2006, s 486 if the LLP fails to appoint auditors within the required period as discussed in 22.4–22.6. CA 2006, s 492(2), as modified and applied to LLPs by SI 2008/1911, reg 37. CA 2006, s 510, as modified and applied to LLPs by SI 2008/1911, reg 43. CA 2006, s 510(2), as modified and applied to LLPs by SI 2008/1911, reg 43.

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be taken of any loss of the opportunity of a deemed reappointment of them under CA 2006, s 487(2) as discussed in 22.10.52 22.18 Before the members can remove the auditors in mid-term, there is a procedure which must be gone through. The members must first give seven days’ notice to the auditors of the proposal to remove them.53 The auditors may then make representations in writing to the LLP on the proposal (not exceeding a reasonable length), and request that the members be notified of these representations.54 If the auditors take this course, the LLP must upon receipt of the representations send a copy of them to every member of the LLP.55 However, copies of the representations need not be sent out to the members if, on an application to the court by either LLP or any other person claiming to be aggrieved, the court is satisfied that the auditors are using their right to make representations and have them circulated in order to secure needless publicity for defamatory matter.56 Whilst the legislation provides that such an application can be made to the court by the LLP (or any other person claiming to be aggrieved), it should nevertheless be borne in mind that an allegation that the auditors are using their right to secure needless publicity for defamatory matter is an allegation of acting in bad faith, and as such is a very serious allegation.57 22.19 Additionally, any auditors of a public interest LLP may be removed by court application on any ‘proper grounds’, either at the instance of the FRC or at the instance of at least 5% of the LLP’s members, measured by voting rights. Divergence of opinions of accounting treatment are not to be taken as a proper ground for removal.58 22.20 After the procedure described in either 22.18 or 22.19 has resulted in the removal of the LLP’s auditors (or, if more than one, any of them), the LLP must within 14 days give notice of that decision to the Registrar.59 Having been removed, the former auditors may be required to send a s 519 statement to the LLP, as discussed in 22.24.60

52 53

54 55 56

57 58 59

60

CA 2006, s 487(4), as modified and applied to LLPs by SI 2008/1911, reg 36. CA 2006, s 511(1), as modified and applied to LLPs by SI 2008/1911, reg 43. The statutory provision merely says ‘give notice’ to the auditors. The notice must, presumably, be of the members’ proposal as to the auditors. CA 2006, s 511(2), as modified and applied to LLPs by SI 2008/1911, reg 43. CA 2006, s 511(3), as modified and applied to LLPs by SI 2008/1911, reg 43. CA 2006, s 511(4), as modified and applied to LLPs by SI 2008/1911, reg 43. The court may order the LLP’s costs on the application to be paid in whole or in part by the auditors, notwithstanding that they are not party to the application: ibid. The subsection only refers to the costs of the LLP. Query whether the court could order the costs of an aggrieved other person to be paid by the auditors. See further 22.28. CA 2006, s 511A, as modified and applied to LLPs by SI 2008/1911, reg 43. CA 2006, s 512(1), as modified and applied to LLPs by SI 2008/1911, reg 43. If the LLP fails to give this notice to the Registrar, both the LLP and every designated member who is in default is guilty of an offence and liable to a fine and, for continued contravention, to a daily default fine: s 512(2) and (3). As to meaning of ‘in default’ in the present context, see 22.29. Section 519 applies ‘where an auditor of an LLP ceases for any reason to hold office’: see s 519(1), as modified and applied to LLPs by SI 2008/1911, reg 46.

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22.21 Notwithstanding their removal mid-term, auditors who have been removed are entitled, in relation to any meeting of the LLP at which their term of office would otherwise have expired, or at which it is proposed to fill the vacancy caused by their removal, to receive all notices of, and other communications relating to, that meeting which a member of the LLP is entitled to receive, to attend that meeting and to be heard at it on any part of the business which concerns them as former auditors.61 Where auditors are removed on grounds of divergence of opinions on accounting treatments or audit procedures, or on ‘any other improper grounds’, the removal is to be treated as being unfairly prejudicial to the interests of some part of the LLP’s members for the purposes of the right of a member to apply to the court for an order under CA 2006, s 996 on the ground that the LLP’s affairs are being or have been conducted in an unfairly prejudicial manner.62 This will, however, be subject to ability of the members of the LLP by unanimous agreement recorded in writing to exclude the right for a member to make an ‘unfair prejudice’ application under CA 2006, s 994.63 22.22 Where the members propose to replace the LLP’s existing auditors (or, if more than one, any of them) at the end of their term of office,64 seven days’ notice of that proposal must be given to those auditors.65 No new auditors may be appointed unless this notice to the existing auditors has been given.66 On receiving the notice, the existing auditors then have similar rights to make representations for circulation to the members (with the same caveat as to defamatory material) as is set out in 22.15.67 If the auditors are not re-appointed (whether or not they have made representations to the LLP), they will be required to send a s 519 statement to the LLP, as discussed in 22.24. 22.23 The auditors may themselves resign as auditors at any time by sending a notice to that effect to the LLP.68 The notice operates to bring the auditors’ term of office to an end as of the date on which it is deposited or on such later date as is specified in it.69 To be effective, the notice must be accompanied by the statement which is required by CA 2006, s 519 unless (in the case of an LLP that is a non-public interest LLP)70 that statement explains that neither the reason for the auditors’ resignation nor any connected matter needs to be brought to the attention of the

61

CA 2006, s 513 with 502(1), as modified and applied to LLPs by SI 2008/1911, regs 44 and 40. Where the auditors are a firm, the right to attend or be heard at the meeting is exercisable by an individual authorised by the firm in writing to act as its representative at the meeting: s 502(2), as modified and applied to LLPs by SI 2008/1911, reg 40. 62 CA 2006, s 994(2), as modified and applied to LLPs by SI 2009/1804, reg 48. On ‘unfair prejudice’ applications, see further Chapter 32. 63 Section 994(3), as modified and applied to LLPs by SI 2009/1804, reg 48: see 32.7. 64 See 22.3. 65 CA 2006, s 515(1), as modified and applied to LLPs by SI 2008/1911, reg 45. 66 Ibid. 67 CA 2006, s 515(2)–(4), as modified and applied to LLPs by SI 2008/1911, reg 45. 68 CA 2006, s 516(1), as modified and applied to LLPs by SI 2008/1911, reg 45. 69 CA 2006, s 516(3), as modified and applied to LLPs by SI 2008/1911, reg 45. 70 Ie an LLP that is not a public interest LLP, as discussed at 22.7: CA 2006, s 519A(1), as modified and applied to LLPs by SI 2008/1911, reg 46.

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LLP’s members or creditors.71 If the auditors’ notice is accompanied by a statement of the circumstances connected with their resignation under s 519, the auditors may send with the notice an authenticated requisition calling on the designated members forthwith to convene a meeting of the members for the purpose of receiving and considering such explanation of the reasons for, and matters connected with, their resignation as they may wish to place before the meeting.72 Within 21 days of such a requisition being received, the designated members must convene a meeting of the members for a day not more than 28 days after the date on which the notice convening the meeting is given.73 The auditors may also request the LLP to circulate to the members before the meeting a statement in writing (not exceeding a reasonable length) of the reasons for, and matters connected with, their resignation; and if they do, the LLP must (unless the statement is received too late for it to comply) in any notice to the members of the meeting state the fact of the statement having been made, and send a copy of it to every member to whom notice of the meeting is or has been sent.74 Despite having resigned, the auditors will be entitled, in respect of the meeting, to receive all notices of, and other communications relating to, that meeting which a member of the LLP is entitled to receive, to attend that meeting and to be heard at it on any part of the business which concerns them as former auditors.75 The exception for defamatory matter, already considered at 22.18, will also apply.76

SECTION 519 STATEMENT 22.24 Whenever auditors cease for any reason to hold office (ie whether as a result of removal, resignation or simply not being re-appointed, and whether by their own choice or that of the LLP), they will be required by CA 2006, s 519 to send the LLP a statement of the reasons for doing so, unless exempted under that provision. Except where the LLP is a public interest LLP (a status considered at 22.7), the auditors will be exempted if one of two conditions is fulfilled. The first condition is that the auditors are ceasing to hold office at the end of a period for appointing auditors. The second condition is that the reasons for the auditors’ cessation of office are all

71 72 73

74

75

76

CA 2006, s 516(2), as modified and applied to LLPs by SI 2008/1911, reg 45. CA 2006, s 518(1) and (2), as modified and applied to LLPs by SI 2008/1911, reg 45. CA 2006, s 518(5), as modified and applied to LLPs by SI 2008/1911, reg 45. If default is made in convening the meeting as required, every designated member who failed to take all reasonable steps to secure that a meeting was convened commits an offence, and is liable to a fine: CA 2006, s 518(6) and (7). CA 2006, s 518(4), as modified and applied to LLPs by SI 2008/1911, reg 45. If the statement is not sent out because it has been received too late, or because of the LLP’s default, the auditors may (without prejudice to their right to be heard orally at the meeting) require that the statement be read out at the meeting: s 518(8). CA 2006, s 518(10) with s 502(1), as modified and applied to LLPs by SI 2008/1911, regs 45 and 40. Where the auditors are a firm, the right to attend or be heard at the meeting is exercisable by an individual authorised by the firm in writing to act as its representative at the meeting: s 502(2), as modified and applied to LLPs by SI 2008/1911, reg 40. CA 2006, s 518(9), as modified and applied to LLPs by SI 2008/1911, reg 45. The court may order the LLP’s costs on the application to be paid in whole or in part by the auditors, notwithstanding that they are not party to the application: ibid. The subsection only refers to the costs of the LLP. Query whether the court could order the costs of an aggrieved other person to be paid by the auditors.

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‘exempt reasons’, and there are no matters connected with the cessation of office that the auditors consider need to be brought to the attention of the LLP’s members or creditors.77 Under this latter condition, reasons for cessation of office will be exempt reasons if (a) the auditors are no longer to carry out statutory audit work, (b) the LLP is, or is to become, exempt from audit, (c) the auditors are being replaced by auditors who will conduct an audit of group accounts and those auditors will also conduct the audit of each of the parent’s subsidiary undertakings in the UK, or (d) the LLP is being wound up.78 Where a statement is required, it must include the auditors’ name, address and registration number, as well as the LLP’s name and registered number, and, if there are matters connected with the auditors’ ceasing to hold office that the auditors consider need to be brought to the attention of members or creditors of the LLP, the statement must include details of those matters.79 Conversely, if the auditors of a non-public interest LLP consider that none of the reasons for them ceasing to hold office, nor any matters connected with that, need to be brought to the attention of members or creditors of the LLP, the statement must also say so.80 22.25 The statement must be sent to the LLP no later than the end of the period of 14 days beginning with the date on which the auditors cease to hold office (save where the auditors resign, when the statement is to accompany the notice of resignation, and save also where the auditors do not seek re-appointment, when the statement is to be sent not less than 14 days before the end of the time allowed for next appointing auditors).81 Auditors ceasing to hold office who fail to comply with these requirements commit an offence.82 22.26 Unless the statement is one made in respect of a non-public interest LLP where the auditors have stated that the relevant reasons need not be brought to the attention of members or creditors of the LLP,83 the statement must be further disseminated as follows: (1) The LLP must within 14 days of receipt send a copy of the statement to every person who is entitled to be sent a copy of the LLP’s accounts,84 unless the

77 78 79 80 81 82

83 84

CA 2006, s 519(1)–(2B), as modified and applied to LLPs by SI 2008/1911, reg 46. CA 2006, s 519A(3)–(4), as modified and applied to LLPs by SI 2008/1911, reg 46. CA 2006, s 519(2C)–(2D), as modified and applied to LLPs by SI 2008/1911, reg 46. CA 2006, s 519(2E), as modified and applied to LLPs by SI 2008/1911, reg 46. CA 2006, s 519(4), as modified and applied to LLPs by SI 2008/1911, reg 46. CA 2006, s 519(4)–(7), as modified and applied to LLPs by SI 2008/1911, reg 46. It is a defence for the auditors to show that they took all reasonable steps and exercised all due diligence to avoid the commission of the offence: subs (5). Liability on conviction is to a fine. If the offence is committed by a body corporate (eg an LLP), every ‘officer’ of the body who is in default also commits an offence: ibid. ‘Officer’ is to be construed in relation to an LLP as reference to the corresponding persons appropriate to LLPs: s 1161(3), as modified and applied to LLPs by SI 2008/1911, reg 52. It probably includes all members here. As to meaning of ‘in default’ in the present context, see 22.29. CA 2006, ss 520(1) and 521(A1), as modified and applied to LLPs by SI 2008/1911, reg 46. Ie every member and to every holder of the LLP’s debentures, under CA 2006, s 423(1), as modified and applied to LLPs by SI 2008/1911, reg 13: see 21.45. A copy need not be sent to a person for whom the LLP does not have a current address, namely an address which the person has

The Appointment and Position of Auditors of LLPs

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LLP applies to the court for an order that the statement need not be sent out on the ground that the auditors are using the statement in order to secure needless publicity for defamatory matter.85 If the LLP wishes to make such an application to the court, it must do so within the 14-day period (or the statement must be sent out). The 14-day period is mandatory and cannot be extended by the court.86 If the LLP does make this application to the court, it must notify the auditors of the application.87 (2) Provided that the auditors do not receive notice of such an application before the end of the period of 21 days beginning with the day on which they sent the statement to the LLP, the auditors must within a further seven days send a copy of the statement to the Registrar.88 22.27

If, however, the LLP does make an application to the court:

(a) if the court is satisfied that the auditors are using the statement to secure needless publicity for defamatory matter, the court is to direct that copies of the statement need not be sent out, and it may also order that the LLP’s costs on the application be paid in whole or in part by the auditors, even if they are not party to the application; and the LLP must with 14 days send to every member and to every holder of the LLP’s debentures a statement setting out the effect of the order;89 (b) if the court is not satisfied that the auditors are using the statement to secure needless publicity for defamatory matter, or the LLP discontinues the application before determination, the LLP must within 14 days of the court’s decision, or the discontinuance, send copies of the auditors’ statement to every person who is entitled to be sent a copy of the LLP’s accounts.90 The auditors are required, if they receive notice of the court’s decision, or of the discontinuance, within seven days of receiving such notice, to send a copy of the statement to the Registrar.91

85 86 87 88

89 90 91

notified to the LLP as one at which documents may be sent to him and where the LLP has no reason to believe that documents sent to him will not reach him: see s 423(2) and (3). CA 2006, s 520(2)–(4), as modified and applied to LLPs by SI 2008/1911, reg 46. P & P Design Plc v PricewaterhouseCoopers [2002] 2 BCLC 648 (considering CA 1985, s 394(3)). CA 2006, 520(3), as modified and applied to LLPs by SI 2008/1911, reg 46. CA 2006, s 521(1), as modified and applied to LLPs by SI 2008/1911, reg 46. If the auditors fail to send a copy of the statement to the Registrar as required in such circumstances, they commit an offence. The position in relation to such an offence is the same as stated in fn 82 above. The combined effect of the making of an application by the LLP to the court and CA 2006, ss 520(2) and 521(1) will be to suspend the obligation of the LLP to send the statement out to members and debenture holders, and to suspend also the obligation of the auditors to send a copy to the Registrar. CA 2006, s 520(4), as modified and applied to LLPs by SI 2008/1911, reg 46. Ie those identified in fn 84: above CA 2006, s 520(5), as modified and applied to LLPs by SI 2008/1911, reg 46. CA 2000, s 521(2), as modified and applied to LLPs by SI 2008/1911, reg 46. CA 2006, s 520(5), as modified and applied to LLPs by SI 2008/1911, reg 46 (unlike CA 1985, s 394(7)) does not include the auditors as someone who the LLP must notify of the court’s decision rejecting the application, or of a discontinuance. If the auditors are notified and fail to send a copy of the statement to the Registrar as required in such circumstances, they commit an offence. The position in relation to such an offence is the same as stated in fn 82 above.

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The Law of Limited Liability Partnerships

If there is default by the LLP in complying with any of the above provisions as to sending out material, an offence is committed by every designated member who is in default.92 22.28 An allegation by the LLP that auditors are using a statement under CA 2006, s 519 to secure needless publicity for defamatory matter is a very serious allegation, ‘tantamount to an allegation of dishonesty’, against professional accountants.93 If the LLP makes an application to the court on this ground but fails to establish that the auditors are misusing the statement as alleged, or if the LLP commences but then discontinues such an application, it can expect to be ordered to pay the auditors’ costs of the application on an indemnity basis.94

‘IN DEFAULT’ 22.29 A member or designated member is ‘in default’ for the purposes of the CA 2006 if he authorises or permits, participates in, or fails to take all reasonable steps to prevent, the non-performance of the obligation.95 Where a company is a member or designated member of an LLP, it does not commit an offence as a member or designated member in default unless one of its officers is in default (ie he authorises or permits, participates in, or fails to take all reasonable steps to prevent the contravention).96 Where, as result of this provision, a company does commit an offence, the officer in question also commits the offence and is liable to be proceeded against as well as the company.97

NOTIFICATION OF CESSER OF APPOINTMENT TO THE APPROPRIATE AUDIT AUTHORITY 22.30 Sections 522–526 of the CA 2006 contain a regime of compulsory notification to the ‘appropriate audit authority’ of auditors ceasing to hold office. Where an auditor sends a section 519 statement to the LLP, he must at the same time send a copy of that statement to the appropriate audit authority.98 The appropriate audit authority is the ‘relevant supervisory body’, ie the professional supervisory body (such as the ACCA or ICAEW) of which the auditors in question are members

92

93 94

95 96 97 98

CA 2006, s 520(5)–(8), as modified and applied to LLPs by SI 2008/1911, reg 46. As to the meaning of ‘in default’ in the present context, see 22.29. It is a defence for a designated member to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence: subs (7). Per Lightman J in Jarvis Plc v PricewaterhouseCoopers [2000] 2 BCLC 368 at [16(2)]. See the judgment of Lightman J referred to above. ‘Proceedings which seek to silence, and which pending judgment do silence, auditors reporting matters which may require urgent communication to interested persons are high risk and are not to be undertaken lightly’: ibid, at [17]. CA 2006, s 1121(2), as modified and applied to LLPs by SI 2008/1911, reg 49. CA 2006, s 1122(1) and (3), as modified and applied to LLPs by SI 2008/1911, reg 49. ‘Officer’ includes any director, manager or secretary: s 1122(3)(a). CA 2006, s 1122(2), as modified and applied to LLPs by SI 2008/1911, reg 49. On the meaning of ‘in default’, see further 12.10–12.11. CA 2006, s 522(1), as modified and applied to LLPs by SI 2008/1911, reg 46. Auditors who fail to comply with this requirement commit an offence: s 522(5)–(8).

The Appointment and Position of Auditors of LLPs

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(or otherwise subject to its control) and which maintains and enforces rules as to eligibility for appointment as statutory auditors and the conduct of statutory audit work or, in the case of an audit of a public interest LLP, the body known as the Professional Oversight Board of the FRC.99 22.31 In the event of auditors ceasing to hold office before the end of their term of office, the LLP itself must notify the appropriate audit authority of this fact within 28 days, unless the LLP reasonably believes that the only reasons for the auditors ceasing to hold office are ‘exempt reasons’.100 The notification must take the form of a statement by the LLP of what the LLP believes to be the reasons for the auditors ceasing to hold office, and must include the auditors’ name, address and registration number, as well as the LLP’s name and registered number. Alternatively, the LLP may simply indorse the auditors’ section 519 statement if it agrees with the contents of that statement.101 22.32 On receiving a notice from the auditors or the LLP of the auditors ceasing to hold office, the appropriate audit authority is required to inform the ‘accounting authorities’, namely the Secretary of State and the Conduct Committee of the FRC.102 If the LLP has applied to the court for an order that copies of the auditors’ statement under CA 2006, s 519 need not be sent out by it, and the court has made such an order,103 then the restrictions on further disclosure contained in CA 2006, ss 460–461 apply in relation to the copies sent to the accounting authorities as they apply to information obtained under CA 2006, s 459.104

SECTION 1157 RELIEF 22.33 Section 1157 of the CA 2006 gives power to the court, similar to that given by the Trustee Act 1925, s 61 in relation to trustees, to grant relief from liability to auditors in certain circumstances. The section provides that if in any proceedings for negligence, default, breach of duty or breach of trust against auditors it appears to the court that they are or may be liable but that they acted honestly and reasonably, and that having regard to all the circumstances of the case (including those connected with their appointment), they ought fairly to be excused, the court may relieve them, either wholly or in part, from their liability on such terms as it thinks fit. If the auditors think that a claim will or might be made against them, they can make a pre-emptive application to the court for relief under the section.105

99 100

101 102 103 104 105

CA 2006, s 525(1), as modified and applied to LLPs by SI 2008/1911, reg 46, and s 1217. CA 2006, s 523(1)–(2) and (3), as modified and applied to LLPs by SI 2008/1911, reg 46. ‘Exempt reasons’ are the same as those already considered at 22.24. An LLP that fails to comply with this requirement commits an offence: s 523(4)–(6). CA 2006, s 523(2A)–(2C), as modified and applied to LLPs by SI 2008/1911, reg 46. CA 2006, s 524(1)–(2), as modified and applied to LLPs by SI 2008/1911, reg 46. Ie under CA 2006, s 520(4), as modified and applied to LLPs by SI 2008/1911, reg 46: see 22.26. CA 2006, s 524(4), as modified and applied to LLPs by SI 2008/1911, reg 46. As to ss 459 and 460–461, see 21.48. CA 2006, s 1157(2).

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INDEMNITIES AND LIABILITY LIMITATION AGREEMENTS 22.34 Sections 532–538 of the CA 2006 as enacted for companies contain restrictions on the extent to which a company may validly provide an indemnity to its auditors, and contain also restrictions and requirements to be satisfied before a company may validly enter into an agreement (a ‘liability limitation agreement’) with its auditors to limit the amount of a liability owed to the company by those auditors in respect of any negligence, default, breach of duty or breach of trust occurring in the course of the audit of the company’s accounts. An indemnity, or liability limitation agreement, entered into by a company which does not satisfy the statutory restrictions and requirements will be void. If the restrictions and requirements as to a valid liability limitation agreement are satisfied, the agreement will not be subject to s 2(2) or 3(2)(a) of UCTA 1977.106 These provisions of the CA 2006 are not adopted for LLPs. There are, therefore, no statutory restrictions on an LLP as to the extent to which it may provide an indemnity to its auditors; and, subject always to the application of UCTA 1977 to an agreement, there are no statutory restrictions or requirements on an LLP as to it validly entering into a liability limitation agreement with its auditors.

106

CA 2006, s 534(3). On the other hand, an agreement will not in any event be effective to limit the auditors’ liability to less than such amount as is fair and reasonable in all the circumstances of the case having regard to certain matters set out in the CA 2006: s 537.

Chapter 23 TAXATION OF LLPs AND MEMBERS

INTRODUCTION 23.1 The explanatory notes to the first draft of the Limited Liability Partnerships Bill published in September 1998 very helpfully stated that ‘the treatment of an LLP as a partnership, and the members as partners, will apply for all tax purposes …’. Whilst, it is believed, there had been only limited consultation between the DTI and the Inland Revenue at that stage, this statement clearly set out the Government’s intention with regard to the taxation of an LLP. It seems fair to say that this statement continues to reflect the Government’s intention for most types of business using the LLP structure. 23.2 Discussions between interested professional bodies and the DTI, the Inland Revenue and HM Customs & Excise (now combined as HM Revenue & Customs (HMRC)) continued to take place with the aim of all parties being to achieve a coherent system of taxation for LLPs. The discussions covered a large number of issues. Since then, and over a period of time, the Taxes Acts have been amended to include reference to the tax treatment of LLPs; and, in addition, there have been practice notes published by the Government bodies. This gradual process of updating legislation, including the Tax Law Rewrite project, has meant that the law governing the taxation of LLPs is to be found throughout the Taxes Acts and other HMRC publications rather than in one place. On 1 January 2014, HMRC issued a draft document entitled ‘Dealing with HMRC’, which was updated on 3 September 2015 as the HMRC Partnership Manual, in order to bring together in one place their manual guidance. As usual for HMRC manuals, the content is designed to assist the taxpayer in understanding HMRC’s approach to relevant matters, but is not a substitute for considering the tax legislation itself. 23.3 The main publications covering the taxation of LLPs are the Inland Revenue Tax Bulletin1 and the Customs & Excise Business Brief.2 Equally important is the Statement of Recommended Practice (SORP) for LLPs issued in May 2002, and revised in March 2006, July 2014, January 2017 and December 2018, by the Consultative Committee of Accountancy Bodies.3 UK GAAP (Generally Accepted

1

2 3

The Tax Bulletin issue 50 sets out the Revenue’s interpretation on various practical issues relating to the taxation of an LLP and was released in December 2000. This chapter contains extracts from the Tax Bulletin which are © Crown copyright and reproduced with the kind permission of the Controller of Her Majesty’s Stationery Office. Each issue of the Tax Bulletin contains certain qualifications which should be referred to before reliance is placed on an interpretation of it. Customs & Excise Business Brief No 3/2001 issued in February 2001. See further 21.15.

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Accounting Practice) changed with the introduction of FRS 102 (updated in August 2014), which applies in relation to LLPs in respect of accounting periods commencing from 1 January 2015.4 23.4 The tax position of LLPs has been a focus of review by HMRC in recent years, with a number of rules being enacted in 2013 and 2014 to deal with mixed membership partnerships (being partnerships/LLPs with both individual members and non-individual members), the tax status of individual members in LLPs (Salaried Member Rules) and the interaction between LLPs and partnerships with service companies. These rules also cover the use of LLPs by Alternative Investment Fund Managers, and the transfer of assets and income streams through partnerships/LLPs. On 27 March 2014, HMRC issued a guidance note, ‘Partnerships: A review of two aspects of the tax rules’, detailing how HMRC envisaged the new rules applying.5 This guidance has since been adapted and updated in HMRC’s Partnership Manual. 23.5 Further changes have also been introduced by the Finance Act 2015 and Finance (No 2) Act 2015 relating to the availability of entrepreneurs’ relief for shareholders of companies involved in joint ventures: where a company is a member of a trading partnership/LLP, the trading activities of the partnership/LLP will not automatically be taken into account in determining whether the company is a trading company for entrepreneurs’ relief purposes.6 The entrepreneur’s relief regime itself was subject to significant amendment in the Finance Act 2020, renaming the relief ‘business assets disposal relief’ and reducing the lifetime allowance from £10 million to £1 million. 23.6 The Office of Tax Simplification (OTS) has also been reviewing the tax rules relating to partnerships and LLPs and has made a number of proposals for simplification. Further changes were introduced, particularly to the administrative framework for partnerships, in the Finance Act 2018, clarifying matters such as the reporting required for ‘chains’ of partnerships (where partnerships are partners of other partnerships and so on – common in fund structures) and their partners; a specific provision to apply where partners act as bare trustee for another person; and introducing a disputes process at the tribunal for use where partners disagree on their taxable profit allocations, avoiding HMRC becoming involved in partnership internal disputes. 23.7 Further provisions were made in the Finance Act 2020 to clarify certain circumstances where LLPs are to be treated as ‘opaque’ like companies in the corporation tax regime, how such LLPs should submit their tax returns, and how HMRC’s enquiry powers apply in such circumstances. These changes were brought

4 5

6

FRS 102 replaces the majority of UK Financial Reporting Standards and UITF abstracts, issued on 14 March 2013. A consultation on the matters raised in ‘A review of two aspects of the tax rules on partnerships’ was carried out between 20 May 2013 and 28 March 2014. Legislation was introduced in Finance Act 2014. TCGA 1992, s 1695(4A)(b) and (c).

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in response to Inverclyde Property Renovation LLP v HMRC,7 in which the First-tier Tribunal held that HMRC’s enquiries were held to be invalid. HMRC succeeded on appeal in the Upper Tribunal8 and brought forward the legislation to clarify some of these matters.

COMPUTATION OF TAXABLE PROFITS 23.8 Where an LLP carries on a business with a view to profit, the tax rules deem that the LLP will be treated as ‘tax transparent’, and the profits of the LLP will be taxed like a partnership in accordance with the taxation rules which apply to the members of the LLP. In the case of individual members, the profits will be calculated in accordance with the income tax rules.9 Those members liable to corporation tax will have their share of profits calculated in accordance with corporation tax rules,10 unless the company is caught by the new mixed member rules such that the profits of the company are taxed on the individual members or any individual who has the power to enjoy the profits of the company. It should be noted that, whilst, in the majority of cases, similar tax rules apply for the calculation of taxable profits for both income tax and corporation tax, this is not the case in relation to all expenditure. 23.9 If an LLP does not carry on a business with a view to profit, it is treated as a company for tax purposes. An LLP is a body corporate,11 which would otherwise be taxed as a company, but for the tax rules deeming otherwise.12 This will not be the case simply because a business is unsuccessful in generating the intended profits, but may be the case where no business activity was ever intended, or the anticipated profits were unrealistically remote, such as in certain arrangements challenged by HMRC. This can also arise for LLPs in liquidation or winding-up procedures (see 23.123–23.124).

Capital allowances 23.10 Where an LLP succeeds to a business previously carried on by a partnership, this will not give rise to a balancing event for the purposes of the capital allowance provisions.13 Members of the LLP will therefore be able to continue to claim capital allowances in the normal way. 23.11 The capital allowances regime was substantially changed by the Finance Act 2008. The changes took effect from 6 April 2008 (1 April 2008 for corporation tax purposes). An Annual Investment Allowance (AIA) was introduced for the first £50,000 of qualifying capital expenditure.14 The rate of AIA has varied since its 7

[2019] UKFTT 408 (TC). [2020] UKUT 161 (TCC). 9 Ie in accordance with ITTOIA 2005, s 863. 10 Ie in accordance with CTA 2010, s 1262. See Investec Asset Finance Plc v Revenue and Customs Commissioners [2020] EWCA Civ 579. 11 See 1.2. 12 ITTOIA 2005, s 863; CTA 2009, s 1273, TCGA 1992, s 59A. 13 Tax Bulletin issue 50. 14 CAA 2001, s 38A. 8

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inception – it was increased to £1 million for the period from 1 January 2019 to 31 December 2020, initially on a temporary basis although subsequently extended through to 1 January 2022. This allowance can only be claimed by an LLP all of whose members are individuals, and does not apply to any LLP with a corporate partner (whether mixed or solely corporate members). In addition, 100 per cent first year allowances continue to be available for expenditure on energy-efficient or environmentally beneficial plant and machinery (including cars with low CO2 emissions).15 23.12 As a result of the changes, the writing down allowance available on plant and machinery in the main pool was reduced from 25 per cent to 20 per cent, and the current rate is 18 per cent.16 A new special rate pool was also introduced. This combines long life assets and a new category of items which are an integral feature of a building or structure.17 This includes items such as electrical and air conditioning systems. The writing down allowance (WDA) for the special rate pool was 10 per cent.18 The writing down allowance was reduced to 8 per cent, and from April 2019 reduced further to 6 per cent. (Long life assets formerly qualified for 6 per cent WDA pre 6 April 2008.) From 29 October 2018, a new Structures and Buildings Allowance was introduced, allowing relief for certain costs incurred on a building used in a trade. The allowance was 2 per cent, rising to 3 per cent from April 2020.

Income tax 23.13 The basic income tax rules relating to LLPs are to be found in sections 863 to 863G of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005). The governing principle is one of tax transparency: where an LLP carries on a trade, profession or business with a view to profit: (a) all the activities of the LLP are treated as carried on in partnership by its members (and not by the LLP as such), (b) anything done by, to or in relation to the LLP for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and (c) the property of the LLP is treated as held by the members as partnership property.19 The effect is therefore to ensure that members of an LLP are taxed under the self-assessment rules as though they were partners in a partnership. 23.14 Sections 863A to 863G of ITTOIA 2005 were added by the Finance Act 2014 to insert new rules concerning the tax status of individual members, known as the Salaried Member Rules.20

15

CAA 2001, s 39. CAA 2001, s 56. 17 CAA 2001, s 33A. 18 CAA 2001, s 104D. 19 ITTOIA 2005, s 863(1). 20 See 23.83–23.94. 16

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23.15 HMRC have confirmed that they will not treat the transfer of the whole of an existing partnership business to an LLP as a cessation under the income tax rules and will therefore, in effect, ignore the transfer to an LLP for income tax purposes.21 This will mean, therefore, that partners in a partnership incorporating into an LLP will be unaffected by the incorporation for income tax purposes. HMRC have also confirmed that the partnership/LLP tax return, and individual partner’s/ member’s tax returns, can be prepared on the basis of there being no change in the self-employed business activity carried on.22 This means that only one return will be required from a partnership which fully incorporates into an LLP part way through an accounting period. It should perhaps be noted, however, that in these circumstances a partnership converting to an LLP will need to prepare accounts which reflect both the overall period of account and the statutory requirements of the LLP itself. This will help establish the financial position to which the previous partnership agreement (and law), and the new LLP agreement (and law), respectively apply. Income tax self-assessment rules make each individual partner liable in a personal capacity for the tax due on that partner’s profit share, and this income tax liability will not be a partnership or LLP liability. The only exception to this is in respect of non-UK resident members where HMRC have the power to seek payment from the LLP where the member does not pay the tax personally.23 23.16 The basis of taxation for an LLP will therefore generally follow the same rules as apply to partnerships and partners. Thus, an LLP is required to submit an annual tax return to HMRC which sets out the tax figures relevant to that fiscal year.24 An LLP member will be taxed upon the profits arising for the accounting period ending during the relevant tax year. For example, if an LLP has an accounting reference date of 30 April, the annual accounts to 30 April 2021 fall in the tax year 2021/22 (period 6 April 2021 to 5 April 2022), and will therefore form the basis of the LLP’s 2021/22 tax return. 23.17 The calculation of the profits of a trading (or professional) LLP for income tax purposes broadly follows the same rules as the calculation for a sole trader. The calculation starts with the profits according to generally accepted accounting practice, and then any adjustments required or allowed by law are made, resulting in the taxable profit for the partnership.25 Typically, an LLP will be required to produce GAAP-compliant statutory accounts, although this is not necessarily true of other partnerships. One of the most common tax adjustments is that no deduction is allowed for an expense that is not ‘incurred wholly and exclusively for the purposes of the trade’,26 and any such expense is ‘added back’ in the tax computation, increasing the taxable profits.

21 22 23 24 25 26

Tax Bulletin issue 50. Tax Bulletin issue 50. ITA 2007, ss 835E–835F and CTA 2010, ss 969–970. TMA 1970, s 12AA. ITTOIA 2005, s 25. ITTOIA 2005, s 34.

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23.18 In Vaines v The Commissioners for Her Majesty’s Revenue and Customs27 the appellant paid a sum in settlement of a claim arising from his work in a previous firm and sought to deduct the payment from his share of the profits of his profession as a solicitor in the 2007/08 year, by which time he had joined a new LLP. The sum paid in settlement was loaned to him by the new LLP. The Court of Appeal rejected his contention that the ‘wholly and exclusively’ question concerned the individual partner’s deemed ‘notional trade’,28 and went on to hold that, as the money had only been loaned to the appellant by the partnership and in fact he made the payment himself, it could not be an expense ‘incurred’ by the partnership and therefore did not satisfy the rules on this ground.29 The Court did not determine the further question whether it would have been ‘wholly and exclusively’ for the purpose of the partnership trade if it had in fact been incurred by the LLP,30 but it seems highly questionable that it would. There are two practical points to note. First, where members meet any expenditure on behalf of the LLP, this should be re-charged to and reimbursed by the LLP so that it is an expense ‘incurred by’ the partnership, and any deduction due is taken through the partnership return rather than the partner claiming the deduction on their personal return. Secondly, notwithstanding the decision in the Vaines case, there are some circumstances in which HMRC accepts that sums incurred and discharged by individual partners are deductible (by adjustment to the LLP tax return), where the expenses are necessary to enable the partners to carry on the practice or trade.31 23.19 A partnership tax return requires details of the profit and loss account and, normally, the balance sheet to be set out using HMRC’s standard accounts information format. The same requirement will apply to an LLP, except that the balance sheet information will become mandatory as the balance sheet will form part of the accounts which will need to be filed annually with Companies House.32 For partnerships and LLPs with a turnover in excess of £15 million, the standard accounts information does not have to be completed in full, but separate taxation computations and a set of the firm’s accounts must accompany the tax return. The LLP tax return should be ‘signed by a nominated member’, normally the senior or managing member, on behalf of all the members.33 23.20 An LLP will be required to maintain records of all items relating to the firm’s taxation position. These records need to be maintained for 5 years and 10 months following the end of the tax year in which the accounting period ended.34 However, if HMRC have given notice that they intend to enquire into the LLP return, the records must be retained until the day those enquiries are completed. Failure to maintain such records can result in penalties being applied of up to £3,000 for each default and, in the case of an LLP or partnership, these penalties can be multiplied by the number of members/partners during the relevant LLP tax return basis period.35 27 28 29 30 31 32 33 34 35

[2018] EWCA Civ 45. At [13]–[28]. At [29]–[35]. At [36]. See [35]; HMRC guidance PM163350 and PM163360. The statutory requirements as to accounts are considered in Chapter 21. TMA 1970, s 12AA(3). TMA 1970, s 12B. TMA 1970, s 12B(5).

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23.21 As mentioned in 23.15, it should be noted that, like a partnership, the tax liability arising on an LLP’s income is the liability of the individual members and not of the LLP. This is the case even if the profits are not allocated to members in the LLP’s accounts. Accordingly, the ‘appropriation’ of profits which are unallocated in the accounts will need to be agreed before the firm’s and members’ tax returns are submitted to HMRC. In the absence of agreement HMRC will seek to tax the unallocated profits on the basis of the firm’s profit sharing contained within the LLP Agreement. In the case of any disagreement between partners as to the taxable allocation of profits, a ‘dispute’ mechanism was introduced in the Finance Act 2018 which allows/requires partners to notify their dispute to the tribunal for adjudication.36 23.22 The deadline for filing is 31 January following the end of the tax year in question.37 For example, an LLP with a year end date of 30 April will need to file its April 2021 accounts as part of its 2021/22 tax return on or before 31 January 2023. The deadline for a non-electronic return is 31 October following the end of the tax year in question.38 Using the example above, if the return is not filed electronically, the tax return is due on or before 31 October 2022. Whether or not the return is filed electronically, the relevant tax records need to be kept until 31 January 2028. 23.23 Penalties apply where the LLP tax return is submitted after the filing deadline. In this case an automatic penalty of £100 per member will be levied. If the return is still outstanding after three months, each member will pay a daily penalty of £10 a day for a maximum of 90 days (£900). A further penalty of £300 per member is payable if the return is still outstanding between six and 12 months after the filing deadline.39 Additional penalties may be due in respect of each member’s personal tax position. These can include tax geared penalties depending upon the tax filings and personal circumstances of the individual member. 23.24 An LLP’s tax return sets out the allocation of the firm’s income, allowances, proceeds of sale of capital assets, and reliefs arising within the LLP, between the members of the LLP. The tax return also includes a statement of each member’s full name, unique taxpayer reference and address.40 23.25 Whilst the accounting period is the basis period for which the LLP’s income is generally taxed, this is not the case in respect of income of the LLP received net of income tax, such as dividends and taxed interest income.41 In these cases, the income is taxed on the basis of what is actually received during the relevant tax year (ie the period 6 April to 5 April) in question. Again, any additional liability to tax in respect of taxed income is personal to the members and dependent on each member’s

36 37 38 39 40 41

TMA 1970, s 12ABZB(3). TMA 1970, s 12AA(4B). TMA 1970, s 12AA(4A). FA 2009, Sch 55. TMA 1970, s 12AB. ITTOIA 2005, s 854 only relates to untaxed income, therefore leaving taxed income to be assessed without reference to the partnership.

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share of the income concerned. Another area where the tax year basis applies is in relation to annuities to former partners, which are a disallowable expense for the LLP but separately claimable for the members in their personal tax return, based on the amount actually paid in the relevant tax year. 23.26 An LLP is required to submit annual accounts to Companies House, and these accounts have to be prepared using generally accepted accounting practice (GAAP) and applying the LLP SORP.42 Likewise, partnerships have been required to prepare their accounts, for tax purposes, using GAAP.43 Thus, the basis for the profits chargeable to taxation for an LLP should be broadly similar to that for a partnership. There will, however, be some differences as a result of the application of the LLP SORP.

Corporation tax 23.27 The tax transparency of LLPs, together with the limitation of liability, has made them an increasingly attractive business vehicle. This attraction also applies to situations involving limited companies, and had led to a rise in the number of companies becoming members of an LLP. In fact, it has until recently been common for a sole proprietor to utilise an LLP structure by entering into an LLP agreement with a limited company owned by the same person. An LLP in which the members are all companies is referred to as a corporate LLP, whilst one with a mixture of individuals and persons who are not individuals (typically companies or trustees) is known as a mixed membership LLP. 23.28 The Finance Act 2014 introduced new rules relating to mixed membership LLPs. These rules are covered in more detail at 23.33 below. The rules target mixed membership LLPs where an individual has the power to enjoy the profits of the non-individual member(s). 23.29 Companies are not subject to the complex self-assessment income tax rules, but are subject to the separate corporation tax self-assessment rules. Accordingly, a corporate member’s share of profits needs to be calculated in accordance with the corporation tax regime, and will be taxed according to the accounting period of the company concerned.44 It is important to note that the rules for calculating profits of a company are different to those for income tax. For example, a corporate member may be able to obtain tax relief for the amortisation of goodwill purchased before 8 July 2015 or after 1 April 2019, whereas the individual members will not be able to do so. Perhaps the most common difference is that for funding costs, where the loan relationship rules apply for companies.45 It is, therefore, possible for the overall LLP profit taxable on the members to be different from either the income tax or corporation tax profits for the year in question.

42 43 44 45

See generally Chapter 21 on Accounts and Audit. FA 1998, s 42, as amended by FA 2002, s 103(5) and now contained in ITTOIA 2005, s 25. ICTA 1988, s 114. CTA 2009.

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23.30 There is some overlap in the basic rules as to how the overall profit of the trade of an LLP is calculated for income and corporation tax purposes. The starting point of calculating the profits according to GAAP,46 and the wholly and exclusively rule47 discussed at 23.17 and 23.18, also applies for corporation tax purposes. An issue arises, however, as to whether the principles discussed in the Vaines decision also apply for corporation tax purposes.48 The Vaines case concerned an individual and his ‘notional trade’, which is not a feature of the legislation for corporate partners. However, companies naturally incur expenses in the course of their own operation, which can be as basic as the cost of preparing filings and statutory accounts, but for service companies may involve greater and more complex expenditure. These may well not be expenses incurred by the LLP itself. The issue, therefore, is whether any such expenses may be deductible against the share of LLP income received by the company and, if the company had no other income source, then there may be no tax relief available for these expenses. LLPs and their corporate partners may wish to agree arrangements under which expenses incurred by the corporate partners that are related to the LLP itself can be re-charged to the LLP and the deduction taken through the LLP return. 23.31 A company will be taxed on its share of the profits arising from the LLP during its accounting period. Where the corporate member’s accounting period is different to that of the LLP, it is, therefore, necessary to apportion the profits for the differing accounting periods. Consideration should be given to whether the corporate member’s accounting reference date can be made identical to that of the LLP in order to avoid such a complex apportionment. 23.32 Different filing dates also apply where an LLP contains one or more corporate members. For accounting periods commencing after 6 April 2007, returns filed electronically are due for submission 12 months after the end of the relevant accounting period. For those filed non-electronically, the deadline is nine months after the end of the relevant period.49 The corporate member will need to comply with the corporation tax self-assessment regime. Details of these rules are outside the scope of this work.

Mixed membership 23.33 The Finance Act 2014 introduced new rules concerning the allocation of profits and losses where a partnership or LLP has a ‘mixed membership’.50 A ‘mixed membership’ partnership is a partnership or LLP that has, as partners or members, both individuals and persons who are not individuals. Examples of persons that are not individuals include companies and trustees. These new rules came into effect from 6 April 2014 and were subject to anti-forestalling rules from 5 December 2013, when the new rules were first announced. References in the following paragraphs

46 47 48 49 50

CTA 2009, s 46. CTA 2009, s 54. [2018] EWCA Civ 45. TMA 1970, s 12AA(5). ITTOIA 2005, ss 850C–850E.

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to ‘partnerships’ and ‘partners’ in the context of the mixed membership rules apply equally to LLPs and members. 23.34 Where the new mixed membership rules apply, profits or losses allocated to a non-individual member are taxed at the income tax rates applicable to the individual member for the relevant period, despite the actual profits being paid to and held by the non-individual member.51 This position extends, in certain circumstances, to an individual who is not a member of the LLP.52 HMRC have issued guidance to assist with the application and interpretation of these new rules.53 23.35 The mixed membership rules target profit allocations that are considered as diverting profit properly allocable to an individual member to a non-individual member of an LLP, usually a corporate member that is not liable to income tax but may be subject to lower rates of tax, such as corporation tax. Whilst the guidance states that the legislation does not apply to mixed membership partnerships in which the individual and non-individual partners are genuinely acting at arm’s length and not intending to secure a tax advantage, the rules have been very widely written and will impact most LLPs and partnerships that have a corporate member, unless there is no common (including related party) ownership. 23.36 Where it is considered that an excessive amount of the partnership profits are allocated to the non-individual member (ie more than its ‘appropriate notional profit’), HMRC have the power to redirect the taxable profit to the individual member for income tax purposes. The rules include various anti-avoidance sections which catch a wide variety of situations, including where an individual ceases to be an individual member.54 23.37 Similar anti-avoidance rules apply giving HMRC the power to restrict the amount of a loss where it is considered that an excessive allocation of losses has been allocated from a partner who is not chargeable to UK income tax to partners that are chargeable to UK income tax.55 23.38 The rules apply if one of two conditions is satisfied. First, that it is reasonable to suppose that amounts representing the individual member’s ‘deferred profit’56 are included in the non-individual’s profit share and, in consequence, both the individual member’s profit share and the ‘relevant tax amount’57 are lower than they would otherwise have been.58 As will be appreciated, ‘reasonable to suppose’

51 52 53

54 55 56 57 58

ITTOIA 2005, s 850C. ITTOIA 2005, s 850D. ‘Partnerships: A review of two aspects of the tax rules – Mixed Membership Partnerships – Alternative Investment Fund Managers – Transfers of Assets & Income Streams Through Partnerships’. ITTOIA 2005, s 850D. ITA 2007, s 116A. Defined in ITTOIA 2005, s 850C(8). Defined in ITTOIA 2005, s 850C(9). ITTOIA 2005, s 850C(2).

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could be very widely interpreted and can introduce a significant subjective element of judgement to the rules. 23.39 Secondly, that the non-individual’s profit share exceeds the ‘appropriate notional profit’;59 the individual member has the power to enjoy the non-individual’s profit share (the ‘power to enjoy’);60 and it is reasonable to suppose that the whole or any part of the non-individual member’s profit share is attributable to the individual member’s power to enjoy, and both individual member’s profit share and the relevant tax amount are lower than they would have been in the absence of the individual member’s power to enjoy. 23.40 In Walewski v HMRC61 the First-tier Tribunal considered these rules for the first time in an appeal, and scrutinised the factual background relating to why the allocations were made to the corporate member. In particular, the appellant had made contentions regarding their actions carried out under different capacities (as member of the LLP, and employee or representative of the corporate member) in respect of which the tribunal could not find a clear distinction, and it was able to conclude that it was ‘reasonable to suppose’ that the profit allocations to the corporate member were in part reward for carrying out their duties as member of the LLP. Consequently, the tribunal concluded that they were attributable to the individual’s ‘power to enjoy’ over the allocations to the corporate, and it reallocated the full excess above the ‘appropriate notional profit’ to the individual. As this legislation remains relatively recent, in tax terms, it is likely that further cases will arise with different facts in the next few years, and further clarification about the operation of these rules is likely.

The ‘power to enjoy’ diverted profits 23.41 The legislation seeks to tax the non-individual member’s excess allocation of profits in the hands of an individual member or members, or other individual, having regard to who has the ‘power to enjoy’ the profits allocated to the non-individual member where he or she is connected62 to the non-individual member. HMRC have confirmed that the fact that the individual and the non-individual are both members of the partnership or LLP will not alone make them connected for these purposes.

Example Felix Charlton was the former senior partner of Charltons LLP, of which his children are members, together with other unconnected individuals. On retirement, Felix sold a 10% interest in Charltons LLP to his family company, Felix Limited. The shares of Felix Limited are held by Felix, his wife and his children. Felix is both a director of Felix Limited and unpaid non-executive Chairman of Charltons LLP. Felix Limited has never paid any dividends to shareholders or a salary to Felix Charlton but it receives a profit share from the LLP.

59 60 61 62

Defined in ITTOIA 2005, s 850C(10)–(17). Defined in ITTOIA 2005, s 850C(18)–(21). [2020] UKFTT 58 (TC). As defined in ITA 2007, s 993.

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Under the new mixed membership rules, Felix Charlton and his family members have a power to enjoy the profits allocated to Felix Limited. Therefore, any excess profit that is allocated to Felix Limited may end up being reallocated to Felix Charlton and/ or his family members. There will be situations, such as where outside investors have joined the LLP through a corporate member, where the individual members may derive some benefit from the presence of the corporate member. If the individuals do not have an interest in this corporate member and the corporate member does not provide them with remuneration in any way, then it is unlikely that there will be any ‘power to enjoy’ or ‘deferred profit’ that will be subject to the rules. If, however, the individual members do have some interest, then the extent of that interest and how significant it is in relation to the corporate member’s total profit share will be relevant factors in considering if it is ‘reasonable to suppose’ that some part of this share is attributable to the individuals’ ‘power to enjoy’ that part of it.

Relevant tax amount 23.42 The ‘relevant tax amount’ is the total amount of tax which, in the absence of the application of the mixed membership rules, would be chargeable in respect of the individual member’s and non-individual member’s income as members of the LLP.63 The reallocation of profit rules operate where it is ‘reasonable to suppose’ that the individual member’s ‘relevant tax amount’ is lower than it would have been in consequence of either: (a)

the deferral of any part of the individual member’s share (in the case of the first condition referred to in 23.38); or (b) the individual member’s power to enjoy (in the case of the second condition referred to in 23.39).

Appropriate notional profit 23.43 The non-individual member’s ‘appropriate notional profit’ is the sum of the appropriate notional return on capital and the appropriate notional consideration for services.64 These are determined by considering the usual arm’s length pricing that would normally apply between unconnected parties, ie a commercial interest rate of return for capital or the commercial value of services that it provides to the LLP.65 Where the rate of return reflects the amount of capital contributed by the non-individual member, regard will only be had to money or property contributed to the ‘permanent endowment’ of the LLP.66 Accordingly, undrawn profits, short-term funding and any tax reserve account will be ignored (although it may be possible to formally convert some of these amounts to capital under the terms of the LLP agreement to enable them to be treated as contributions for the purposes of the rules, subject to meeting all other applicable conditions). In the Walewski case,67

63 64 65 66 67

ITTOIA 2005, s 850C(9). ITTOIA 2005, s 850C(10). ITTOIA 2005, s 850C(11)–(17). ITA 2007, s 108 and ITTOIA 2005, s 850C(13), (14). [2020] UKFTT 58 (TC).

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the tribunal followed the statutory definition closely, and did not give the corporate member credit for uncapitalised undrawn amounts from which the LLP may have received some benefit. 23.44 In the case of services provided by the non-individual member, a commercial rate will need to be established and agreed for those services, ignoring any services or value provided either directly or indirectly by the individual member or members of the LLP. 23.45 It is anticipated that, in most cases, the general transfer pricing principles will apply, and actual pricing will be subject to review and agreement with HMRC. There will also be cases where alternative pricing may apply, and this will need to be justified and agreed, based on the particular facts, on a case-by-case basis.

Example Vivaldi LLP has five equal share members: one a company, Williams Ltd, and four individuals. Williams Ltd is owned by the wife of one of the other members and has provided the long-term funding to the business of £1 million; Williams Ltd provides no other services, assets or facilities to the LLP. For the year ended 31 December 2020, Vivaldi LLP has taxable profits of £2.5 million. £500,000 of these profits are allocated to Williams Ltd. As a result of the connection between Williams Ltd and one of the members of Vivaldi LLP, the mixed membership partnership rules apply and there is a ‘power to enjoy’ relating to the profits of Williams Ltd. On the assumption that the commercial rate of interest applicable for a loan from a third party on terms similar to the Williams Ltd capital account can be established at 10%, the profits for tax purposes will need to be reallocated, such that Williams Ltd’s taxable profit will be reduced to £100,000, being 10% of £1 million. The balance of the profit share allocated to Williams Ltd, £400,000, will then need to be reallocated for tax purposes, on a just and reasonable basis, to the owner of Williams Ltd and her husband who have the ‘power to enjoy’ the profits of the company.

Profit reallocation 23.46 In cases where the mixed membership rules apply, and HMRC seek to reallocate profits of the LLP, the LLP and/or its advisers will need to agree a just and reasonable split of disputed profits with HMRC. This will need to take account of the particular facts of the case, including who has the ‘power to enjoy’ and the individual tax position of each affected member. 23.47 Where profits are reallocated, the legislation ensures that double taxation is avoided by treating subsequent payments made from the non-individual member to the individual member or members, reflecting the reallocated profits, as not taxable income for the individual or individuals.68 Where, for example, a corporate member pays a dividend to its owner (or any other individual) where both are members of 68

ITTOIA 2005, s 850E.

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the LLP, the part of the dividend that is derived from the profit reallocated for tax purposes to the company owner (or other individual member) under the mixed membership rules is not taxed at this stage, having already been taxed under the mixed membership rules on the individual member or members. Any balance of the dividend, such as that reflecting the appropriate notional return for the corporate member will, however, remain taxable in the hands of the individual when the dividend is paid.69 23.48 Where profits are reallocated under the mixed membership rules, the non-individual member’s taxable profits are correspondingly reduced to reflect the profits allocated to the individual members. In all cases, the amounts taken into account for the mixed membership rules are to be calculated using income tax rules. 23.49 In some cases, it will not be possible for straight numerical adjustments to be made, due to computation differences between income and corporation tax, and the position will need to be agreed with HMRC. 23.50 In a simple situation where the corporate member is owned by the individual members, it is perhaps worth noting that the mixed membership rules are unlikely to result in tax liabilities higher than would have been the case if the profits were received by the members directly, with no attempt to defer or reduce the tax burden. In more complex structures, however, the application of the double tax relieving provision is less clear and difficulties may arise. It is anticipated that most firms will seek to avoid the application of the mixed membership rules, due to the higher level of scrutiny, complexity and administrative burden involved.

Alternative Investment Fund Manager (AIFM) 23.51 Where an LLP is treated as an Alternative Investment Fund Manager (AIFM),70 special rules apply to defer profit under the rules applicable to such entities. In these cases, the profits deferred are treated as allocated to the LLP, but subject to tax based upon the tax position of the members as if received by them personally. In this situation, the legislation provides for the tax due as being a liability of the LLP.71

International businesses 23.52 The mixed membership rules apply equally to partnership structures which operate internationally. Where an LLP is a member of another LLP, the structure will be a mixed membership partnership, as the LLP member is a non-individual. A number of professional service firms have structures involving multiple LLP entities, and care will need to be taken to ensure compliance with the mixed membership rules. However, it should be remembered that the mixed membership rules are targeted at the non-commercial allocation of profits, and such partnership

69 70 71

ITTOIA 2005, s 850C(5). ITTOIA 2005, ss 863H–863L. ITTOIA 2005, s 863I.

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structures have normally been set up for bona fide commercial reasons. Therefore, while they may well be a mixed membership LLP in the UK, there may be no effective reduction in the individual member’s taxable profit within the UK or the UK LLP. The rules can apply to a variety of situations, however, including some which may otherwise be considered ‘commercial’. Care, therefore, needs to be taken to consider the particular facts and the relevant aspects of the rules which apply to them. 23.53 Where an international structure triggers a reallocation under the mixed membership rules due to a deferral or reduction in UK tax, care will need to be taken to avoid double taxation or the loss of relief for overseas taxes.

Losses 23.54 The mixed membership rules also target excess loss allocations from a non-individual member to an individual member where the aim is to secure a tax advantage.72 Historically, various structures have been set up, whereby a corporate entity becomes a member of an LLP with one or more individual members, and the losses in the early years of a business are allocated to the individual members, who have little involvement with the business beyond providing funding and the obtaining of tax relief for losses. In such cases, the rules work to ensure that any tax-motivated allocation of losses does not qualify for relief. It is worth noting that, unlike the rule for profits, the losses are not reallocated between the members (such that a corporate member may have been able to claim relief at lower effective tax rates) but are excluded from loss relief entirely.

Accounting periods straddling 6 April 2014 23.55 The mixed membership rules affect profits arising on or after 6 April 2014 – including where the accounting period started much earlier and straddles 6 April 2014. 23.56 In order to prevent abuse prior to the start of the new rules, anti-forestalling rules apply to target action that members take to divert profits to a non-individual member of the LLP between 5 December 2013 and the end of the LLP’s accounting period (where this straddles 6 April 2014).73 The anti-forestalling rules enable HMRC to reallocate profit shares for all the members on a ‘just and reasonable’ basis. The profits would be time-apportioned between two deemed periods: the first running from the start of the accounting period to 5 April 2014, and the second from 6 April 2014 to the end of the accounting period. For the second period, HMRC will be able to reallocate on a just and reasonable basis.

Transfer of assets and income streams 23.57 At the same time as the mixed membership rules were introduced, new rules were introduced to counter various arrangements involving the transfer of

72 73

ITA 2007, s 116A. ITTOIA 2005, s 850D.

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assets or income streams.74 Whilst not limited to mixed membership LLPs, such arrangements often involve the fact that the transferee and transferor are subject to differing tax rates or regimes (eg a company and an individual, UK residents and non-UK residents etc) to avoid or reduce the tax payable. The new rules apply to all LLPs, not just mixed membership LLPs, although not where the disposal by or through an LLP is from a member to that member’s relative.75 23.58 The legislation provides that the ‘relevant amount’ is brought into charge as income of the transferor.76 The ‘relevant amount’ is calculated as the higher of the consideration received by the transferor on the disposal and the market value where the consideration is substantially below market value.77

Associates and connected persons 23.59 The Taxes Acts have a number of provisions which are used to determine the ‘control’ of a company and whether the company is a ‘close’ company for tax purposes. A close company is a company under the control of five or fewer participators.78 If a company is close, this can affect the rate of corporation tax, amongst other issues. For the purposes of determining whether a company is close, it is necessary to review the participators of the company; and, to do this, it is necessary to look at the owners and also their associates and the persons with whom they are connected. Partners in a partnership are defined as falling within the definition of ‘associates and connected persons’,79 and members of an LLP also fall within this definition.80 This will be beneficial where members also own a company (for example, to carry out certain kinds of regulated business), because it will help them to qualify for tax relief on interest on loans to buy shares in the company. 23.60 Where a close company makes a loan or advance to a partnership or an LLP in which all of the partners/members are relevant persons,81 and at least one of the partners/members is a participator in the company, the other partners/members are likely to be associates of a participator. The loan or advance, which may be for any purpose, is therefore to relevant persons. As a result, subject to the conditions set out in the legislation, a charge to tax will arise equivalent to the upper dividend tax rate of 32.5 per cent (formerly 25 per cent, prior to April 2016) of the amount of the loan or advance.82 Where the loan or advance is repaid, the 32.5 per cent tax charge is also reimbursed, without interest. 23.61 For loans made before the changes in the legislation on 20 March 2013 to a partnership or LLP, HMRC rarely took the view that the loan or advance fell

74 75 76 77 78 79 80 81 82

ITA 2007, ss 809AAZA and 809AAZB. ITA 2007, s 809AAZA. ITA 2007, s 809AAZB. ITA 2007, s 809AAZB. CTA 2010, s 454. ITA 2007, s 993. ITTOIA 2005, s 863. CTA 2010, s 455. CTA 2010, s 455.

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within these provisions. HMRC consider that the changes to the legislation have now clarified the prevailing position and that a charge does arise where an appropriate loan or advance has been made, which can include where the company leaves profits undrawn in the LLP from which the participators then benefit. Where the LLP had a corporate partner prior to 20 March 2013, no charge could apply, as the loan was not just to individuals. 23.62 As LLPs are treated as transparent for tax purposes,83 any loan or advance to an LLP is treated as being a loan or advance made to the partners/members.84 23.63 Therefore, provided that at least one of the members of the LLP is a relevant person who is a participator (either in his own right or via the partnership) in the close company, and there are no corporate members of the LLP (pre 20 March 2013), then any loans/advances/indebtedness to the LLP will be chargeable to tax at 32.5 per cent. No deduction can be made for tax purposes for this tax charge, which becomes repayable when the loan or advance is repaid. 23.64 For loans made on or after 20 March 2013, the fact that such loans or advances are chargeable is now made explicit by the legislation;85 equally, loans or advances to LLPs will be chargeable regardless of whether one or more of the partners/members is a company.

INDIVIDUAL MEMBERS’ TAXATION 23.65 As stated in 23.16, details of a member’s income from an LLP will be reported to HMRC via the LLP’s annual tax return.86 The individual detail for each member shown on the LLP’s tax return will also need to be shown on the relevant pages of the individual member’s tax return. The individual member’s tax return will, of course, also need to show details of the individual’s other income and outgoings for the relevant tax year. If the individual incurs any expenditure on behalf of the partnership, this will typically need to be claimed through the partnership return rather than on the individual’s personal return: see 23.17. 23.66 An individual member of an LLP is subject to the same filing date requirements and record-keeping requirements as the LLP. In this case, the filing penalties are the same as detailed in 23.23 and up to £3,000 in respect of a record-keeping failure.87 These penalties apply, and are charged, to each individual, and are not therefore multiplied by the number of members in an LLP.88 As a result, the individual member will need to report details of his income from the LLP on the

83

ITTOIA 2005, s 863. CTA 2009, s 1273(1)(b). 85 CTA 2010, s 455. 86 For salaried members who are treated as employees, see 23.83. 87 TMA 1970, s 12B(5). 88 See 23.20 and 23.23 in relation to a default by an LLP. 84

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basis of his share of the taxable profits arising in the accounting period ending in the relevant tax year. Thus, for an LLP with a year end of 30 April, the individual partner will be required to declare in his 2021/22 tax return details of his share of the taxable profits of the LLP arising in the accounting period ended 30 April 2021. The member will also have to declare details of his other income arising in the tax year 6 April 2021 to 5 April 2022 (including details of LLP income received net of income tax). Complications arise in the year of commencement, on change of accounting reference date and in the year of cessation of self-employment, whether the individual is a member of an LLP or a partner in a partnership. These complications are discussed at 23.67–23.74.

Commencement rules 23.67 In the year of commencement of self-employment, for example as a new member of an LLP, the income tax rules apply so that the individual (not a company) is taxed on his or her share of the taxable profits arising in the business during the relevant tax year.89 Thus, for a new member admitted to an LLP on, say, 1 May 2021, the taxable profits for the tax year 2021/22 will be the member’s share of the taxable profits of the LLP for the period 1 May 2021 to 5 April 2022. Provided that the accounting date of the LLP is 12 months or more after the date of commencement, in the second year of the individual’s self-employment as a member of the LLP, the normal basis of assessment will apply,90 so that the member will be taxed on his share of the full year’s profits of the LLP for the year ended 30 April 2022. If the accounting date in the second year is less than 12 months after commencement the basis of assessment will be 12 months from the commencement date.91 23.68 As a result of these opening year rules, there is a period or periods which fall to be assessed to taxation twice in the first couple of years of the member’s self-employment. This period which is doubly assessed for income tax is known as the ‘overlap’ period and, in the example above, relates to the taxable profits of the member for the period 1 May 2021 to 5 April 2022. The underlying principle of self-assessment is that during an individual’s self-employment he will be taxed on the whole of his tax adjusted self-employment income, not a penny more or a penny less. As a result, the taxable profits for the ‘overlap’ period are calculated and a record is maintained so that relief is given for this ‘overlap’ period either as a result of certain changes of accounting reference date of the business (see 23.71–23.73) or upon the cessation of the individual member’s self-employment (see 23.74). This is also the case where the individual ceases membership with one firm only to immediately recommence self-employment with another firm, where both the cessation and opening year rules will apply. 23.69 In the case of LLPs, HMRC have confirmed that the transfer of the whole of the business of a partnership into an LLP will not be a trigger event for overlap

89 90 91

ITTOIA 2005, s 199. ITTOIA 2005, s 198. ITTOIA 2005, s 200.

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relief for the individual members/partners.92 This means that the overlap relief on an individual becoming a partner in a partnership incorporated as an LLP will be carried through to his participation as a member of the LLP, such that relief will only be given on a change to a later accounting reference date in the tax year, or on retirement from the LLP. 23.70 Complications may arise where only part of the business of a partnership is transferred into an LLP, as HMRC have indicated that they will treat such situations as a demerger.93 Where one of the successor businesses is sufficiently large in relation to the rest as to be recognisably ‘the business’ as previously carried on, then this may be treated as a continuation of the old business.94 In this case, the other successor business will be treated as a new business such that the commencement rules will apply to members/partners. Perhaps more worryingly, if neither of the successor businesses is sufficiently large in relation to the rest, then the old business will be deemed to have ceased, and two or more new businesses will be deemed to have commenced. In this case, both the cessation and commencement rules will apply to each member/partner, although accrued overlap relief will be available for offset against taxable profits.

Change of accounting reference date 23.71 Where an LLP changes its accounting reference date to one later in the tax year, an appropriate proportion, calculated on a time basis, of the overlap relief is released in order to be offset against the profits assessable in that tax year.95 It will be appreciated that the accounting period, or period ending in the relevant tax year, will exceed 12 months in length and that this is the reason why part of the overlap relief is released. Thus, in the case of an LLP whose accounting reference date has been 30 April, and which then switches in the tax year 2021/22 to a 31 October accounting reference date, the assessable profits for 2021/22 will be the 12 months to 30 April 2021 plus six months to 31 October 2021. Against these profits there will be a release of the overlap relief representing the period 1 May to 31 October, out of the total period 1 May to 5 April, ie amounting to 183 days out of a total of 340 days. 23.72 Where the accounting reference date is moved to a date earlier in the tax year, there will be a corresponding increase in the member’s overlap relief available for carry forward as a result of a period falling into the basis period for two tax years. For example, where a firm moves back from a 30 September 2021 reference date to 30 April 2021, the assessment periods become: 2020/21 – year ended 30 September 2020 2021/22 – year ended 30 April 2021 Thus, the additional overlap period is 1 May 2020 to 30 September 2020.

92 93 94 95

Tax Bulletin issue 50. Tax Bulletin issue 50. Statement of Practice 9/86. ITTOIA 2005, s 220.

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23.73 There are specific rules to ensure that businesses cannot frequently change accounting reference date without having good commercial reasons for the change.96

Cessation 23.74 When a member leaves an LLP, he will be deemed to have ceased his self-employment in respect of that LLP’s business. As a result, the cessation rules97 will apply to the individual concerned, with the release of his overlap relief being crystallised. In the year of cessation, the member is taxed on his share of the LLP’s profits for the period since the end of the basis period for the previous tax year to the end of his membership of the LLP. In the case of a member who retires from an LLP on, say, 31 July 2021, and whose previous tax year’s basis period is the accounts to 30 April 2020, the basis period to the year of cessation is the 12 months to 30 April 2021 plus the three months to 31 July 2021. Against this can be offset the whole of the member’s accrued overlap relief in respect of that business. In terms of assessable periods, the individual will have been taxed on a 15-month period from 1 May to 31 July, and will have received overlap relief for 1 May through to 5 April, thus resulting in the assessable period, in terms of time only, being the period arising during the relevant tax year. However, as overlap relief is not index linked, it is likely that the overlap relief in terms of actual taxable profits will be significantly different from the equivalent profits accrued during the period of offset. This deficit, or potential excess, reflects the cashflow benefit or disbenefit of having an accounting reference date early in the tax year.

Loss relief 23.75 The members of an LLP will be entitled to relief in respect of losses incurred in the business of the LLP, either through the income tax (for individual members) or the corporation tax (for corporate members) rules. In the case of an LLP carrying on a profession (as distinct from a trade, a distinction which has generated some confusing case-law), this relief is unrestricted (subject to the sideways loss relief restriction mentioned at 23.76 and 23.80) and equal to the loss.98 Relief can be given against total taxable income of the current or previous tax year, and failing this by carry forward against subsequent shares of profit from the LLP. Where the LLP ceases trading, losses arising in the final 12 months of trading, which may be augmented by overlap relief (see 23.68), can be considered ‘terminal’ losses and these losses can be carried back to the previous three tax years to claim relief against shares of profit from the same LLP trade only. The loss for the year will need to be ‘appropriated’ for tax purposes when submitting the LLP and members’ personal tax returns. Accordingly, the accounting treatment may differ from the tax treatment. 23.76 However, the amount available for relief against total income (‘sideways’ relief) for a member of an LLP which carries on a trade is restricted to the amount

96 97 98

ITTOIA 2005, s 217. ITTOIA 2005, s 202 and s 205. Tax Bulletin issue 50.

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of the member’s contribution to the business.99 The amount of the member’s contribution is further defined as the greater of the amount subscribed by the member and the amount of the member’s liability on a winding up. The amount ‘subscribed’ is a reference to capital contributed and not to income retained within the LLP.100 23.77 The undrawn profits of a member of a trading LLP cannot normally be added to that member’s subscribed capital in order to calculate the limit of his entitlement to current and subsequent year loss relief. This is because, subject to any agreement between the members, a member’s undrawn profits will normally be regarded as a debt of the LLP. Accordingly, the member ranks, for that sum, alongside the other creditors in the event of liquidation. If, however the undrawn profits have been added as a contribution to the LLP’s capital they will be included in the total of that member’s subscribed capital. 23.78 If an amount is contributed to capital and the main, or one of the main, reasons for doing so is to obtain sideways loss relief, that amount will be excluded from the calculation of the member’s capital contribution.101

Example (The following useful example, of how the relief provisions discussed in 23.75–23.78 will apply, was included in the December 2000 Tax Bulletin.) Mr A becomes a member of a trading LLP on 6 April 2003. He introduces capital of £10,000 into the partnership. The LLP carries on a trade. During the year ended 5 April 2006 he makes a further capital contribution of £6,000. His share of the LLP’s trading loss is as follows and he claims for those losses against his other income. Year ended 5 April 2004:

£6,000

Year ended 5 April 2005:

£6,000

Year ended 5 April 2006:

£3,000

Mr A is entitled to loss relief as follows: 2003/04:

£6,000 (unrelieved capital contribution £4,000)

2004/05:

£4,000a (unrelieved loss £2,000)

2005/06:

£5,000b (unrelieved capital contribution £1,000)

a Loss relief is restricted to the unrelieved capital contribution brought forward of £4,000. The balance of the loss of £2,000 (£6,000 – £4,000) is carried forward. b Loss relief of £5,000 available, ie loss of the year of £3,000 plus unrelieved loss brought forward of £2,000. Unrelieved capital contribution carried forward is £1,000 (ie total contributions of £16,000 less total loss relief given of £15,000). 99

ITA 2007, s 107 and the Tax Bulletin issue 50. ITA 2007, s 108. 101 ITA 2007, s 113A. 100

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23.79 Where a member of a trading LLP makes a capital contribution in order to meet a liability of the LLP for negligence for which the member is personally responsible (and he is obliged by the other members to make that contribution), then that amount will be taken into account in determining the amount of the member’s capital contribution to the LLP. Provided that the conditions for relief are otherwise met, that member will be entitled to loss relief up to a maximum of the amount of the additional contribution.102 23.80 It should also be noted that Finance Act 2013 introduced a cap on the maximum relief that can be claimed against general income for trading losses (including partnership/LLP trading losses) and interest payments of the higher of £50,000 and 25 per cent of adjusted net income.103 Adjusted net income is, generally, an individual’s taxable income for a tax year calculated in accordance with the Taxes Acts. This restriction does not apply where the activities of the LLP are a profession. 23.81 In addition to the general restrictions above on sideways loss relief for members of a trading LLP, non-active partners’ loss relief is subject to an overall cap of £25,000 for any tax year.104 A non-active member is defined as an individual who spends an average of less than 10 hours a week personally engaged in activities of the trade.105 No such restriction applies to an LLP carrying on a profession. When these special rules apply to limit ‘sideways’ loss relief for a trading LLP member, any unrelieved losses can still be carried forward for relief against future profit shares.

Film scheme cases 23.82 Additional restrictions apply to film partnerships and LLPs.106 As mentioned in 23.78, capital contributions paid on or after 2 March 2007 do not count as contributions for tax purposes if the main purpose, or one of the main purposes, for contributing the capital to the partnership/LLP is for the partner to reduce their tax liability through sideways loss relief. The legislation provides that the purpose test does not apply to any loss derived solely from qualifying film expenditure. It should be noted that the legislation on which the definition of ‘qualifying film expenditure’ is based has now been repealed, and it is unlikely that the exclusion will be seen in practice.

Salaried members 23.83 In the light of the Supreme Court decision in Clyde & Co LLP v Bates van Winkelhof,107 it appears that a person cannot be both a member of an English LLP and employed by it.108 Nevertheless, it was the view of the authors that ‘salaried members’ (ie members whose rights and obligations were akin to those

102 103 104 105 106 107 108

Tax Bulletin issue 50. FA 2013, Sch 3. ITA 2007, s 103C. ITA 2007, s 103B. ITA 2007, s 115. [2014] 1 WLR 2047. Although members may be, and have the rights of, ‘workers’. See Chapter 9.

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of employees) should be taxed on an employed basis unless their arrangements satisfied the normal criteria of self-employment. Typically, this would include the requirement for the members in question to provide capital to the LLP and participate in the variable profits and losses of the business. HMRC took a different view based on its construction of ITTOIA 2005, s 863, which it viewed as compelling the conclusion that all LLP members were to be treated as self-employed regardless of their rights and obligations. That issue has, however, been rendered academic by rules introduced from 6 April 2014, under which some LLP members are treated for tax purposes as if they are employees. These rules were introduced because HMRC took the view that LLP structures were being adopted that took advantage of the self-employed tax status of all individuals who were registered as members of the LLP at Companies House. HMRC considered that this was an unacceptable form of avoidance. The Finance Act 2014 introduced new rules to determine the status of members of an LLP for tax purposes. It should be noted that the rules are stated to apply for tax purposes only and do not affect the substantive legal position of persons who are members of an LLP; nor do they affect partners in a general partnership, a limited partnership or an LLP formed under the law of another territory. Whilst this may create an unfair advantage to overseas structures whose partners may still be self-employed, despite meeting the three tests applicable to UK LLPs, their status remains subject to the application of the badges of employment analysis that applies to traditional partnerships. It would not be surprising, however, if certain overseas LLP structures were brought within the new regime in the future, although HMRC have not yet indicated that this will happen. 23.84 The rules commenced and apply from 6 April 2014. Where a member of an LLP is reclassified as an employee109 for income tax purposes under the new rules, his previous self-employed status is deemed to have come to an end on 5 April 2014, so that the cessation rules applied for the tax year 2013/14, resulting in the crystallisation of any overlap relief (see 23.74). 23.85 From 6 April 2014, a member of an LLP is taxed as an ‘employee’ and subject to PAYE if three conditions are all met. The conditions are: •• •• ••

Condition A – Disguised salary,110 Condition B – Significant influence,111 and Condition C – Capital contribution.112

These rules are considered below.113

Condition A – Disguised salary 23.86 The disguised salary condition is met if it is reasonable to expect that at least 80 per cent of the total amount payable by the LLP in respect of a member’s 109

ITTOIA 2005, s 863A. ITTOIA 2005. s 863B. 111 ITTOIA 2005, s 863C. 112 ITTOIA 2005, s 863D. 113 HMRC have helpfully produced guidance relating to the new rules: ‘Partnerships: A review of two aspects of the tax rules – Salaried Members Rules: Revised technical Note and Guidance’. 110

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performance during the relevant period of services for the partnership in his capacity as a member of the partnership will be disguised salary. 23.87 Whether the condition is met is considered on a forward-looking basis initially at the beginning of the 2014/15 tax year or, if later, when the member became a member of the LLP; or subsequently when relevant arrangements114 are put in place or modified. That is to say, it is considered on the basis of the circumstances anticipated to happen rather than the actual outcome which may be dependent upon the financial results of the business. 23.88

Disguised salary relates to a member’s remuneration/profit share which:

(a) is fixed, (b) if it is variable, is varied without reference to the overall amount of the profits or losses of the LLP, or (c) is not, in practice, affected by the overall amount of the profits or losses of the LLP.115 23.89 For the last of these possibilities, HMRC have stated that they will view the position based upon the anticipated practical position rather than a hypothetical situation that in reality is unlikely to arise. It may therefore be important to demonstrate the variability of an individual’s profit share by reference to the LLP’s budgeted profits. As mentioned above, Condition A is considered on a forward-looking basis, and the fact that the profits of the business do not produce the expected outcome does not result in Condition A being met.

Example Holly & Co LLP is an LLP with 30 members, where profits for the last three years have been as follows: •• •• ••

Year ended 31 March 2018: £3,500,000 Year ended 31 March 2019: £3,000,000 Year ended 31 March 2020: £4,000,000

Budgeted profits for the year to 31 March 2021 are £4,250,000. Holly & Co LLP has 15 junior members who are each entitled to fixed profit shares ranging from £50,000 to £75,000. These profit shares are payable as part of the first tranche of the LLP’s profit along with the fixed shares of the senior equity members. The total fixed shares for the year to 31 March 2021 are £1,750,000. Where profits fall below the total first tranche amount, the fixed shares are abated pro rata to the total first tranche. As it is reasonable to assume that profits of Holly & Co LLP will exceed the profits required to pay all of the first tranche, the junior members will meet Condition A.

114 115

Defined in ITTOIA 2005, s 863B(2). ITTOIA 2005, s 863B(3).

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Robin (currently at another firm) has been offered an opportunity to join Holly & Co LLP as a member. The LLP has suggested a package under which he would have a fixed share of profits of £50,000 and a commission of 25% of the billings on any new clients that he introduces to Holly & Co LLP. Robin expects to be able to bring an existing client which he anticipates will result in billings for his new firm of £1,000,000 in his first year, giving him a potential commission of £250,000. Both elements of his proposed package are ‘disguised salary’ as they are not dependent upon the overall profitability of the LLP. Henry, a senior member, is currently unwell and unable to work. Whilst he is unable to work, the LLP has agreed to pay him a fixed profit share of £100,000, reflecting the ongoing work on Henry’s clients being performed by other members of the firm. Henry is not performing any services for the LLP. Accordingly, Condition A is not met and Henry will be treated as self-employed. Jason, the managing partner, receives a first tranche profit of £50,000 together with 5% of the profits over the fixed shares. Jason has an expected variable profit share of greater than 20% of his total reward, and so he fails to meet Condition A and will be treated as self-employed.

Condition B – Significant influence 23.90 Condition B is met if the mutual rights and duties of the members of the LLP do not give the member a significant influence over the affairs of the LLP.116 Therefore, for an individual to fail to meet Condition B, he needs to be able to demonstrate a significant influence over the affairs of the LLP. It may be that, in a small LLP with, say, 10 or fewer members, most members will be able to demonstrate significant influence, but this will depend upon the particular facts of each case. For larger firms, it is likely to be difficult for members not involved in, say, a management committee, or in a position of particular influence such as the finance partner, to be able to demonstrate significant influence.

Example Wellington LLP has eight members and is run as a collective, with all members attending weekly meetings where decisions are made over which clients to act for and how the business is run. However, the founding and senior partner, Malcolm, has a power of veto over all decisions and has exercised this power once in the last three years. Condition B is unlikely to be met, as it can be demonstrated that all members have a significant influence over the affairs of the LLP, despite the power of veto held by Malcolm. If, however, Malcolm regularly exercised the power of veto, it is possible that no member apart from Malcolm would have significant influence.

Condition C – Capital contribution 23.91 Condition C is met if a member’s contribution to the LLP is less than 25 per cent of the amount of the disguised salary (see Condition A at 23.86 above) 116

ITTOIA 2005, s 863C.

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that it is reasonable to expect that the member will be paid by the LLP for their performance of services during the tax year.117 It should be noted therefore that, although ‘disguised salary’ takes the same meaning in this condition as defined in Condition A, it may be quantified for different periods for each condition if the relevant period for Condition A purposes is not the tax year. A member’s contribution is the amount contributed by him to the permanent endowment of the LLP.118 Accordingly, undrawn profits, tax reserves, and amounts agreed to be paid by the member to the LLP, do not count and will be excluded (unless they are otherwise formally added to the capital of the LLP under the terms of the LLP agreement, and otherwise meet the conditions in the legislation). The guidance issued by HMRC notes that a ‘long-term loan’ can qualify as a capital contribution if it is comparable to capital and, typically, only repayable on the retirement of the member from the LLP.119 23.92 The guidance issued by HMRC states that there will be a deemed contribution to allow a member recently promoted, or when the new rules were introduced, to fail to meet Condition C where there is/was an LLP undertaking to invest capital.120 The deemed contribution rules require the contribution to be made by 5 July 2014 for members who were members on 5 April 2014, or the later of 5 July 2014 and two months after the date on which the individual becomes a member if after 6 April 2014.121 It should be noted, however, that there is no period of grace for a continuing member if the additional contribution is not made by the relevant date where, because of a change in his ‘disguised salary’ for a tax year or at another time of a material change, the amount of capital contribution required to fail Condition C is increased. 23.93 The legislation also provides rules where the capital contribution is changed part way through a year.122 Where the contribution is reduced, Condition C is retested. However, where a capital contribution is increased, two special rules apply to disregard any increase where it is reasonable to expect that the contribution will not be in place for the rest of the tax year and to apportion the contribution for excluded days, being days in the tax year before the contribution is made.

Example Albert is a junior member of Lancaster LLP which has 100 members. Up to 5 April 2021, he was employed by the LLP and taxed as an employee. On 6 April 2021, he was appointed as a member of the LLP with a fixed profit share of £100,000, and did not exercise significant influence over the LLP’s affairs. When he became a member, as part of his membership agreement he undertook to introduce £25,000 capital to the firm, and he actually made that contribution within two months of joining the LLP as member. Albert is therefore treated as failing Condition C from the date when he

117 118 119 120 121 122

ITTOIA 2005, s 863D(1). ‘Partnerships: A review of two aspects of the tax rules – Salaried Member Rules’. ‘Partnerships: A review of two aspects of the tax rules – Salaried Member Rules’. ITTOIA 2005, s 863F(1). ITTOIA 2005, s 863F(2). ITTOIA 2005, s 863D.

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joined. Had he not made the contribution, then he would meet Condition C from the date when he joined. A year later, Albert’s fixed profit share is increased to £125,000 from 6 April 2022. Albert undertakes to increase his capital contribution to £35,000, but does not actually provide the extra contributions until 6 May 2022. As the ‘period of grace’ is not available to a continuing member, Albert meets Condition C from 6 April 2022 to 5 May 2022, as his contribution at that time is less than 25 per cent of the fixed amount that he is expected to be paid for the year, and will need to test Condition C again as at 6 May 2022 on actually making the further contribution, and he will have to consider the apportionment provisions for a contribution made part of the way through the period. 23.94 Members of an LLP, who are individuals, will normally be entitled to claim interest relief on the loans they take out for the purposes of the business of the LLP (see 23.106 below).

Partnership annuity payments 23.95 Before the introduction of the LLP Act 2000, partnerships regularly paid annuities to former partners and/or their surviving spouses. These annuities invariably recognised the ongoing benefit for the remaining partners of the former partner’s work for the firm. These annuities specifically qualify for tax relief as charges on each individual partner’s personal income from the business.123 As can be seen from what is said at 7.17, partnership annuities can give rise to considerable difficulties upon the incorporation of a partnership into an LLP. The result may be that, upon incorporation, the annuities are carried through from the former partnership into the LLP and are assumed as a liability by the LLP, or they are specifically left behind as obligations of the former partners. 23.96 In the former case (annuities carried through), HMRC have confirmed that income tax relief for those partners who become members of the LLP will continue as if the annuities were paid by the old partnership continuing without change.124 Newly admitted members of the LLP who assume a proportion of the liability, either by joining in the liability or out of whose profit share the annuities are paid, will also qualify for relief. Where the liability to pay an annuity is not transferred to the LLP, and the members of the old partnership continue to be liable to pay the annuity personally, those members will continue to obtain higher rate and additional rate income tax relief. This relief will cease for a paying member on the earlier of the paying member ceasing to be a member of the LLP and the business originally carried on by the partnership ceasing.125 It will also be possible to pay similar annuities to former members of an LLP and obtain tax relief under these provisions, even if the annuity liability is stated to be that of the LLP.

123

ITTOIA 2005, s 627(2) and Sch 2, para 132(1) and (2). Tax Bulletin issue 50. 125 Tax Bulletin issue 50. 124

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Partnership annuity transfers 23.97 HMRC have confirmed that the transfer to an LLP of a partner’s annuity rights and/or the transfer to an LLP of annuity obligations owed to former members of the partnership will not be regarded as chargeable disposals, provided that the rights and obligations remain substantially the same as those existing in relation to the old partnership. Where an annuitant agrees to substitution of the LLP, and the terms otherwise remain substantially the same, the annuitant will not be treated as making a chargeable disposal for capital gains tax purposes.126

Pension relief 23.98 As the members of an LLP are to be treated in the same way as partners in a partnership, the existing pension relief rules will apply to members of an LLP in an identical manner as they apply to partners in a partnership. The pensions regime has been the subject of significant change since 2006, and these changes are beyond the scope of this book. However, pension contributions are paid net of basic rate tax, with higher rate relief being claimed on the member’s tax return. The annual allowable amount is currently £40,000, although this can be tapered as low as £4,000 (£10,000 prior to 6 April 2020) depending on the individual member’s total income.127 23.99 It is often assumed that the annual allowable amount is by reference to a tax year. However, prior to 8 July 2015 this was not the case. The allowance applies to contributions made during a pension input period (but see 23.103 below for the position for premiums paid after 6 April 2015).128 Pension contributions for all input periods ending in the tax year to 6 April 2015 were added together to see if they breached the annual allowance. Because tax relief is claimed in respect of the tax year in which the contributions are paid, there was an opportunity to claim relief in one tax year for an amount greater than the annual allowance, provided that the member had sufficient income and allowance for the relevant input periods. 23.100 Contributions made in excess of the annual allowance are subject to an income tax charge of 45, 40 or 20 per cent of the excess amount (annual allowance charge), depending on the individual’s taxable income and the amount of their pension savings that are in excess of the annual allowance for the year concerned.129 There are certain occasions when the annual allowance charge does not apply, such as if the contributor dies during the input period or if they retire due to severe ill-health. 23.101 In addition to the annual limit on the amount of contributions, there is a lifetime allowance on the value of the pension fund. The lifetime allowance has been reduced in recent years and was reduced to £1 million from 6 April 2015. The allowance has varied on an inflation-linked basis from 2018/19 onwards, and for the 2020/21 tax year from 6 April 2020, the allowance is £1,073,100.

126

Tax Bulletin issue 50. FA 2004, s 228. 128 FA 2004, s 238. 129 FA 2004, Sch 36, s 227(4). 127

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23.102 If the value of the pension fund when the benefits start to be drawn exceeds the lifetime allowance, there will be a ‘recovery charge’ in respect of the excess value equivalent to 25 per cent of the fund value over the lifetime allowance (and further tax up to a total of 55 per cent if taken as a lump sum). 23.103 During the Budget Speech on 8 July 2015, the Chancellor introduced new rules to limit the pension tax relief applicable to those with high earnings for the tax year 2016/17 onwards. As part of these arrangements, he also introduced transitional arrangements for the 2015/16 tax year. 23.104 For the tax year 2015/16, the Chancellor announced that all pension input periods would end on 8 July 2015, and that another input period would end on 5 April 2016. All future input periods will be for a tax year, thus bringing alignment between pension input periods and tax years. Also, for 2015/16, there were potentially two input periods, so that, in some cases, it may have been possible for pension relief to be obtained for £80,000 worth of pension contributions, subject to satisfying certain criteria. 23.105 For the tax year 2016/17 onwards, where a member’s earnings exceed £150,000, tax relief on pension premiums is to be restricted. Initially, the annual allowance was to be tapered evenly from £40,000 to £10,000 for incomes between £150,000 and £210,000 (by £1 for every £2 of adjusted income over £150,000). For the 2020/21 tax year, generally the allowance tapers from £40,000 to £4,000 for incomes between £240,000 and £312,000 on the same basis, subject to certain other provisions beyond the scope of this chapter.

Loan interest relief 23.106 Historically, partnerships have been funded mainly either by partners’ personal capital contributions or by retained profits. Partners have been able to obtain income tax relief in respect of the interest incurred on a loan taken out to introduce monies into a partnership as long as the monies are used for one of the following purposes: (a) purchasing a share in a partnership; or (b) contributing money to a partnership by way of capital or premium where the money is used wholly for the purposes of the partnership business; or (c) paying off another loan where relief would have been available under the above criteria. For interest relief to be available on funds provided by members, it is also necessary for the LLP to be carrying on a trade or profession.130 23.107 Where these criteria are met, and provided the member has not recovered any capital from the partnership, a member has been able to offset the loan interest

130

Eclipse Film Partners No 35 LLP v HMRC [2015] EWCA Civ 95.

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paid against his assessable profits, and thus obtain income tax relief.131 This loan interest relief continues to be available to members of an LLP in the same manner as it is available to partners in a partnership. 23.108 The Finance Act 2001 introduced anti-avoidance provisions in respect of interest on a loan to purchase an interest in an investment LLP (see 23.139–23.142). 23.109 Nevertheless, as an LLP has a legal personality separate from its members,132 it may be preferable for such entities to seek a degree of corporate funding through the business, thus removing the personal liability of the members for repayment of loans to them. However, banks are now looking for charges on the LLP assets and will, in a number of circumstances, look for personal guarantees from the members of an LLP for such borrowing, which may negate some of the benefits of this level of borrowing.

PARTIAL INCORPORATION TO AN LLP 23.110 It is quite possible that a number of partnerships wishing to obtain LLP status will not be able to achieve full incorporation of their business into an LLP. This may be the result of an inability to novate existing contracts,133 the difficulties associated with the transfer of liability for annuity payments,134 or other specific circumstances. On this basis, it may well be that many partnerships will only be able to partially incorporate their business into an LLP. This partial incorporation will raise a number of significant issues, such as the effect on overlap relief.135 23.111 In the case of incorporation into a limited company, HMRC have, in practice, normally been prepared to accept the incorporation of a partnership as fully achieved as long as the performance and conduct of all contracts, and the economic benefit or otherwise of the partnership business, has been transferred by the partners to the new corporate entity. It appears that a similar pragmatic and commercial approach has been adopted by HMRC in respect of incorporation of a partnership into an LLP. In these circumstances it is also recommended that the clients of the partnership are notified of the transfer of the business to the LLP, in order to be able to demonstrate to HMRC the intended transfer of the business, although the clients may refuse to accept that this restricts their legal rights in any way. 23.112 Prior to 8 July 2015, corporation tax relief for purchased goodwill was available where a company acquired the business and assets of an existing business, with the relief given on these costs as the expenditure was written off in accordance with generally accepted accounting principles. From 8 July 2015, relief for goodwill costs had been denied, but for acquisitions from 1 April 2019 a new relief was

131

ITA 2007, ss 398 and 399. See the discussion in Chapter 3. 133 See the discussion at 7.7–7.10. 134 See 7.17–7.18. 135 See 23.74. 132

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provided for goodwill acquired with other qualifying intellectual property assets. The relief is given at an annual rate of 6.5 per cent of the value of the relevant assets, to a total maximum of six times the cost of the qualifying IP assets acquired with the business. This could affect partnerships incorporating into a limited company.

NATIONAL INSURANCE CONTRIBUTIONS 23.113 Following lobbying, the LLP Act 2000 includes a specific provision which states that members of an LLP will be liable to Class 4 National Insurance contributions and not the alternative employee contribution system (except where treated as ‘salaried members’ under that set of rules – see 23.83–23.94).136 The provision is silent in respect of the other classes of National Insurance contributions, but HMRC have confirmed that members of an LLP will also be liable to Class 2 National Insurance contributions and/or, where applicable, Class 3 National Insurance contributions.137 23.114 From April 2015, the self-employed pay their Class 2 NIC through the self-assessment tax system, as for income tax and Class 4 NIC.

CAPITAL GAINS TAX (CGT) 23.115 As the members of an LLP will be treated similarly to the partners in a partnership, the existing rules in relation to partners’ CGT will apply to the members of an LLP. These rules (as applied to LLPs) provide that the individual assets of an LLP are treated for tax purposes as though owned by the members in proportion, rather than separately by the LLP itself.138 This can present many complexities, particularly in areas where members join and leave an LLP, or where there is a change in the profit and asset sharing ratios within the LLP. 23.116 Historically, partnerships have been subject to an HMRC Statement of Practice D12 (‘SP D12’, revised in September 2015), which enables firms to deal with these issues, in circumstances where there is not a revaluation of assets, as though transactions between partners take place at historic cost. As a result there is no CGT charge arising on the acquisition or disposal of interests in the partnership. SP D12 has been updated to provide a similar position for members of an LLP.139 23.117 Where there is a revaluation of partnership assets, and subsequent changes in the asset sharing ratios, then each such change results in a disposal and acquisition for CGT purposes. Each individual member will be required to do a CGT computation in respect of his proportionate change arising at the date of the event giving rise to the change in asset sharing ratios. This can require quite complex CGT records and computations to be maintained, and may result in partners suffering an unexpected 136

LLP Act 2000, s 13, inserting a new subs (3A) into s 15 of the Social Security Contributions and Benefits Act 1992. 137 Tax Bulletin issue 50. 138 TCGA 1992, s 59A. 139 Statement of Practice D12, revised September 2015.

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charge to CGT. It is therefore likely that most LLPs will wish to apply the practice as set out in the revised SP D12. There may be some complications for LLPs, in that their accounts will need to be prepared using generally accepted accounting practices and comply with the LLP SORP. This may have an impact on the values attributable to assets held within the LLP’s balance sheet. For example, a property investment LLP will be required to revalue its property investments regularly as part of its accounts process, thus taking it outside the scope of SP D12. 23.118 The transfer of a business from a partnership to an LLP will have no effect for CGT purposes, as the assets before transfer will be deemed to be owned by the partners individually and, following incorporation, the assets will still be deemed to be owned by the members individually, thus resulting in no disposal arising for CGT purposes. Obviously, if there were to be a change in ownership ratios at the time of incorporation, a chargeable gain could arise, subject to the application of the revised SP D12. However, as noted at 23.125–23.128, this is unlikely to be desirable in any event. As a result of there being no disposal by the partners on incorporation into an LLP, the transfer of the business and assets will have no effect upon the availability of any CGT reliefs which may have been available at the time of the disposal, such as, prior to 6 April 2008, indexation allowance and CGT taper relief.140 Likewise, since 6 April 2008, the transfer to an LLP should not have any impact upon the availability of entrepreneurs’ relief – now known as ‘business assets disposal relief’. 23.119 As an LLP will be required to produce its accounts under generally accepted accounting practice and complying with the LLP SORP, a merger is likely to have to be treated as an acquisition in the LLP’s accounts. This will result in the balance sheet having to reflect the value of the assets acquired at their market value and will, in most cases, result in goodwill being reflected on the LLP’s balance sheet. In accordance with generally accepted accounting practice, the goodwill will normally be written down through the LLP’s profit and loss account over a period of years but, for goodwill acquired on or after 8 July 2015, no tax relief will be available. The valuation of goodwill arising in such cases would result in the members of the LLP not being able to take advantage of the practice set out in SP D12 in relation to goodwill.

Contribution of assets to a partnership 23.120 Historically, there was a degree of uncertainty over the tax treatment of assets introduced into an LLP. Whilst many Inspectors applied the principles of Statement of Practice D12, enabling the disposal to be treated at no gain/no loss, other Inspectors insisted that a part disposal had occurred to the extent of the fractional share passing to other partners. In January 2008, HMRC issued guidance in the Revenue & Customs Brief 03/08 clarifying that the part disposal rules would be applied to all cases other than where HMRC were bound by previous statements confirming the availability of SP D12.141

140 141

Tax Bulletin issue 50. Revenue & Customs Brief 03/08.

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23.121 Therefore, where an asset is contributed by a member by way of a capital contribution, that member will have made a disposal of the asset equal to the fractional share that (for tax purposes) passes to the other partners. The market value of the asset applies, if the transfer is between connected persons142 or other than by way of a bargain made at arm’s length. Otherwise the consideration to be taken into account in calculating the gain or loss will be a proportion of the total consideration given by the LLP for the asset. HMRC have confirmed that, where a sum is credited to the member’s capital account, that sum represents consideration for the disposal of the asset to the LLP. Accordingly, an asset introduced at any amount above base cost will trigger a gain.

CGT rollover relief 23.122 Where an individual sells a privately owned ‘qualifying’ asset (for example, farmland which he has used for his own farming business) resulting in a capital gain and, within a period of one year before or three years after the disposal, he acquires an interest in another ‘qualifying’ asset held in an LLP, rollover relief can be claimed to defer the capital gains tax until the LLP asset is sold. Assets which ‘qualify’ include land, buildings or goodwill used in a trade or profession. The same relief can also apply in the reverse situation, where there is a sale by an LLP of a ‘qualifying’ asset and a subsequent acquisition by a member of the LLP of another ‘qualifying’ asset. This relief works at the individual member level, and therefore the proceeds reinvested would be restricted in each case to either the member’s share of the LLP asset disposed of or the member’s share of the asset acquired.

LIQUIDATION/WINDING UP 23.123 The income tax and CGT transparency of an LLP applies only while the LLP is carrying on activities with a view to profit. Accordingly, where an LLP ceases to carry on a trade or profession, it will no longer have equal treatment with that of a partnership, and for the purposes of income tax and CGT will instead be regarded as body corporate and no longer transparent.143 (a)

For income purposes the loss of tax transparency will result in the profits of the LLP being taxed as though the LLP were a company with corporation tax being levied at the corporate level. The members will either be taxed on distributions as employment income or as income or capital distributions depending upon the nature of the payment being made by the liquidator. (b) The members will be liable to taxation in respect of the gain or losses that will arise on the disposal of their capital interest in the LLP. The costs of the members’ capital interest in the LLP will be deemed to be the allowable acquisition costs of each member’s interest in the LLP, determined by reference to the capital contributions made as if the LLP had never been transparent.144

142

ITA 2007, ss 993 and 994. ICTA 1988, s 118ZA(4), ITTOIA 2005, s 863(4) and TCGA 1992, s 59A(4). 144 Tax Bulletin issue 50. 143

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It will therefore be necessary for members to maintain accurate records of their capital contributions made to an LLP and not just their share of the interest of each individual asset owned by the LLP. 23.124 HMRC have also stated that, where members of an LLP are able to wind up the LLP’s affairs in an orderly way, without the formal appointment of a liquidator, in the course of a cessation of commercial activity, then transparency for CGT (and income and corporation tax) purposes will be preserved, subject to: (a)

the LLP not being wound up for reasons connected in whole or in part with the avoidance of tax; and (b) the period of winding up following the cessation of the LLP’s business not being unduly protracted taking account of the LLP’s assets and liabilities.145 Once a liquidator has been appointed, however, transparency will be lost and potential double charges to capital gains tax – at the LLP level and individual member level – may arise. Also, any previously ‘rolled over’ or ‘held over’ capital gains will crystallise, and CGT which has been deferred will become payable.

STAMP DUTY 23.125 The LLP Act 2000 includes a specific stamp duty exemption on the incorporation of a partnership business into an LLP.146 This exemption applies to instruments by which property is conveyed or transferred by a partner to an LLP within the period of one year, beginning with the date of incorporation of the LLP.147 It should be noted that the exemption only applies to the transfer of assets to an LLP within one year of the date of the incorporation of the LLP. This is in the context of it being common practice, in the corporate world, for a company to be incorporated well before transfer of a business to the limited company. Care will therefore need to be taken to ensure that an LLP is not incorporated so early that it is not possible to transfer all of the assets of a partnership to the LLP within the one year timescale. 23.126 The stamp duty exemption contained in the LLP Act 2000 is subject to two conditions: (1) The first condition148 requires all the partners in the partnership immediately before the incorporation of the LLP and all the members of the LLP immediately after incorporation to be identical.149 There has been much debate about this condition, as it is likely that firms will wish to incorporate their

145

Tax Bulletin issue 50. LLP Act 2000, s 12. 147 LLP Act 2000, s 12(1). 148 LLP Act 2000, s 12(2)(a). 149 It is assumed here that the property being conveyed or transferred to the LLP has been acquired by the partnership before incorporation of the LLP. In relation to property which is acquired by the partnership after the LLP has been incorporated, the first condition requires that all the partners immediately after the acquisition of the property are the same as all the members of the LLP immediately after incorporation: see LLP Act 2000, s 12(5)(a). 146

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partnership business into an LLP at its normal year end, which is also the time at which partners are admitted and retire. HMRC have stated that, provided all the other conditions for the exemption are met, they will accept that the stamp duty charge can be averted by arranging matters so that the change of partners takes place the instant before or after the incorporation of the LLP.150 However, to confirm the position, the Stamp Office has said that it will need to see all associated documents affecting the change in membership of the old partnership, and of membership of the LLP, prior to and/or after incorporation. This position could cause problems if certain partners do not agree to become LLP members, as one dissenting partner could result in the loss of this stamp duty relief. It is also understood that the Stamp Office has challenged the exemption applying where the members of the LLP at the time of the transfer of the business are not identical to the persons named as the first members on the original incorporation document (being the registration form submitted to Companies House).151 Whilst this appears rather pedantic, and an unnecessarily strict interpretation of the law, firms converting will be best advised to ensure that this rule is complied with until a more practical approach is clearly accepted by the Stamp Office. This can be achieved by ensuring that all the intended members at incorporation are included on the incorporation documentation submitted to Companies House. Subsequent partner/member changes should be avoided, although the death of a partner should not trigger a problem as the deceased partner no longer exists (unless the Partnership Agreement provides for a partner’s executors to take his place as partner). The first condition also extends the exemption where the property conveyed or transferred was previously held by a nominee or bare trustee for one or more of the partners in the partnership.152 (2) The second condition153 requires that, for the exemption to be applied, the individual partners’ respective ownership proportions of property conveyed or transferred into an LLP must either be unchanged between the moment immediately before incorporation of the LLP154 and the moment immediately after transfer, or that the proportions must not have changed during this period for tax avoidance reasons. Strictly speaking (as the property transferred to the LLP will become owned by the corporate entity), the partners’ respective interests in the LLP will replace their interests in the old partnership assets. However, HMRC have stated that they will not take this point.155

STAMP DUTY LAND TAX (SDLT) 23.127 SDLT, introduced by the Finance Act 2003, came into general effect from 1 December 2003;156 and a similar exemption applies on the conversion of

150

Tax Bulletin issue 50. 2.16 et seq. LLP Act 2000, s 12(2)(b). LLP Act 2000, s 12(3). Or acquisition of the property where it was acquired after incorporation of the LLP. Tax Bulletin issue 50. SI 2899/2003.

151 See 152 153 154 155 156

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a partnership to an LLP as applies to stamp duty.157 The application of SDLT to transactions involving partnerships and LLPs was deferred until Royal Assent to the Finance Act 2004 (22 July 2004). From that date SDLT applies to the acquisition of interests in land by partnerships and LLPs, and also to transfers of interests in land between the partners/members.158 23.128 The SDLT rules (as now set out in Sch 15 to the Finance Act 2003) also mean that (subject to the exemption for conversion from a partnership to an LLP): (a) SDLT is charged on a proportion of the market value of any land transferred into an LLP by an existing member, or by anyone in exchange for an interest in the LLP. The proportion is calculated to be equal to the proportion acquired by other members.159 (b) SDLT is charged on a proportion of the market value of land transferred out of an LLP to a member or former member.160 The proportion is calculated to be equal to the proportion acquired from other members. (c) SDLT was originally charged where an existing member transferred all or part of his interest in the LLP to another member, or to someone who became a member for money or money’s worth, or where an existing member reduced his interest, and took out money or money’s worth. In this case, SDLT was charged on that proportion of the market value of the underlying property assets as corresponded to the increase in the LLP share of the acquiring member(s).161 However, as a consequence of FA 2006, the SDLT charge is now restricted to ‘property-investment partnerships’, ie those partnerships or LLPs investing or dealing in land.162 Professional partnerships or LLPs that occupy land for the purposes of their businesses are no longer subject to this SDLT charge. 23.129 The SDLT rules are far-reaching, and will apply not only where an LLP owns (and buys and sells) land, but also, for example, where a member retires, extracts capital and is also released from the LLP’s lease. No SDLT is due where the consideration (in this case the proportion of the market value of the interest acquired) is less than £150,000 (for non-residential properties); and it is, therefore, hoped that this will exempt the majority of transactions. Nevertheless the rules are complex, and potentially onerous, and will need to be considered on any changes of interests between members, even though on the face of it the transaction may not seem to involve an acquisition of property. 23.130 An LLP paying rent under a lease will need to review the terms in advance of the five-year anniversary to check whether it needs to lodge a further SDLT return to pay additional SDLT or to claim a repayment. The obligation to revise the calculation of SDLT arises where the rent payable under the lease is variable,

157 158 159 160 161 162

FA 2003, s 65. FA 2003, s 104; FA 2004, Sch 41. Land and Buildings Transaction Tax replaced SDLT in Wales from 1 April 2018. FA 2004, Sch 15, para 10. FA 2004, Sch 15, para 18. FA 2004, Sch 15, para 14. FA 2006, Sch 24.

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contingent, uncertain or unascertained. When the rent for the first five years becomes known, the calculation of the SDLT (as set out in 23.131 below) is re-worked based on the known figures. If additional SDLT is due, a return is made to pay the additional tax; or, if the liability is reduced, a claim can be made for repayment. The obligation is to make a return at the end of the fifth year of the lease or, if earlier, when the rent figure is ascertained. If, by the end of the fifth year, the actual rent is still not known, then best estimate should be used, with a final revised return being submitted within 30 days of the figures being finalised. 23.131 If a partnership or LLP enters into a new lease, then there could be SDLT to pay. The amount is based on the lease premium and the net present value (NPV) of the rent payable over the term of the lease. The two are calculated separately and then the SDLT liabilities on each added together. There are thresholds (currently £150,000 for non-residential property), below which the rate is 0 per cent.163 (a)

For the premium, the SDLT liability is calculated by applying the appropriate rate of SDLT to any premium paid.164 (b) For the rental element, the NPV is calculated by discounting the rent payable over the term of the lease by a specified discount rate, currently 3.5 per cent. The legislation takes the rent payable to be the actual rent over the first five years.165 For subsequent years the rent is deemed equal to the highest rent paid for any consecutive 12-month period in the first five years.166 For the NPV calculation, the SDLT rate is 1 per cent of the value that exceeds the £150,000 threshold.

INHERITANCE TAX (IHT) 23.132 The LLP Act 2000 has a very short section covering inheritance tax.167 In effect, the section states that members of an LLP will be treated in the same way as partners in a partnership, and an LLP will be treated in the same way as a partnership, for all IHT purposes. This has the effect of ensuring that the specific reliefs for business property168 and agricultural property169 will apply as if members of an LLP were the partners in a partnership. Equally, where a partnership incorporates as an LLP, these reliefs will continue as though there had been no change in ownership, and therefore the qualifying periods of ownership will not be regarded as interrupted.170 23.133 The other IHT reliefs and exemptions available to partners in a partnership will be available to members of an LLP including, importantly, the exemption for transfers not intended to confer any gratuitous benefit.171

163 164 165 166 167 168 169 170 171

FA 2003, Sch 5. FA 2003, Sch 5. FA 2003, Sch 5, para 8. FA 2003, Sch 17A, para 7. LLP Act 2000, s 11, inserting IHTA 1984, s 267A. IHTA 1984, s 104. IHTA 1984, s 116. Tax Bulletin issue 50. IHTA 1984, s 10.

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VALUE ADDED TAX (VAT) 23.134 HMRC have stated that they view an LLP as a body corporate for the purposes of the VAT legislation. This had provided a potential advantage over the rules applicable to a partnership. The advantage was that an LLP, being a body corporate, will be able to be a member of a group registration for VAT purposes.172 It should be noted, however, that the Finance Act 2019 extended the availability of VAT grouping to non-corporates, including individuals and partnerships, subject to certain conditions.173 A decision as to whether a group registration is appropriate is a complex one, and needs to be considered in relation to the various other members of the VAT group as well as the LLP. 23.135 HMRC have also indicated that they consider the transfer of the whole of the business of a partnership to an LLP to be a ‘transfer of a going concern’, such that VAT will not be chargeable on the transfer.174 In their view, it is possible to carry over the existing VAT registration number to the LLP in similar circumstances, although this does result in the LLP taking over responsibility for VAT debts of the partnership, including any not yet identified.175 23.136 Where it is only possible to achieve a partial incorporation, each individual case will need to be reviewed on its own merits to see whether the ‘transfer as a going concern’ rules can apply, and the VAT number can be transferred if desirable.

COSTS OF CONVERSION 23.137 The process of conversion of an existing partnership business into an LLP will inevitably result in a number of costs arising. For example, the process of conversion will involve legal, taxation and accounting advice on both the decision to incorporate and drawing up the appropriate LLP agreement and transfer agreement, and (where the partnership is of professionals) in relation to regulatory compliance. The question therefore arises as to whether these costs will be allowable for taxation purposes. 23.138 A decision of the Special Commissioners in respect of the conversion of the Halifax Building Society from a mutual body to a PLC found, as a fact, that, on balance, the conversion was made in order to transfer the business from a restrictive regulatory regime to a more favourable regulatory regime which would enable it to continue trading profitably.176 As a result, the expenses associated with the conversion process were an allowable expense for taxation purposes. Accordingly, depending on the facts of a particular case, it will be possible to obtain a degree of tax relief for at least part of the expenses of conversion. HMRC may resist all or part of such

172

Customs & Excise Business Brief No 3/2001, issued in February 2001. FA 2019, Sch 18. 174 Customs & Excise Business Brief No 3/2001, issued in February 2001. 175 Customs & Excise Business Brief No 3/2001, issued in February 2001. 176 Halifax plc v Davidson [2000] SpC 239. 173

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claims, either on the grounds that the expenditure is ‘capital’ or that it fails to meet the ‘wholly and exclusively’ test for the purpose of earning the profits of the trade or profession. However, it is known that HMRC do accept, subject to the circumstances of the particular case, that relief is due for all or part of such expenditure.

ANTI-AVOIDANCE LEGISLATION 23.139 The Finance Act 2001 introduced anti-avoidance provisions to prevent tax loss through LLPs which are used for investment and property investment.177 The three major aims of the anti-avoidance legislation are to ensure that: (a) exempt bodies are taxed on any income from property they receive in their capacity as members of an LLP; (b) the same consequences follow for shareholders in a company that disincorporates to form an LLP, as currently follow when a company disincorporates to form a partnership; and (c) loans used to provide money to purchase an interest (or a ‘share’) in an investment LLP will not qualify for tax relief.178 23.140 The definitions of ‘investment LLP’ and ‘property investment LLP’ are as follows: (a) an ‘investment LLP’ means a limited liability partnership whose business consists wholly or mainly in the making of investments and the principal part of whose income is derived therefrom;179 and (b) a ‘property investment LLP’ means a limited liability partnership whose business consists wholly or mainly in the making of investments in land and the principal part of whose income is derived therefrom.180 23.141 The anti-avoidance provisions do not have a material adverse effect if the structure does not rely heavily on the members borrowing individually to invest into the LLP. As a result, such property investment LLPs normally arrange borrowings at the LLP level with the expectation that the members will provide their capital from personal resources, rather than from non tax-efficient borrowings. 23.142 The Finance Act 2001 also introduced sundry measures to prevent various tax-favoured entities obtaining a benefit from the availability of LLPs. These rules ensure that: (a) pension funds are denied exemption from tax on income derived in their capacity as members of property investment LLPs;181 (b) income received by pension funds as a member of a property investment LLP is taxable at the rate applicable to trusts;182 and

177 178 179 180 181 182

FA 2001, s 76. ITA 2007, s 399(2)(b). ITA 2007, s 399(6). ICTA 1988, s 842B and ITA 2007, s 1004. ICTA 1988, s 659E. ITA 2007, s 480(4).

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(c) where TCGA 1992, s 271 provides certain miscellaneous capital gains tax exemptions, some of which relate to pension funds or schemes, these are disapplied in respect of gains on assets held by pension funds or schemes as members of property investment LLPs.183 23.143 It is interesting to note that whilst these specifically targeted provisions prevent other tax favoured entities from benefiting from the LLP structure, they do not apply to charities,184 which will be taxed on their LLP income and gains as for other income and gains of the charity.

TRANSFER PRICING 23.144 The UK’s transfer pricing legislation was previously found in ICTA 1988, Sch 28AA and is now to be found in Taxation (International and Other Provisions) Act 2010, Part 4. The legislation applies with similar effect in most jurisdictions. The UK legislation applies where the price paid for the provision of goods or services between two connected persons differs from the arm’s length price, and profits used to calculate UK tax are reduced (or losses increased) as a result of that pricing. UK-to-UK transactions also fall within the rules. 23.145 The legislation seeks to substitute, for taxation purposes, an arm’s length price on a ‘provision … by means of a transaction or series of transactions’ between persons. This will include for goods or services, intangibles and finance. The legislation applies where there is a provision between two ‘persons’, and one of them is directly or indirectly participating in the ‘management, control or capital’ of the other, or a third person is participating in the ‘management, control or capital’ of both of them. The affected person must be a body corporate or a partnership. However, the other party to the provision and the controlling party could be any person, including an individual. In this context, the term ‘person’ includes a body of persons. So, for example, a partnership can for these purposes control a company even if, individually, none of the partners controls the partnership or company. 23.146 The control rules include provisions which deem a 40 per cent participant in a joint venture to control that joint venture (provided that there is some other person who is also a 40 per cent participant), thereby bringing within the transfer pricing rules the situation where there is a transaction between one of the joint venture parties and the joint venture itself.185 In addition, the control rules are extended to apply to situations where persons (who would not themselves be under common ‘management, control or capital’, as defined) are ‘acting together’ in relation to financing arrangements.186 23.147 There is an exemption from transfer pricing rules for the vast majority of transactions carried out by a business that is a small or medium-sized enterprise.187 183

TCGA 1992, s 271(12). As to a charity being a member of an LLP, see 2.10. 185 See HMRC’s International Tax Manual at INTM412060. 186 Paragraph 4 of Article 3 of the Annex to 2003/361/EC. 187 See HMRC’s International Tax Manual at INTM412080. 184

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The category of small and medium-sized enterprises (SMEs) consists of enterprises which employ fewer than 250 persons and which have either an annual turnover not exceeding €50 million, or an annual balance sheet total not exceeding €43 million. The exemption does not apply where a business has a transaction (or provision, where a formal transaction has not been applied) with a person resident in a territory with which the UK does not have a double tax treaty with an appropriate non-discrimination article.188 This also applies where there is a series of transactions involving a person in one of these territories. The business can elect for the exemption not to apply. HMRC can also disapply the exemption for a medium-sized enterprise where they feel that the exemption has enabled an undue UK tax advantage to be obtained. 23.148 For the purpose of determining whether an enterprise is small or medium-sized, where two enterprises are linked, their data is aggregated. This occurs where one enterprise has the right to control the affairs of the enterprise seeking exemption. Two enterprises are classed as ‘partner enterprises’ if one holds between 25 per cent and 50 per cent (inclusive) of the capital or voting rights of the other, and the enterprises are not linked. The thresholds involving partner enterprises are calculated using the proportion of the holding of each partner enterprise, up to one level up or downstream. 23.149 In 2013, the UK provisions were amended by the introduction of legislation aimed at countering certain arrangements involving the ‘compensating adjustment’ rules, whereby tax advantages could be secured by individuals extracting profit from connected companies while paying tax only at corporation tax rates. While this does not affect LLPs directly, it is relevant where a portion of an LLP’s activities take place in an associated company, such as an employee services company. 23.150 Further, UK anti-avoidance provisions were introduced for ‘partnerships with mixed membership’ (partnerships where there are both individual and non-individual members), as discussed in 23.33. 23.151 From April 2019, the ‘Profit Fragmentation’ rules were introduced which can apply where a transfer of value occurs such that profits from a UK business (including LLPs) are effectively transferred to an offshore entity paying lower tax, and individuals involved in the UK business (or persons connected to them) can enjoy those transferred profits. If the transfer does not occur at an ‘arm’s length’ value, the rules can apply to adjust the relevant provision on such an arm’s length basis. These rules have similar effect to transfer pricing rules where they apply, but there is no exemption for small businesses similar to the transfer pricing SME exemption. Therefore, in principle, any business could be within the scope of these rules if it undertakes transactions that are otherwise caught by the conditions. 23.152 One of the most significant changes to the transfer pricing environment has been the implementation of tax legislation changes in numerous countries as a

188

The list of territories where the UK double tax treaty has a non-discrimination clause, and so the SME exemption applies, may be found in HMRC’s International Tax Manual at INTM412090.

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result of the ‘Base Erosion and Profit Shifting’ (BEPS) initiative. This programme of actions and recommendations was driven by the OECD, having been endorsed in 2013 by the G20 nations. The underlying policy driver was primarily to address concerns about corporate tax avoidance practices, especially by multinational enterprises. 23.153 As part of its recommendations on transfer pricing compliance, the OECD set out three tiers of reporting requirements to facilitate risk assessing. The first is ‘Country by Country Reporting’ (CbCR), requiring multinational entities to provide all ‘relevant governments’ with information on their global allocation of income, economic activity, and taxes paid in different countries in accordance with a common template for CbCR. The second is a Master File, setting out a broad background of the overall Group, including an overview of controlled transactions observed across the Group, value chain descriptions and key business events such as transfer of intangibles or business restructurings. The final requirement is a Local File, setting out the specific fact pattern, related party transactions, and associated pricing support for a given Group entity. 23.154 The UK government introduced CbCR rules in the UK from 2016. These apply to any multinational enterprises with a consolidated group turnover of equal to or exceeding €750m in the period year. Although the UK government has not changed transfer pricing legislation to specifically require the three tiers of BEPS reporting requirements as described above, the rules do effectively provide that OECD principles should be followed, and therefore there is a general expectation by HMRC that documentation should be complied with in accordance with the three-tier approach set out by the OECD. 23.155 As of 2019, HMRC have introduced a new Profit Diversion Compliance Facility (PDCF), directed at multinational enterprises (including LLPs) entering into arrangements targeted by Diverted Profits Tax. Whilst the facility is not exclusively targeting transfer pricing, it is the key issue in the vast majority of cases. The facility is designed as an opportunity for multinational enterprises to make a voluntary disclosure of their tax affairs, and for the taxpayer to review the design and implementation of its tax and transfer pricing arrangements, to bring them in line with the OECD Transfer Pricing Guidelines and UK tax legislation. The PDCF involves a taxpayer preparing evidence to demonstrate the facts of the business and the appropriateness of its tax or transfer pricing position, and putting forward a proposal, if appropriate, to pay additional tax, as well as any relevant interest or penalties. Disclosure under the PDCF is treated as a voluntary disclosure, and therefore a taxpayer would receive unprompted penalty treatment, provided that HMRC have not already opened an investigation into profit diversion. HMRC are encouraging participation through the issuing of ‘nudge letters’ to selected taxpaying entities, recommending that they register for the PDCF. Registration upon receipt of a nudge letter should still entitle a taxpayer to unprompted penalty treatment.

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LLP EXPANDING OVERSEAS 23.156 UK businesses (including those conducted through the medium of an LLP) are increasingly looking to expand their operations overseas. There are many factors which may determine what type of structure is used for an overseas office. Whilst this work focuses on the LLP, and does not seek to discuss other structures, it is correct to recognise that, given the many factors which may be involved, and that particular situations will have particular facts, a UK LLP looking to expand its operations overseas may wish to consider a number of possible structures for the expansion. Set out below are some of the considerations to be taken into account by a UK LLP in its decision-making. 23.157 An existing UK LLP could consider using one or more of the following entities for doing business overseas: (a) (b) (c) (d)

a branch of the UK LLP; a separate UK or overseas registered LLP;189 a UK or overseas company; or an intermediate holding company.

Each of the above options will have its advantages and disadvantages; and a detailed consideration of the latter two is outside the scope of this work. Where an LLP does use a limited company, whether a UK or an overseas company, or a UK or overseas holding company, each member of the LLP will be treated as owning a fractional share of the company in question. Any income received by the LLP by way of dividends will likewise be deemed to have been received by the members (directly) with attaching tax credit. However, since 6 April 2016, the taxation of dividends has changed and no longer includes this notional credit, with the applicable dividend tax rates adjusted instead. The members will not be able to obtain relief for any underlying corporate tax suffered by the company on its profits subject to tax in the foreign jurisdiction. 23.158 Relevant considerations for the UK LLP will include: (a) how the local jurisdiction authorities tax the entity, and other local considerations, such as how a particular vehicle is perceived in that country, (b) whether the overseas operation is likely to make losses, and if so, for how long, and (c) the extent to which the members of the UK LLP wish to ring fence the liabilities of the overseas operation. 23.159 The taxation of UK registered LLPs will vary from country to country depending upon how the UK LLP is regarded by the relevant tax authority. Due to the fact that the UK LLP is a body corporate,190 some countries will consider the UK LLP as ‘opaque’ for tax purposes. In these cases, the LLP will be taxed as a corporate

189 190

LLPs in other jurisdictions are discussed in Chapter 25. LLP Act 2000, s 1(2).

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entity in the foreign jurisdiction. Where the UK LLP is treated as ‘transparent’, it will normally be taxed like a partnership in the overseas jurisdiction. This classification can have a significant effect on whether the UK LLP is the most appropriate vehicle to use overseas. 23.160 One of the guiding principles behind double taxation treaties is that they are enacted to ensure that relief is obtained for the taxation suffered in one country against the taxation charge arising on the same profits in another country. Most double taxation agreements have historically been worded so that relief for corporate taxes suffered in one country is obtained against corporate taxes suffered in the other country. Likewise, income tax relief is given for income taxes suffered in the source country. The difficulty with LLPs is that whilst they may be taxed under income tax rules in the UK, they may well be subject to corporate taxes in the foreign country. HMRC have stated that they will allow tax credit relief to be obtained in respect of the proportionate share of the foreign tax paid on the profits of the overseas branch of a UK LLP where that branch is taxed by the overseas tax authority as a body corporate,191 thus avoiding the distinction between corporate and income taxes. The same treatment does not necessarily apply in reverse (ie other countries continue to grant relief only for income tax against income tax or corporate tax against corporate tax), and great care will need to be taken when considering the overseas taxation of an LLP. 23.161 Whilst, in some jurisdictions, the UK LLP may be viewed as ‘opaque’, an election or ruling from the local tax authorities for it to be taxed as ‘transparent’ may be possible and, sometimes, vice versa. For example, the US tax system permits an election for certain types of entity to be taxed as though ‘transparent’; and the possibility of this election, on Form 8832, applies to a UK LLP. Other jurisdictions, for example Singapore and the Dubai International Finance Centre, have introduced LLP legislation based upon the UK LLP Act.192 These jurisdictions usually permit a UK LLP to be registered in the local jurisdiction, and to be treated as a locally incorporated LLP. 23.162 Where the UK LLP is treated as transparent for tax purposes in an overseas jurisdiction, whether automatically or by election, consideration will need to be given to the local compliance obligations of the LLP. For example, the treatment of a UK LLP as ‘transparent’ will usually result in each of its members having a local tax filing obligation. Some countries will, in these circumstances, permit the non-resident members to satisfy their filing obligation via a consolidated tax return for all of the members in the same position. The UK permits this for members of an overseas LLP carrying on business in the UK. However, most jurisdictions will start from the expectation that, as the UK LLP is transparent, each member should file an individual tax return each year. This can cause a considerable compliance burden upon the LLP and members. One way around this burden would be to form a

191 192

Tax Bulletin issue 50. Dubai IFC and Singapore LLPs are considered at 25.6–25.7 and 25.12–25.13 respectively.

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separate entity for the overseas jurisdiction. In this case, the overseas LLP (or other entity) could have a restricted number of members, with profit shares being adjusted via the main UK LLP. Typically, this option would involve a number of the UK members being members of the overseas entity, so that any excess profits arising in the overseas entity could be allocated to its UK members, who would then have a reduced share of profits from the UK LLP. 23.163 If a separate entity is used overseas, it will be important to consider the potential for that entity being seen in the local jurisdiction as transparent for personal liability (whether or not for tax) purposes, and so challenging what is likely to be the fundamental purpose of using an LLP in the UK.193 23.164 The entity operating overseas could be a UK LLP, and this may provide overseas the protection from personal liability normally afforded to all members in the UK. One taxation difficulty with this option, however, is that, unless there is a UK business, any losses in the LLP operating overseas will be treated as overseas losses, and may not be available for offset against the members’ UK profits. However, it may be possible to ensure that arrangements are such that a UK business activity does exist, thus allowing full offset of losses. 23.165 Where the entity operating overseas does not have sufficient profits to meet the profit share entitlement from the total business of the overseas members, consideration will need to be given to how the overseas members should participate in the profits of the UK LLP. Where the entity operating overseas is the UK LLP, the individuals working overseas could also be members of the UK LLP. Care will need to be exercised to ensure that this does not create a ‘permanent establishment’ for the UK LLP in the foreign jurisdiction, as this could cause all members to have a tax return filing obligation in the foreign jurisdiction. The disguised salary rules would also need to be considered.194 23.166 If the overseas members participate in the profits of the UK LLP, the overseas members will be taxable in the UK on their share of the UK LLP’s UK source profits. Usually they will also be taxable in their country of tax residence on this income, with the benefit of a credit for the UK tax suffered against their country of residence tax liability. Some countries, such as Germany, operate a system known as ‘taxation with progression’. In these countries, the local member’s share of the UK LLP’s profits will not be taxable in the local jurisdiction (eg Germany), but will be taken into account in determining the level of taxation applied to any income which is taxable in that jurisdiction. 23.167 The profits or losses of a branch of a UK LLP operating overseas will be amalgamated with the UK profits for UK tax purposes. Therefore, full relief will be available against UK tax for any overseas losses. If a separate UK LLP is used for

193

The issue of how the English courts will treat overseas LLPs for liability purposes is considered in Chapter 26. 194 See 23.86–23.89.

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overseas operations, and the activities of this LLP include a UK business, whilst profits or losses of the UK LLP and the LLP overseas will not be amalgamated, for those individuals who are members of both the UK and the LLP overseas, relief should be available for losses incurred overseas through the members’ self-assessment tax returns. However, if a company is used for the overseas operations, any losses will be ring-fenced within the company and unable to be utilised by the members of the LLP. 23.168 Whilst a branch of the UK LLP may, therefore, be favourable in a loss-making situation, it may not protect the UK members from liabilities incurred by the branch. A separate LLP or company is likely to be much more robust at ring-fencing the liabilities of the overseas operations, and could for this reason be favoured. In some situations, it may be possible to operate as a branch in the early years while losses are being incurred in establishing the overseas business, and then to transfer the operations to a separate LLP or company once profits are established. In doing this, care needs to be taken not to realise a capital gain in the UK or overseas. However, provided the transfer takes place at a time when the branch and its assets have little or no value, this should not cause a problem. 23.169 As discussed at 23.159–23.162, the treatment of a UK LLP varies from country to country. It is therefore necessary to take local tax advice as to the appropriate treatment in that jurisdiction. For example, if a UK LLP is taxed as a corporation in a particular country, any non-resident members of the LLP are likely to be taxed on their share of profits as remuneration or dividends. The effects can be far-reaching; and careful planning is required in order to ensure that all consequences have been thought through. 23.170 In some jurisdictions, professionally qualified people, such as lawyers, are treated as self-employed irrespective of the entity which they use to conduct their business. In these cases, it is normal for their profit share or salary to be a deduction from the profits of the entity in arriving at the taxable profits of the entity. If the entity is a UK LLP, consideration will need to be given to the tax consequences of the distribution of the overseas profits allocated to the UK members, as these may be treated as dividends, subject to withholding taxes, by the foreign jurisdiction. 23.171 Where a company is used overseas, any distributions paid up to the UK LLP will be subject to tax on the members. Double tax relief should be available for any withholding tax deducted at source; however, relief is not available for the underlying tax paid overseas on the company’s profits. An intermediate holding company may be used if there are several overseas operations, to assist dividend planning and funding of one company by another without the need to first subject those profits to UK income tax or overseas distribution taxes.

UK BRANCHES OF OVERSEAS LLPs 23.172 A clear distinction needs to be made between a UK LLP and the UK branch of an overseas LLP. HMRC have published their views on how some such branches

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of overseas LLPs should be regarded for taxation purposes.195 Some UK branches will be taxed in the UK as if liable to corporation tax,196 whereas others will be regarded as a partnership, resulting in the members being separately liable to income tax on their share of the branch profits under the existing legislation for partnerships rather than under the LLP tax rules. The LLP tax rules do not apply to the UK branch of an overseas LLP, nor to an overseas LLP operating solely within the UK.

195 196

Tax Bulletin issue 83. Tax Bulletin issue 83 states that this will be the case where the overseas LLP is regarded as a ‘body corporate’ for the purposes of the UK Taxes Acts. The Inland Revenue’s ‘entity classification’ of various overseas LLPs is set out in HMRC’s International Tax Manual at INTM180030. The nature of overseas LLPs is discussed in Chapter 25.

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Chapter 24 INVESTIGATIONS, STRIKING OFF AND RECTIFICATION OF THE REGISTER

GOVERNMENT POWER TO INVESTIGATE OR REQUIRE INFORMATION Introduction 24.1 The statutory provisions relating to the appointment by the Secretary of State of inspectors to investigate the affairs of companies, and to report on those affairs to him, and the provisions relating to the Secretary of State (as a more low-key alternative to an investigation) requiring a company to produce documents and information to him or to an investigator appointed by him, are adopted (with modifications) for LLPs. The relevant statutory provisions, for both companies and LLPs, continue to be those contained in Part 14 of the CA 1985.1 24.2 For the purposes of the power to investigate, the ‘affairs of an LLP’ will comprise all its business affairs, including its assets and transactions and its profits and losses.2 The Secretary of State has similar powers in relation to LLPs as he has in relation to companies to apply to the court for a winding-up order, or for other orders, as a result of what he learns from an inspector’s report, or from documents produced to his appointee. 24.3 An investigation under Part 14, and any questioning by the inspectors, is carried out in private.3

Investigation by inspectors Appointment 24.4 The Secretary of State is required to appoint inspectors to investigate the affairs of an LLP, and to report on them in such manner as he directs, if the court 1

As modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. Part 14 has in recent years been amended by: (1) the Companies (Audit, Investigations and Community Enterprise) Act 2004 (inserting new ss 447A, 448A and 453A–453C, together with Schs 15C and 15D concerning the requisition and seizure of books and papers), as applied to LLPs by SI 2007/2073; and (2) CA 2006, ss 1035–1038 (inter alia, inserting new ss 446A–446E concerning the activities of inspectors) and ss 1124 (offences under the Companies Act 1985), 1176 (power of Secretary of State to bring civil proceedings on a company’s behalf) and 1295 (repeal of certain enactments), as applied to LLPs by SI 2009/1804, reg 85 and Sch 3, Part 2, para 13. 2 See R v Board of Trade, ex parte St Martin Preserving Co Ltd [1965] 1 QB 603 at 613 and 618 (on Companies Act 1948, s 165, predecessor to CA 1985, s 432); applied in the context of the CA 1985 in Gross v Rackind [2005] 1 WLR 3505 at [25]–[26]. 3 See Re an Inquiry into Mirror Group Newspapers Plc [1999] 1 BCLC 690 at 704–705 and 708–713.

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declares that the LLP’s affairs ought to be investigated.4 He is also required to supply a copy of the inspectors’ report to the court.5 24.5 In two sets of circumstances, the Secretary of State has a discretion to appoint inspectors to investigate the affairs of an LLP (and to report on them in such manner as he directs). (1) Application by the LLP or members of it He may do so on the application of the LLP itself, or on the application of not less than one-fifth in number of those persons who appear from notifications which have been given to the Registrar to be the current members of the LLP.6 The application must be supported by such evidence as the Secretary of State may require for the purpose of showing that the applicants have good reason for requiring the investigation.7 The Secretary of State may also, before appointing inspectors, require the applicants to give security for payment of the costs of the investigation.8 (2) The Secretary of State’s own initiative The Secretary of State may also9 appoint inspectors (notwithstanding that the LLP may be in the course of voluntary winding up) if it appears to him that there are circumstances suggesting: (a) that the affairs of the LLP are being or have been conducted with intent to defraud its creditors or the creditors of any other person, or otherwise for a fraudulent or unlawful purpose, or in a manner which is unfairly prejudicial to some part of its members;10 or (b) that any actual or proposed act or omission of the LLP (including an act or omission on its behalf) is or would be unfairly prejudicial to some part of its members, or that the LLP was formed for any fraudulent or unlawful purpose; or (c) that persons concerned with the LLP’s formation or the management of its affairs have in connection with such formation or management been guilty of fraud, misfeasance or other misconduct towards the LLP or towards its members; or (d) that the LLP’s members have not been given all the information with respect to its affairs which they might reasonably expect.

4 5 6

7 8 9 10

CA 1985, s 432(1), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. CA 1985, s 437(2), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. CA 1985, s 431(2), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. The notifications will be essentially notices of persons becoming or ceasing to be members given under LLP Act 2000, s 9(1). CA 1985, s 431(3), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. CA 1985, s 431(4), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. The limit for any required security is currently £5,000: ibid. Under CA 1985, s 432(2), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. ‘Members’ here includes any person who is not a member but to whom a member’s share in the LLP has been transferred or transmitted by operation of law: CA 1985, s 432(4), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. As to transfer of a member’s share, see 8.21–8.26.

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If he does decide to appoint inspectors on one or more of these grounds, the Secretary of State’s decision cannot be challenged, and he cannot be compelled to give his reasons, unless some case can be shown for lack of good faith on his part.11 If there is an issue as to whether or not inspectors have been validly appointed, individual members required (if the appointment is valid) to produce documents and otherwise assist the inspectors as discussed in 24.7 will probably themselves have standing to challenge the validity of the appointment.12

Directions to inspectors 24.6 The Secretary of State may, when appointing inspectors, give them directions as to the subject matter of their investigation, or directions which require them to take or not to take a specified step in the investigation.13 Any such directions may be subsequently varied or revoked by the Secretary of State.14

Powers of inspectors, and obligations to assist their investigation 24.7 It will be the duty of the past and present members of the LLP, and also of past and present ‘agents’ of it such as solicitors and bankers and auditors, to produce to the inspectors all documents of or relating to the LLP which are in their custody or power, to attend before the inspectors when required to do so,15 and to give all assistance to the inspectors in connection with the investigation that they reasonably can give.16 If the inspectors consider that a member of the LLP, or any ‘agent’ of the LLP or other person, is or may be in possession of information relating to a matter relevant to the investigation, they may require him to produce any documents in his custody or power relating to that matter, to attend before them, and otherwise to give them all assistance in connection with the investigation which he is reasonably able 11

Norwest Holst Ltd v Secretary of State [1978] Ch 201; R (on the application of 1st Choice Engines Ltd) v Secretary of State for Business, Innovation and Skills [2014] EWHC 1765 (Admin) at [11]. 12 See Feetum v Levy [2006] Ch 585 (individual members of an LLP, obliged to submit a statement of affairs under IA 1986, s 47, were able to challenge the validity of the appointment of the administrative receiver of the LLP). 13 CA 1985, s 446A, as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 14 Ibid. There are provisions in CA 1985, ss 446B–446E, and s 452(1), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1, for: (a) the Secretary of State to direct that no further steps be taken in an investigation if the investigation has uncovered that a criminal offence has been committed and the matter has been referred to the appropriate prosecuting authority; and (b) the resignation of inspectors, or the revocation of their appointment (and handing over by them of documentation not having legal privilege), and the appointment of replacement inspectors. 15 The inspectors may, for the purposes of the investigation, examine any person on oath: CA 1985, s 434(3), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 16 CA 1985, s 434(1), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. All this is subject to a right to refuse to disclose on grounds of legal professional privilege, save that a lawyer can be required to disclose the name and address of his client: s 452(1) and (5). There are additional restrictions, if the LLP is carrying on a banking business, concerning the disclosure of documents and information in respect of which the LLP owes an obligation of confidence: s 452(1A). For a discussion of the demands that can reasonably be placed on persons by the inspectors, see Re an Inquiry into Mirror Group Newspapers Plc [1999] 1 BCLC 690 at 708–713. Where a person has not been charged with an offence, requiring him or her to provide documentation and information in the course of an investigation pursuant to s 434 will not infringe the privilege against self-incrimination – see Beghal v DPP [2015] 3 WLR 344 at [68].

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to give; and it is that person’s duty to comply with the requirement.17 If any person fails or refuses to comply with any such obligations, the inspectors may refer the matter to the court, which may (after hearing any witnesses, and any statement which may be offered in defence) punish the offender as if he had been guilty of contempt of court.18 24.8 If the inspectors think that it is necessary for the purposes of their investigation also to investigate the affairs of another body corporate which is, or has been at any relevant time, the LLP’s subsidiary or holding company or LLP (or, broadly, otherwise the LLP’s associated entity), they have the power to do so; and if they do carry out this further investigation, they are to report on the affairs of the other body corporate so far as they think that the results of their investigation of its affairs are relevant to the investigation of the affairs of the LLP.19 24.9 A member of an LLP who destroys, mutilates or falsifies a document affecting or relating to the LLP’s property or affairs, or makes a false entry in such a document (or is privy to any of the above being done) is guilty of an offence, unless he proves that he had no intention to conceal the state of affairs of the LLP or to defeat the law. A member is also guilty of an offence if he fraudulently either parts with, alters or makes an omission in a document affecting or relating to the LLP’s property or affairs (or is party to any of the above being done fraudulently).20 A member guilty of such an offence is liable on conviction on indictment to imprisonment for up to seven years or to a fine (or both).21

The report 24.10 In all cases where inspectors have produced a report, the Secretary of State may, if he thinks fit, supply a copy of the report to the LLP.22 He may also, if requested to do so (and on payment of a fee), supply a copy to any member of the LLP, to anyone whose conduct is referred to in the report, to the LLP’s auditors, to the applicants for the investigation or to any other person whose financial interests appear to him to be affected by the matters dealt with in the report (whether as a creditor of the LLP or otherwise).23 He may also publish the report.24 Where, however, the Secretary of State appoints inspectors on his own initiative (ie on one of the grounds set out in 24.5(2)), he can exclude this ability to supply copies and publish the report by making it a term of the appointment of the inspectors that their report is not for publication.25 This will not, however, preclude the Secretary

17

CA 1985, s 434(2), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. The requirement is subject to the limitations mentioned in fn 16 above. 18 CA 1985, s 436, as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 19 CA 1985, s 433, as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 20 CA 1985, s 450(1)–(2), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 21 CA 1985, s 450(3), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 22 CA 1985, s 437(3), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 23 Ibid. 24 Ibid. 25 CA 1985, s 432(2A), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1.

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of State from being able himself to disclose, or to authorise or require the inspectors to disclose, any information obtained by the inspectors to certain government or regulatory bodies, or for certain essentially regulatory or other public purposes.26 Such information may also be disclosed by the inspectors to a person appointed to carry out various investigations under the FSMA 2000, or an investigator authorised to require production of documents under CA 1985, s 447 (discussed in 24.11).27

Direction to LLP to produce documents and provide information 24.11 As an alternative to the inevitably rather high-profile route of investigating an LLP’s affairs by appointing inspectors, under CA 1985, s 447 the Secretary of State may at any time (and without any need to have statutory grounds for appointing inspectors) direct an LLP to produce (at such time and place as he directs) any documents, or provide any information, which he specifies.28 Alternatively, he may authorise an investigator to require the LLP, or any other person, to produce (at such time and place as the investigator specifies) such documents, or provide such information, as the investigator specifies.29 There are criminal sanctions30 for knowingly providing information which is false in a material particular, or recklessly providing information which is false in a material particular, in purported compliance with a requirement to provide information under s 447.31 If a person fails to comply with a requirement imposed by the Secretary of State or an investigator to provide documents or information under s 447, the Secretary of State or investigator may certify that fact to the court. If the court is satisfied (after hearing any witnesses and any statement which may be offered in defence) that the person has failed without reasonable excuse to comply with the requirement, it may deal with him as if he had been guilty of contempt of court.32 24.12 The Secretary of State must not require, or authorise an investigator to require, the production by a person carrying on the business of banking of a document relating to the affairs of a customer of his, or the disclosure by the banker of information relating to those affairs unless (a) the Secretary of State thinks that it is necessary to do so for the purpose of investigating the affairs of the banker, or (b) the customer is a person on whom a requirement has been imposed under s 447, or (c) the customer is a person on whom a requirement to produce information or 26

27 28

29

30 31 32

CA 1985, s 451A(1) and (2), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. The government and regulatory bodies, and the regulatory purposes, are referred to in CA 1985, s 449, and set out in Schs 15C and 15D. CA 1985, s 451A(3), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. CA 1985, s 447(2), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. This is subject to the right not to produce documents covered by legal professional privilege: s 452(2). ‘Documents’ includes information recorded in any form: s 447(8); where a document is not in hard copy form, the Secretary of State or an investigator may require the production of the document in hard copy form or in a form from which a hard copy can readily be obtained: s 447(9). CA 1985, s 447(3)–(5), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. The evidentiary use which may be made against a person of a statement made by him in compliance with a direction under s 447 is provided for in s 447A. Including possible imprisonment for up to two years: CA 1985, s 451(2), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. CA 1985, s 451, as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. CA 1985, s 453C, as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1.

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documents has been imposed by an investigator appointed by the Secretary of State in pursuance of s 171 or 173 of the FSMA 2000.33 In addition, no person can be compelled under s 447 to produce a document, or disclose information, in respect of which legal professional privilege could be claimed in proceedings; nor does s 447 authorise the taking of possession by the Secretary of State, or an investigator, of any such document which is in a person’s possession.34 A person who is a lawyer can, however, be compelled to disclose the name and address of his client.35 24.13 Any document or information which has been obtained by the Secretary of State or his appointee under s 447 (and which is not, or has not been, available to the public from any other source) cannot be disclosed by them or anyone else unless the disclosure is either to a person specified in Sch 15C of the CA 1985 or is for a purpose set out in Sch 15D.36 The persons specified in Sch 15C are certain government or regulatory bodies; and the purposes set out in Sch 15D cover a wide range of regulatory purposes.

Voluntary disclosure 24.14 Where, otherwise than in compliance with a requirement under Part 14, a person discloses to the Secretary of State information of a kind which he could be required to disclose under Part 14 and (a) he makes the disclosure in good faith and in the reasonable belief that it is capable of assisting the Secretary of State for the purpose of his functions under Part 14 and (b) the information is not more than is reasonably necessary for the purpose of so assisting the Secretary of State, he is exempted by statutory provision from being liable by reason only of that disclosure in any proceedings relating to a breach of an obligation of confidence.37 In order to gain this exemption from liability, the disclosure must not be one which is prohibited by virtue of any primary or subordinate legislation (whenever passed or made), nor be made by a person carrying on the business of banking or by a lawyer and involve the disclosure of information in respect of which the banker or lawyer owes an obligation of confidence in that capacity.38

Power to enter premises 24.15 An inspector, or an investigator under s 447, may, if he is authorised to do so by the Secretary of State, and he thinks that to do so will materially assist him in the exercise of his investigative functions in relation to the LLP, at all reasonable times require entry to premises which he believes are used (wholly or partly) for the purposes of the LLP’s business.39 It is an offence intentionally to obstruct an 33

CA 1985, s 452(3), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. CA 1985, s 452(4), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 35 CA 1985, 452(5), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 36 CA 1985, s 449, as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 37 CA 1985, s 448A, as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. 38 Ibid. 39 CA 1985, s 453A–453B, as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. On obtaining entry, the inspector or investigator must comply with the requirements prescribed by the Companies Act 1985 (Power to Enter and Remain on Premises: Procedural) Regulations 2005 (SI 2005/684), applied to LLPs by SI 2007/2073. 34

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inspector or investigator exercising this power.40 If satisfied on information from the Secretary of State, or from an inspector or investigator appointed by him, that there are reasonable grounds for believing that there are on the premises documents whose production has been required, but which have not been produced, there is also power for a justice of the peace to issue a warrant authorising a constable, together with any other person named in it, to enter the premises (using such force as is reasonably necessary) to search for the non-produced documents.41

Permitted disclosure only 24.16 Information obtained by the Secretary of State by way of voluntary disclosure mentioned in 24.14, or by an investigator exercising his right to require entry to premises mentioned in 24.15, is subject to the same restrictions on disclosure as are referred to in 24.13.42

Investigation by Secretary of State 24.17 Under IA 1986, s 218, if it appears to the liquidator of an LLP in the course of a voluntary winding up that any past or present member of the LLP has been guilty of an offence in relation to the LLP for which he is criminally liable, the liquidator is required to report this to the Secretary of State and to provide the Secretary of State with such information in his possession or under his control relating to the matter as the Secretary of State requires.43 Where the Secretary of State receives such a report, he may, for the purpose of investigating the matter reported to him and such other matters relating to the affairs of the LLP as appear to him to require investigation, exercise any of the powers of inspectors appointed by him under Part 14 of the CA 1985.44 Such an investigation will be carried out by officials, and not by formally appointed inspectors. The obligations placed by the CA 1985 on members and others to provide information or documents to inspectors who have been appointed by the Secretary of State, or otherwise to assist such inspectors, referred to in 24.7, exist equally in relation to an investigation by the Secretary of State himself under IA 1986, s 218.45

Applications to court by Secretary of State 24.18 An inspectors’ report into the affairs of an LLP, or information obtained by the Secretary of State under s 447, may be the basis of: (a) disqualification proceedings

40 41 42 43

44 45

Ibid. The penalty on conviction for obstruction is a fine: s 453A(5A). CA 1985, s 448, as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. CA 1985, s 449(1)(b) and (c), as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1. IA 1986, s 218(4), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. If, in the course of a voluntary winding up, it appears to the court that any past or present member of the LLP has been guilty of an offence as mentioned in the text, but that no report has been made by the liquidator to the Secretary of State, the court may direct the liquidator to make such a report: s 218(6). IA 1986, s 218(5), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. IA 1986, s 219, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1.

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taken by the Secretary of State against a person who is or has been a member of the LLP, under the CDDA 1986 as applied to LLPs;46 and (b) an application by the Secretary of State to the court for the winding up of the LLP (on the basis that it is just and equitable that the LLP be wound up) if it appears to him from the report or information that it is expedient in the public interest that the LLP should be wound up.47 Alternatively, if it appears to the Secretary of State that the affairs of the LLP are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or some part of its members, or that any actual or proposed act or omission of the LLP (including any act or omission on its behalf) is or would be so prejudicial, he may apply to the Court (in addition to, or instead of, applying for the winding up of the LLP) for an order under Part 30 of the CA 2006.48

STRIKING THE LLP’s NAME OFF THE REGISTER Introduction 24.19 The name of an LLP which is not carrying on business or in operation may be ‘struck off the register’, ie off the records kept by the Registrar relating to LLPs.49 This may be done by the Registrar either on his own initiative,50 or on an application made to him (in circumstances which permit it) by a majority of the members of the LLP,51 or if there are only two members, by both of them (or by a sole remaining member).52 The Registrar may also strike off the register the name of an LLP which is being wound up where no liquidator is acting, or its affairs are fully wound up, and the returns required to be made by the liquidator have not been made for a period of six consecutive months.53 When the name of an LLP is struck off the register, the Registrar is to publish notice of this having been done in the London Gazette;54 and, on the publication of that notice, the LLP is dissolved.55 24.20 The result of the LLP being dissolved will be that (subject to the possibility of its name being restored to the register and the dissolution being reversed as

46

47 48 49 50 51 52 53 54 55

CA 1985, ss 441 and 449 with Sch 15D, para 42, as modified and applied to LLPs by SI 2001/1090, reg 4 and Sch 2, Part 1, and CDDA 1986, s 8, as modified and applied to LLPs by SI 2001/1090, reg 4(2) and Sch 2, Part 2. See further 37.30. Information or documents obtained by the Secretary of State under s 447 are admissible in evidence in the disqualification proceedings; see Re Rex Williams Leisure Plc [1994] Ch 1. IA 1986, s 124A, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. CA 2006, s 995, as modified and applied to LLPs by SI 2009/1804, reg 48. CA 2006, Part 30 is discussed more fully in Chapter 32. See further 1.9–1.12. The LLP will also be struck off the Registrar’s index of names of companies and other bodies kept under CA 2006, s 1099. Under CA 2006, s 1000(4), as modified and applied to LLPs by SI 2009/1804, reg 50: see further 24.23. Ie a majority of all the members, and not simply a majority of those present at a meeting of members. This is the same as the position under default rule (6), discussed at 17.5. Under CA 2006, s 1003(1), as modified and applied to LLPs by SI 2009/1804, reg 51: see further 24.24. CA 2006, s 1001(2), as modified and applied to LLPs by SI 2009/1804, reg 50. CA 2006, s 1000(5) or 1001(3), as modified and applied to LLPs by SI 2009/1804, reg 50. CA 2006, s 1000(6) or 1001(4), as modified and applied to LLPs by SI 2009/1804, reg 50.

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mentioned below, and subject also to the possibility, in the particular circumstances, of an agreement amongst the members as to the distribution of assets amongst them)56 all property and rights whatsoever vested in or held on trust for the LLP immediately before the dissolution (but not property held by the LLP on trust for others) will pass as to the Crown bona vacantia,57 save to the extent that the Crown disclaims any such property.58 At any time after two years from the date of dissolution, the Registrar may direct that records relating to the LLP are sent to the Public Record office.59 24.21 Any disclaimer by the Crown must be made within three years after the date when the Crown first has notice that the property in question may have vested in it or, if ownership of the property is not established by that date, within three years after the end of the period reasonably necessary for the Crown to establish the ownership of the property.60 A person interested in particular property may require the Crown to decide whether or not to disclaim; and in such a case a disclaimer must be made within 12 months of the Crown being required to decide, or such further period as may be allowed by the court.61 A notice of disclaimer by the Crown must be disclosed to the Registrar; and copies of it must be published in the London Gazette and sent to any persons who have given notice to the Crown of a claimed interest in the property.62 The general effect of a disclaimer is that the property disclaimed is deemed not to have vested in the Crown, and the rights, interest and liabilities of the LLP in, or in respect of, the property disclaimed are terminated as from the date of the disclaimer.63 24.22 Although, as indicated in 24.20, the possibility will continue to exist of the striking off and dissolution being reversed, the Crown will be able to dispose of any property and rights which have vested in it as bona vacantia.64

Striking off on the Registrar’s initiative 24.23 The procedure under which the Registrar can strike an LLP off the register on his own initiative is as follows.65 (1) If the Registrar has reasonable cause to believe that an LLP is not carrying on business or in operation, he may send it a communication inquiring whether it is carrying on business or in operation. 56 See 57 58 59 60

61 62 63 64 65

Neville v Wilson [1997] Ch 144. CA 2006, s 1012, as modified and applied to LLPs by SI 2009/1804, reg 52. Under CA 2006, s 1013, as modified and applied to LLPs by SI 2009/1804, reg 52. CA 2006, s 1084, as modified and applied to LLPs by SI 2009/1804, reg 65. CA 2006, s 1013(3), as modified and applied to LLPs by SI 2009/1804, reg 52. This period of three years applies in relation to the property of an LLP dissolved on or after 1 October 2009: SI 2009/1804, reg 83 and Sch 1, Part 7, para 22. As to dissolution before 1 October 2009, see para 22A. CA 2006, s 1013(4), as modified and applied to LLPs by SI 2009/1804, reg 52. CA 2006, s 1013(6)–(7), as modified and applied to LLPs by SI 2009/1804, reg 52. CA 2006, ss 1014–1015, as modified and applied to LLPs by SI 2009/1804, regs 52–53. CA 2006, s 1034(1), as modified and applied to LLPs by SI 2009/1804, reg 58. As to the position if the LLP is restored to the register, see 24.39. CA 2006, ss 1000(1)–(6) and 1001(1)–(4), as modified and applied to LLPs by SI 2009/1804, reg 50. The Companies (Striking Off) (Electronic Communications) Order (SI 2014/1602)

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(2) If, within 14 days of sending the first communication, he does not receive any reply, he is to send to the LLP within the next 14 days a second communication referring to the first communication, and stating that no answer to it has been received, and that, if an answer is not received to the second communication within 14 days from its date, a notice will be published in the London Gazette with a view to striking the LLP’s name off the register. (3) If the Registrar either receives an answer to the effect that the LLP is not carrying on business or in operation, or does not within 14 days after sending the second communication receive any answer, he may then publish in the London Gazette, and send to the LLP, a notice that, at the expiration of two months from the date of that notice, unless cause is shown to the contrary, the name of the LLP will be struck off the register and it will be dissolved. (4) Where an LLP is being wound up, if the Registrar has reasonable cause to believe either that no liquidator is acting, or that the affairs of the LLP are fully wound up, and the returns required to be made by the liquidator have not been made for a period of six consecutive months, the Registrar is required by the CA 2006 to publish in the London Gazette and send to the LLP or the liquidator (if any) a similar notice to that mentioned in (3) above. (5) At the expiration of the time mentioned in the notice the Registrar may, unless the LLP has shown cause to the contrary, strike its name off the register. And if he does this, notice of the striking off is to be published by him in the London Gazette. Upon publication the LLP is dissolved.

Striking off on application by members 24.24 There are a number of restrictions on an application being made by the members of an LLP (or a majority of them if there are more than two) for the LLP to be struck off the register. The first is that the LLP must not have been trading or otherwise carrying on business during the three months prior to the application.66 In addition, the application cannot be made if at any time during the three months prior to the application the LLP has: (a) changed its name; or (b) made a disposal for value of property or rights which, immediately before ceasing to trade or otherwise carry on business, it held for the purpose of disposal for gain in the normal course of trading or otherwise carrying on business; or (c) engaged in any other activity, except one which is necessary or expedient for the purpose of members making the application or deciding whether to do so,

66

has liberalised the means by which notice may be given and expressly permits electronic communications in certain circumstances. The Small Business, Enterprise and Employment Act 2015, s 103 reduced the notice periods under CA 2006, ss 1000–1001 and 1003, so that periods of one month became 14 days, and periods of three months became two months. CA 2006, s 1004(1)(b), as modified and applied to LLPs by SI 2009/1804, reg 51. Merely making a payment in respect of a liability incurred in the course of trading or otherwise carrying on business prior to the three months will not itself constitute trading or carrying on business during the three months: s 1004(2).

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or for the purpose of concluding the affairs of the LLP, or for the purpose of complying with any statutory requirements.67 The application also cannot be made at a time when any of the following is the case:68 (i) (ii) (iii) (iv) (v) (vi)

an application has been made to the court under CA 2006, Part 26 (ss 895–900) on behalf of the LLP for the sanctioning of a compromise or arrangement and the matter has not been finally concluded;69 a voluntary arrangement in relation to the LLP has been proposed under Part 1 of the IA 1986 and the matter has not been finally concluded;70 the LLP is in administration under Part 2 of the IA 1986; para 44 of Sch B1 to the IA 1986 applies (interim moratorium on proceedings where application to the court for an administration order has been made or notice of intention to appoint administrator has been filed); the LLP is being wound up under Part 4 of the IA 1986, whether voluntarily or by the court, or a petition under that Part for the winding up of the LLP by the court has been presented and not finally dealt with or withdrawn; or there is a receiver or manager of the LLP’s property.

Broadly speaking, if any of the above circumstances which prohibit an application being made by members for the LLP to be struck off come into existence after the application has been made and before it is dealt with or withdrawn,71 there is an obligation on every person who is a member of the LLP to ensure that the application is withdrawn forthwith.72 24.25 The members making the application are required to ensure that a copy of the application is given, within seven days of it being made (unless the application is withdrawn within those seven days), to every person who was on the day of the application a member of the LLP. A copy is also to be given to every person who

67

68

69 70 71 72

CA 2006, s 1004(1), as modified and applied to LLPs by SI 2009/1804, reg 51. Any member who makes an application where there are circumstances prohibiting the application is guilty of an offence (and liable to a fine), although it will be a defence for him to prove that he did not know, and could not reasonably have known, of the existence of the facts that led to the contravention: s 1004(3)–(5). CA 2006, s 1005(1), as modified and applied to LLPs by SI 2009/1804, reg 51. There is a similar offence (and defence) to that mentioned in fn 67 above for making an application where the facts prohibit it: s 1005(4)–(5). As to what constitutes final conclusion of such an application, see CA 2006, s 1005(2), as modified and applied to LLPs by SI 2009/1804, reg 51. As to what constitutes final conclusion of such an application, see CA 2006, s 1005(3), as modified and applied to LLPs by SI 2009/1804, reg 51. And also if the LLP had determined during this period to go into voluntary winding up. CA 2006, s 1009(1)–(4), as modified and applied to LLPs by SI 2009/1804, reg 51. Failure by a member to comply with this obligation will constitute an offence; but it will be a defence for him to prove either that, at the time of the failure, he was not aware of the application having been made, or that he took all reasonable steps to carry out the obligation: s 1009(5)–(7). The application is withdrawn by notice to the Registrar: s 1010.

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was on that day an employee or creditor of the LLP, or a manager or trustee of any pension fund established for the benefit of the employees of the LLP.73 24.26 In addition to the obligation on all the members mentioned at the end of 24.24, if at any time after the application has been made (and not formally dealt with or withdrawn) any person becomes a member of the LLP, or becomes an employee or creditor of the LLP,74 there is an obligation on all the members at that time to ensure that a copy of the application is given to the new member or employee or creditor within seven days.75 24.27 Where the Registrar strikes an LLP off the register pursuant to an application by members, he must publish notice of it in the London Gazette; and on publication of that notice, the LLP is dissolved.76

After striking off 24.28 Although an LLP is dissolved if it is struck off the register, this is not an end to all matters relating to the LLP. In particular, the liability (if any) of every member of the LLP continues and may be enforced as if the LLP had not been dissolved;77 and the court continues to have power to wind up the LLP.78 24.29 There are also two possible routes to the name of the LLP being restored to the register (and its dissolution being reversed), namely administrative restoration by the Registrar, and restoration by order of the court.

Administrative restoration to the register 24.30 Where an LLP has been struck off the register by the Registrar on his own initiative,79 the Registrar may himself restore the LLP to the register on the application of a former member.80 Such a restoration is termed an ‘administrative restoration’. The application for such a restoration may be made whether or not the LLP has yet 73

74 75

76 77 78

79 80

CA 2006, ss 1006(1)–(3) and 1008 (method of service of copy application), as modified and applied to LLPs by SI 2009/1804, reg 51. ‘Creditor’ includes a contingent or prospective creditor: s 1011. A failure to ensure that a copy of the application is given as required above will constitute an offence; although it will be a defence for the member to prove that he took all reasonable steps to perform the duty: s 1006(4)–(5). If the members fail to supply a copy of the application with the intention of concealing it, they are liable to imprisonment: see subss (4) and (7). A failure without this intention leads to a possible fine: subs (6). Or a manager or trustee of any pension fund established for the benefit of the employees of the LLP. Or to a manager or trustee as above: CA 2006, s 1007(1)–(2), as modified and applied to LLPs by SI 2009/1804, reg 51. The position on a failure to carry out this obligation is the same as set out under fn 73 above: s 1007(4)–(7). CA 2006, s 1003(4)–(5), as modified and applied to LLPs by SI 2009/1804, reg 50. CA 2006, ss 1000(7)(a), 1001(5)(a) and 1003(6)(a), as modified and applied to LLPs by SI 2009/1804, regs 50–51. CA 2006, ss 1000(7)(b), 1001(5)(b) and 1003(6)(b), as modified and applied to LLPs by SI 2009/1804, regs 50–51. As to the desirability of the dissolution being declared void before a winding-up order is made, see In re Thompson & Riches Ltd [1981] 1 WLR 682. Ie under CA 2006, s 1000 or 1001, as modified and applied to LLPs by SI 2009/1804, reg 50. CA 2006, s 1024, as modified and applied to LLPs by SI 2009/1804, reg 56. If an LLP is restored pursuant to the administrative restoration process and one or more of the requirements are not

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been dissolved, but may not be made after the end of the period of six years from the date of dissolution of the LLP.81 There can only be an administrative restoration if four conditions are met, namely – (a) the LLP was carrying on business or in operation at the time of the strikingoff;82 (b) if any property or right previously vested in or held on trust for the LLP has vested in the Crown as bona vacantia,83 the Crown has consented (in writing to the Registrar) to the LLP’s restoration to the register;84 (c) the applicant has delivered to the Registrar such documents relating to the LLP as are necessary to bring up to date the records kept by the Registrar, and has paid any penalties under CA 2006, s 453 (or its statutory predecessor, CA 1985, s 242A, where applicable)85 that were outstanding at the date of dissolution or striking-off;86 and (d) the applicant has sent notice of the application to all those who were members of the LLP at the time of its striking off.87 The application must be accompanied by a statement (‘statement of compliance’) that the person making the application has standing to make it (ie he is a former member) and that conditions (a)–(d) set out above are satisfied.88 The Registrar may accept the statement of compliance as sufficient evidence of the statements in it.89 The Registrar must give notice of his decision on the application to the applicant.90 If the decision is that the LLP should be restored to the register, the restoration takes effect as from the date when the notice is sent;91 and the Registrar must enter a note on the register of the date as from which the LLP’s restoration to the register takes effect, and also cause notice of the restoration to be published in the London Gazette.92 24.31 The general effect of an administrative restoration to the register is that the LLP is deemed to have continued in existence as if it had not been dissolved or struck off the register.93 By way of supplement to this, the court may (provided that the satisfied, the court has the power in some circumstances to reverse the restoration by rectification of the register pursuant to CA 2006, s 1096: Grupo Mexico SAB de CV v Infund LLP & Ors [2018] EWHC 1306 (Ch) and [2019] EWCA Civ 1673. See 24.46–24.48. 81 CA 2006, s 1024(4), as modified and applied to LLPs by SI 2009/1804, reg 56. 82 CA 2006, s 1025(1) and (2), as modified and applied to LLPs by SI 2009/1804, reg 56. 83 See 24.20. 84 CA 2006, s 1025(3) and (7), as modified and applied to LLPs by SI 2009/1804, reg 56. It is the applicant’s responsibility to obtain the consent and to pay any costs of the Crown, including costs of dealing with the property during the period of dissolution: s 1025(4). 85 These sections establish civil penalties payable by an LLP to the Registrar for failure to file annual accounts. See further 21.3–21.5. 86 CA 2006, s 1025(5), as modified and applied to LLPs by SI 2009/1804, reg 56. 87 CA 2006, s 1025(6), as modified and applied to LLPs by SI 2009/1804, reg 56. 88 CA 2006, s 1026(2), as modified and applied to LLPs by SI 2009/1804, reg 56. 89 CA 2006, s 1026(3), as modified and applied to LLPs by SI 2009/1804, reg 56. 90 CA 2006, s 1027(1), as modified and applied to LLPs by SI 2009/1804, reg 56. 91 CA 2006, s 1027(2), as modified and applied to LLPs by SI 2009/1804, reg 56. 92 CA 2006, s 1027(3) and (4), as modified and applied to LLPs by SI 2009/1804, reg 56. 93 CA 2006, s 1028(1), as modified and applied to LLPs by SI 2009/1804, reg 56. The LLP is not liable to a penalty under CA 2006, s 453 (or its statutory predecessor, CA 1985, s 242A, where applicable) for a financial year in relation to which the period for filing accounts and reports ended

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application to it is made at any time within three years after the date of restoration of the LLP to the register) give such directions and make such provision as seems just for placing the LLP and all other persons in the same position (as nearly as maybe) as if the LLP had not been dissolved or struck off the register.94 The court is thus enabled, where necessary, to add to an administrative restoration special directions designed to achieve an ‘as-you-were position’ between the LLP and third parties.95 Such directions and provisions will be relevant, inter alia, to property which has vested in the Crown as bona vacantia, but which has not yet been disposed of by the Crown. 24.32 If the Registrar declines to restore the LLP to the register, an application to the court (by any of the persons referred to in 24.33) may be made within 28 days of notice of the Registrar’s decision being issued by him, even if the period of six years from the date of dissolution of the LLP has expired;96 and the court may order the restoration of the LLP to the register if the LLP was, at the time of the striking off, carrying on business or in operation.97 The restoration takes effect on a copy of the court’s order being delivered to the Registrar.98 The Registrar must cause notice of the restoration to be published in the London Gazette.99

Restoration to the register by the court 24.33 In addition to administrative restoration by the Registrar, an LLP which has been struck off the register, whether by the Registrar on his own initiative or on the application of members, can also be restored to the register by the court on application being made to it.100 The court may also restore to the register an LLP which has been

after the date of dissolution or striking off, and before the restoration of the LLP to the register: s 1028(2). 94 CA 2006, s 1028(3)–(4), as modified and applied to LLPs by SI 2009/1804, reg 56. 95 See Tymans Ltd v Craven [1952] 2 QB 100 (CA) at 110–11 and 126 and Jodrell v Peaktone [2013] 1 WLR 784 at [42]–[46]. Among the directions that may be given, the Court may direct that time should stop running for the purposes of limitation during any period of dissolution in respect of causes of action which were not statute barred as at the date of dissolution. Because such a direction will affect third parties against whom a cause of action might be asserted, such third parties have a right to be heard on the restoration application where such a direction is sought; see Regent Leisuretime Ltd v Natwest Finance Ltd [2003] BCC 587 (CA), esp at paras 89–91. The suggestion in Regent Leisuretime that such a direction would only be made in exceptional circumstances was rejected by the Court of Appeal in Davy v Pickering [2015] 2 BCLC 116 at [35]–[38], albeit that the Court held that a proper basis must be put forward as to why justice and fairness require it. Circumstances in which a limitation direction might be justified include where a creditor of the company/LLP would suffer prejudice because the vindication of a cause of action which has become statute barred during a period of dissolution in the course of the winding up of the company/LLP represents such a creditor’s only prospect of payment. 96 CA 2006, s 1030(5), as modified and applied to LLPs by SI 2009/1804, reg 57. 97 CA 2006, s 1031(1)(a), as modified and applied to LLPs by SI 2009/1804, reg 57. 98 CA 2006, s 1031(2), as modified and applied to LLPs by SI 2009/1804, reg 57. 99 CA 2006, s 1031(3) and (4), as modified and applied to LLPs by SI 2009/1804, reg 57. 100 CA 2006, s 1029(1)(c), as modified and applied to LLPs by SI 2009/1804, reg 57. The application can be made whether or not the LLP has been dissolved: ibid. It can also be made under the CA 2006 provisions whether the LLP was struck off the register or dissolved before, on or after 1 October 2009: SI 2009/1804, Sch 1, Part 7, paras 24–25.

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dissolved under Chapter 9 of Part 4 of the IA 1986 (dissolution of LLP after winding up) or which is deemed to have been dissolved under para 84(6) of Sch B1 to the IA 1986 (dissolution of LLP following administration).101 An application for restoration in any of these circumstances may be made by the Secretary of State, any person having an interest in land in which the LLP had a superior or derivative interest, any person having an interest in land or other property that was subject to rights vested in the LLP or was benefited by obligations owed by the LLP, any person who but for the LLP’s dissolution would have been in a contractual relationship with it, any person with a potential legal claim against the LLP, any manager or trustee of a pension fund established for the benefit of employees of the LLP, any former member of the LLP (or the personal representatives of a former member), any person who was a creditor of the LLP at the time of its striking off or dissolution or any former liquidator of the LLP. In addition to these specified persons, an application may be made by any other person appearing to the court to have an interest in the matter.102 24.34 Where the application to the court for restoration is made for the purpose of bringing proceedings against the LLP for damages for personal injury, it may be made at any time.103 Any other application (save as mentioned in 24.32, where the period is 28 days from the Registrar’s decision), may not be made after the end of the period of six years from the date of dissolution.104 24.35 Where the LLP was struck off the register on the application of members, the court may only order its restoration to the register if any of the circumstances set out in 24.24 prohibiting an application by members (or requiring the application to be withdrawn) in fact existed, or if any of the requirements set out in 24.25 and 24.26 were not complied with.105 24.36 Where the LLP was struck off the register otherwise than on the Registrar’s own initiative, or on the application of members, the court may make an order restoring it to the register if the court considers it just to do so.106 24.37 If the court does order restoration to the register, the restoration takes effect on a copy of the court’s order being delivered to the Registrar.107 The Registrar must then cause notice of the restoration to be published in the London Gazette.108 The general effect of an order of the court restoring an LLP to the register is the same

101 102

103 104 105 106 107 108

CA 2006, s 1029(1)(a) and (b), as modified and applied to LLPs by SI 2009/1804, reg 57. CA 2006, s 1029(2), as modified and applied to LLPs by SI 2009/1804, reg 57. ‘Creditor’ includes a contingent or prospective creditor: s 1011. As to standing to oppose an application, see Welsh Ministers v Price [2017] EWCA Civ 1768, [2018] 1 WLR 738 and Fakhry v Pagden [2020] EWCA Civ 1207. CA 2006, s 1030(1), as modified and applied to LLPs by SI 2009/1804, reg 57. In making its decision, the court is to have regard to the issue of possible limitation: s 1030(2)–(3). CA 2006, s 1030(4)–(5), as modified and applied to LLPs by SI 2009/1804, reg 57. (See the transitional provisions in SI 2008/2860, Sch 2.) CA 2006, s 1031(1)(b), as modified and applied to LLPs by SI 2009/1804, reg 57. CA 2006, s 1031(1)(c), as modified and applied to LLPs by SI 2009/1804, reg 57. CA 2006, s 1031(2), as modified and applied to LLPs by SI 2009/1804, reg 57. CA 2006, s 1031(3)–(4), as modified and applied to LLPs by SI 2009/1804, reg 57.

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as the effect of an administrative restoration set out in 24.31 (save that there is no three year, or other, period specified in which an application to the court for directions must be made).109 On the making of an order for restoration (or, presumably, on a later date, should the need arise) the court may also give directions as to (a) the delivery to the Registrar of such documents relating to the LLP as are necessary to bring up to date the records kept by the Registrar, (b) the payment of the costs of the Registrar in connection with the proceedings for the restoration, and (c) where any property or right previously vested in or held on trust for the LLP has vested as bona vacantia, the payment of the costs of the Crown in dealing with the property during the period of dissolution or in connection with the proceedings on the application.110

Supplementary to either method of restoration 24.38 If an LLP is restored to the register, it is restored with the same name as it had before it was struck off. But if, since the striking off, another company or LLP has been registered with that name, the LLP must be restored under another name (specified in the application for restoration to the Registrar or to the court), or as if its registered number was also its name.111 If the LLP is restored under a new name, the Registrar must issue a new certificate of incorporation, as on any other change of name.112 If the LLP is restored as if its registered number was also its name, it must change its name within 14 days after the date of restoration.113 24.39 It has been mentioned in 24.22 that the Crown is able to dispose of any property and rights of the LLP which have passed to it as bona vacantia on the striking off and dissolution of the LLP. Restoration of the LLP to the register does not affect such a disposition. But, if the LLP is restored to the register, the Crown is to pay to the LLP an amount equal to the amount of any consideration received by it for the property or the value of any such consideration at the time of the disposal, or if no consideration was received an amount equal to the value of the property disposed of as at the date of the disposal.114 The Crown may, however, deduct from the amount to be paid by it to the LLP its reasonable costs in connection with the disposal (to the extent that they have not been paid as a condition of administrative restoration or pursuant to a court order for restoration).115

109

110 111 112 113

114 115

CA 2006, s 1032(1)–(3), as modified and applied to LLPs by SI 2009/1804, reg 57. The LLP is not liable to a penalty under CA 2006, s 453 (failure to file accounts) for a financial year in relation to which the period for filing accounts and reports ended (a) after the date of dissolution or striking off and (b) before the restoration of the LLP to the register: ibid. CA 2006, s 1032(4)–(5), as modified and applied to LLPs by SI 2009/1804, reg 57. CA 2006, s 1033(1)–(2), as modified and applied to LLPs by SI 2009/1804, reg 58. CA 2006, s 1033(3)–(4), as modified and applied to LLPs by SI 2009/1804, reg 58 with CA 2006, s 80. CA 2006, s 1033(5), as modified and applied to LLPs by SI 2009/1804, reg 58. If it does not do so, an offence is committed by the LLP and by every member of the LLP who is in default: s 1033(6) and (7). As to the meaning of ‘in default’, see 13.23. CA 2006, s 1034(2), as modified and applied to LLPs by SI 2009/1804, reg 58. CA 2006, s 1034(3), as modified and applied to LLPs by SI 2009/1804, reg 58.

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RECTIFICATION OF THE REGISTER 24.40 Until CA 2006, the companies legislation did not contain any general powers to rectify the register (whether vested in the Registrar or the court), and the court’s power to control what appeared on the register was limited to its powers of judicial review over the actions of the Registrar where the Registrar acted in breach of statutory duty.116 The legislation now contains a suite of provisions concerning the correction or removal of material on the register which are contained in CA 2006, ss 1093 to 1098.117 24.41 Certain of the powers are granted to the Registrar. Section 1093 applies where it appears to the Registrar that the information contained in the document delivered to the Registrar is inconsistent with other information on the register. Where that is the case, the Registrar has power to give notice to the LLP, stating in what respect the information contained in it appears to be inconsistent with other information and requiring the LLP to take steps to resolve the inconsistency. Section 1094 gives the Registrar power to remove from the register anything that there was power, but no duty, to include, and the power is exercisable so as to remove unnecessary material within the meaning of s 1074, and material derived from a document that has been replaced under s 1076 or s 1093. But CA 2006, s 1094 does not authorise removal of anything whose registration has had legal consequences in relation to the LLP as regards its formation, a change of name, a change of registered office, a change in the situation of the registered office, the registration of a charge or its dissolution.118 Section 1095 provides for the provisions of the Registrar of Companies and Applications for Striking Off Regulations 2009119 to apply to LLPs. 24.42 The court is given a power to direct the Registrar to rectify the register in CA 2006, s 1096(1),120 which provides:121 ‘The Registrar shall remove from the register any material– (a) that derives from anything that the court has declared to be invalid or ineffective, or to have been done without the authority of the LLP, or (b) that a court declares to be factually inaccurate, or to be derived from something that is factually inaccurate, or forged, and that the court directs should be removed from the register.’

24.43 The power to direct rectification is subject to an express limitation: CA 2006, s 1096(3) prohibits a court from ordering the removal ‘of anything the 116

Re Calmex Ltd [1989] 1 All ER 485 (Ch) at 488h; Exeter Trust Ltd v Screenways Ltd [1991] BCC 477 at 480–3; igroup Ltd v Ocwen [2003] EWHC 2431 (Ch) at [27]–[32]; Re a Company (No 007466 of 2003) [2004] 1 WLR 1357 at [40] and [41]; Halifax Plc v Halifax Repossessions Ltd [2004] EWCA Civ 331 at [20] and [21]; and Bank of Beirut SAL v HRH Prince Adel [2015] EWHC 1451, [2016] 1 Ch 1 at [79]–[111]. 117 As modified and applied to LLPs by 2009/1804, reg 67. 118 Section 1094(3). 119 SI 2009/1803. 120 As modified and applied to LLPs by 2009/1804, reg 67. 121 See Polegoshko v Ibragimov [2015] 6 WLUK 731.

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registration of which had legal consequences’ as set out in CA 2006, s 1094(3), unless it is satisfied (a) that the presence of the material on the register has caused or may cause damage to the LLP, and (b) that the LLP’s interest in removing the material outweighs any interest of other persons in the material continuing to appear on the register. CA 2006, s 1094(3) lists the following material: ‘(a) anything whose registration has had legal consequences in relation to the LLP as regards– (i) (ii) (iii) (iv) (v) (vi)

its formation, a change of name, a change of registered office, a change in the situation of a registered office, the registration of a charge, or its dissolution;

(b) an address that is a person’s registered address for the purposes of section 1140 (service of documents on members and others).’

24.44 The court must therefore apply a two-stage test under CA 2006, s 1096 before ordering the removal of material that is contained on the register. First, the material must pass the s 1096(1) test (for example, it must derive from material that is factually inaccurate). Secondly, the court must consider whether the registration of that material has had one of the legal consequences set out in CA 2006, s 1094(3). If the registration of the material had none of those consequences, the court may order its removal. If the registration does have one of the stipulated consequences, the court may only order the material’s removal if the requirements of CA 2006, s 1096(3) are satisfied. The court’s statutory power of rectification is, therefore, expressly limited in its scope. The policy rationale for these limitations is obvious: the limitations strike a balance between the ability to correct errors and the need for certainty for those relying on the information contained in the register. This is especially so in relation to entries having consequences for formation and dissolution. The need for certainty in relation to the legal existence of a body corporate is fundamental: those engaging in commerce need to know whether an entity with which they are dealing or concerned exists. That policy is reflected in both the CA 2006 and the LLP Act 2000, which provide that the certificate of incorporation is conclusive evidence that the company or LLP is duly registered or incorporated.122 24.45 It should be noted that, where the registration of the material has had one of the legal consequences set out in CA 2006, s 1094(3), the requirements of s 1096(3) (ie that the presence of the material on the register has caused or may cause damage to the LLP, and that the LLP’s interest in removing the material outweighs any interest of other persons in the material continuing to appear on the register) must be satisfied before removal is ordered, even if the registration of the material was the result of fraudulent conduct.123 122 123

CA 2006, s 15(4) and LLP Act 2010, s 3(4). CA 2006, s 1096(3) survived an amendment that would have removed the limitations in the case of fraudulent filings: see Birds, Annotated Companies Legislation, 3rd ed (2013) at para 35.1096.05. See, in relation to the Limited Partnership Act 1907, Bank of Beirut SAL v HRH Prince Adel El-Hashemite [2015] EWHC 1451 (Ch), [2016] 1 Ch 1.

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24.46 In the case of an LLP that has been restored to the register, rectification of the register to remove the material relating to and recording the restoration is existential: that is, if the material is removed, the LLP will cease to exist and (because the material recording the restoration will no longer be on the register) the effect will be that the LLP will be treated as not existing from the date when it was originally dissolved. In such a case, the material recording the restoration would have had legal consequences in relation to dissolution, and so CA 2006, s 1094(3) would apply. The court will therefore not order rectification to remove the material relating to the restoration unless the requirements of s 1096(3) are satisfied (ie that the presence of the material on the register has caused or may cause damage to the LLP, and that the LLP’s interest in removing the material outweighs any interest of other persons in the material continuing to appear on the register). 24.47 In Grupo Mexico SAB De CV v Infund LLP & Ors,124 the court held, for the purposes of CA 2006, s 1096(3), that it could not be presumed that the inclusion of fraudulent or forged material would cause damage by its presence on the register. Instead, it was necessary to identify what damage had been or might be caused. The Court of Appeal rejected the argument that ‘damage’ for the purpose of s 1096(3) had to be damage caused directly by the presence of the disputed material on the register, and also the argument that an LLP cannot be damaged by the mere registration of material that gave it its existence; it held that:125 ‘Although the registration of Infund as active must be shown to have caused damage to the LLP by its presence on the register, there is no further definition within section 1096(3) of the scope of the causal inquiry or of what may constitute damage for this purpose. Provided that it can reasonably be said that the restoration of Infund to the register and its registration as an active LLP has caused or may cause it damage, there seems to me to be no discernible policy reason for not giving to the language of section 1096(3) its ordinary meaning and effect.’

24.48 Patten LJ went on to hold,126 in connection with the requirement that the LLP’s interest in removing the material must outweigh any interest of other persons in the material continuing to appear on the register, that the defendants’ interests in maintaining the restoration of Infund to the register could not outweigh those of the LLP in having the registration cancelled, although he did not in fact identify what interest the LLP had in the removal of material that would cause it to cease to exist.

124

[2019] EWCA Civ 1673. Permission to appeal to the Supreme Court has been granted. Ibid at [49]. 126 Ibid at [52]. 125

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Chapter 25 LLPs IN OTHER JURISDICTIONS

INTRODUCTION 25.1 The name ‘limited liability partnership’ for a business vehicle first appeared in legislation in the early 1990s, in the US. LLPs were introduced there in the aftermath of the ‘Savings and Loan scandal’ of the 1980s, which resulted in many substantial claims against accountancy and law firms. The first state to introduce LLPs was Texas in 1991. Since 1999, all the states of the US have had statutes providing for the creation of LLPs. US LLPs are general partnerships, with certain added statutory provisions which give protection from personal liability to the partners who are not themselves involved in the misconduct or negligence that gives rise to a claim against the partnership. In Canada, a majority of provinces, led by Ontario, has now followed the US lead, and introduced the same general partnership model of LLP. A number of US states and Canadian provinces confine the use of LLPs to specified professions. The US model of general partnership with statutory provisions has since been adopted for legal professionals in Hong Kong (in 2012) and Ireland (in 2019). 25.2 In 1997, the island of Jersey introduced its own form of partnership-based LLP, in a law sponsored by two of the major accountancy firms, for the carrying on of any business with a view to profit (although its provisions made it suitable for only the largest of concerns to adopt).1 The LLP Act 2000 was passed in the UK2 shortly thereafter, in the context of the perceived possibility that professional services partnerships, concerned at the size of potential negligence claims, might move their jurisdictional base to Jersey. Introducing the LLP Bill in the House of Lords, the minister said:3 ‘We are responding to pressure, particularly from professionals, that there should be some way for them to achieve the goal of limited liability.’

The UK model of LLP, however, in creating a new form of body corporate, was fundamentally different from the North American and Jersey models;4 and, although it was introduced primarily in the interests of professional firms, the scope of business which could be carried on through an LLP was not in any way limited to professional

1 2

3 4

The 1997 Jersey LLP Law has now been superseded by the LLP (Jersey) Law 2017, discussed at 25.30–25.32. Initially, Northern Ireland was excluded; but subsequently it had its own Act in 2002. With effect from 1 October 2009, the LLP Act 2000 applies to all UK LLPs, including Northern Ireland: CA 2006, s 1286. Lord McIntosh of Haringey: Hansard, HL, 24 January 2000, col 1353. The UK corporate model of limited liability partnership clearly owes much to the US limited liability company: see further 25.24.

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services. The LLP has indeed proved to have a much wider use, being used inter alia in the investment and financial services industries, and for a wide range of joint ventures. 25.3 As a result of the UK Act, there are now essentially two models of LLP that have been adopted around the world, namely the partnership-based model (from North America) and the corporate entity model (from the UK). It is the latter model which appears to be gaining most favour in other jurisdictions as the model to be introduced, particularly in the common law world. In either form, however, with its combination of flexibility as to management structure and financial arrangements, a shield for members from personal liability, and ‘pass-through’ or single-tier taxation, the LLP is being seen as a vehicle which may help foster economic activity and entrepreneurial initiative, and as an attractive vehicle for a jurisdiction to have on offer. 25.4 The thinking behind the introduction of LLPs in Japan and in Singapore, both in 2005, illustrates this. A discussion paper from the Japanese Ministry of Economy, Trade and Industry in July 2004 identified a shift in the source of economic growth, and competitive advantage in industry, from capital intensive industries, such as steel and cars (requiring tangible assets such as big factories and machines), to intangible assets, in particular human capital and intellectual property. The paper identified the information and communication industries, as well as professional services and financial services, as ‘the new driving forces of the economy’. Such industries, the paper said, require human capital: a fixed business structure that separates ownership and management tends to hinder the voluntary efforts of managers and employees. The paper concluded: ‘Thus, the government is seeking a ‘hybrid entity’ between a company and a partnership as a new organizational form for human capital power to enhance business activities in the changing economic environment.’

The result was the Japanese LLP Act of 2005.5 In Singapore, the driving force for the introduction of LLPs appears to have been the need to improve the state’s international competitiveness in the provision of corporate frameworks for carrying on business:6 ‘Many other countries in the world have introduced LLPs as a business vehicle for carrying out business activities. It is time for Singapore to also introduce this additional business entity to give potential entrepreneurs a greater choice of business vehicles as well as to attract foreign investment.’7

5

6 7

Article 1 of the Act states: ‘The purpose of this Act is to promote sound development of business activities jointly carried out by an individual or a legal person by establishing a system regarding partnership agreements for jointly conducting business activities for profit, which agreements provide that the liability of a partner is limited to its capital contribution amount, and thereby contributing to the furtherance of the economic vitality of our country.’ See, eg the Ministry of Finance press statement of 22 October 2002. Statement of the Singapore Accounting & Corporate Regulatory Authority.

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In India, which introduced the corporate entity model of LLP in 2008, the initial driving force was, as in the UK, to provide a structure for professional advisers which insulated them from unlimited personal liability for the negligence or wrongdoing of any member of the firm, and so gave encouragement to participate in increasingly high-value advisory work in, or related to, Indian commerce. As also in the UK, the LLP Act as passed provided for the carrying on of any business with a view to profit. 25.5 Other jurisdictions have introduced LLPs for some or all of the reasons outlined above. In the light of the attraction of introducing LLPs as business vehicles being felt by different jurisdictions, and in the light also of the increasing number of overseas LLPs carrying on business in the UK (in particular professional services LLPs), the authors consider it worthwhile giving a brief outline (albeit inevitably incomplete and selective as to provisions) of LLPs in other jurisdictions. This is set out below. How the different models of LLP will be treated by the English courts, and in particular whether the English courts will give full recognition to the limitation on personal liability contained in overseas LLP legislation, is considered in Chapter 26.

OTHER JURISDICTIONS Corporate entity LLPs Dubai International Financial Centre 25.6 Dubai IFC introduced LLPs in 2004.8 A Dubai IFC LLP is a body corporate with a legal personality separate from that of its members, and it is stated to have unlimited capacity.9 Any two or more persons may apply for incorporation of an LLP by signing and filing an application for incorporation, which is broadly the same as the UK incorporation document.10 The LLP may be incorporated to conduct any lawful business.11 The LLP must have a registered office in Dubai IFC to which communications may be addressed; and it must carry on its principal business activity in the Dubai IFC (unless the Registrar of Companies permits otherwise).12 Provision is also made for the registration of beneficial owners of the LLP in line

8

9

10

11 12

By the Limited Liability Partnership Law, DIFC Law No 5 of 2004 (as amended). See also the Limited Liability Partnership Regulations 2018. The Laws can be found at www.difc.ae/business/ laws-regulations/legal-database/. Article 15. Interestingly, in the original legislation, the replication of a corporate body extended to include provisions for the application of statutory claims for minority protection (ie unfair prejudice) but this was removed by the amendments in 2018. Article 8(1). If the LLP carries on business without having at least two members for more than 14 days, then (a) the Registrar may strike the LLP off the register (and it is dissolved), and (b) a member who knows that he is the sole member is liable jointly and severally with the LLP for the payment of the LLP’s debts contracted after the 14 days during the time that he is, and knows he is, the sole member: art 17(5). Article 8(2). There is no stated requirement that the business must be carried on with a view to profit. Article 13 of the DIFC Operating Law, DIFC Law No 7 of 2018.

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with provision made for IFC companies.13 The LLP must have the words ‘Limited Liability Partnership’ at the end of its name.14 There must be at least one designated member.15 The responsibilities of the designated members are to ensure that the LLP fulfils its obligations as to accounts.16 These obligations are to keep proper accounting records, prepare annual accounts which show a true and fair view of the profit and loss of the LLP and of the state of its affairs at the end of the financial year, appoint auditors to report on the accounts, and file the accounts (approved by the members) with the Registrar.17 25.7 The Law states that, in exercising his powers and discharging his duties, a member shall (a) act honestly and in good faith with a view to the best interests of the members and the LLP, and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.18 The wording of s 6 of the LLP Act 2000 is adopted, so that every member is expressed to be the agent of the LLP, and there are similar provisions to s 6(2) of the LLP Act 2000 as to an LLP not being bound by anything done by a member in certain circumstances.19 As in the UK, there is no express provision as to a member’s personal liability for the obligations of the LLP. As in the UK also, the mutual rights and duties of the members, and of the LLP and its members, are governed by the LLP agreement;20 and, similarly to the UK Act, the Dubai IFC Law contains default provisions.21 These are essentially identical to the UK default rules.22

Qatar Financial Centre 25.8 Qatar FC introduced LLPs in 2005.23 A Qatar FC LLP is a body corporate, separate from its members, and with all the capacity of a natural person.24 Any two or more persons may apply for the incorporation of an LLP for the purpose of carrying on a business (ie trade, profession or occupation) of a kind permitted by the Qatar FC Law25 to be conducted in the Qatar FC, by signing and filing with the Companies

13 14 15 16 17 18 19 20 21 22 23

24 25

DIFC Ultimate Beneficial Ownership Regulations 2018. Article 8(3)(a) of the 2004 Law, and reg 2.2 of the 2018 Regulations. The words need not appear in the LLP’s trading name, however. Article 23(2) of the 2004 Law. Article 23(7) of the 2004 Law. Articles 25–34 of the 2004 Law. Article 19 of the 2004 Law. Article 20 of the 2004 Law. Section 6 of the LLP Act 2000 is discussed in Chapter 5. Article 18 of the 2004 Law. The agreement is to be in the English language: s 9(1). Articles 9 and 17(3) of the 2004 Law. The default position as to a person ceasing to be a member is also the same as under LLP Act 2000, s 4(3), ie ‘reasonable notice to the other members’: article 17(2) of the 2004 Law. By the Qatar Financial Centre Limited Liability Partnerships Regulations, Regulation No 7 of 2005 (as amended by the Qatar Financial Centre Limited Liability Partnerships Regulations (Amended) 2012), which can be found via https://qfcra-en.thomsonreuters.com/rulebook/qatar-financial-centr e-legislation. Articles 6–7 of the 2005 Regulation. Ie Law No (7) of 2005 of the State of Qatar.

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Registration Office (CRO) an incorporation document, and also an LLP agreement.26 The incorporation document is broadly similar to the UK incorporation document. The LLP must have a registered office in the Qatar FC for service of documents, and must carry on its principal business activity at or from the registered office unless the Qatar FC Authority permits such business to be carried on at or from another place within the Qatar FC.27 The LLP must also have the words ‘Limited Liability Partnership’ or ‘LLP’ or ‘llp’ at the end of its name.28 There must be at least two designated members,29 whose role and duties are similar to those of UK designated members: they sign notices filed with the CRO and have effective responsibility for, inter alia, ensuring that the LLP files an annual return and keeps proper accounting records. In addition to keeping such records, the LLP must prepare (in accordance with prescribed accounting principles and standards) annual accounts which show a true and fair view of the profit and loss of the LLP and of the state of the LLP’s affairs at the end of the financial year. The accounts are to be audited and, when approved by the members (and signed by a designated member), filed with the CRO.30 Like Dubai IFC, provision is also made for the registration of beneficial owners of the LLP.31 25.9 Every member is the agent of the LLP;32 and there are similar provisions to s 6(2) of the LLP Act 2000 as to an LLP not being bound by anything done by a member in certain circumstances.33 As in the UK also, there is no express provision as to a member’s personal liability for the obligations of the LLP. As in the UK, the mutual rights and duties of the members, and of the LLP and its members, are governed by the LLP agreement;34 and, similarly to the UK legislation, the Qatar FC Regulation contains default provisions.35 These are essentially identical to the UK default rules, save that there is no default provision to the effect that no majority can expel a member unless a power to do so has been conferred by express agreement between the members.36

26

27 28 29 30 31 32 33 34 35 36

Article 9(1) of the 2005 Regulation. If the LLP carries on business without having at least two members for more than three months, then (a) a member who knows that he is the sole member is liable jointly and severally with the LLP for the payment of the LLP’s debts contracted after the three months during the time that he is, and knows that he is, the sole member, and (b) the CRO may strike the LLP off the register (and it is dissolved): article 27. Article 25(1) of the 2005 Regulation. Article 19 of the 2005 Regulation. In that, if there would otherwise be no designated members, or only one, every member is a designated member: article 15(2) of the 2005 Regulation. Article 34 of the 2005 Regulation. QAFC General Rule 8A. Article 13(1) of the 2005 Regulation. Article 13(2) of the 2005 Regulation. Article 13(3) and (4) follow s 6(3) and (4) of the LLP Act 2000. Section 6 of the LLP Act 2000 is discussed in Chapter 5. Article 12 of the 2005 Regulation. Article 18 of the 2005 Regulation. The default position as to person choosing to cease to be a member is the same as under LLP Act 2000, s 4(3) ie ‘reasonable notice to the other members’: article 11(3) of the 2005 Regulation.

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Labuan International Business and Financial Centre 25.10 Labuan IBFC (in Malaysia) introduced LLPs in 2010.37 A Labuan LLP is a body corporate with legal personality separate from that of its partners,38 and with all the powers of a natural person.39 Any two or more persons may form an LLP for any lawful purpose.40 An application to do so, providing the specified information as to the members and such like, is made to the Labuan Financial Services Authority by a person who is, on registration, to be a designated partner.41 An obligation of the LLP is solely the LLP’s obligation,42 and an individual partner is not personally liable in any way for such an obligation solely by reason of being a partner.43 This is stated, however, not to affect an individual partner’s personal liability in tort for his own wrongful act or omission,44 and the Act copies s 6(4) of the LLP Act 2000 as to the vicarious liability of the LLP for a partner’s liability to a third party arising out of his wrongful act or omission in the course of the business of the LLP or with its authority.45 There are similar provisions to s 6(2) and (3) of the LLP Act 2000.46 The relationship between the members, and between the members and the LLP, is governed by agreement, with default provisions essentially the same (save as to voting on differences) as the default rules in the LLP Regulations 2001.47 25.11 The LLP must have a registered office in Labuan,48 and there must be at least one designated partner, who is answerable for the doing of all acts, matters and things required to be done by the LLP under the Act, and who is personally liable to all penalties for failure unless he satisfies the court that he should not be so liable.49 There is no statutory requirement for the LLP’s accounts to be audited or filed, but the LLP is required to keep proper accounting records,50 and it must file each year a certificate from the designated member as to its solvency based on the designated member’s consideration of its accounts.51 Taxation is generally governed by the Labuan Business Activity Tax Act 1990.

Singapore and Malaysia 25.12 Singapore introduced limited liability partnerships in 2005.52 A Singapore LLP is, like a UK LLP, a body corporate with its own legal personality separate from 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

By the Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 (Laws of Malaysia Act 707). Labuan is a Federal Territory of Malaysia. Section 55(1) of the 2010 Act Section 55(3) of the 2010 Act. Section 29(1) of the 2010 Act. There may be some prohibitions or restrictions as to certain businesses: s 71. Section 30 of the 2010 Act. Section 56(1) of the 2010 Act. Section 56(2) of the 2010 Act. Section 56(3) of the 2010 Act. Section 56(4). Section of 6(4) of the LLP Act 2000 is considered at 5.22–5.25. Section 56(2) and (3) of the 2010 Act. Section 58 of the 2010 Act. Section 63(1) of the 2010 Act. Sections 64(3) and 65 of the 2010 Act. Section 70(1)–(3) of the 2010 Act. Section 66(1) of the 2010 Act. By the Limited Liability Partnerships Act 2005 (No 5 of 2005) (as amended by the Limited Liability Partnerships (Amendment) Act 2017 (No 16 of 2007)). The terms of the Act in force,

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that of its partners (the term used in preference to ‘members’).53 It is capable of suing and being sued, and doing any acts that a body corporate may lawfully do;54 and at the same time it is ‘see-through’ for tax purposes.55 As with UK LLPs, a Singapore LLP may be formed by any two or more persons associated for carrying on a lawful business with a view to profit.56 It must have either ‘limited liability partnership’ or ‘LLP’ as part of its name;57 and it must have a registered office in Singapore, where documents may be served on it.58 It is also required to have at least one ‘manager’, not necessarily a partner, who is concerned in or takes part in the management of the LLP, and who is a natural person ordinarily resident in Singapore.59 The manager or managers (akin to UK designated members) are answerable for the filing of the annual declaration of solvency or insolvency, the LLP’s invoices and correspondence carrying its name and details, and filing with the Registrar changes in registered particulars.60 As with UK LLPs also, every partner is the agent of the LLP, and there are similar provisions to those of LLP Act 2000, s 6(1)–(4) in relation to that agency.61 There is express provision that an obligation of the LLP is solely that of the LLP, and that a partner is not personally liable, solely by reason of being a partner, for an obligation of the LLP.62 These provisions are, however, stated not to affect ‘the personal liability of a partner in tort for his own wrongful act or omission.’63 Given that the LLP is a corporate entity, and not an aggregate partnership with a degree of limitation of personal liability built onto it, the effect of this saving appears to be that similar issues will arise in relation to personal liability as are discussed in Chapter 18 for UK LLP members. 25.13 Unlike the UK, there is no requirement for the auditing and filing of annual accounts; but every LLP must lodge annually with the Registrar a declaration by one of its managers that, in that manager’s opinion, the LLP either is, or is not, able at the date of the declaration to pay its debts as they become due in the normal course

53 54 55 56

57 58 59 60 61 62 63

which draw on the provisions of both the UK Act and the Limited Liability Partnerships (Jersey) Law 1997 in particular, can be found via https://sso.agc.gov.sg. Section 4(1) of the 2005 Act. Section 5(1) of the 2005 Act. Income Tax Act (cap 134), s 36A. Section 14 of the 2005 Act. Unlike the UK position, the incorporation statement is required to state the general nature of the LLP’s proposed business (s 15(1)(b)), and the Registrar is to refuse registration where the proposed business is likely to be used for an unlawful purpose, or for purposes prejudicial to the public peace, welfare or good order in Singapore or it would be contrary to the national security or interest for the LLP to be registered: s 17. It is also a ground for winding up that an LLP is being used for any such purposes: Sch 5, para 3(1)(f). If the LLP carries on business with one partner only for a period of two years, that partner will be personally liable, jointly and severally with the LLP, for any obligation incurred by the LLP while the LLP is so carrying on business after the two years if he knows that the LLP has been doing so for more than two years: s 22. Section 18(1) of the 2005 Act. Section 26 of the 2005 Act. Sections 2 and 23(1) of the 2005 Act. Section 23(3) with ss 24, 27 and 28 of the 2005 Act. Sections 8(4) and 9 of the 2005 Act. LLP Act 2000, s 6 is discussed in Chapter 5. Section 8(1) and (2) of the 2005 Act. Section 8(3) of the 2005 Act. Subsection (3) goes on to provide that a partner is not personally liable for the wrongful act or omission of any other partner.

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of business.64 There is also an obligation to keep accounting records for five years; and these records can be inspected at any time by the Registrar.65 As in the UK, the mutual rights and duties of the members, and of the LLP and its members, are governed by the LLP agreement;66 and, similarly to the UK Act, the Singapore Act contains default provisions for the LLP agreement.67 These are broadly similar to the UK default provisions.68 25.14 Limited liability partnerships were introduced in Malaysia by the Limited Liability Partnerships Act 2012.69 The drafting of that Act clearly owes a debt to the Singaporean legislation. Certain restrictions are imposed on the use of LLPs for professional practices, so as to prevent the use of LLPs to create multi-disciplinary practices.70 An LLP must also have a compliance officer whose role, not unlike that of the designated member or the Singaporean ‘manager’, is to provide a secretarial function and to be answerable for certain statutory defaults by the LLP. The compliance officer must be a citizen or permanent resident of Malaysia, ordinarily resident there.71

India and Pakistan 25.15 India introduced limited liability partnerships by the Limited Liability Partnership Act 2008.72 The Act draws on the Singaporean and UK statutes in particular. An Indian LLP is a body corporate, existing as a legal entity separate from its partners (the term used in preference to ‘members’), and with its own rights and liabilities, and itself capable of suing and being sued and doing any acts that a body corporate may lawfully do.73 As in the UK, for the incorporation of an LLP there need to be ‘two or more persons associated for carrying on a lawful business with a view to profit’ who subscribe their names to an incorporation document.74

64

65 66 67 68

69 70 71 72

73

74

Section 24 of the 2005 Act. There is a criminal sanction on a manager who makes a declaration without having reasonable grounds for his opinion: s 24(5). Whether or not a third party who has relied on the LLP’s declaration of solvency could pursue a civil action where there has been a negligent declaration is not addressed in the Act. Section 25 of the 2005 Act. Section 10 of the 2005 Act. Schedule 1 to the 2005 Act. Two differences are that (a) any matter or issue relating to the LLP is to be decided by majority, and (b) unless the LLP agreement provides otherwise, a partner can assign his right to receive distributions from the LLP (s 13 of the 2005 Act). In the absence of agreement as to a person ceasing to be a partner, he may give 30 days’ notice to the other partners of his intention to resign: s 11(1). Available at www.ssm.com.my. Section 8 of the 2012 Act. Section 27 of the 2012 Act. No 6 of 2009. The 2008 Act and the various accompanying LLP Rules can be found at www.mca. gov.in/MinistryV2/llpact.html. The Act (excluding sections on conversion into an LLP and winding up and dissolution) came into force on 31 March 2009, and (most of) the Rules came into force on 1 April 2009. Sections 3 and 14 of the 2008 Act. The taxation of LLPs is provided for in the Income Tax Act 1961. LLPs are taxed in the same manner as general partnerships in India, ie profits are taxed in the hands of the entity rather than in the hands of the partners. Section 11(1) of the 2008 Act. The LLP must have a minimum of two partners. If it carries on business for more than six months with one partner only, and that partner knows that he is the only

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This document is broadly similar to the incorporation document for a UK LLP (with the addition of a statement of the proposed business of the LLP).75 The LLP must have a registered office for service of communications,76 and have either ‘Limited Liability Partnership’ or ‘LLP’ as the last words of its name.77 It must also have at least two ‘designated partners’ who are partners who are individuals (or, where bodies corporate are partners, are nominees of such partner bodies), at least one of whom is resident in India.78 The role of the designated partners is set out as being responsible for the doing of all acts, matters and things as are required to be done by the LLP in respect of compliance with the provisions of the Act, and as being liable to all penalties imposed on the LLP for any contravention of those provisions.79 As in the UK, the LLP is required to maintain proper books of account for each year; and, as prescribed by the LLP Rules 2009, it is required to have its accounts audited, and to prepare and file with the Registrar of Companies a Statement of Account and Solvency for each financial year.80 25.16 Every partner is (for the purposes of the business of the LLP) the agent of the LLP;81 and there are similar provisions to s 6(2) of the LLP Act 2000 as to an LLP not being bound by anything done by a partner in certain circumstances.82 There is express provision that an obligation of the LLP is its obligation only (to be met out of its property), and that a partner is not personally liable, directly or indirectly, for any obligation of the LLP solely by reason of being a partner.83 These provisions are, however, stated not to affect ‘the personal liability of a partner for his own wrongful act or omission’.84 There appears to be scope in this regard for similar issues in relation to personal liability as are discussed in Chapter 18 for UK LLP members. In addition, the Act provides that in the event of an act being carried out by an LLP, or by any of its partners, with intent to defraud creditors of the LLP or any other person, or for any fraudulent purpose, the liability of the LLP and the partners who acted with that intent or purpose shall be unlimited for all of the debts or obligations of the LLP.85 As in the UK, the mutual rights and duties of the partners, and of the LLP

partner, he is personally liable for the obligations of the LLP incurred after those six months: s 6. Any individual or body corporate (including a foreign resident individual or body corporate) may be a partner. 75 Section 11(2) of the 2008 Act. 76 Section 13 of the 2008 Act. The LLP may declare an additional address for service of documents: s 13(2) and LLP Rule 16. 77 Section 15(1) of the 2008 Act. 78 Ie he has stayed in India for a period of not less than 182 days during the preceding year: s 7. 79 Section 8 of the 2008 Act. 80 Section 34 of the 2008 Act. The Central Government may exempt any class of LLP from the auditing requirement: ibid. The Statement of Account and Solvency (and also the annual return required to be filed) are available for public inspection. There is a threshold of turnover or contribution by partners for compulsory auditing: Limited Liability Partnership Rules 2009, rule 24. 81 Section 26 of the 2008 Act. 82 Section 27(1) of the 2008 Act. Section 6 of the LLP Act 2000 is discussed in Chapter 5. 83 Sections 27(3)–(4) and 28(2) of the 2008 Act. Section 28(2) goes on to provide that a partner is not personally liable for the wrongful act or omission of any other partner. 84 Ibid. 85 Section 30 of the 2008 Act.

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and its partners, are governed by the LLP agreement;86 and, similarly to the UK Act, the Indian Act contains default provisions for this agreement.87 These are broadly similar to the UK default rules.88 25.17 Pakistan introduced LLPs in 2017.89 The provisions of the Pakistan Act are similar, although not in all respects identical, to the provisions of the Indian Act. As in India, the Pakistan LLP is a body corporate existing as a legal entity separate from its members,90 and is formed by two or more persons associated for carrying on a lawful business with a view to profit.91 Similarly to India (and unlike the UK), the general nature of the proposed main business must be stated in the incorporation document.92 The LLP must have a registered office in Pakistan,93 and the name of every LLP must have ‘LLP’ as the last letters of its name.94 A Pakistan LLP must have at least one ‘designated partner’ who is an individual and resident in Pakistan, provided that, if all or any of the partners are bodies corporate, at least two individuals who are either themselves partners or nominees of corporate partners are to act as designated partners.95 The role of the designated partners is the same as in India.96 There are similar provisions to India as to maintaining proper books of account, auditing of accounts and filing of them.97 Both jurisdictions enable their Registrar, in order to obtain such information as he may consider necessary for the purposes of the relevant LLP Act, to require any person, including present or past members or employees, to answer any question or supply any details or particulars in writing to him,98 and both jurisdictions have provision for the investigation of the affairs of an LLP.99 86

87 88

89 90 91 92 93 94 95 96 97 98 99

Section 23 of the 2008 Act. Comprehensive details of the provisions of the LLP agreement are required to be filed with the Registrar: s 23(2) and Limited Liability Partnership Rules 2009, rule 21. Section 23(4) of the 2008 Act and First Schedule. Differences include (a) every partner is to indemnify the LLP for any loss caused to it by his fraud in the conduct of the business of the LLP, (b) there is no restriction on voluntary assignment of an interest in the LLP, (c) any matter or issue relating to the LLP (save a change in the nature of the LLP’s business) is to be decided by a majority of partners, each having one vote, (d) the LLP is to ensure that decisions taken by it are recorded in the minutes within 30 days of taking such decisions and are kept and maintained at the LLP’s registered office, and (e) all disputes between partners which cannot be resolved under the agreement’s terms are to be referred to arbitration. The default rules also provide that all partners are entitled to share in the losses, as well as the capital and profits, of the LLP. This is presumably to be read subject to the express exclusion of liability contained in ss 27–28 mentioned earlier. In the absence of agreement as to a person ceasing to be a partner, he may give not less than 30 days’ notice to the other partners of his intention to resign: s 24(1). By the Limited Liability Partnership Act 2017. Section 3(1) of the 2017 Act. Section 5(1)(a) of the 2017 Act. Section 5(2)(c) of the 2017 Act. In India, what must be stated is ‘the proposed business’ of the LLP: s 11(2)(c) of the Indian 2008 Act. Section 5(1)(b) and (2)(d). Section 6(1). Section 10(1) of the 2017 Act. ‘Resident in Pakistan’ means a person who has stayed in Pakistan for a period of not less than six months during the immediately preceding year: ibid. Section 10(9) of the 2017 Act. Section 20 of the 2017 Act. Section 38 of the Indian 2008 Act and s 43 of the Pakistan 2017 Act. See s 43 et seq of the Indian 2008 Act and s 46 et seq of the Pakistan 2017 Act.

LLPs in Other Jurisdictions

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Kazakhstan 25.18 Kazakhstan has business entities called (in English translation) limited liability partnerships,100 governed primarily by the Law Concerning Limited Liability and Additional Liability Partnerships (although note that the word ‘Company’ is sometimes seen in preference to ‘Partnership’).101 Kazakhstan LLPs are probably to be categorised as corporations. They are separate legal entities, liable for their own obligations and with their own separate rights and duties,102 and distinct from their members (‘participants’). In order to come into existence, an LLP needs to be registered with the appropriate state body;103 and its name must include the words ‘Limited Liability Partnership’ or ‘LLP’.104 In addition, the participants together must (in whatever shares inter se they agree) contribute a minimum capital prior to the moment of registration.105 The documentation of a Kazakhstan LLP is a charter and a foundation agreement. The charter is a public document, which is submitted for registration, and which defines the status of the LLP as a legal entity.106 It contains, inter alia, a statement of the amount of capital to be contributed by the participants. The foundation agreement (equivalent to a UK LLP agreement, save that it must be in writing) is a confidential agreement (unless it provides otherwise), not submitted for registration or open to third parties.107 Unlike a UK LLP, however, a Kazakhstan LLP is not ‘see-through’ for tax purposes, but is a separate taxable entity. Unlike a UK LLP, also, the entity may be formed and exist (affording limited liability) with one participant only.108 25.19 Subject to exceptions provided for in the Law, the participants are not personally liable, beyond their agreed contributions to the LLP’s capital, for its obligations.109 The principal exception is that if a participant causes damage to the LLP or its participants, the LLP or participants have the right to claim compensation from him for that damage. In addition, if the damage caused is significant, the wrongdoer may be forced to sell his participating interest and/or retire as a participant.110 If a participant wishes to sell his interest, there is a mandatory right of pre-emption for the other participants.111 The 1998 Law appears to envisage the possibility, at least, of a division between the capital contributing participants (who, acting together

100 101

102 103 104 105

106 107 108 109 110 111

‘Tovarishchestvo s ogranichennoy otvetstvennost’yu’. Law No 220–1 of 22 April 1998 (as later amended). An English translation can be found via www. invest.gov.kz, where the law is referred to as the law ‘on limited liability companies and additional liability companies’. Articles 2.2, 2.3 and 6 of the 1998 Law. Articles 13.1 and 19 of the 1998 Law. Article 4.1 of the 1998 Law. Articles 23–24 of the 1998 Law. The minimum capital is specified in the Law as ‘the amount equivalent to one hundred monthly calculation indices’ as at the date when the necessary documents are submitted for the registration of the LLP: art 23.2. Articles 17 and 19 of the 1998 Law. Articles 14 and 15 of the 1998 Law. Articles 2.1 and 16.1 of the 1998 Law. Article 2.1 of the 1998 Law. The article also provides that the Civil Code may provide exceptions to this rule. Article 34 of the 1998 Law. Article 31 of the 1998 Law.

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in general meeting, are the ‘supreme body’ of the LLP)112 and an executive body (whose members must be individuals but need not be themselves participants) acting on behalf of the LLP.113 This is reminiscent of the division between limited partners and general partners in a UK limited partnership.114 Unlike such general partners, however, the members of the executive body do not have any personal liability to third parties, although (a) they may be made liable to make good to the LLP losses caused by their ‘improper’ management of it, and (b) if the LLP goes into insolvent liquidation caused by their improper management, they may be held personally liable in the liquidation to third parties for losses suffered by the third parties as a result of the liquidation.115

Guernsey 25.20 Guernsey introduced LLPs with effect from May 2014. The Guernsey legislation116 replicates many of the features of the UK regime. Not only is an LLP a corporate body with a legal personality separate from that of its members, and the members acting as its agents,117 but this replication extends to matters including disqualification orders118 and the application of statutory claims for minority protection, ie unfair prejudice petitions and derivative actions (unless specifically excluded by the members’ agreement).119 However, there are certain differences from the UK regime, such as the absence of the concept of the ‘designated member’ and the fact that a Guernsey LLP can be formed for the purpose of any lawful activity, whether or not it is with a view to profit.120 In these respects, a Guernsey LLP also differs from a Jersey LLP. 25.21 It is obligatory for a Guernsey LLP to have a written members’ agreement as to the affairs of the LLP and the conduct of its business.121 This agreement, confidential to the members, is required to be kept at the LLP’s registered office.122 There is a requirement to file an ‘annual validation’;123 but there is no requirement for the filing of annual accounts, although the LLP is required to keep (at its registered office) accounting records sufficient to show and explain its transactions and to disclose with reasonable accuracy, at any time, its financial position.124

112 113

114 115 116 117 118 119 120 121 122 123 124

Article 41 of the 1998 Law. The approval of the annual financial statements must be by the general meeting of participants: art 43.2. Articles 41 and 51–52 of the 1998 Law. Article 52.2 provides, in effect, and similarly to s 6(2) of the LLP Act 2000, that in its relationship with third parties, the LLP cannot rely on a want of authority on the part of the executive body, but that if a third party dealing with the executive body knows that it has no authority, the LLP is not bound. Under the Limited Partnerships Act 1907. Article 52.4 of the 1998 Law. The Limited Liability Partnerships (Guernsey) Law 2013 (as amended), which can be found via www.guernseylegalresources.gg. Section 17 of the 2013 Law. Sections 56 to 60 of the 2013 Law. Sections 107 to 110 of the 2013 Law. Section 1 of the 2013 Law (as amended). Section 4 of the 2013 Law. Section 21(1) of the 2013 Law. Section 22 of the 2013 Law. Section 21 of the 2013 Law.

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A Guernsey LLP is ‘see-through’ in tax terms, in that its receipts are not liable for tax, although the receipts of its individual members are taxable. There is provision in the legislation for an LLP incorporated or registered outside Guernsey to apply to be registered as a Guernsey LLP (ie ceasing to be registered as an LLP in the place of incorporation or current registration, and being registered in Guernsey).125 As a result of the Beneficial Ownership of Legal Persons (Guernsey) Law 2017, every Guernsey LLP must (with limited exceptions) have one (at least) ‘resident agent’ who is either a member of the LLP, resident in Guernsey, or a corporate services provider.126 The duties of the resident agent are (i) prior to the application for incorporation, to provide to the Registrar of Beneficial Ownership of Legal Persons a statement of particulars as to the beneficial owners in respect of the LLP (or, if no beneficial owners have been identified, a statement to that effect), and to serve copies of the statement on the LLP, (ii) put briefly, to monitor and enquire as to the existence of any beneficial ownership in relation to the LLP, and to keep an up-to-date record of beneficial owners, and (iii) to notify the Registrar of any changes in beneficial ownership.127

Gibraltar 25.22 Gibraltar introduced LLPs by the Limited Liability Partnerships Act 2009, coming into effect in 2016. The Gibraltar Act is essentially a mirror image of the UK LLP Act 2000, with the provisions of Gibraltar companies and insolvency legislation being applied, with modifications, to LLPs by the Limited Liability Partnerships (Application of Companies Act 2014 and Insolvency Act 2011) Regulations 2016. The default provisions for the LLP agreement (contained in the 2016 Regulations) are the same as for UK LLPs.

Mauritius 25.23 Mauritius introduced LLPs in 2016, with effect from 2017.128 A Mauritius LLP is a corporate body with legal personality separate from that of its partners,129 and full capacity to carry on or undertake its (lawful) business or activity.130 Two persons associated for carrying on a lawful business must apply (with the required information) to the Registrar of LLPs for its registration.131 The persons who can apply are restricted to those offering professional or consultancy services or who hold a Global Legal Advisory Services licence,132 or who engage in such other activities as may be prescribed.133 The LLP must at all times have at least two members,134 125 126 127 128 129 130 131 132 133 134

Section 31 of the 2013 Law. Section 7 of, and para 1 of Sch 2 to, the 2013 Law, as inserted by the 2017 Law. As to a ‘corporate services provider’, see s 114 of the 2013 Law. See Sch 2 to the 2013 Law, together with the 2017 Law. By the Limited Liability Partnerships Act 2016. Section 10(1) of the 2016 Act. Section 11 of the 2016 Act. Section 23(2) of the 2016 Act. This is a licence under the Financial Services Act 2007 which allows foreign law firms to provide legal services in Mauritius. Section 3 of the 2016 Act. Section 37(1) of the 2016 Act. If the number of partners falls to one only, the Registrar may authorise the LLP to conduct business with one partner for up to one year: s 37(2).

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and at least one manager (who is qualified as a company secretary) who is a natural person resident in Mauritius.135 The manager is responsible for guiding the partners on their duties and obligations under the 2016 Act, and ensuring that minutes of partners’ meetings are taken, proper filing is done with the Registrar, and the financial summary of the LLP (required under s 40 of the 2016 Act) is prepared on time.136 The LLP must have a registered office in Mauritius.137 There is no statutory requirement for auditing or filing of accounts, but the LLP is required to keep such records and accounts (open for inspection by the Registrar) as to reflect its financial position.138 There is provision for a foreign LLP to apply to be registered as a foreign LLP in Mauritius.139 Once registered, the foreign LLP must have a registered office in Mauritius.140 A written partnership agreement, determining the manner in which the affairs of the LLP are to be conducted, and the mutual rights and duties of the partners and their rights and duties in relation to the LLP, is mandatory.141 An obligation of an LLP is solely the obligation of the LLP:142 a partner is not liable to pay the debts of the LLP beyond what he has agreed to pay to the LLP.143 A partner can be liable for his own wrongful acts or omission, and there is provision for vicarious liability on the part of the LLP.144

Non-corporate entity LLPs US LLPs (and LLCs) 25.24 In the US, LLPs are the creatures of individual state laws. Whilst there are common core features uniting all US LLPs, there are also some distinctions between them (for instance, as to registration details, and as to the extent of limitation of liability). The key point for the English lawyer to appreciate is that, unlike UK LLPs, US LLPs are not corporate entities (in the language of the CA 2006, they are not ‘incorporated’), but are general partnerships which have elected, under and in accordance with their chosen state law, to have the status of ‘limited liability partnership’. Having said this, it is also to be appreciated that a majority of states (but not all states) have adopted (with individual variations) the Uniform Partnership Act 1997 (‘RUPA’), which provides that a partnership is an entity distinct from its partners.145 Where RUPA has been adopted, therefore, a general partnership (and, as a result, an LLP which it becomes),146 although not a corporate entity, will

135 136 137 138 139 140 141 142 143 144 145 146

Section 38 of the 2016 Act. Section 38(4) of the 2016 Act. Section 42 of the 2016 Act. Section 41 of the 2016 Act. Section 28 of the 2016 Act. Section 30(2) of the 2016 Act. Section 15(1) with s 2 of the 2016 Act. Section 13(3) of the 2016 Act. Section 13(2) of the 2016 Act. Section 13(5) and (6) of the 2016 Act. RUPA s 201(a). States which have adopted the RUPA entity model include California, Delaware and Illinois. States which have not adopted this model include New York and Pennsylvania. RUPA s 201(b), which provides that an LLP continues to be the same entity that existed before the filing of a statement of qualification as provided for in s 901.

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generally147 have a legal personality separate from that of the individual partners. Where RUPA has not been adopted, the general partnership will be an ‘aggregate’ partnership, like an English partnership under the Partnership Act 1890.148 The mechanics of a general partnership electing to have LLP status differ from state to state; but, generally speaking, the election involves the existing partnership filing an application with a designated public official setting out certain basic information, such as the partnership’s name (which must end with ‘LLP’ or variant) and principal office, and the number of partners and nature of the partnership’s business. Upon this filing (and payment of a fee), the partnership becomes a ‘limited liability partnership’. Most states require the application to be renewed annually if the status of LLP is to be retained; and some states restrict LLP status to partnerships of professionals only.149 No state requires the filing of accounts. 25.25 As is most likely the case for members of a UK LLP, limitation of liability for individual partners is the driving force behind US LLPs. The degree of protection from vicarious personal liability differs from state to state; but it appears to be the position that all US states will hold a partner in an LLP personally liable in respect of claims arising from his own misconduct or negligence, or for the misconduct or negligence of those under his direct supervision or control.150 In this respect, and owing to the separate corporate status of a UK LLP, the position of a US partner differs from the position of a member of a UK LLP.151 This uniform personal liability apart, there are differences between individual state laws as to the extent of the departure which LLP status affords from the position of every partner having joint and several liability for the debts and obligations of the partnership. The broad difference is that some states (‘partial shield states’) only protect an individual partner from vicarious personal liability for the negligence or misconduct of others in the partnership (so long as that partner was not personally involved) and not from the LLP’s general commercial liabilities, whilst other states (‘full shield states’) provide substantial protection to an individual partner from all partnership liabilities (excluding those arising from his own misconduct as mentioned above), whether arising in contract or tort or otherwise, and so will substantially protect him from personal liability for the partnership’s general business and commercial debts and liabilities (such as leases or guarantees).152 Most states also require an LLP to carry a minimum amount of insurance. 147

148 149

150 151

152

But not invariably. The Delaware RUPA, for instance, provides that a partnership (and so an LLP which it becomes) is a separate legal entity from its partners unless otherwise provided in a statement of partnership existence and in a partnership agreement: s 15–201(a). Although, under RUPA, a partnership has its own legal personality, the partners in a general partnership (but not an LLP) remain jointly and severally liable for all of its obligations: RUPA s 306(a). The legislation of individual states of the USA can be found via www.law.cornell.edu/states. For example, California limits LLP status to businesses such as those practising public accountancy or law: sections 16101 and 16951 of the Corporations Code. Some other states, on the other hand, prohibit certain professionals from practising as an LLP. The liability of an individual partner for his own negligence or misconduct is either expressed in statutes or arises as a matter of common law. How wide this difference will turn out to be in practice will depend much on the approach of the English courts to applying the principle of ‘the assumption of personal responsibility’ to members of UK LLPs: see the discussion at 18.5–18.17. Examples of states providing such substantial protection are Delaware, Illinois and New York. ‘Partial shield’ states include Michigan, Ohio and Pennsylvania.

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25.26 As has been seen from what is said in 25.24 and 25.25, apart from the fact that they share the use of ‘LLP’ in their names, US LLPs and UK LLPs are only distantly related. The US entity to which a UK LLP can much more closely be equated is the ‘limited liability company’, which is again a creature of statute in individual states. There are considerable similarities between an LLC and a UK LLP. Both are separate legal entities distinct from their members, with unlimited capacity (subject to restrictions in some US states on the business activities in which an LLC may engage), with pass-through tax treatment and (broadly speaking) no personal liability for their members for the contractual and tortious liabilities of the entity.153 An LLC is incorporated by the filing of ‘articles of organisation’ similar to the incorporation document for a UK LLP, and the relationship of the members to each other and to the LLC is governed by a private ‘operating agreement’ similar to an LLP agreement for UK LLPs (with the US statutes, like the LLP Act 2000, providing default rules as to such matters as management and sharing of profits if not covered by the operating agreement actually made).154

Canada 25.27 Most of the provinces of Canada, led by Ontario in 1998, have introduced the ability for partnerships to become LLPs.155 A number of provinces confine the use of LLPs to partnerships of eligible professions.156 Canadian LLPs are essentially the same as US LLPs (ie general partnerships which have elected under their chosen provincial law to register as ‘limited liability partnerships’), and are not separate corporate entities as in the UK. Equally, Canadian LLPs (and general partnerships) do not follow the US RUPA model of being entities distinct from their members; but are ‘aggregates’ in the same way as English general partnerships. In broad terms, limited liability status for the partnership does not relieve a partner from liability for his own negligence or other wrongful act or omission, malpractice or misconduct or (in a majority of the provinces, and with some variations between them) for the negligence or other wrongful act or omission etc of those under his direct supervision or control, or for negligence or other wrongful acts or omissions etc which he knew of and failed to take reasonable steps to prevent. Broadly speaking, a partner remains personally liable to a third party for all such negligence or misconduct.157 In relation to the ordinary contractual debts and obligations of the LLP, most provinces now

153

154 155

156 157

The legislation in some US states expressly provides that the case law which states the conditions and circumstances under which the corporate veil of a corporation may be pierced shall also apply to LLCs. For a discussion of the English law position as to personal liability, see Chapter 18. For a fuller discussion of US LLPs and LLCs, see Thomas A Humphreys, Limited Liability Companies and Limited Liability Partnerships (Law Journal Press). Other provinces which have introduced LLPs include Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia and Saskatchewan. The legislation of individual provinces can be found via www.canlii.org/en. Including Alberta, Manitoba, Nova Scotia, Ontario and Saskatchewan. Some provinces cover the whole ground by simply providing to the effect that a partner in an LLP is not relieved from personal liability for his negligent or otherwise wrongful act or omission, malpractice or misconduct for which he would be personally liable for if he were not a partner. Ontario expressly leaves an LLP partner personally liable for a criminal or fraudulent act or omission by another partner or employee in any event.

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provide a substantial ‘full shield’,158 whilst some still provide no shield from such debts and obligations.159

Japan 25.28 Japan introduced limited liability partnerships in 2005.160 Japanese LLPs are essentially ‘aggregate’ partnerships, albeit treated in some respects as having a separate legal personality.161 They are ‘see-through’ for tax purposes. The LLP was intentionally structured as a non-corporation so that it could have ‘see-through’ tax status.162 LLPs are formed by the partners entering into a written LLP agreement, under which they agree that they will each make a capital contribution, and that they will jointly conduct profit-oriented business activities in which their maximum liability is limited to the amounts of their respective capital contributions.163 All the partners have not only a right, but an obligation, to take part in the management of the LLP’s business;164 and each partner must contribute some capital in cash or property.165 The LLP must have a name;166 and the name must include the phrase ‘Limited Liability Partnership’.167 The name and business of the LLP, and the names and addresses of the partners, and the duration of the partnership, must be registered in the district where the principal office is located.168 There is a continuing requirement of registration of LLP and individual partner details, broadly similar to that for UK LLPs.169 At least one of the partners must either be an individual who has an address in Japan or who has resided in Japan for at least one year, or be a corporation with its head office or principal office in Japan.170 There is no requirement for the filing of annual accounts. The partners are, however, required to prepare an annual balance sheet and profit and loss account (which must be kept for a period of 10 years at the LLP’s principal office); and a creditor may at any time demand a copy of balance sheets and accounts prepared within the previous five years.171 Compensation to 158

159 160

161

162 163 164 165 166 167 168 169 170 171

Subject to the liabilities for negligence and criminal or fraudulent acts or omissions mentioned earlier, Ontario provides that a partner is not liable for any debts or obligations of the LLP. British Columbia, New Brunswick, Nova Scotia and Saskatchewan provide that (subject to the personal negligence, etc liability) a partner is personally liable only for any partnership obligation for which he would be liable if the partnership were a corporation of which he was a director. Alberta and Manitoba. Both these provinces confine the use of LLPs to eligible professions. Limited Liability Partnership Act (Law No 4 of 2005), amended by Law No 87 of July 2005. An English translation of the Act can be found via www.asianlii.org/jp/legis/laws. An LLP is a ‘Yugen-sekinin jigyo-kumiai’. Eg if only one partner remains at any one time, there is no dissolution if a new partner is introduced within a two week period (art 37); and the LLP’s accounting is to be governed by generally accepted corporate accounting principles (art 28). Article 2 appears to make it clear, however, that LLPs are essentially partnerships. It appears to be an inviolable rule of Japanese tax law that a corporate body must be taxed at entity level. Article 3.1. Article 13. The reason for this is to prevent the improper use of limited liability and tax sheltering. Articles 3 and 11. Article 4.3. Article 9.1 Articles 4.3 and 57. Articles 57–64. The details are registered in the district where the principal office of the LLP is located. Article 3.2. Article 31. A creditor may also demand a copy of the LLP agreement: ibid.

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third parties for any loss suffered in connection with the LLP’s business is to be made from the assets of the LLP.172 An individual partner is only liable for the LLP’s obligations to the extent of his capital contribution.173 This is subject, however, to a partner being personally liable to a third party for any loss suffered by the third party as a result of that partner performing his duties as a partner in bad faith or with gross negligence.174

Hong Kong and Ireland 25.29 Hong Kong introduced LLPs for firms of solicitors in 2012,175 and Ireland did the same for partnerships of solicitors and legal partnerships with effect from November 2019.176 Both of these jurisdictions essentially adopt the same model of LLP as North America, with Hong Kong being a ‘partial shield’ jurisdiction (ie protection, with exceptions, for individual partners limited to the provision of professional services)177 and Ireland being a ‘full shield’ jurisdiction (ie protection, with exceptions, for individual partners from all partnership liabilities).178 Both jurisdictions enable existing partnerships to register with the appropriate regulatory authority as LLPs (with explicit authorisation to operate as an LLP being required in Ireland).179 A partner in Hong Kong is not protected in respect of his own negligent or wrongful act or omission or misconduct, or that of an employee of the LLP who is under his direct supervision in respect of the relevant matter at the time of default, nor is he protected if he knew of the default at the time of occurrence and failed to exercise reasonable care to prevent its occurrence.180 The exception from protection in Ireland is more generous to partners, and an individual partner is only personally liable if, and to the extent that, the liability has been incurred as a result of his own act or omission involving fraud or dishonesty, and that act or omission has been the subject of a finding of misconduct, or constituted an offence of which he has been convicted.181 None of the limitations on personal liability in either jurisdiction operate to prevent or restrict the enforcement against the property of the LLP of any liability.182 Both jurisdictions provide that general partnership law continues to apply to the LLP, save as inconsistent with the LLP statutory provisions.183

172 173 174 175 176 177 178 179 180 181

182

183

Article 17. Article 15. Article 18. By amendment to the Legal Practitioners Ordinance. By Part 8, chapter 3 of the Legal Services Regulation Act 2015, together with the Legal Services Regulation Act (Limited Liability Partnerships) (Section 130) Regulations 2019. See s 7AC(1) of the HK Ordinance. See s 123(1) of the Irish 2015 Act. See s 7AI of the HK Ordinance and s 125 of the Irish 2015 Act. See s 7AF of the HK Ordinance. There must at all times be a ‘supervising partner’ of a matter being handled: s 7AE. Section 123(2) of the Irish 2015 Act. ‘Misconduct’ can include an act or omission connected with the provision of legal services which were, to a substantial degree, of an inadequate standard: see s 50 of the Irish 2015 Act for what constitutes misconduct. Section 7AF(3) of the HK Ordinance and s 124(1) of the Irish 2015 Act. The HK Ordinance also has a ‘claw-back’ provision in the case of a distribution of any partnership property at a time when the LLP has insufficient assets to pay its obligations as they become due: s 7AN. Section 7AR of the HK Ordinance and s 123(6) of the Irish 2015 Act.

LLPs in Other Jurisdictions

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Jersey 25.30 Jersey first introduced limited liability partnerships in 1997.184 A Jersey LLP is not a body corporate; but it nevertheless has a legal personality distinct from the individual partners, which personality will continue through changes in the partners (and into dissolution) provided that there remain two or more partners.185 The LLP can therefore own property, and sue and be sued in its own name. The partners act as agents of the LLP.186 The partnership only has the benefit of the 1997 Law if it is registered with the Jersey registrar of companies and the partners have agreed also that the profits of the business will be divided between them.187 25.31 In 2018, the 1997 Law was repealed and replaced by the Limited Liability Partnerships (Jersey) Law 2017.188 Under the 1997 Law, there had been a requirement for the partners to have agreed that each would contribute effort and skill to a business to be carried on with a view to profit. The 2017 Law retains the basic requirement, but now broadens the scope by allowing a partner to contribute capital as an alternative to effort and skill.189 A further change brought in by the 2017 Law is the requirement for a secretary, which draws similarities with the ‘manager’ role under the Singapore law.190 The secretary need not be a partner, but must be registered (or incorporated) in Jersey and will be responsible for keeping the LLP’s records and submitting the annual return.191 This has replaced the previous requirement for a ‘designated partner’. 25.32 The LLP must have a registered office in Jersey;192 and its name must end with ‘Limited Liability Partnership’ or ‘LLP’.193 The LLP has property vested in it, is the contracting party on its own behalf, and has the same liability for debts or losses as the partners would have if the LLP were an ordinary partnership.194 An individual partner has no personal liability for any such debts or losses, save that he is personally liable for any loss which is caused by him.195 Any judgment obtained against the LLP can be enforced only against LLP property.196 There is no requirement for annual accounts to be audited or filed; but the LLP must keep its accounting records for a period of 10 years.197 The LLP is automatically dissolved on there ceasing to be

184 185 186

187 188 189 190 191 192 193 194 195 196 197

By the Limited Liability Partnerships (Jersey) Law 1997. See Article 2(4) of the Limited Liability Partnerships (Jersey) Law 2017. Article 17(1) of the 2017 Law; but the LLP is not bound if the third party with whom a partner is dealing knows or should know that the partner is not acting as a partner or does not have the relevant authority: article 17(3) and (4). Article 2 of the 2017 Law. As to distribution of profits, compare the UK position as discussed at 2.7. The 2017 Law can be found via www.jerseylaw.je/default.aspx, and is accompanied by the Limited Liability Partnerships (Dissolution and Winding Up) (Jersey) Regulations 2018. Article 2(1)(b) of the 2017 Law. Article 8 of the 2017 Law. Articles 9 and 20 of the 2017 Law. Article 7 of the 2017 Law. Or, indeed, ‘L.L.P.’: article 6 of the 2017 Law. Articles 2(4), 3(2) and 4 of the 2017 Law. Article 5 of the 2017 Law. The partners can agree to indemnities amongst themselves: article 13(3). Articles 4(2), 5(1) and 25(4)(d) of the 2017 Law. Article 9 of the 2017 Law.

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two or more partners;198 and there is also provision in similar terms to s 35 of the Partnership Act 1890, under which the court may, on the application of any partner, order the dissolution of the LLP in any of the five specified cases.199 In contrast to the LLP Act 2000, but no doubt reflecting the difference between the two jurisdictions as to the non-corporate status of its LLPs, the Jersey Law provides that the rules of Jersey customary law applicable to a partnership are to apply to an LLP except insofar as they are inconsistent with the express provisions of the 2017 Law.200

Belize 25.33 Belize introduced limited liability partnerships in 1999, in essentially identical form, and with essentially identical statutory provisions, to the 1997 Jersey Law.201 As in Jersey, a Belize LLP is not a body corporate; but it nevertheless has a legal personality distinct from the individual partners, which personality will continue through changes in the partners (and into dissolution), provided that there remain two or more partners.202 The LLP can therefore own property, and sue and be sued in its own name. The partners act as agents of the LLP.203 The partnership only has the benefit of the law if it is registered with the Belize registrar of companies, and it can only be registered where the partners have agreed that each will contribute effort and skill to a business to be carried out with a view to profit, and have agreed also that the profits of the business will be divided between them.204 It must have a registered office in Belize;205 and its name must end with ‘Limited Liability Partnership’ or ‘LLP’.206 25.34 The LLP has property vested in it, it is the contracting party on its own behalf, and it has the same liability for debts or losses as the partners would have if the LLP were an ordinary partnership.207 An individual partner has no personal liability for any such debts or losses, save that he is personally liable for any loss which is caused by him.208 Any judgment obtained against the LLP can be enforced only against LLP property.209 There is no requirement for annual accounts to be audited or filed; but the LLP must keep its accounting records for a period of five years.210 In addition, it must have in place a provision for a bank or insurance company to pay into its winding up on dissolution a sum of not less than US$250,000 (or such

198 199 200 201 202 203

204 205 206 207 208 209 210

Article 4(1) of the 2018 Regulations. Article 6 of the 2018 Regulations. Article 42 of the 2017 Law. Compare the UK position discussed at 1.23–1.24. By the Limited Liability Partnerships Act, Chapter 258. The Act can be found via www.belizelaw. org. See sections 3(4), 21, 22(1) and 26(4) of the Act. Section 16(1) of the Act; but the LLP is not bound if the third party with whom a partner is dealing knows or should know that the partner is not acting as a partner or does not have the relevant authority: s 16(2) and (3). Section 3(2) of the Act. As to distribution of profits, compare the UK position as discussed at 2.7. Section 9 of the Act. Or ‘L.L.P.’: s 8 of the Act. Sections 3(4), 4(2) and 5 of the Act. Section 6. The partners can agree to indemnities amongst themselves: s 12(3) of the Act. Sections 5(2), 6(1) and 26(4)(d) of the Act. Section 10 of the Act.

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other minimum sum as may be prescribed).211 There must be one or more designated partners, who have a similar role and responsibilities to designated members under the LLP Act 2000.212 The LLP is automatically dissolved on there ceasing to be two or more partners;213 and the Act contains a provision in similar terms to s 35 of the Partnership Act 1890, under which the court may, on the application of any partner, order the dissolution of the LLP in any of the five specified cases.214 Like the Jersey law from which it is drawn, the Belize Act provides that the rules of law applicable to a partnership are to apply to an LLP except insofar as they are inconsistent with the express provisions of the Act.215

Cayman Islands 25.35 The Cayman Islands introduced limited liability partnerships in 2017.216 An LLP is an entity ‘with legal personality other than a body corporate’ which is separate and distinct from the individual partners,217 and its existence and separate rights and liabilities continue through changes in the partners.218 A partner acts as the agent of the LLP (not of the other partners) when acting in the ordinary course of the LLP’s business or with appropriate authority.219 In order to come into existence, an LLP must be registered with the Registrar of Companies and have a certificate of registration.220 The requirement for registration is that two or more persons are intending to carry on business in common for a lawful purpose in the form of an LLP.221 There is no limit on the number of partners,222 but, if at any time there cease to be two or more, the LLP is automatically wound up.223 Subject to any provision to the contrary in the partnership agreement, the LLP is capable of exercising all of the functions of a natural person of full capacity, including holding property.224 It is liable for its own debts and losses and, with exceptions, no partner is personally liable for those debts and losses.225 This basic exemption from personal liability

211 212 213 214 215

216

217 218 219 220 221 222 223 224 225

Section 7 of the Act. Section 17(2) and (3) of the Act. Section 22(1) of the Act. Section 24 of the Act. Section 47 of the Act refers (like its Jersey counterpart) to the rules of ‘customary’ law applicable to a partnership. It is not apparent what Belize customary partnership law might actually be, though: this provision may simply be the unfortunate consequence of cutting and pasting from the Jersey law. Presumably the intention is to apply the common law rules of partnership. Limited Liability Partnership Act (Act 13 of 2017), with Limited Liability Partnership (Amendment) Acts in 2018, 2019 and 2020. (With effect from 3 December 2020, Cayman ‘Laws’ are now referred to as ‘Acts’: Citation of Acts of Parliament Act 2020, and the Cayman Islands Constitution (Amendment) Order 2020.) Section 4(4) of the 2017 Act. Section 4(5) of the 2017 Act. The LLP’s name must include ‘Limited Liability Partnership’ or ‘LLP’ or ‘L.L.P.’: s 8(1) of the 2017 Act. Section 16 of the 2017 Act. Sections 4(1), 18 and 44 of the 2017 Act. Section 4(2) of the 2017 Act. There is no requirement, as there is in the UK, that the business must be carried on with a view to profit. Section 4(10) of the 2017 Act. Section 24 of the 2017 Act. Sections 4(7) and 5 of the 2017 Act. Section 6 of the 2017 Act. Specifically, no partner is personally liable for any debt or loss caused by the negligence of another partner: s 7(1) of the 2017 Act.

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cannot be taken away by the terms of the partnership agreement.226 The principal exception is that a partner can be personally liable for any loss caused by his own negligence where he has assumed an express duty of care to another person and acted in breach of that duty.227 The relationship between the partners is governed by the partnership agreement.228 Subject to this agreement, a partner may transfer or assign, or mortgage, his partnership interest.229 25.36 There is no requirement that members must keep residence in the Cayman Islands, but the LLP must have a registered office in the Islands and keep certain documents there.230 There is no general statutory requirement for an LLP to appoint an auditor, or for its accounts to be audited; but there is a requirement for it to keep all such proper books and records as are necessary to give a true and fair view of its business and financial condition.231 There is also a requirement to file each year an annual return specifying the partners, together with an annual fee.232 The LLP may, by a declaration that it will not undertake business with the public in the Cayman Islands other than so far as may be necessary for the carrying on of its business exterior to the Islands, apply to the Financial Secretary for an undertaking that a law which is enacted after 2017 in the Islands233 imposing any tax to be levied on profits or income or gains or appreciations will not apply to the LLP in respect of the operations or assets of the LLP.234 The Financial Secretary is empowered to give such an undertaking (in such form as he determines) for a period of up to 50 years from the date of the approval of the application.235 With limited exceptions, LLPs are required (i) to take reasonable steps to identify any individual who is a beneficial owner of the LLP and to identify all relevant legal entities that exist in relation to the LLP,236 and (ii) to keep a beneficial ownership register at the LLP’s registered office.237 There is provision for regulatory access to the register.238

226 227 228 229 230

231 232 233 234 235 236

237 238

Section 12(2) of the 2017 Act. Section 7(2) of the 2017 Act. But the other partners may agree as between themselves to indemnify any individual partner in respect of any debt or loss: s 12(3) of the 2017 Act. Section 12(1) of the 2017 Act. Section 15 of the 2017 Act. Section 9 of the 2017 Act. These documents include a register of partners for the time being, which is open for inspection and entitlement to a copy, a register of mortgages of LLP property (also open for inspection) and a copy of the partnership agreement: sections 9(3)(a) and (f), 4(c), 5 (as inserted by the Limited Liability Partnership (Amendment) Act 2019 s 2), and 10 of the 2017 Act. The registered office is also a place for service on the LLP: section 42 of the 2017 Act. Section 11(1), (2) and (6) of the 2017 Act. Section 20 of the 2017 Act. ‘… which is hereafter enacted in the Islands …’. Section 49(1) of the 2017 Act. Section 49(3) of the 2017 Act. Section 55 of the 2017 Act, inserted by the Limited Liability Partnership (Amendment) Act 2018. A relevant legal entity is a legal entity that is incorporated in the Islands under the laws of the Islands and would be a beneficial owner of the LLP if it were an individual. Section 59 of the 2017 Act, as substituted by the Limited Liability Partnership (Amendment) Act 2020. Sections 67–71 of the 2017 Act.

Chapter 26 FOREIGN CONNECTIONS AND DEALING WITH OVERSEAS LLPs

FOREIGN CONNECTIONS OF UK LLPs Introduction 26.1 An LLP incorporated under the LLP Act 2000 will, of course, be incorporated in the UK. It will have a registered office in the UK where documents (including court proceedings) may be served on it.1 It will also at all times be subject to the statutory filing requirements. And if some or all of its accounting records are kept outside the UK (as they may be), accounts and returns with respect to the business dealt with in them, disclosing with reasonable accuracy the financial position of the business at intervals of not more than six months and sufficient to enable accounts complying with the requirements of the CA 2006 to be prepared, are to be sent to, and kept at, a place in the UK.2 Nevertheless, in the conduct of its day-to-day business the LLP’s connection with the UK may be tenuous. There is no restriction in the legislation on foreign membership, so that all the members of an LLP (including the designated members) may be resident or incorporated outside the UK.3 Equally, there is no restriction on an LLP carrying on all its business outside the UK: it need not have any place of business in the UK.4 It has unlimited capacity to own property and other assets abroad.5 It may borrow funds, and designate the capital contributed by its members, in a foreign currency;6 and its accounts may include figures in euros as well as pounds sterling.7 The extent to which an LLP agreement may be governed by a foreign law is considered at 10.51–10.52. 26.2 Although an LLP may operate wholly outside the UK, and all or any of its members may be resident outside the UK, non-resident members, like resident members, will (subject, where necessary, to the English court giving permission to serve proceedings out of the jurisdiction) be subject to the ‘policing’ regime of the CA 2006, the IA 1986 and the CDDA 1986 referred to generally in 1.8.8

1 See

3.12. 21.4. 3 See 2.4 and 12.1. 4 See 2.12. 5 As to an LLP’s unlimited capacity, see 3.7–3.8. 6 See 16.2–16.4. 7 See 21.50. Taxation issues for consideration when an LLP wishes to expand its business overseas are discussed at 23.156–23.171. 8 See, for instance, In re Seagull Manufacturing Co Ltd (No 2) [1994] Ch 91 (regarding disqualification proceedings against a non-resident director of an English company) and In re Howard Holdings Inc [1998] BCC 549 (application of IA 1986, s 214 to non-resident directors of a Panama company being wound up by the English court). See also In re Senator Hanseatische [1997] 1 WLR 515. 2 See

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Jurisdiction over UK LLPs 26.3 The jurisdiction of the High Court is founded upon service of process: the High Court has jurisdiction over a defendant if he or it is properly served with process (whether in England or abroad).9 Previously, the English courts’ approach to matters of jurisdiction was substantially affected by EU law. The primary pieces of legislation were the Council Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (‘the Regulation’)10 and the Brussels and Lugano Conventions (‘the Conventions’).11 The UK’s decision to leave the EU has therefore had a significant impact on English law’s conflict of laws rules. Given the consistent uncertainty associated with Brexit, it makes sense to state the rules of jurisdiction according to two periods of time: before and after the end of the transition period.

The position prior to 1 January 2021 26.4 The UK left the EU on 31 January 2020. This is referred to as ‘exit day’ under the European Union (Withdrawal) Act 2018 and the European Union (Withdrawal Agreement) Act 2020. Under the latter Act, there was a transition period that ended on 31 December 2020. This is referred to as ‘IP completion day’. Prior to this date, the EU legislation on jurisdiction continued to apply. This meant that, pursuant to the Regulation and the Conventions, save for various matters in respect of which the court of another EU Member State had exclusive jurisdiction, the English court had jurisdiction in respect of any claim (within the scope of the Regulation or the Conventions) against an LLP domiciled in England.12 As a body corporate, an LLP is domiciled where it has (a) its statutory seat, (b) its central administration, or (c) its principal place of business.13 The ‘statutory seat’ of an LLP will be the place of its registered office,14 namely, in the case of an English LLP, England.15 26.5 In relation to proceedings ‘which have as their object the validity of the constitution, the nullity or the dissolution of’ the entity, or ‘the validity of the decisions of their organs’,16 Article 24(2) of the Regulation provided that the courts of the Member State in which a company, legal person or association of natural or

9 10 11 12 13

14 15 16

Dicey, Morris & Collins, The Conflict of Laws (15th edn) (2012), para 11R–001 et seq. This is subject to Council Regulation (EU) No 1215/2012 and to the Brussels and Lugano Conventions. Council Regulation (EU) No 1215/2012. The Regulation replaced former Regulation No 44/2001 in respect of proceedings instituted on or after 10 January 2015. The Regulation had substantially (but not completely) superseded the Brussels and Lugano Conventions: see Dicey, Morris & Collins, The Conflict of Laws above, para 11–013 et seq. Regulation 1215/2012, Article 4, and Dicey, Morris & Collins above, Rule 35(1). Regulation 1215/2012, Article 63(1); and see Dicey, Morris & Collins above, Rule 30(2). As to the meaning of ‘central administration’ in Article 63, see 889457 Alberta Inc v Katanga Mining Ltd [2009] 1 BCLC 189. Regulation 1215/2012, Article 63(2). See LLP Act 2000, Sch, para 9(1). See, on these words and their application, Dicey, Morris & Collins above, Rule 35(17), Speed Investments v Formula One Holdings Ltd (No 2) [2005] 1 WLR 1936, Hassett v South Eastern Health Board (C-372/07) (2009) 105 BMLR 115 and J P Morgan Chase Bank NA v Berliner Verkehrsbetriebe (BVG) [2009] EWHC 1627 (Comm).

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legal persons has its seat has exclusive jurisdiction. In determining the seat of the entity for these purposes, the court applies its rules of private international law.17 Article 24(2) clearly applied to UK LLPs.18 The relevant UK rules for determining the seat of an entity are contained in para 10 of Sch 1 to the Civil Jurisdiction and Judgments Order 2001.19 This provides that an entity has its seat in the UK if (and only if) it was incorporated or formed under the law of a part of the UK, or its central management and control is exercised in the UK.20 By analogy with company law, Article 24(2) was likely to apply to any dispute, inter alia, as to the extent of an individual member’s liability, qua member, for the debts or engagements of the LLP or as to the nature and extent of a member’s duties to the LLP.21 The Regulation did not apply to proceedings relating to the winding up of insolvent companies or other legal persons (which clearly includes LLPs), judicial arrangements, compositions or analogous proceedings.22 The EC Council Regulation on insolvency, which confers jurisdiction in relation to insolvency proceedings, is discussed at 27.4.

The position since 1 January 2021 26.6 With effect from 11pm on the IP completion day (31 December 2020), the European instruments have been revoked.23 Although there was much discussion throughout 2020 of the UK becoming a signatory to the Lugano Convention prior to IP completion day, this had not occurred by 31 December 2020. The Lugano rules are similar, though not identical, to the rules contained in the Regulation, as summarised above. Unless and until the UK accedes to the Lugano Convention, the common law rules of jurisdiction will apply. Under such rules, the jurisdiction of the High Court is founded upon service of process: the High Court has jurisdiction over a defendant if he or it is properly served with process (whether in England or abroad).24 At common law, the English court has jurisdiction over persons present in England at the time of service and, in certain other specific cases, the English court permits service outside the jurisdiction.25 The court must, however, decline jurisdiction where

17 18 19 20

21 22 23 24 25

Regulation 1215/2012, Article 24(2). See, for instance, in relation to partnerships, Phillips v Symes [2002] 1 WLR 853 at [42]–[43]. SI 2001/3929. SI 2001/3929, Sch 1, para 10(2). The entity has its seat in another Regulation State if it was incorporated or formed under the law of that state; and it is not to be regarded as having its seat in a Regulation State other than the UK if it has its seat in the UK, or if it is shown that the courts of that other state would not regard it for the purposes of Article 24(2) as having its seat there: SI 2001/3929, Sch 1, para 10(3) and (4). Dicey, Morris & Collins above, para 30–028. Regulation 1215/2012, Article 2(b). Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019, SI 2019/479, as amended by the 2020 Act, s 41(4), Sch 5, para 1(1). Dicey, Morris & Collins above, para 11R–001 et seq. Dicey, Morris & Collins above, para 11–004; CPR, r 6.33. The Hague Convention on Choice of Court Agreements 2005 now applies to the UK through the Private International Law (Implementation of Agreements) Act 2020. Therefore, if there is an exclusive jurisdiction agreement for the English courts that falls within the Hague Convention 2005, then the English court will have jurisdiction and service is allowed without first obtaining court permission: CPR r 6.33(2B), The Hague Convention 2005 currently applies in the European Union, Mexico, Singapore and Montenegro (www.hcch.net/en/instruments/conventions/status-table/?cid=98).

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there is an exclusive jurisdiction agreement for a foreign court that falls within the Hague Convention 2005;26 and the court may decline jurisdiction in certain cases (for example, so as to give effect to other types of foreign jurisdiction clauses or in accordance with the rules of forum non conveniens). Specialist practitioner texts should be consulted for detailed commentary.

OVERSEAS LLPs Requirements for carrying on business in the UK 26.7 For the purposes of the LLP Act 2000 and the LLP Regulations 2009 a ‘limited liability partnership’ is an entity formed by being incorporated as such in the UK under the LLP Act 2000.27 As can be seen from the discussion in Chapter 25, a number of other jurisdictions also enable ‘limited liability partnerships’ to be established. The LLP Act 2000 recognises this, and provides that regulations may apply existing company, insolvency and partnership law not only to domestic LLPs incorporated under the Act,28 but also to bodies incorporated or otherwise established outside the UK and having such connection with the UK and such other features as the regulations may prescribe (defined in the LLP Act 2000 as ‘oversea limited liability partnerships’).29 The only regulations relating to overseas LLPs which have so far been made (namely, reg 59 of the LLP Regulations 2009 applying CA 2006, s 1051 with modifications) relate to bodies (defined as ‘overseas LLPs’) incorporated or otherwise established outside the UK whose names under their law of incorporation or establishment include (or when translated into English include) the words ‘limited liability partnership’ or the abbreviations ‘llp’ or ‘LLP’.30 Every such overseas LLP is required: (a)

to display continuously, at every location where it carries on business in the UK, its name and the country in which it is incorporated or otherwise established, in such a way as to be seen easily by any visitor to the location;31 and (b) to state (so as to be readable with the naked eye) its name and the country in which it is incorporated on all its business letters, notices and other official

26 27 28 29 30

31

Hague Convention 2005, Article 6. See LLP Act 2000, ss 1(2) and 14(3). Prior to 1 October 2009, Northern Ireland LLPs were incorporated under the Limited Liability Partnerships Act (Northern Ireland) 2002. As is done by the LLP Regulations 2001 (SI 2001/1090) and the LLP Regulations 2009 (SI 2009/1804). See LLP Act 2000, ss 14, 15 and 18. See CA 2006, s 1051(3), as modified and applied to LLPs by SI 2009/1804, reg 59. It may be argued that an LLP formed outside the UK which is not an entity separate from its members, but is an ‘aggregate’ partnership, is not a ‘body’ for the purposes of s 1051. The authors suggest that ‘body’ in s 1051 is likely to be interpreted as including a body of persons forming together a partnership, whether or not the resultant partnership is a separate entity from the persons that comprise it. CA 2006, s 1051, as modified and applied to LLPs by SI 2009/1804, reg 59, together with the Overseas Companies Regulations 2009 (SI 2009/1801), reg 61. If the place of business is shared by six or more LLPs and/or companies, this requirement is treated as met if the LLP’s name and country of incorporation are displayed for at least 15 continuous seconds at least once in every three minutes: ibid.

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publications, bills of exchange, promissory notes, endorsements, order forms, cheques purporting to be signed by or on behalf of the LLP, orders for money, goods or services purporting to be signed by or on behalf of the LLP, bills of parcels, invoices and other demands for payments, receipts, letters of credit, applications for licences to carry on a trade or activity, and other forms of business correspondence and documentation, and its websites, that are used in carrying on the activities of its business in the UK.32 26.8 If an overseas LLP takes any proceedings to enforce a right arising out of a contract made in the course of a business in respect of which it was, at the time the contract was made, in breach of any of the foregoing requirements, the proceedings will be dismissed, unless the court before which the proceedings are brought is satisfied that it is just and equitable to permit the proceedings to continue, if the defendant to the proceedings shows either (a) that he has a claim against the LLP arising out of the contract that he has been unable to pursue by reason of the LLP’s breach or (b) that he has suffered some financial loss in connection with the contract by reason of the LLP’s breach. This restriction on the LLP is stated not to affect the right of any person to enforce such rights as he may have against another person in any proceedings brought by that person. It will not, therefore, preclude the defendant to the LLP’s proceedings from enforcing rights against the LLP, nor preclude the LLP from enforcing rights against a person who himself institutes proceedings against the LLP.33 These are the only requirements which UK legislation or domestic law currently places on overseas LLPs carrying on business in the UK.

Company Directors Disqualification Act 1986, s 11 26.9 Section 11 of the CDDA 1986 provides that it is an offence for a person who is an undischarged bankrupt, or who has a bankruptcy restrictions order or a debt relief restrictions order in force in respect of him,34 to act as a member of an LLP, or directly or indirectly to take part in or be concerned in the management of the LLP, without the leave of the court by which he was adjudged bankrupt.35 For the purposes of s 11, ‘limited liability partnership’ includes an LLP ‘incorporated outside Great Britain’ that has an established place of business in Great Britain.36 As can be seen from 25.6–25.23, there are overseas LLPs that are

32

33 34 35 36

Overseas Companies Regulations 2009, reg 62. Where the LLP fails, without reasonable excuse, to comply with any of these requirements specified in (a) and (b), an offence is committed by the LLP and every member who is in default: reg 67. The regulations provide as (a) and (b) in the text, but for the purposes of (b) do not include the words ‘or established’ in the phrase ‘country in which it is incorporated or established’. It seems reasonably clear from s 1051, however, that what is intended is that the country of incorporation or establishment (whichever is appropriate) should be displayed or stated in the circumstances specified in (b) as well as (a). The requirements of (b) apply to the documents mentioned whether in hard copy, electronic form or any other form: reg 58(2). The LLP’s ‘websites’ will include any part of a website relating to the LLP which it has caused or authorised to appear: reg 58(2). Overseas Companies Regulations 2009, reg 66. Or in relation to whom a moratorium period under a debt relief order applies. CDDA 1986, s 11 (as modified and applied to LLPs by LLP Regulations 2001, reg 4) is discussed further at 37.34. CDDA 1986, s 11(4).

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‘incorporated’.37 The result of this is that, when an LLP from one of the jurisdictions referred to in 25.6–25.23 has an established place of business in Great Britain, it will be an offence in Great Britain for a person who is an undischarged bankrupt, or who has a bankruptcy restrictions order or a debt relief restrictions order in force in respect of him, to act as a member of the LLP, or directly or indirectly to take part in or be concerned in the management of the LLP, without the leave of the court. Whether or not ‘limited liability partnership’ will be taken for the purposes of s 11 to include overseas LLPs which are not corporate bodies (such as US and Canadian LLPs discussed at 25.24–25.27) is uncertain.

Jurisdiction of English court over overseas LLPs The juridical party 26.10 Even before Brexit, given that most38 jurisdictions which have created their own form of LLPs were not parties to the Regulation or the Conventions, as discussed at 26.4–26.5, the significance of the Regulation and the Conventions was limited. Rather, the common law rules of jurisdiction generally applied when considering the jurisdiction of the English court over overseas LLPs.39 That position continues to apply after Brexit. As is mentioned in 26.6, the jurisdiction of the English court at common law depends essentially upon service. The English court will have jurisdiction in respect of a claim against an overseas LLP if proceedings can be validly served on the LLP in accordance with English procedural law. Where an overseas LLP is a body corporate and recognised as such by English law, that corporation will be sued in its corporate name and will be the juridical party.40 Of those overseas LLPs that are not corporate entities, some nevertheless have, under their domestic legislation, separate legal personality distinct from their members, whilst others of them retain the ‘aggregate’ nature of the English general partnership.41 Under English procedural law, and whether or not it has separate legal personality, an unincorporated partnership which is or was carrying on business in England can be sued in the name of the individual partners or in the firm name.42 (a) Carrying on business within the jurisdiction If a claim is brought by or against two or more persons who were partners, and who carried on that partnership business within the jurisdiction at the time when 37

38 39

40 41 42

Although the Singapore Act refers to LLPs as being ‘formed by being registered under this Act’ (25.12), it seems correct to see a Singapore LLP as ‘incorporated outside the UK’ for the purposes of the CDDA 1986; and it is probably correct to see a Kazakhstan LLP similarly (25.18). Ireland is the only Regulation or Convention jurisdiction outside the UK that has created its own form of LLP. See 25.29. The Regulation and Conventions only partially govern proceedings against entities not incorporated in Regulation or Convention states. Thus, some of their provisions applied regardless of the domicile: see, for example: Article 24(1) of the Regulation, which gives exclusive jurisdiction, in proceedings which have as their object rights in rem in immoveable property or tenancies of immoveable property, to the courts of the state in which the property is situated; Article 25 in relation to jurisdiction agreements; and Articles 29 to 34 in relation to proceedings pending in more than one state. Overseas LLPs that are corporate entities are discussed at 25.6–25.23. Overseas LLPs that are non-corporate entities are discussed at 25.24–25.36. As to when business is being carried on in England, see Grant v Anderson & Co [1892] 1 QB 108.

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the cause of action accrued, then, where that partnership has a name (and unless it is inappropriate to do so), the claim must be brought in or against the name under which the partnership carried on business at the time the cause of action accrued. ‘Partners’ includes persons claiming to be entitled as partners, and persons alleged to be partners. If requested to do so by any party to a claim, the partners must provide a copy of a ‘partnership membership statement’ within 14 days of receipt of the request. A ‘partnership membership statement’ is a written statement of the names and last known places of residence of all the persons who were partners in the partnership at the time when the cause of action accrued. In the request, the party seeking a copy of a partnership membership statement must specify the date when the relevant cause of action accrued.43 (b) Not carrying on business within the jurisdiction If the overseas unincorporated partnership is not carrying on business within the jurisdiction, the position is probably as follows: if it does not have separate legal personality, it must be sued in the names of the individual partners; and if it does have separate legal personality, it can nevertheless still be sued in the name of the individual partners,44 but can as an alternative be sued in the name of the entity.45 The same principles will apply where the overseas partnership is itself suing. Whether or not the overseas partnership will be regarded by English law as having separate legal personality (and, therefore, capable of being a party to English proceedings) will be determined by reference to the law of the place of its formation.46 In this respect, English law’s approach to recognition is the same as its approach to the question whether or not a foreign corporation exists, namely that its existence (or dissolution) will be determined by reference to the law of the place where it was formed (subject to any issues of English public policy).47

Service within the jurisdiction 26.11 Under CPR, r 6.3(1),48 a claim form may be served by any of the following methods: (a) personal service in accordance with r 6.5; (b) first class post, document exchange or other service which provides for delivery on the next business day, in accordance with Practice Direction 6A; (c) leaving the claim form at a place specified in r 6.7, 6.8, 6.9 or 6.10 (discussed below); (d) fax or other means of electronic

43

See CPR Pt 7, PD 7A, paras 5A and 5B. Oxnard Financing SA v Rahn [1998] 1 WLR 1465. 45 Ibid. 46 See Associated Shipping Services v Department of Private Affairs of H H Sheikh Zayed Bin Sultan Al-Nahayan (1990) Financial Times, July 31 (CA) (concerning the private office of the Ruler of Abu Dhabi), Bumper Development Corporation v Commissioner of Police of the Metropolis [1991] 1 WLR 1362 (recognising a temple in India as a juridical entity), The ‘Gilbert Rowe’ [1997] 2 Lloyd’s Rep 218 (on appeal [1998] CLC 1574) (concerning a Dutch commercial partnership), Oxnard Financing SA v Rahn above (concerning a Swiss banking partnership) and In re Kaupthing Capital Partners II Master LP Inc [2010] EWHC 836 (Ch) (concerning whether a Guernsey partnership was a company). 47 See Dicey, Morris & Collins above, Rule 174, and paras 30–010 to 30–011; and the cases referred to in fn 46 above. 48 See specialist texts on civil procedure for further detail. 44 See

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communication in accordance with Practice Direction 6A; or (e) any method authorised by the court under r 6.15 (discussed below). In addition, r 6.3(2)–(3) makes specific provision for service of a claim form on a company or an LLP, by permitting the claim form to be served in accordance with the general rule for service of documents under CA 2006, s 1139. As modified by the LLP Regulations 2009, this provides that a document may be served on an LLP by leaving it at, or sending it by post to, the LLP’s registered office.49 Service under this statutory provision is an alternative to service under CPR Pt 6, with the result that apparently mandatory rules with respect to service in CPR Pt 6 (eg that service must be on a lawyer where r 6.7 applies, addressed at (2) below) do not preclude valid service under the statutory provision.50 26.12 So far as service effected under the provisions of CPR Pt 6 is concerned, the following principles should be noted: (1) A claim form is served personally on a partnership (where partners are being sued in the name of their firm), in accordance with r 6.5, by leaving it with a partner or with a person who, at the time of service, has the control or management of the partnership business at its principal place of business. A claim form is served personally on a corporation by leaving it with a person holding a senior position within the corporation. (2) Save where personal service is mandatory (eg by an Act or court order), r 6.7 provides that, where (i) the defendant has given in writing the business address of a lawyer as an address at which the defendant may be served with the claim form, or (ii) a lawyer acting for the defendant has notified the claimant in writing that the solicitor is instructed by the defendant to accept service of the claim form on behalf of the defendant at a business address, the claim form must be served at the business address of that lawyer.51 (3) Save where, under r 6.5, personal service is required, or, under r 6.7, service on a lawyer is required, under r 6.8 the defendant may be served with the claim form at an address within the jurisdiction which the defendant has given for the purpose of being served with the proceedings. (4) Where the defendant does not give an address at which he or it may be served, and the claimant is not required, and does not wish, to effect personal service, the claim form must be served on (i) an individual being sued in the business

49

50 51

CA 2006, s 1139, as modified and applied to LLPs by SI 2009/1804, reg 75. This also makes provision for service on the principal place of business in England of an LLP registered in Scotland or Northern Ireland. Cranfield v Bridgegrove Ltd [2003] EWCA Civ 656 at [83]. Typically, the lawyer will be a ‘solicitor’ (as defined in r 6.2(d)) based within the jurisdiction, and this scenario is provided for in r 6.7(1). However, by r 6.7(2) the requirement that service must be made upon a nominated lawyer is extended in favour of service on a solicitor based outside the jurisdiction in Scotland, Northern Ireland and other EEA States other than the UK; and by r 6.7(3) the requirement is extended yet further in favour of service on a ‘European lawyer’ (as defined in r 6.2(e)) based in any EEA State. The effect of these provisions is that, even where the defendant is within the jurisdiction, it may be necessary to serve the claim form out of the jurisdiction if the defendant has nominated a European lawyer to accept service.

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name of a partnership, at the usual or last known residence of that individual, or at the principal or last known place of business of the partnership, or (ii) on an overseas corporation, at any place within the jurisdiction where it carries on its activities.52 (5) Where a claimant has reason to believe that the address of the individual defendant is an address at which the defendant no longer resides or carries on business, the claimant must take reasonable steps to ascertain the address of the defendant’s current residence or place of business (‘current address’).53 Where, having taken those reasonable steps, the claimant ascertains the defendant’s current address, the claim form must be served at that address. Where, having taken the reasonable steps, the claimant is unable to ascertain the defendant’s current address, the claimant must consider whether there is an alternative place where, or an alternative method by which, service may be effected.54 If there is such a place where, or method by which, service may be effected, the claimant must make an application to the court under r 6.15.55 Where a claimant has reason to believe that the address of the individual defendant is an address at which the defendant no longer resides or carries on business, and the claimant cannot ascertain the defendant’s current residence or place of business, and cannot ascertain an alternative place or an alternative method of service, the claimant may serve the claim form on the defendant’s usual or last known address.56 (6) Where, on an application under r 6.15(1), it appears to the court that there is a good reason to authorise service by a method, or at a place, not otherwise permitted by Pt 6, the court may make an order permitting service by an alternative method, or at an alternative place. Alternatively, the court may order that steps already taken to bring the claim form to the attention of the defendant by an alternative method or at an alternative place is good service.57 The court has a residual power to dispense altogether with service of a claim form in exceptional circumstances.58

Service out of the jurisdiction 26.13 If the claimant wishes to serve the overseas LLP or individual partners out of the jurisdiction, then, unless there is an exclusive jurisdiction agreement for the English courts within the Hague Convention 2005 (in which case, the claim form may be served out of the jurisdiction as of right),59 he must obtain permission to do so.60 CPR, r 6.36 and Practice Direction 6B provide for categories of claim where

52 53 54 55 56 57 58 59 60

CPR, r 6.9(1)–(2). CPR, r 6.9(3). CPR, r 6.9(4). CPR, r 6.9(5). CPR, r 6.9(6). CPR, r 6.15(2). CPR, r 6.16. CPR, r 6.33(2B). Subject to the application of the Regulation and the Conventions to claims issued on or before the IP completion day.

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the court may grant permission. The categories most likely to apply to claims against overseas LLPs or their members are: (a) a claim made in respect of a contract made within the jurisdiction or by or through an agent trading or residing within the jurisdiction or made subject to an English law governing clause or jurisdictional clause;61 (b) a claim made in respect of a breach of contract committed within the jurisdiction;62 (c) a claim made in tort where the damage was sustained within the jurisdiction or resulted from an act committed within the jurisdiction;63 (d) a claim made to enforce any judgment or arbitral award;64 and (e) a claim relating wholly to property located within the jurisdiction.65 An application for permission to serve out of the jurisdiction must be accompanied by evidence stating the grounds on which the application is made, that the claimant believes his claim has a reasonable prospect of success and the defendant’s address, or if not known, the place or country in which the defendant is, or is likely to be found.66 The application is made under CPR Pt 23. Once permission to serve out of the jurisdiction has been granted (if required), the claim form may be served in accordance with CPR, r 6.40.

Recognition of limited liability of overseas LLP members 26.14 There is an increasing number of overseas professional services LLPs carrying on business in England, particularly firms of US lawyers. The nature of different overseas LLPs (and the different nature of some US LLPs from others) is considered in Chapter 25. Subject to any relevant regulatory restrictions, a foreign firm carrying on business in England can choose to do so by setting up a branch of its existing partnership, or it can form an English general partnership or an English LLP. An important issue for overseas LLPs carrying on business in England (and an important factor in any decision as to how the English part of the business should be structured) is whether the English court will recognise the limitation on personal liability of the partners of an overseas LLP which the LLP’s domestic law confers on those partners. The following possible scenario illustrates the issues which may arise in relation to an overseas LLP carrying on business in England: ‘Smith LLP’ is a law firm formed in Yellow State. Yellow State is a common law jurisdiction. By statute, Yellow State permits general partnerships to become LLPs by the partners completing and filing a form. A, B, C, D and E are the partners. A, B and C work in Yellow State, and D and E work in England. Yellow State law provides the individual partners personally (although not the assets of the partnership) with a shield:

61 62 63 64 65 66

CPR Pt 6, PD 6B, para 3.1(6). CPR Pt 6, PD 6B, para 3.1(7). CPR Pt 6, PD 6B, para 3.1(9). CPR Pt 6, PD 6B, para 3.1(10). CPR Pt 6, PD 6B, para 3.1(11). CPR, r 6.37.

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they do not have personal liability for the negligence or misconduct of a co-partner. Each partner is, however, by express statutory provision, liable for his own negligence or misconduct. D is retained by a client to give English law advice to an English company, Z Ltd, in England. D carries out the retainer in a manner which the client alleges was negligent and has caused it loss.

This situation gives rise to a number of issues raising possible conflict of laws problems. What is the status of Smith LLP, and what law governs this issue? Who are the parties to the client retainer, and what is the law governing this issue? Has the contract of retainer been breached, and what law governs this issue? Was D’s negligence a breach of a tortious duty owed by (a) him and/or (b) Smith LLP and/or (c) his partners; and what is the proper law of any tort claim? 26.15 Of course, prior to undertaking the work for Z Ltd, Smith LLP may have contracted expressly with Z Ltd that the personal liability of Smith LLP and/or the partners was limited in accordance with the law of Yellow State (so that only D had personal liability beyond the LLP’s assets). Whilst there is nothing in principle to prevent Smith LLP from stipulating this, such a term will, if the contract is governed by English law67 (and, possibly, even if it is not),68 be subject to the provisions of UCTA 1977.69 The limitation on liability, in accordance with the law of Yellow State, would have to be ‘reasonable’ in accordance with s 11 of UCTA 1977 for Smith LLP or the partners to be able to rely on it to limit (in fact, exclude) their personal liability. 26.16 Questions of contractual exclusion aside, a convenient starting point for considering such issues is the following statement by Staughton LJ in Macmillan Inc v Bishopsgate Investment Trust Plc (No 3):70 ‘In any case which involves a foreign element it may prove necessary to decide what system of law is to be applied, either to the case as a whole or to a particular issue or issues. [Counsel] for Macmillan Inc has referred to that as the proper law; but I would reserve that expression for other purposes, such as the proper law of a contract, or of an obligation. Conflict lawyers speak of the lex causae when referring to the system of law to be applied. For those who spurn Latin in favour of English, one could call it the law applicable to the suit (or issue) or, simply, the applicable law. In finding the lex causae there are three stages. First, it is necessary to characterise the issue that is before the court. Is it for example about the formal validity of a marriage? Or intestate succession to moveable property? Or interpretation of a contract? The second stage is to select the rule of conflict of laws which lays down a connecting factor for the issue in question. Thus the formal validity of a marriage is to be determined,

67 68 69 70

Subject to UCTA 1977, s 27(1). See UCTA 1977, s 27(2); and also Dicey, Morris & Collins above, paras 33–158 to 33–160. Discussed in the context of personal liability of a member of a UK LLP at 18.19–18.24. [1996] 1 WLR 387 at 391G–392B. And see also Raiffeisen Zentralbank Osterreich AG v Five Star Trading LLC [2001] QB 825 at [26]–[29] (Mance LJ).

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The Law of Limited Liability Partnerships for the most part, by the law of the place where it is celebrated; intestate succession to moveables, by the law of the place where the deceased was domiciled when he died; and the interpretation of a contract, by what is described as its proper law. Thirdly, it is necessary to identify the system of law which is tied by the connecting factor found in stage two to the issue characterised in stage one.’

26.17 As can be seen from the discussion in Chapter 25, LLPs in other jurisdictions can broadly be categorised as either corporate or non-corporate entities. Those which are non-corporate entities are essentially general partnerships, or akin to them. Some of these partnerships, nevertheless, have separate legal personality, whilst others are ‘aggregates’ without separate personality in the same way as English partnerships. It is convenient to consider the issue of whether English law will recognise limitations on personal liability by reference, first, to overseas LLPs which (whether corporate or non-corporate) have separate legal personality and, secondly, by reference to overseas LLPs which do not.

Overseas LLP having separate legal personality 26.18 The starting point is to consider how English law approaches issues involving foreign corporations. As has been seen above,71 whether or not a corporation is recognised by English law as existing depends upon the law under which it was formed. If the existence of the corporation is recognised, ancillary ‘status’ issues such as those concerning the constitution of the corporation, who are the corporation’s officials authorised to act on its behalf, or the extent of a member’s personal liability (qua member) for the debts and liabilities of the corporation, are also governed by the law of the place of incorporation.72 As has also been seen above,73 English law’s approach in relation to the existence of foreign entities which do not constitute corporations is the same as its approach in relation to the existence of corporations. There seems to be no reason in principle why English law should not take the same approach to ancillary ‘status’ issues in relation to non-corporation foreign entities as it does in relation to corporations. Decisions of the English courts (discussed below) support this.74 26.19 In Johnson Matthey & Wallace Ltd v Ahmed Alloush,75 the Court of Appeal was concerned with the question whether or not individual partners in a Jordanian

71 See

26.10(b). Dicey, Morris & Collins above, Rule 175, citing, inter alia, Risdon Iron and Locomotive Works v Furness [1906] 1 KB 49 (concerned with an issue as to whether shareholders in an English company, and as such having limited liability for the company’s debts, could nevertheless be held liable for such debts under a California statute to this effect. ‘The authority to do these things is given to a limited company, and it can only do them subject to the limited liability of its shareholders, which is a fundamental condition of its existence’: Collins MR at 56). 73 See 26.10(b). 74 Ancillary ‘status’ issues may, however, in some circumstances, fall to be seen more accurately as matters of contract, to be governed by the proper law of the membership contract (itself likely to be the same as the law of the place of formation). 75 24 May 1984 (CAT 234), reported in summary form only at (1985) 135 NLJ 1012. 72 See

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‘ordinary limited company’ were personally liable upon promissory notes which had been issued by this entity. The entity had separate legal personality, but in other respects was akin to an English partnership. The court, whilst holding that the individual partners were personally liable on a proper interpretation of the relevant Jordanian statute, clearly proceeded on the basis that it would have been open to Jordanian law, as the governing law of the entity, to limit the liability of its members as a matter of substantive law; and that if it had done so, English law would have given recognition to this. The relevant statutory provision was s 19 of the Jordanian Companies Law (No 12 of 1964), which provided that: ‘every partner shall be liable jointly with the other partners, as well as severally, for all the debts and liabilities of the company which were incurred while he was a partner … provided always that no execution order shall be issued against any partner in respect of his several liability for the company’s debts or liabilities unless the company has been dissolved, or unless a creditor has obtained judgment and the company does not have sufficient funds to meet the judgment debt …’.

Giving the leading judgment, Sir John Donaldson MR cited the following passage from Dicey & Morris on the Conflict of Laws (10th edn) (1980): ‘If the lex causae regards the defendant as under no liability whatever unless other persons are sued first, the rule is substantive and must be applied in English proceedings. If on the other hand the lex causae regards the defendant as liable, but makes his liability conditional on other persons being sued first, then the rule is procedural and is ignored in English proceedings. …’

He then went on: ‘… As it seems to me, it is open to the proper law of a company to limit the liability of its members and officers by adopting either a substantive law route or a procedural law route. The choice is that of the relevant legislature. If it chooses to adopt the substantive law route, that law will have extra-territorial effect, at any rate so far as England is concerned. If, on the other hand, it chooses to adopt the procedural law route, it will only have intra-territorial effect. The Jordanian legislature has chosen to adopt the procedural route and I see no reason why the ordinary consequences, as foreshadowed in the paragraph which I have read from Dicey, should not follow.’

26.20 The approach of the court in The ‘Gilbert Rowe’76 is consistent with that adopted in Johnson Matthey. The ‘Gilbert Rowe’ was concerned with the personal position of partners in a Dutch commercial partnership (a VOF) which was alleged to have acted in breach of a contract of towage. A VOF was described in the judgment as a hybrid: ‘It is not like an English partnership. (a) It is not simply a name representing the sum of individual partners and is therefore not simply akin to an English law partnership.

76

Rowan Companies Inc v Lambert Eggink Offshore Transport Consultants VOF [1997] 2 Lloyd’s Rep 218 (Clarke J). The case went to the Court of Appeal (reported at [1998] CLC 1574), but the basis on which the judge proceeded was not questioned.

536

The Law of Limited Liability Partnerships (b) But it is not as such a complete or independent legal person like a corporation. (c) However, it represents the separate persona of its partners “taken together” and jointly or “the partners as a whole”. (d) As such it has a separate legal existence or recognition, viz. it is a “persona standi in judicio”, for the purposes of suit.’77

The court clearly proceeded on the basis that issues as to the personal exposure to liability of the individual partners for breach of contract by the VOF was governed by Dutch law.78 The judgment of the Court of Appeal in Oxnard Financing SA v Rahn in 199879 is also consistent with this approach. The issue in Oxnard was the procedural issue as to whether a Swiss banking partnership could be sued in the names of the four individual partners. Nevertheless, it seems clear that the court proceeded on the basis that, on the substance of liability, English law would give effect to the rule of substantive Swiss law as to the limits on the individual liability of the partners personally.80 26.21 Reverting to the scenario set out in 26.14, it is suggested that as a general rule the position will be as follows. If the law of Yellow State provides that Smith LLP is an entity distinct from its partners (ie the LLP is by the law of the place of its formation a separate legal entity) English law will recognise the existence of this separate entity. Provided that D has made it clear that he is acting solely on behalf of the LLP, English law will recognise the entity as the party contracting with Z Ltd to provide the legal services.81 The governing law of the contract between the LLP and Z Ltd will probably be English law (as was the governing law of the contract in The ‘Gilbert Rowe’). In these circumstances, whether or not there has been a breach of the contract will be determined by English law. Save insofar as the contract may itself stipulate where any liability lies, English law will treat as a matter of ‘status’ of the entity any issue as to personal liability of individual members of the LLP, qua members, for a breach of the contract by the LLP (ie a breach of the express or implied term to use all proper skill and care). If and to the extent that the governing law of the LLP provides, as an attribute of the LLP, that the members are not personally liable, qua members, for a breach of contract, English law will give effect to such a provision. 26.22 The tort analysis will be similar. A claim by Z Ltd against the LLP in tort will, prima facie, be governed by English law, on the basis that England is the country where the loss suffered by Z Ltd occurred or is the country where

77

78 79 80

81

Page 222 col 1. The judge went on to say that a VOF did not have a legal personality as such, but that it appeared to have something very like it in that it could enter into a contract in its own name and could sue and be sued in its own name: p 223 col 2. See p 224 col 1. [1998] 1 WLR 1465. See, in particular, 1470C–D and 1475G–H. This, and the other two cases just discussed, were addressed, with approval, by the Privy Council in Investec Trust Ltd v Glenalla Properties Ltd [2018] UKPC 7, [2019] AC 271. This may also be the case where by its domestic law the LLP does not have legal personality as such, but can nevertheless by the law of its formation enter into contracts in its own name: see fn 77 above.

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both Z Ltd and the LLP are habitually resident for the purposes of the advice:82 that is to say, English law will be the law governing the question whether an actionable tort has occurred (namely, whether there has been a breach of a duty of care recognised in English law). If a tort has been committed by the LLP, English law will treat as a matter of ‘status’ of the entity any issue as to personal liability of individual members, qua members, for the tort. The matter being one of ‘status’ of the LLP, a consideration of the possible impact of the Unfair Contract Terms Act 1977 (UCTA 1977) will not be relevant. The provision of law in Yellow State that a member of an LLP shall not be jointly and severally liable for the negligence or misconduct of the other members (creating the ‘status’ of non-liability of members) is to be contrasted, however, with a term of the contract between Smith LLP and Z Ltd which itself contains a limitation on the liability for negligence of the LLP as an entity, or of its members. The provisions of UCTA 1977 will be relevant to such a contractual term.83 26.23 In addition to determining whether or not the LLP has committed a tort, English law (assuming it is the applicable law) will also determine whether D, the individual partner carrying out the work, has personally committed a tort, ie whether D has assumed a personal responsibility for the work and has breached a personal duty of care.84 This latter issue may become important. It has been said as a general statement in 25.25 that it appears to be the position that all US States will hold a partner in an LLP personally liable in respect of claims arising from his own misconduct or negligence. It may be, however, that an analysis as to how the law of Yellow State arrives at this result will be necessary in order to determine how and if D is personally liable in the English court. There may, for instance, be an issue as to whether the Yellow State statute is providing that the negligent partner has personal liability to a third party for any negligent act done by him as a partner (in which case there would be no protection for D personally in our scenario) or is providing, rather, that D is not protected if there is a breach by him of an independent duty of care owed by him (but if there is no such breach by him, then he is not personally liable). If D is to be personally liable for his own negligence, it may be necessary, therefore, to find an assumption of personal responsibility by him. 26.24 Although the members of an overseas LLP can be assumed to wish to have the benefit of limitations on personal liability which the domestic law of the LLP provides, the possibility should not be excluded of facts arising from which it can be inferred that the partners have authorised the LLP to trade in England, or to contract with a particular third party, on the basis of unlimited personal liability as in a traditional partnership.85

82

See the Rome II Regulation (Regulation (EC) No 864/2007), arts 4.1, 4.2 (with art 23.1) and 15, and Dicey, Morris & Collins above, rule 249. The Rome II Regulation will continue to apply after Brexit: see the Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc) (EU Exit) Regulations 2019, SI 2019/834. 83 See 26.31. 84 See 18.5–18.17. 85 See, for instance, Risdon Iron and Locomotive Works v Furness [1906] 1 KB 49.

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Overseas LLP not having separate legal personality 26.25 An analysis of the personal position of members of an overseas LLP where the LLP is not, under the law of its formation, a distinct entity is less straightforward.86 Where the LLP is not itself an entity, it will, generally speaking, be an ‘aggregate’ partnership, namely (and like an 1890 Act partnership in England) a relationship subsisting between the partners, based on agreement between them, and under which they are all agents for each other. The core issue is whether English law will, in such a case, recognise and give effect to limitations on personal liability contained in legislation of the jurisdiction of the place of formation. 26.26 The first question is: how will English law characterise this issue? As appears from 26.18–26.24, in relation to corporate bodies, and also (generally speaking) bodies having separate legal personality which are not corporations, English law characterises the issue of personal liability of a member as an issue of, or at least ancillary to, the ‘status’ of the corporate body: the limitation on liability being an attribute of the entity itself. Where, however, the overseas LLP does not have separate legal personality, it is by no means obvious that the same characterisation can or should be applied. Indeed, where there is no separate entity, the relationship between the partners or members is just that: a mere relationship. Even if the law governing that inter-member relationship is properly regarded as a foreign law,87 it does not follow that limitations on the personal liability of the members under that foreign law should be recognised as having application to the (quite separate) relationship, and issues arising, between the members and a third party.88 26.27 The recent decision of the Privy Council in Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd89 suggests that questions concerning the limitation of liability of ‘entities’ without a separate personality will, as is the case for corporations, be determined by the law under which the entity was formed. This was an appeal from Guernsey, but the Guernsey rules of private international law were taken to be the same as English law except where modified by statute.90 The case concerned

86 See

87

88

89 90

Lindley & Banks on Partnership (20th edn) (2020), paras 28–12 to 28–13; Higgins & Fletcher, The Law of Partnership in Australia and New Zealand (8th edn) (2000), p 275; Fletcher, ‘Interstate Trade: The Last Hurdle for Limited Partnerships’ (1993) 11 C & S LJ 433. The applicable law of the relationship between the partners may properly be regarded as an ordinary contractual applicable law issue, although it must of course be borne in mind that the relationship (at least according to English law) is not simply a contractual one. See, for instance, Lord Millett in Hurst v Bryk [2002] 1 AC 185 (concerned with an English 1890 Act partnership) at 194C–D: ‘… while partnership is a consensual arrangement based on agreement, it is more than a simple contract …; it is a continuing personal as well as commercial relationship’. In the authors’ view, it certainly cannot be assumed that the proper law of the relationship between the partners can be determined merely by a ‘place of formation’ approach. In the absence of a choice of law, the place of formation (even if one can be identified) may well not be determinative. As mentioned in fn 102, the Rome I Regulation will not apply to determine the law governing the contract of partnership, as such matters are excluded under Article 1(2)(f). For an interesting discussion of whether limitation of liability is an ‘essential’ or ‘ancillary’ issue, and whether it should be determined by the law under which the entity was formed, see Robb, ‘Personhood and status of legal persons in private international law’ (2019) 15(2) JPIL 288. [2019] AC 271. Investec at [64].

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proceedings involving the former and current trustees of a discretionary Jersey trust and a number of offshore companies within the trust. In short, the question was whether two trustees of a trust governed by Jersey law were entitled, in proceedings before the Guernsey courts, to the benefit of a provision of Jersey law which had the effect of limiting the liability of trustees. This, in part, turned on the question of whether those provisions of Jersey law should be regarded as matters of ‘status’ of the trust relationship, to be governed by Jersey law. By a bare majority,91 Lord Hodge (with the agreement of Lords Sumption and Carnwath) relied on the partnership cases addressed at 26.19 to 26.20 above to state the general conclusion that: ‘the time has come to recognise that as a general rule the common law will recognise and give effect to limitations of liability which arise under an entity’s constitutive law by reason of the particular status or capacity in which its members or officers assume an obligation.’92

26.28 Lord Hodge added that this principle was not limited to entities with separate personality but applied to all entities (including partnerships and limited partnerships) without separate legal personality.93 The decision therefore goes beyond the three previous cases (discussed at 26.19 to 26.20 above) where, in each case, the foreign partnership had a separate legal personality. This extension of principle without prior authority was one of the reasons for Lord Mance’s vigorous dissent.94 Despite the decision strictly only being persuasive authority in English courts,95 the fact that the majority expressly stated that the common law conflict of laws rules of Guernsey and England are the same would ordinarily mean that the decision would be followed in England in the absence of any conflicting authority from the Court of Appeal or Supreme Court. However, the powerful dissent of Lord Mance, and the fact that Lord Briggs expressly stated that the ‘general rule’ should not form part of English law,96 may provide the foundation for the submission that Investec should be treated solely as authority on Guernsey law. 26.29 Turning to the scenario set out in 26.14, where Smith LLP does not have separate legal personality, it is likely that English law will now treat any issue as to personal liability of individual members of the LLP, qua members, for a breach of the contract by the LLP97 as a matter of ‘status’ of the ‘entity’. If and to the extent that the governing law of the LLP provides, as an attribute of the LLP, that the members are not personally liable, qua members, for a breach of contract,98 English law is likely, following Investec, to give effect to such a provision. An analysis similar to

91 92 93 94

95 96 97 98

Lords Mance and Briggs dissenting. Investec at [88]. Investec at [89]. Investec at [216]–[218]. See also Dickinson, ‘Status Check: Trustee Liability to Third Parties in the Conflict of Laws’ [2019] LMCLQ 456 and Robb, cited above, for further criticism of the majority’s decision on these and other points. Willers v Joyce [2016] UKSC 44, [2018] AC 843. Investec at [239]. Or tortious or other liability on the part of the LLP. Or tortious or other liability.

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that described at 26.21 to 26.24 above, with regard to overseas LLPs with a separate legal personality, will then follow. 26.30 If the Investec approach is not adopted, another possible (and, it is suggested, the most logical) route is that English law will regard the partners in it as mutual agents; and the issue of personal liability of the partners as one of agency. The analysis that follows in the rest of this chapter therefore proceeds on the basis that Investec would not be followed in England, and the question should instead be addressed as a matter of the law of agency. As will be seen, this may lead to a different result from that suggested by Investec. 26.31 For the purpose of determining what law governs contractual relations in an agency context, English law distinguishes between, on the one hand, the relationship between principal and agent (‘the internal relationship’) and, on the other hand, the relationship between the principal and the third party who the agent deals with on the principal’s behalf (‘the external relationship’). In a partnership context, the internal relationship is the relationship between all the partners. The external relationship is the relationship between the partners (ie the principal) and the third party who one or more of the partners (ie the agent) deals with on their behalf. The rights and liabilities arising out of the internal relationship are, put broadly, governed by the law chosen for the purpose by the principal and agent,99 whilst the rights and liabilities arising out of the external relationship are, again put broadly, governed by the law applicable to the contract made between the agent and the third party or that applicable to the tort alleged to have been committed.100 Even if the foreign law that purports to limit the liability of the partners does so in a way which is intended to apply to both the internal and the external relationships, and in a way which is intended to have extraterritorial effect, English law will not consider itself obliged to give extraterritorial effect (ie effect in England) to legislation of a foreign jurisdiction governing issues of liability arising under a contract or tort, if the law of that foreign jurisdiction would not otherwise be the law applicable to the wrong.101 In other words, if the law applicable to the wrong is English law, English law determines, in a contractual context, who are the parties to the contract and who is liable for breach and, in a tortious context, who owed a duty of care and who was negligent. An attempt by a foreign law to limit the liability of partners (where that law is not the law applicable to the wrong, ie to the external relationship) is, in the authors’ view, of no effect in England on this analysis. As stated in 26.21, the purpose of the application of the ‘status’ approach in entity cases is to determine whether anyone, in addition to the entity itself, is liable, qua member, for a contractual or tortious wrong in circumstances in which (by application of the law applicable to the wrong) the entity is liable but those other persons do not have separate liability. Even where there is a separate entity, a law in the place of formation that excludes liability on the part of the members of an entity cannot ‘override’ the liability of those members in contract or tort according to the application of the law applicable to the wrong.

99 See

Dicey, Morris & Collins above, Rule 243, and further below. Dicey, Morris & Collins above, Rule 244(1), and further below. 101 As to extra-territoriality of UK legislation, see Halsbury’s Laws of England, Vol 96, 2018, para 323. 100 See

Foreign Connections and Dealing with Overseas LLPs

541

26.32 As discussed in 26.21, whether or not Smith LLP is a separate entity will be determined by reference to the law of Yellow State. Proceeding on the basis that this exercise shows Smith LLP not to be a separate entity, the relationship between the partners themselves (ie between principals and agent) will almost certainly be governed by Yellow State law. One arrives at this by two possible routes. Assuming that the relationship between the partners of the LLP is properly seen as contractual, the governing law will be that determined in accordance with common law rules to be the proper law of the contract, ie the law chosen (expressly or impliedly) by the partners for this purpose, or in the absence of any such discernible choice, that system of law with which, viewed objectively, the partnership contract has the closest and most real connection.102 If the relationship between the partners is not to be seen as contractual, it is likely to be seen as more accurately a creature of a statute of Yellow State. If this is the case, generally speaking103 it is difficult not to see the English court concluding that the relationship between the partners is governed by Yellow State law. An issue, if it arises, which will be governed by Yellow State law, as the law governing the relationship between the partners, will be an issue as to the actual authority to act on behalf of the other partners which an individual partner has.104 26.33 In the scenario which is being considered (set out in 26.14), the governing law of the contract under which D, on behalf of Smith LLP, is giving advice will probably be English law. Proceeding on this basis, it appears to be correct to say that it will, therefore, be English law which governs the external relationship (ie the rights and liabilities) between the individual members of Smith LLP on the one hand and Z Ltd on the other hand, including specifically whether or not the acts of D will bind his partners as his principals.105 An issue which will, if it arises, be governed by English law on this basis will be an issue as to what apparent authority to act on behalf of the other partners D had. There is no reason in principle why the position should be different in the context of an alleged tort; and, assuming that a claim in tort by Z Ltd will be governed by English law,106 it appears to be correct to say, in this context also, that it will be English law which governs the relationship between the members of Smith LLP and Z Ltd. 26.34 What, then, is the effect of the provision of Yellow State law that purports to exempt the partners from personal liability for the negligence or misconduct of a co-partner? Z Ltd will doubtless say that D was acting as the agent for all the partners

102

See, for instance, Amin Rasheed Corp v Kuwait Insurance Co [1984] AC 50 at 60–61, and generally Dicey, Morris & Collins above, paras 32–003 to 32–008. The Rome I Regulation will not apply to determine the law governing the contract of partnership, as the partnership will be a ‘body unincorporated’ within Article 1(2)(f) of the Regulation (on which, see Dicey, Morris & Collins above, paras 30–029 and 32–020). (As with the Rome II Regulation, discussed above, the provisions of EU law set out in the Rome I Regulation were retained as the law of the United Kingdom after the Brexit transition period ended. See the Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc) (EU Exit) Regulations 2019, SI 2019/834.). 103 But possibly not in all circumstances: see 26.36. 104 See Dicey, Morris & Collins above, Rule 244(2) and paras 33–439 to 33–450. 105 See Dicey, Morris & Collins above, Rule 244(1) and paras 33–436 to 33–438. 106 See 26.22.

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The Law of Limited Liability Partnerships

of Smith LLP, that their liability to Z Ltd as D’s principals is governed by English law, that it (Z Ltd) is not a party to the contract or relationship between the partners (in respect of which Yellow State law purports to limit the partners’ liability to third parties), that that limitation is not a matter of English law, and that, as a result, all the partners of the partnership which is Smith LLP are liable, as D’s principals, to it. In answer to this, the partners would probably contend that, on a true interpretation of the contract or relationship between the partners under Yellow State law, D did not have actual authority to act on behalf of Smith LLP otherwise than on the basis of limited liability of the partners, and that this limit on D’s authority is a matter governed by Yellow State law.107 26.35 In reply to this defence, Z Ltd may argue that nevertheless D had apparent authority in England to act without limitation of liability of the partners (and that Z Ltd relied on this).108 As we have seen, the question of apparent authority will be governed by English law.109 This last argument therefore raises the issue of what someone dealing in England with ‘Smith LLP’ can or should reasonably be taken to have expected: in the context of an apparent authority argument, could there be a representation, reasonably relied upon, that D was acting on behalf of the other partners of Smith LLP without limitation on liability? It is to be remembered that an overseas LLP carrying on business in the UK must, under CA 2006, s 1051,110 conspicuously exhibit at its office in England, and state on its communications, its name and where it is established.111 The purpose of this requirement is presumably to alert persons in the UK dealing with an overseas LLP to the fact that that is what they are dealing with, and that there could be limitations on liability. The authors suggest that, whilst the mere existence of the requirements of CA 2006, s 1051 will not preclude an argument by a third party of apparent authority, the fact (if it be established) that the LLP complied with these requirements may make it more difficult for such an argument to succeed.112 26.36 Despite the considerations which have just been canvassed in 26.32–26.35, it may be thought that, in at least some circumstances, there is a short route to the conclusion that all the members of any ‘aggregate’ overseas LLP have unlimited liability for the acts in the UK of any one partner. In a wholly English context, two or more persons who are carrying on a business in common with a view of profit are in the relation of partnership governed by the Partnership Act 1890, whether or not they are aware of the fact. It may be said that persons who are carrying on business in England in common with a view of profit fall within the grasp of the

107 See

26.32. On apparent authority generally, see 5.1. 109 See 26.33. 110 As modified and applied to LLPs by SI 2009/804, reg 59. 111 See 26.7. 112 It might be possible to take the argument for the LLP one step further and say that, if the third party is aware that he is dealing with an overseas LLP, then he should be estopped from denying the limited liability to him of the partners. The existence of such an estoppel would be governed by English law. Whether there is, in any particular case, such an estoppel will, of course, ultimately depend on the particular facts. 108

Foreign Connections and Dealing with Overseas LLPs

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1890 Act, and fall, therefore, to be treated in England as in a partnership governed by the 1890 Act, regardless of whatever their status may be as a matter of foreign law. The result of this, inter alia, would be unlimited personal liability on the part of the partners to third parties dealing with one of their number in the ordinary course of the firm’s business. There are, however, a number of difficulties with this conclusion. As has been mentioned in 26.31, for the purpose of determining what law governs contractual relations in an agency context, English conflict of laws rules distinguish between the principal/agent relationship and the principal/third party relationship; and, as discussed in 26.32, this distinction between the two sets of relationships is equally likely to be drawn where the principal/agent relationship is seen as governed by statute rather than contract. The Partnership Act 1890 governs both sets of relationships. To apply this Act to the principal/agent relationship existing between the partners of an overseas LLP would be to act contrary to the well-established conflict of laws rule;113 and it is difficult to see a logical basis upon which only those provisions in the Act concerned with the principal/third party relationship should be said to be applicable. To apply the Partnership Act to the principal/agent relationship between the partners would also be to give the Act an extra-territorial application which, the authors suggest, it was not intended to have.114 Indeed, the provisions of the Act are as capable of applying to a partnership which has a separate legal personality as to one which does not.115 If the Act were to be applicable to an overseas ‘aggregate’ partnership, it is difficult to see why it should not equally be applicable to an overseas ‘separate entity’ partnership. To apply it to an overseas separate entity, however, would also be to act contrary to what appear to be sound and well-established conflict of laws principles.116 In the scenario set out in 26.14, a majority of the partners of Smith LLP are in Yellow State; and, for the reasons set out above, the authors suggest that the relationship between them will be governed by Yellow State law, and will not be subject to the Partnership Act 1890. Accordingly, it is suggested that, in this scenario, the Partnership Act 1890 has no role to play, and that issues of liability to Z Ltd will be governed not by the 1890 Act but by the English common law (and conflicts) rules of agency, as discussed in 26.30–26.31. The position might be different, however,117 if a preponderance of the partners was carrying on business in England and/or a preponderance of the overseas LLP’s business was in England. In these circumstances, it might be said that the partners as a whole, carrying on their business, were sufficiently present in England as to make their relationship a partnership governed by the 1890 Act.118

113 See

26.30–26.31, and Dicey, Morris & Collins above, Rule 244(1). See, for instance, In re AB & Co [1900] 1 QB 541 and Clark (Inspector of Taxes) v Oceanic Contractors Inc [1983] 2 AC 130 at 144E–145F and 152C–D, and generally, on extra-territorial application of UK legislation, Halsbury’s Laws of England, Vol 96, 2018, para 323. 115 See, for instance, s 4(2) of the Act, referring to Scottish partnerships. 116 See 26.14–26.24. 117 Perhaps applying a ‘central management and control’ test. English common law conflict of laws rules do not recognise a wholly unrestricted right of parties to choose the proper law of their contract. The choice must be ‘bona fide and legal’ and not contrary to public policy: see Vita Foods Inc v Unus Shipping Co Ltd [1939] AC 277 (PC) at 290. 118 See Clark v Oceanic Contractors Inc above at 145D–F. In relation to the internal relationship between partners, the conclusion might be that the Partnership Act applies to the extent that its ‘default’ provisions are not varied by the overseas LLP agreement or law of the place of formation. 114

544

Chapter 27 INSOLVENCY AND WINDING UP OF LLPs: A GENERAL INTRODUCTION

INTRODUCTION 27.1 The scheme of the LLP legislation is to apply to LLPs the statutory provisions relating to the insolvency and winding up of companies (including the CDDA 1986) with modifications.1 Unless otherwise stated, references to the IA 1986 and the CDDA 1986 are to those Acts as modified and applied to LLPs by the LLP Regulations 2001 (as amended), and references to the CA 2006 are to that Act as modified and applied to LLPs by the Limited Liability Partnerships Regulations (Application of Companies Act 2006) Regulations 2009.2 This reflects the stated intention of the Government when introducing LLPs in 2000, namely that they are, in most respects, to be treated as corporate entities. In fact, relevant corporate insolvency law has been applied virtually wholesale with little modification, and puts LLPs more or less on the same footing as companies. The IA 1986 applies to both solvent and insolvent LLPs. Consequently, members of an LLP will not share the flexibility enjoyed by partners to dissolve and wind up a solvent partnership informally and without the need for the involvement and expense of an insolvency practitioner.3 It is not the purpose of this work to provide a detailed exposition of the law of corporate insolvency. What follows is an outline of the relevant provisions as they apply to LLPs.4 27.2 Since the passing of the LLP Act 2000, the IA 1986 has been substantially amended by (amongst other legislation) the Insolvency Act 2000, the Enterprise Act 2002 and the Small Business, Enterprise and Employment Act 2015 (the latter also effected amendments to the CDDA 1986). Save in relation to the new administration procedure (where the statutory instrument bringing ss 248 and 249 of the Enterprise Act 2002 into force specifically stated that the new administration procedure did not apply to LLPs), these particular amending Acts, and the statutory

1

2 3

4

LLP Act 2000, s 14 and LLP Regulations 2001 (SI 2001/1090), reg 4(2) and Pt II of Sch 2 (applying, with modifications, the CDDA 1986), reg 5 (applying, with modifications, Pts I to IV inclusive, VI and VII of the First Group of Parts and the Third Group of Parts of the IA 1986 (as amended)), and reg 10 and Sch 6 (applying subordinate legislation). SI 2009/1804. Since 1986 an insolvent partnership can be wound up as an ‘unregistered company’ pursuant to Pt V of the IA 1986 applied, initially, by the Insolvent Partnerships Order 1986 (SI 1986/2142), and now by the Insolvent Partnerships Order 1994 (SI 1994/2421), as amended by the Insolvent Partnerships (Amendment) Orders 2001 (SI 2001/767), 2002 (SI 2002/1308), No 2 of 2002 (SI 2002/2708), 2005 (SI 2005/1516), 2006 (SI 2006/622) and 2010 (SI 2010/686). See further Totty, Moss & Segal: Insolvency, Chapter I1. For a detailed exposition see, for instance, Totty, Moss & Segal: Insolvency, Chapter I2 and Palmer’s Company Law, Pts 14 and 15.

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instruments which brought the relevant parts of them into force for companies, did not refer to LLPs. Save in relation to administration, therefore, it was not entirely clear whether the new provisions applied automatically to LLPs. The view of the authors (which they believe is the accepted view) is that amendments made to those provisions of the IA 1986 and the CDDA 1986 applied to LLPs by the LLP Regulations 2001 apply automatically to LLPs unless the contrary is provided (expressly or by necessary implication) in the amending legislation.5 The new administration procedure for companies introduced by the Enterprise Act 2002 was, however, expressly applied to LLPs by the Limited Liability Partnership (Amendment) Regulations 2005,6 by way of amendment to Sch 3 to the LLP Regulations 2001,7 and further clarity was provided by the Insolvency (Miscellaneous Amendments) Regulations 2017,8 again by way of amendment to the LLP Regulations 2001. The 2017 Regulations were intended (amongst other things) to ensure that the insolvency regime for LLPs was brought into line with the mainstream insolvency procedures and to apply the long-awaited Insolvency Rules 2016 (IR 2016) to LLPs from 8 December 2017. 27.3 Further significant amendments were recently made to the IA 1986 by the Corporate Insolvency and Governance Act 2020 (CIGA 2020). In addition to a host of temporary changes to insolvency law to address the Covid-19 pandemic in 2020, CIGA 2020 also introduced major permanent reforms to insolvency law (which had been in consultation prior to the pandemic). The Limited Liability Partnerships (Amendment etc) Regulations 20209 applied the insolvency-related changes in CIGA 2020 to LLPs, including by amendment to Schedule 3 to the 2001 Regulations and to the 2009 Regulations.10 27.4 Cross-border insolvencies are additionally subject to regulation by the European Union. The original Council Regulation (EC) 1346/2000 on insolvency proceedings came into force on 31 May 2002, with direct effect in the UK; and was recast by Council Regulation (EU) 848/2015, which came into force on 26 June 2015 and had direct effect in the UK. It required consequential amendments to domestic legislation from that date. The recast Regulation applies only to relevant insolvency proceedings from 26 June 2017, with the original Regulation applying to proceedings opened before that date.11 Following the withdrawal of the UK from the EU, Council Regulation (EU) 848/2015 will continue to apply to proceedings opened before 1 January 2021, but automatic recognition in the EU of insolvency proceedings opened in the UK from 1 January 2021, and vice versa, came to an end.12 5

See further the discussion as to legislation for LLPs in 1.15–1.20 and Feetum v Levy [2006] Ch 585 at [27]–[28]. The position is different in relation to the provisions of the CA 2006 applied to LLPs by the LLP Regulations 2009. 6 SI 2005/1989. 7 Ibid, reg 3 and Sch 2. 8 SI 2017/1119. 9 SI 2020/643. 10 The Limited Liability Partnerships (Amendment etc) Regulations 2020 were revoked with effect from 16 February 2021 by the Limited Liability Partnerships (Amendment etc) Regulations 2021, SI 2021/60, which introduced substitute amendments. 11 Article 84(2). 12 See Totty, Moss & Segal: Insolvency (Sweet & Maxwell), E201.

Chapter 28 MORATORIUM AND VOLUNTARY ARRANGEMENTS

MORATORIUM 28.1 One of the major changes introduced by the Corporate Insolvency and Governance Act 2020 (CIGA 2020) is the introduction of a free-standing moratorium, preventing creditors from bringing enforcement action and allowing an LLP in financial distress some breathing space in which to explore its rescue and restructuring options free from creditor action. The new regime (which replaces Sch A1 to the IA 1986) is found in CIGA 2020, ss 1 and 2 and (in the case of LLPs) Sch 3, paras 36–38, which in turn incorporate the new Part A1 and Schs ZA1 and ZA2 into the IA 1986. These changes are applied to LLPs by the Limited Liability Partnerships (Amendment etc) Regulations 20201 (LLP Regulations 2020), which amend Sch 3 to the LLP Regulations 2001.2 What follows is a summary of the new moratorium regime, and readers should refer to the detailed provisions of the new Part A1. 28.2 In order to use the new moratorium, the LLP must be ‘eligible’.3 Where the LLP is not subject to an outstanding winding-up petition, the designated members may obtain a moratorium by filing the ‘relevant documents’ with the court.4 Where the LLP is subject to a winding-up petition, the designated members may apply to the court for a moratorium (such application to be accompanied by the relevant documents) and, on such an application, the court may make an order for a moratorium or any other order which it thinks appropriate.5 The court may only make an order for a moratorium if it is satisfied that it would achieve a better result for the LLP’s creditors than would be likely if it were wound up. The relevant documents are a notice that the LLP wishes to obtain a moratorium, and required statements from an appointed insolvency practitioner (‘the proposed monitor’) and the designated members.6

1

2

3 4 5 6

SI 2020/643. (The Limited Liability Partnerships (Amendment etc) Regulations 2020 were revoked with effect from 16 February 2021 by the Limited Liability Partnerships (Amendment etc) Regulations 2021, SI 2021/60, which introduced substitute amendments.) LLP Regulations 2020, reg 2(2) provides that nothing in the 2020 Regulations affects any moratorium under the now repealed Sch A1 to the IA 1986 coming into force before the repeal. See Chapter 28 of the 4th edition of this book for a summary of the provisions of the now repealed Sch A1. IA 1986, s A1 and Sch ZA1. IA 1986, s A3, as modified and applied to LLPs by reg 5 of, and Sch 3 to, SI 2001/1090 (as amended by Sch 1 to the LLP Regulations 2020). IA 1986, s A4, as modified and applied to LLPs by reg 5 of, and Sch 3 to, SI 2001/1090 (as amended by Sch 1 to the LLP Regulations 2020). IA 1986, s A6, as modified and applied to LLPs by reg 5 of, and Sch 3 to, SI 2001/1090 (as amended by Sch 1 to the LLP Regulations 2020).

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28.3 The moratorium comes into force either when the documents are filed (if there is no outstanding winding-up petition) or when the order is made by the court (if there is a pending winding-up petition). At that point, the proposed monitor becomes the monitor in relation to the moratorium,7 and there are notification obligations imposed on the designated members and the monitor.8 The moratorium initially lasts 20 business days, beginning with the day after the day on which it comes into force,9 but it may be extended in certain circumstances (including by court application).10 The moratorium is or may be terminated on entry into an insolvency procedure, or termination by the monitor or by the court.11 There are duties on the designated members to notify the monitor where the moratorium is extended or comes to an end.12 The fact of the moratorium must be publicised.13 Its effect is similar to the moratorium which is found in cases of administration (see Chapter 29) but with additional provisions, such as a ‘payment holiday’ in respect of certain debts failing due before the moratorium.14

VOLUNTARY ARRANGEMENTS 28.4 A voluntary arrangement is a composition in satisfaction of an LLP’s debts, or a scheme of arrangement of an LLP’s affairs, made between the LLP and its creditors. The purpose of a voluntary arrangement is, usually, to enable an LLP to trade out of its financial difficulties or to effect a more advantageous realisation of its assets than could be achieved in a liquidation. An LLP (like a company or other legal person) is free to enter into contractually binding arrangements with its creditors, but such arrangements can be defeated by a dissentient creditor. Part I of the IA 1986 contains provisions relating to voluntary arrangements. The principal advantage of compliance with the procedures set out in the IA 1986 is that dissenting creditors are bound to the terms of the arrangements so long as the terms are supported by at least three-quarters in value of the LLP’s creditors.

The proposal 28.5 The voluntary arrangement procedure is initiated by the LLP making a proposal to its creditors for a composition in satisfaction of its debts, or for a 7 8

9 10 11 12 13 14

IA 1986, s A7, as modified and applied to LLPs by reg 5 of, and Sch 3 to, SI 2001/1090 (as amended by Sch 1 to the LLP Regulations 2020). IA 1986, s A8, as modified and applied to LLPs by reg 5 of, and Sch 3 to, SI 2001/1090 (as amended by Sch 1 to the LLP Regulations 2020). It is an offence to fail to comply with the notification obligations without reasonable excuse. IA 1986, s A9, as modified and applied to LLPs by reg 5 of, and Sch 3 to, SI 2001/1090 (as amended by Sch 1 to the LLP Regulations 2020). IA 1986, ss A10–A15, as modified and applied to LLPs by reg 5 of, and Sch 3 to, SI 2001/1090 (as amended by Sch 1 to the LLP Regulations 2020). IA 1986, ss A16, A38, A42–A44, as modified and applied to LLPs by reg 5 of, and Sch 3 to, SI 2001/1090 (as amended by Sch 1 to the LLP Regulations 2020). IA 1986, s A17, as modified and applied to LLPs by reg 5 of, and Sch 3 to, SI 2001/1090 (as amended by Sch 1 to the LLP Regulations 2020). IA 1986, s A19, as modified and applied to LLPs by reg 5 of, and Sch 3 to, SI 2001/1090 (as amended by Sch 1 to the LLP Regulations 2020). IA 1986, ss A18 and A20 onwards, as modified and applied to LLPs by reg 5 of, and Sch 3 to, SI 2001/1090 (as amended by Sch 1 to the LLP Regulations 2020).

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scheme of arrangement of its affairs.15 Where the LLP is in administration or is being wound up, a proposal can be made by the administrator or liquidator (respectively); but in such a case it must also be made to the LLP.16 28.6 In relation to companies, it is the directors who make the proposal pursuant to IA 1986, s 1(1). The proposal is made to both the company and its creditors and, to take effect, the proposal must be approved at meetings of the members and of the creditors. The requisite majority for members is (subject to any express provision to the contrary in the articles) a majority (in value) of those voting by correspondence or at a meeting of the company.17 A company can, therefore, subject to approval by its creditors, enter into a voluntary arrangement so long as it is approved by its directors and one-half in value of the members. 28.7 Section 1(1) of the IA 1986 (as modified for LLPs) provides for the LLP itself to make the proposal. The modified section does not, however, specify how the LLP is to decide whether to make a proposal, nor how it is to decide on the terms. A well drafted LLP agreement ought to make provision for the way in which a decision to propose a voluntary arrangement is to be made and, if it is to be made by resolution of the members, the requisite majority. If there is no such provision, the position is unclear. It may be arguable that the making of a proposal is not an ordinary matter connected with the business of the LLP so as to be capable of being decided by a simple majority of members,18 and that, therefore, in the absence of a general majority voting provision in the LLP agreement, a proposal could only be made if it is supported by all the members. Although it is probably right that such a decision is not an ordinary matter connected with the business of the LLP, it does not necessarily follow that the decision has to be made unanimously. The decision is a decision of ‘the limited liability partnership’, and the authors suggest that, as discussed in 17.12–17.14, the answer as to how a valid decision is to be made by the LLP (in this, and in other situations requiring a decision by ‘the limited liability partnership’) is to be found in the common law on decision-making by corporate bodies. If this suggestion is right, the matter will be decided by a (simple) majority of members attending a meeting of the members at which more than half of all the members are present.19 28.8 The proposal must provide for a nominee (a qualified insolvency practitioner) to act in relation to the voluntary arrangement, either as trustee or otherwise for the purpose of supervising its implementation.20 The LLP must deliver, to the nominee,

15

16 17 18 19 20

IA 1986, s 1(1), as modified and applied to LLPs by SI 2001/1090, reg 5, Sch 3, para 1. It is an offence for a member of an LLP to make a false representation or to do or omit to do anything fraudulently for the purpose of obtaining the approval of a voluntary arrangement: IA 1986, s 6A (inserted by IA 2000, s 2, Sch 2, Pt I, paras 1 and 8). IA 1986, s 1(3), as modified and applied to LLPs by SI 2001/1090, reg 5, Sch 3, para 1. Insolvency Rules 2016 (‘IR 2016’), r 2.36, as modified and applied to LLPs by SI 2001/1090, reg 10(1)(b) and Sch 6. SI 2001/1090, reg 7: default rule (6). Cf a case in which the voluntary arrangement is proposed by an administrator or liquidator. IA 1986, s 1(2), as modified and applied to LLPs by SI 2001/1090, reg 5.

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notice of the proposal, a document setting out the terms of the proposed arrangement and a statement of the LLP’s affairs made up to a date not earlier than two weeks before the date of the proposal.21 Within 28 days after being given notice of a proposal, the nominee submits a report to the court stating whether in his opinion the proposed voluntary arrangement has a reasonable prospect of being approved and implemented, and whether in his opinion the proposal should be considered by the LLP’s creditors.22 If it appears to the nominee that he cannot properly prepare his report on the basis of the information in the proposal and statement of affairs, he can seek additional information, including access to the LLP’s accounts and records.23 Ordinarily, the nominee will have been instructed by the LLP to prepare the proposal. He will, therefore, have obtained adequate information for the purpose of preparing the proposal and will have indicated in advance whether the proposal should be submitted to the creditors. 28.9 A proposal can also be made by an administrator or liquidator of an LLP, and can provide either for the administrator/liquidator or a third party to act as the nominee. Where the proposal is made by an administrator or a liquidator, it must also be made to the LLP.24

Consideration of the proposal 28.10 Once a report has been filed in court by the nominee and it has been reported that the proposal should be considered by the LLP’s creditors (as discussed in 28.8 and 28.9), the person making the report is required to seek a decision from the LLP’s creditors (unless the court otherwise directs) as to whether they approve the proposal.25 The procedure does not require any judicial input from the court, and the filing of the nominee’s report is merely an administrative exercise. The decision is to be made by the LLP’s creditors by a ‘qualifying decision procedure’,26 notice of which must be given to every creditor of whose claim and address the person seeking the decision is aware. The creditors may approve the arrangements with or without modifications,27 although no proposal or modification can be approved which would affect the rights of a secured creditor to enforce its security except with the consent of the creditor concerned.28 Further, the meeting cannot approve any

21

22

23 24 25 26 27 28

Ibid, s 2(3); IR 2016, rr 2.3, 2.4 and 2.6, as modified and applied to LLPs by SI 2001/1090, reg 10(1)(b) and Sch 6. The court may permit the statements of affairs to be censored: IR 2016, rr 2.7 and 2.12. IA 1986, s 2(2), as modified and applied to LLPs by SI 2001/1090, reg 5, Sch 3, para 1; IR 2016, r 2.9, as modified and applied to LLPs by SI 2001/1090, reg 10(1)(b) and Sch 6. If the nominee considers that the proposed scheme should not be taken further, IR 2016, r 2.9 confirms that he should submit a negative report to the court (but there is no bar on the LLP seeking a second opinion from another nominee). IR 2016, r 2.8, as modified and applied to LLPs by SI 2001/1090, reg 10(1)(b) and Sch 6. IA 1986, s 1(3) as modified and applied to LLPs by SI 2001/1090, reg 5, Sch 3, para 1. IA 1986, s 3(1), as modified and applied to LLPs by SI 2001/1090, reg 5, Sch 3, para 1. See IR 2016, rr 2.3, 2.5, 2.25–2.29. See IR 2016, rr 15.1 et seq. IA 1986, s 4(1A), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 4(3), as modified and applied to LLPs by SI 2001/1090, reg 5.

Moratorium and Voluntary Arrangements

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proposal or modification under which any preferential debt is paid otherwise than in priority to any non-preferential debts, or under which a preferential creditor is paid a smaller proportion of his debt than that paid to another preferential creditor except with the concurrence of the creditor concerned.29 Further provisions apply in the case of moratorium debts and priority pre-moratorium debts, where the nominee’s report is submitted before the end of the period of 12 weeks beginning with the day after the end of any moratorium under Part A1.30 If modifications are proposed by creditors, the nominee must, before the date on which the creditors are to be asked to approve the proposed voluntary arrangement, ascertain from the LLP whether or not it agrees to the proposed modifications; if the LLP fails to respond, it is presumed not to have agreed.31 28.11 The decision with respect to approval of a proposed voluntary arrangement has effect if, in accordance with the rules, it has been taken by the creditors of the LLP pursuant to s 3.32 The voluntary arrangement takes effect as if made by the LLP at the time when the creditors approve it, and it binds every person who was entitled to vote in the qualifying decision procedure by which the decision was made, or would have been so entitled if he had had notice of it as if he were a party to the voluntary arrangement.33

Challenge to the voluntary arrangement 28.12 A voluntary arrangement can be challenged on the grounds that it unfairly prejudices the interests of a creditor, member or contributory of the LLP, or there has been some material irregularity in relation to the relevant qualifying decision procedure.34 Any member of an LLP, any person entitled to vote at the relevant qualifying decision procedure if he had had notice of it, the nominee, the liquidator or the administrator can apply to the court under IA 1986, s 6(1).35 An application cannot be made after the end of the period of 28 days after the nominee has lodged his report or, in the case of persons not given notice of the relevant qualifying decision procedure, after the end of the period of 28 days beginning with the day on which he became aware that the procedure had taken place.36 The court’s powers include revoking or suspending any decision approving the voluntary arrangement, or directing any person to seek a decision from the creditors, using a qualifying decision procedure, as to whether he approves any revised proposal.37

29 30 31 32 33 34

35 36 37

Ibid, s 4(4), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 4(4A), (4B), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 4(5A), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 4A(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 5, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 6(1), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. See Sisu Capital Fund Ltd v Tucker [2006] BPIR 154 and Prudential Assurance Co Ltd v PRG Powerhouse Ltd [2007] BCC 500. Ibid, s 6(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 6(3), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. The 28-day period cannot be extended: Tager v Westpac Banking Corp [1997] 1 BCLC 313. Ibid, s 6(4), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1.

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Administration of the voluntary arrangement 28.13 The administration of the voluntary arrangement is carried out by the nominee, who is known as the supervisor after approval.38 The nature of the role to be performed by the supervisor, and the extent to which he will become involved in the day-to-day administration of the LLP, will depend upon the terms of the arrangement. The supervisor is entitled to apply to the court for directions in relation to any matter arising under the voluntary arrangement.39 Any of the LLP’s creditors, or any other person who is dissatisfied by any act, omission or decision of the supervisor, may apply to the court. On such an application, the court may confirm, reverse or modify any act or decision of the supervisor, give him directions or make such other orders as it thinks fit.40

38 39 40

Ibid, s 7(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 7(4), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 7(3), as modified and applied to LLPs by SI 2001/1090, reg 5.

Chapter 29 ADMINISTRATION

INTRODUCTION 29.1 The administration procedure was introduced for companies in the 1985/86 legislation and for partnerships by the Insolvent Partnerships Order 1994.1 The administration procedure was applied to LLPs by the LLP Regulations 2001.2 With effect from 15 September 2003, the procedure as it applied to companies was substantially amended by the Enterprise Act 2002.3 These amendments introduced a new administration regime, the primary feature of which was to allow for the appointment of an administrator out of court. A new schedule – Sch B1 – was inserted into the IA 1986 in place of ss 8–27. This new regime was not initially applied to LLPs (or insolvent partnerships), and art 3(3) of SI 2003/20934 specifically provided that the former administration provisions continued to apply for the purpose of giving effect to the Insolvent Partnerships Order 1994 and reg 5 of the LLP Regulations 2001. Quite why LLPs and partnerships were initially excluded is unclear; but the new regime was eventually applied to LLPs by reg 3 and Sch 2 of the Limited Liability Partnerships (Amendment) Regulations 20055 (which came into force on 1 October 2005) and to insolvent partnerships by the Insolvent Partnerships (Amendment) Order 20056 (which came into effect on 1 July 2005). 29.2 An ‘administrator’ of an LLP is a person appointed under IA 1986, Sch B1 to manage the LLP’s affairs, business and property.7 The purpose of administration is to give to an LLP in financial difficulties a breathing space in order to enable attempts to be made by it to trade out of its difficulties, or to provide an opportunity for its assets to be more advantageously realised than would occur in liquidation.8 A person may be appointed as administrator of an LLP: (a) by administration order of the court under para 10 of IA 1986, Sch B1; (b) by the holder of a floating charge under para 14; or (c) by the LLP under para 22.9 1

SI 1994/2421, art 6, Sch 2. IA 1986, Part II; LLP Regulations 2001 (SI 2001/1090), reg 5 and Sch 3. 3 Enterprise Act 2002 (Commencement No 4 and Transitional Provisions and Savings) Order 2003 (SI 2003/2093). 4 Ibid. 5 SI 2005/1989. 6 SI 2005/1516. 7 IA 1986, Sch B1, para 1(1), as modified and applied to LLPs by SI 2001/1090, reg 5. 8 See generally Lightman and Moss, The Law of Receivers and Administrators of Companies (Sweet & Maxwell, 6th edn, 2017), Chs 2 and 6. In relation to the so-called ‘pre-pack’ procedure of an insolvency practitioner arranging to sell the business immediately after appointment, see DKLL Solicitors v HM Revenue and Customs [2007] BCC 908; Re Kayley Vending Ltd [2009] BCC 578; Re Halliwells LLP [2011] BCC 57; Re Christophorus 3 Ltd [2014] EWHC 1162 (Ch); and Capital for Enterprise Fund A LP v Bibby Financial Services Ltd [2015] EWHC 2593 (Ch). 9 IA 1986, Sch B1, para 2, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. 2

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29.3 An administrator of an LLP must perform his functions in the interests of the LLP’s creditors as a whole and with the objective of: (a) (b)

rescuing the LLP as a going concern; achieving a better result for the LLP’s creditors as a whole than would be likely if the LLP were wound up (without first being in administration); or (c) realising property in order to make a distribution to one or more secured or preferential creditors.10 The administrator must perform his functions in the interests of the LLP’s creditors as a whole.11 He must perform his functions with the objective specified in (a) above unless he thinks either it is not reasonably practicable to achieve that objective, or that the objective specified in (b) above would achieve a better result for the LLP’s creditors as a whole.12 He may perform his functions with the objective specified in (c) above only if he thinks that it is not reasonably practicable to achieve either of the objectives in (a) and (b), and he does not unnecessarily harm the interests of the creditors of the LLP as a whole.13 The administrator of an LLP must perform his functions as quickly and efficiently as is reasonably practicable.14 He is an officer of the court (whether or not he is appointed by the court).15

APPOINTMENT BY THE COURT 29.4 The court may make an administration order in relation to an LLP only if satisfied that: (a) the LLP is, or is likely to become, unable to pay its debts;16 and (b) the administration order is reasonably likely to achieve the purpose of administration.17 29.5 An application to the court for an administration order in respect of an LLP may be made only by the LLP itself, one or more of its creditors, the designated officer for a magistrates’ court (in the exercise of the power conferred by s 87A of the Magistrates’ Courts Act 1980), or a combination of these persons.18 On hearing an administration application, the court may: (a) make the administration order sought; (b) dismiss the application; 10 11 12 13 14 15 16

17

18

IA 1986, Sch B1, para 3(1), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 3(2), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 3(3), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 3(4), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 4, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 5, as modified and applied to LLPs by SI 2001/1090, reg 5. As defined in IA 1986, s 123. See eg BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc [2013] UKSC 28, [2013] 1 WLR 1408; Synergy Agri Holdings Ltd v Agform Ltd [2020] EWHC 343 (Ch); and Colt Technology Services v SC Global Group Srl [2020] EWHC 1417 (Ch). IA 1986, Sch B1, para 11, as modified and applied to LLPs by SI 2001/1090, reg 5. See eg Re AA Mutual International Insurance Co Ltd [2005] 2 BCLC 8; Rowntree Ventures Ltd v Oak Property Partners Ltd [2017] EWCA Civ 1944; Re Seven Energy International Ltd [2019] EWHC 3391 (Ch); and Financial Conduct Authority v Allied Wallet Ltd [2020] BCC 147. IA 1986, Sch B1, para 12(1), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1.

Administration

555

(c) adjourn the hearing conditionally or unconditionally; (d) make an interim order (which may restrict the exercise of a power of the members or the LLP or make provision conferring a discretion on the court or on a person qualified to act as an insolvency practitioner in relation to the LLP); (e) treat the application as a winding-up petition, and make any order which the court could make under section 125;19 or (f) make any other order which the court thinks appropriate.20 29.6

An appointment of an administrator by an administration order takes effect:

(a) at a time appointed by the order, or (b) where no time is appointed by the order, when the order is made.21

APPOINTMENT OF ADMINISTRATOR BY HOLDER OF FLOATING CHARGE 29.7 The holder of a qualifying floating charge in respect of an LLP’s property may appoint an administrator of the LLP.22 A floating charge qualifies if it was created by an instrument which states that IA 1986, Sch 1B, para 14(1) applies to it, it purports to empower the holder of the floating charge to appoint an administrator of the LLP, or it purports to empower the holder of the floating charge to make an appointment which would be the appointment of an administrative receiver within the meaning given by IA 1986, s 29(2).23 A person is the holder of a qualifying floating charge in respect of an LLP’s property if he holds one or more debentures of the LLP secured by (i) a qualifying floating charge which relates to the whole or substantially the whole of the LLP’s property, (ii) a number of qualifying floating charges which together relate to the whole or substantially the whole of the LLP’s property, or (iii) charges and other forms of security which together relate to the whole or substantially the whole of the LLP’s property and at least one of which is a qualifying floating charge.24 29.8 A person may not appoint an administrator unless he has given at least two business days’ written notice to the holder of any prior floating charge which satisfies para 14(2), or the holder of any such prior floating charge has consented in writing to the making of the appointment.25 An administrator of an LLP may not be appointed under para 14 if a provisional liquidator of the LLP has been appointed under IA s 135, or an administrative receiver of the LLP is in office.26 A person who appoints an administrator of an LLP under para 14 must (under para 18) file with the

19 See 20 21 22 23 24 25 26

Re Ci4net.com Inc [2005] BCC 277; Re One World Logistics Freight Ltd [2018] EWHC 264 (Ch); and Re Gate Ventures plc [2020] EWHC 709 (Ch). IA 1986, Sch B1, para 13(1) and (3), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 13(2), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 14(1), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 14(2), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 14(3), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 15(1), as modified and applied to LLPs by SI 2001/1090, reg 5. See Re OMP Leisure Ltd [2008] BCC 67; and Re Eco Link Resources Ltd [2012] BCC 731. IA 1986, Sch B1, para 17, as modified and applied to LLPs by SI 2001/1090, reg 5.

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court a notice of appointment, and such other documents as may be prescribed.27 The appointment of an administrator under para 14 takes effect when the requirements of para 18 are satisfied.28 If a person purports to appoint an administrator under para 14, and the appointment is discovered to be invalid, the court may order the person who purported to make the appointment to indemnify the person appointed against liability which arises solely by reason of the appointment’s invalidity.29

APPOINTMENT OF ADMINISTRATOR BY LLP 29.9 An LLP may itself, under IA 1986, Sch 1B, para 22, appoint an administrator.30 An administrator may not be appointed under IA 1986, Sch 1B, para 22: (i)

during the period of 12 months after the appointment of an administrator (either under para 22 or on an administration application made by the LLP) ceases to have effect;31 or (ii) if a petition for the winding up of the LLP has been presented and is not yet disposed of; an administration application has been made and is not yet disposed of; or an administrative receiver of the LLP is in office.32 An LLP that proposes to make an appointment under para 22 must give at least five business days’ written notice to any person who is or may be entitled to appoint an administrative receiver of the LLP, and any person who is or may be entitled to appoint an administrator of the LLP under para 14.33 An LLP that gives such a notice of intention to appoint must file with the court as soon as is reasonably practicable a copy of the notice, and any document accompanying it.34 The notice must be accompanied by a statutory declaration made by or on behalf of the LLP that the LLP is, or is likely to become, unable to pay its debts; that it is not in liquidation; that, so far as it is able to ascertain, the appointment is not prevented under (i) or (ii) above; and to such additional effect, and giving such information, as may be prescribed.35 An LLP which appoints an administrator under para 22 must file with the court a notice of appointment, and such other documents as may be prescribed.36

27 28 29 30 31 32

33

34

35 36

IA 1986, Sch B1, para 18(1), as modified and applied to LLPs by SI 2001/1090, reg 5. See Insolvency Rules 2016 (‘IR 2016’), r 3.16 et seq. IA 1986, Sch B1, para 19, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 21, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 22, as modified and applied to LLPs by SI 2001/1090 Sch 3, para 1. IA 1986, Sch B1, para 23, as modified and applied to LLPs by SI 2001/1090 Sch 3, para 1. IA 1986, Sch B1, para 25, as modified and applied to LLPs by SI 2001/1090, reg 5. But see para 25A confirming that para 25(a) does not prevent the appointment of an administrator if the petition for the winding up was presented after the person proposing to make the appointment filed the notice of intention to appoint with the court under para 27. IA 1986, Sch B1, para 26(1), as modified and applied to LLPs by SI 2001/1090, reg 5. See IR 2016, rr 1.42–1.44 and 3.23 et seq. See also Re ARG (Mansfield) Ltd [2020] EWHC 1133 (Ch) and Strategic Advantage SPC v Rutter [2020] EWHC 3171 (Ch). IA 1986, Sch B1, para 27(1), as modified and applied to LLPs by SI 2001/1090, reg 5. See Re Symm & Co Ltd [2020] EWHC 317 (Ch) and [2020] BCC 844 (which superseded [2020] BCC 686) on electronic filings. IA 1986, Sch B1, para 27(2), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 29, as modified and applied to LLPs by SI 2001/1090, reg 5.

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The appointment of an administrator under para 22 takes effect when these filing requirements are satisfied.37 If an LLP purports to appoint an administrator under para 22, and the appointment is discovered to be invalid, the court may order the LLP to indemnify the person appointed against liability which arises solely by reason of the appointment’s invalidity.38

MORATORIUM 29.10 Where an LLP is in administration, no determination to wind it up voluntarily may be made, and no order may be made by the court for winding it up (save for an order made on a public interest ground under IA 1986, ss 124A–124B or on a petition by the Financial Conduct Authority or Prudential Regulation Authority under s 367 of the Financial Services and Markets Act 2000).39 29.11 Where an LLP is in administration, no step may be taken to enforce security over its property except with the consent of the administrator, or with the permission of the court; and no step may be taken to repossess goods in the LLP’s possession under a hire-purchase agreement except with the consent of the administrator, or with the permission of the court. A landlord may not exercise a right of forfeiture by peaceable re-entry in relation to premises let to the LLP except with the consent of the administrator, or with the permission of the court. No legal process (including legal proceedings, execution, distress and diligence) may be instituted or continued against the LLP, or against property of the LLP, except with the consent of the administrator, or with the permission of the court.40 29.12 The moratorium provisions of IA 1986, Sch B1, paras 42 and 43 (referred to in the paragraphs above) apply on an interim basis where an administration application in respect of an LLP has been made and the application has not yet been granted or dismissed, or the application has been granted but the administration order has not yet taken effect.41

STATEMENT OF LLP’s AFFAIRS 29.13 As soon as is reasonably practicable after appointment, an administrator of an LLP must by notice in the prescribed form require one or more relevant persons to provide him with a statement of the affairs of the LLP.42 A ‘relevant person’ is: (a) a person who is or has been a member of the LLP; (b) a person who took part in the formation of the LLP during the period of one year ending with the date on which the LLP enters administration; 37

38 39 40 41 42

IA 1986, Sch B1, para 31, as modified and applied to LLPs by SI 2001/1090, reg 5. See Re NJM Clothing Ltd [2018] BCC 875; Re Towcester Racecourse Co Ltd [2019] BCC 274; and Re Spaces London Bridge Ltd [2019] BCC 280 on when appointment takes effect. IA 1986, Sch B1, para 34, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 42, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, Sch B1, para 43, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 44, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 47, as modified and applied to LLPs by SI 2001/1090, reg 5.

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(c) a person employed by the LLP during that period; and (d) a person who is or has been during that period an officer or employee of a company, or member or employee of an LLP, which is or has been during that year an officer of the LLP.

ADMINISTRATOR’S PROPOSALS AND CREDITORS’ APPROVAL 29.14 An administrator of an LLP must make a statement setting out proposals for achieving the purpose of the administration.43 Proposals may include a proposal for a voluntary arrangement under IA 1986, Pt I; or a proposal for a compromise or arrangement to be sanctioned under Pt 26 or 26A of the Companies Act 2006 (arrangements and reconstructions).44 The administrator shall send a copy of the statement of his proposals to the Registrar of Companies, to every creditor (other than an opted-out creditor) of the LLP of whose claim and address he is aware, and to every member of the LLP of whose address he is aware.45 The statement shall be sent as soon as is reasonably practicable after the LLP enters administration and, in any event, within eight weeks of the day on which the LLP enters administration.46 29.15 Save as provided for in para 52 of Sch B1 to the IA 1986, the administrator must seek a decision from the LLP’s creditors as to whether they approve the proposals set out in the statement.47 The ‘initial decision date’ for that decision must be within the period of 10 weeks beginning with the day on which the LLP enters administration.48 The initial decision date, if the decision is initially sought using the deemed consent procedure,49 is the date on which a decision will be made if the creditors by that procedure approve the proposals and, if the decision is initially sought using a qualifying decision procedure,50 it is the date on or before which a decision will be made if it is made by that procedure.51 29.16 The creditors may approve the administrator’s proposals without modification, or with modification to which the administrator consents, and the administrator shall report the decision to the court, the Registrar of Companies and such other persons as may be prescribed.52 Where the administrator fails to obtain approval for the proposals, the court may provide for the appointment of the

43 44 45 46 47

48 49 50 51 52

IA 1986, Sch B1, para 49(1), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 49(3), as modified and applied to LLPs by SI 2001/1090, reg 5. These are discussed in Chapter 36. IA 1986, Sch B1, para 49(4), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 49(5), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 51(1), as modified and applied to LLPs by SI 2001/1090, reg 5. Under the previous rules, the administrator was required to hold an initial creditors’ meeting. A meeting may be requested by the statutory percentage or number of creditors in accordance with IA 1986, s 246ZE. IA 1986, Sch B1, para 51(2), as modified and applied to LLPs by SI 2001/1090, reg 5. See s 246ZF introduced into the IA 1986 by Small Business, Enterprise and Employment Act 2015, s 122. IR 2016, r 15.1 et seq. IA 1986, Sch B1, para 51(3), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 53, as modified and applied to LLPs by SI 2001/1090, reg 5.

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administrator to cease from a specified time, adjourn the hearing, make an interim order, make a suspended winding-up order, or make any other order that the court thinks appropriate.53 The administrator must also seek a decision from the creditors on a matter if it is requested in the prescribed manner by creditors whose debts amount to at least 10% of the total debts or he is directed by the court to do so.54

CONDUCT OF THE ADMINISTRATION Functions of administrator 29.17 The administrator of an LLP may do anything necessary or expedient for the management of the affairs, business and property of the LLP.55 A person who deals with the administrator of an LLP in good faith and for value need not inquire whether the administrator is acting within his powers.56 An administrator of an LLP has the powers specified in IA 1986, Sch 1.57 He has power to prevent any person from taking part in the management of the business of the LLP, and to appoint any person to be a manager of that business.58 He may call a meeting of members or creditors of the LLP; and may apply to the court for directions in connection with his functions.59 His powers to sell, hire out, or otherwise dispose of property are now subject to any regulations that may be made by the Secretary of State.60 An LLP in administration or a member of an LLP in administration may not exercise a management power without the consent of the administrator.61

Distribution 29.18 An administrator of an LLP may make a distribution to a creditor. IA 1986, s 175 applies in relation to a distribution by an administrator as it applies

53

54 55 56 57 58 59

60 61

IA 1986, Sch B1, para 55, as modified and applied to LLPs by SI 2001/1090, reg 5. See Re Fortuna Fix Ltd [2020] EWHC 2369 (Ch), where the court agreed that a winding-up order could be made under this paragraph without a petition, but such power should be exercised cautiously and exceptionally. IA 1986, Sch B1, para 56, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 59(1), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 59(3), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 60(1), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 61, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, Sch B1, para 63, as modified and applied to LLPs by SI 2001/1090, reg 5. See eg Hunt (Liquidator of Total Debt Relief Ltd) v Financial Conduct Authority [2019] EWHC 2018 (Ch); Re Pritchard Stockbrokers Ltd (In Special Administration) [2019] EWHC 137 (Ch); and Re Supercapital Ltd [2020] EWHC 1685 (Ch). IA 1986, Sch B1, para 60(2) and 60A, inserted by Small Business, Enterprise and Employment Act 2015, s 129 (in force from 26 May 2015). IA 1986, Sch B1, para 64(1), as modified and applied to LLPs by SI 2001/1090, reg 5. See Closegate Hotel Development (Durham) Ltd & anr v Mclean & ors [2013] EWHC 3237 (Ch); [2014] Bus LR 405 at [4]–[16], confirming that para 64 was not intended to prevent directors of a company exercising the authority to cause a company in administration to challenge the validity of the administrator’s appointment. The same must logically apply to members of an LLP. For further analysis of para 64, see Re Lehman Bros Europe Ltd (in admin) [2017] EWHC 2031 (Ch), Re Lehman Brothers International (Europe) [2020] EWHC 1932 (Ch); and Re ASA Resource Group Plc [2020] EWHC 1370 (Ch).

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in relation to a winding up. A payment may not be made by way of distribution to a creditor of the LLP who is neither secured nor preferential unless the distribution is made by virtue of s 176A(2)(a) of the IA 1986 or the court gives permission.62 An administrator may make a payment otherwise than in accordance with what is said above, or otherwise than in accordance with para 13 of Sch 1 to the IA 1986 (power for the administrator to make any payment which is necessary or incidental to the performance of his functions) if he thinks it likely to assist achievement of the purpose of administration.63

General duties 29.19 The administrator of an LLP must, on his appointment, take custody or control of all the property to which he thinks the LLP is entitled.64 He must manage the LLP’s affairs, business and property in accordance with any proposals approved under para 53, any revision of those proposals which is made by him and which he does not consider substantial, and any revision of those proposals approved under para 54.65 If the court gives directions to the administrator in connection with any aspect of his management of the LLP’s affairs, business or property, the administrator must comply with the directions.66

Ending administration 29.20 The appointment of an administrator ends after one year, unless the court extends the term of office for a specified period, or the term of office is extended for a specified period not exceeding one year67 by the consent of each secured creditor of the LLP, and (if the LLP has unsecured debts) the unsecured creditors of the LLP. The term of office may be extended by consent only once, may not be extended by consent after extension by order of the court, and may not be extended by consent after expiry.68 29.21 On the application of the administrator, the court may provide for his appointment to cease to have effect from a specified time. An administrator must make an application if (a) he thinks that the purpose of administration cannot be achieved in relation to the LLP; (b) he thinks that the LLP should not have entered administration; or (c) the creditors decide that he must make such an application.

62 63

64 65 66 67 68

IA 1986, Sch B1, para 65(3), as amended by Small Business, Enterprise and Employment Act 2015, s 128 (in force from 26 May 2015). IA 1986, Sch B1, para 66, as modified and applied to LLPs by SI 2001/1090, reg 5. See Re Carluccio’s Ltd [2020] EWHC 886 (Ch) and Re Debenhams Retail Ltd [2020] EWCA Civ 600 on the interplay between paras 66 and 99. IA 1986, Sch B1, para 67, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 68(1), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 68(2), as modified and applied to LLPs by SI 2001/1090, reg 5. The original period of six months was extended to one year by Small Business, Enterprise and Employment Act 2015, s 127 (in force from 26 May 2015). IA 1986, Sch B1, paras 76–78, as modified and applied to LLPs by SI 2001/1090, reg 5. The court’s discretion to extend the term is unfettered: see eg Re Biomethane (Castle Eaton) Ltd [2020] BCC 111 and Re TPS Investments (UK) Ltd [2020] EWHC 1135 (Ch).

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He must also make an application if (i) the administration is pursuant to an administration order; and (ii) he thinks that the purpose of administration has been sufficiently achieved in relation to the LLP.69 29.22 Where an administrator was appointed under para 14 or 22, and he thinks that the purpose of administration has been sufficiently achieved, he may file a notice in the prescribed form with the court and with the Registrar of Companies; and his appointment ceases to have effect when the notices have been filed.70 29.23 On the application of a creditor of an LLP, the court may provide for the appointment of an administrator of the LLP to cease to have effect at a specified time, but only (in the case of an administrator appointed by administration order) where the creditor is able to allege an improper motive on the part of the applicant for the order, or (in any other case) where the creditor is able to allege an improper motive on the part of the person who appointed the administrator.71 29.24 If an administrator thinks that the total amount which each secured creditor of the LLP is likely to receive has been paid to him or set aside for him, and that a distribution will be made to unsecured creditors of the LLP (if there are any) which is not a distribution by virtue of s 176A(2)(a), the administrator may send to the Registrar of Companies a notice that para 83 applies and on registration of the notice the appointment of the administrator ceases to have effect, and the LLP is to be wound up as if a determination to wind up the LLP voluntarily under IA 1986, s 84 had been passed on the day on which the notice is registered.72 29.25 If the administrator thinks that the LLP has no property which might permit a distribution to its creditors, he shall send a notice to that effect to the Registrar of Companies. On the registration of such a notice, the appointment of the administrator ceases to have effect. At the end of the period of three months beginning with the date of registration of such a notice, the LLP is deemed to be dissolved.73

69 70 71 72 73

IA 1986, Sch B1, para 79, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 80, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 81, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, Sch B1, para 83, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. See Re E-Squared Ltd [2006] 1 WLR 3414 and Re Ballast plc [2005] BCC 96. IA 1986, Sch B1, para 84, as modified and applied to LLPs by SI 2001/1090, reg 5. Paragraph 84(1) is read as if it said ‘or no remaining property which might permit a further distribution to its creditors’: Re Preston & Duckworth Ltd [2006] BCC 133 and Re GHE Realisations Ltd [2006] 1 WLR 287. In Re Debenhams plc (unreported, 27 May 2020), the court was willing to suspend dissolution under para 84(7)(b) on an application by a minority shareholder of the company.

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Chapter 30 RECEIVERSHIP

INTRODUCTION 30.1 Receivers and managers of a company’s or an LLP’s assets and undertaking can be appointed in or out of court (although, as explained in 30.4, the circumstances in which ‘administrative receivers’ can be appointed out of court are very limited).1 The High Court has a general power to appoint a receiver in all cases in which it appears to the court to be just and equitable to do so.2 This power is used fairly frequently in relation to partnerships in dissolution where the partners are unable to agree the terms on which their partnership should be wound up. The power has, however, rarely been exercised in relation to companies, in view of the provisions in the IA 1986 for the appointment of administrators and administrative receivers. 30.2 Receivers may also be appointed out of court by secured creditors as a means of enforcing their security. The powers of a secured creditor will depend upon the terms of the relevant instrument, usually a debenture. The debenture will often require the debenture holder to make a demand for repayment before a receiver can be appointed. The debenture holder does not owe a duty of care to the LLP when deciding whether to exercise the power to appoint a receiver, although the power must be exercised in good faith.3 A specific mortgagee or chargee has the power to appoint a receiver out of court – a so called ‘LPA receiver’; but the powers of an LPA receiver are limited and do not extend to running a business. 30.3 The statutory provisions in the IA 1986 relating to administrative receivers, as amended with effect from September 2003, are applied to LLPs.4 An administrative receiver is: (a) a receiver or manager of the whole (or substantially the whole) of an LLP’s property appointed by or on behalf of the holders of any debentures of the LLP secured by a charge which, as created, was a floating charge,5 or by such a charge and one or more other securities; or

1 2 3 4

5

For the law generally on company receivers, see Lightman and Moss, The Law of Receivers and Administrators of Companies (Sweet & Maxwell, 6th edn, 2017). Senior Courts Act 1981, s 37. Lightman and Moss, op cit, paras 13–021 to 13–036. It is not clear why the government decided to apply the new IA 1986, s 72A, preventing the appointment of administrative receivers with effect from 15 September 2003, to LLPs, given that the new administration regime was not initially applied to LLPs. The anomaly of this situation was cured by reg 3 of, and Sch 2 to, the Limited Liability Partnerships (Amendment) Regulations 2005, which brought the new administration regime into force for LLPs on 1 October 2005. See generally Lightman and Moss, op cit, chapter 3.

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The Law of Limited Liability Partnerships

(b) a person who would be such a receiver or manager but for the appointment of some other person as the receiver of part of the LLP’s property.6

LIMITATION ON THE APPOINTMENT OF ADMINISTRATIVE RECEIVERS 30.4 Prior to the changes made in September 2003, the administrative receivership regime was the subject of substantial criticism. The appointment of an administrative receiver by a secured creditor was often seen simply as a means by which one creditor could extract funds from a failing company or LLP without regard to the interests of the other creditors, or to whether the company or the LLP could, in fact, be saved.7 Subject to a number of exceptions, the right of a holder of a qualifying floating charge to appoint an administrative receiver has been abolished in respect of floating charges created8 on or after 15 September 2003.9 The exceptions10 are appointments of administrative receivers relating to capital market projects,11 public-private partnerships,12 utilities projects,13 urban regeneration projects,14 project finance,15 financial markets,16 registered social landlords17 and protected railway companies.18 30.5 The definition of a holder of a qualifying floating charge is contained in IA 1986, Sch B1, para 14.19 The definition is directed primarily at debentures which purport to empower the holder to appoint an administrator out of court pursuant to the new administration regime. The definition does, however, include floating charges that purport to empower the holder to make an appointment which would be the appointment of an administrative receiver within the meaning of IA 1986, s 29(2). A floating charge will, therefore, be a qualifying floating charge (with the attendant limitation on the power to appoint an administrative receiver) if it purports to empower the holder to appoint an administrative receiver, and it is created on or after 15 September 2003. A floating charge holder remains entitled to

6

7 8 9

10 11 12 13 14 15 16 17 18 19

IA 1986, s 29(2), as modified and applied to LLPs by SI 2001/1090, reg 5. An administrative receiver is an ‘office holder’ and must be qualified to act as an insolvency practitioner in relation to the LLP; see IA 1986, ss 230(2), 388(1), 389 and 390. See Davies, Insolvency and the Enterprise Act 2002, chapter 4. The date of creation probably means the date on which it is executed by the LLP: see Davies, op cit, paras 4.22–4.24. IA 1986, s 72A inserted by Enterprise Act 2002, s 250(1). See Insolvency Act 1986, Section 72A (Appointed Date) Order 2003 (SI 2003/2095) and Enterprise Act 2002 (Commencement No 4 and Transitional Provisions and Savings) Order 2003 (SI 2003/2093). As to which, see Feetum v Levy [2006] Ch 585. IA 1986, s 72B, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 72C, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 72D, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 72DA, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 72E, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 72F, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 72G, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 72GA, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 72A(3), as modified and applied to LLPs by SI 2001/1090, reg 5.

Receivership

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appoint an administrative receiver if the charge was created before 15 September 2003 (regardless of whether monies were advanced to the LLP before and/or after 15 September 2003).

APPOINTMENT OF RECEIVERS 30.6 The provisions relating to receivership are in Ch I of Pt III of the IA 1986. A purported appointment of a receiver is of no effect unless the receiver accepts the appointment before the end of the business day next following the day on which the instrument of appointment is received by him or on his behalf and, subject to acceptance, is deemed to be made at the time at which the instrument of appointment is received.20 If the appointment is discovered to be invalid, the court may order the person by whom, or on whose behalf, the appointment was made to indemnify the receiver against any liability which arises solely by reason of the invalidity of the appointment.21 A body corporate is not qualified for appointment as a receiver of the property of an LLP, and any body corporate which acts as such is liable to a fine.22 An undischarged bankrupt who acts as a receiver or manager of an LLP on behalf of debenture holders is (unless he was appointed by the court) liable to imprisonment or a fine (or both).23 A receiver appointed out of court, or his appointor, may apply to the court for directions in relation to any particular matter arising in connection with the performance of his functions; on such an application, the court may give such directions, or make such orders declaring the rights of the persons before the court or otherwise, as it thinks just.24

DUTIES AND POWERS All receivers 30.7 Once a receiver or manager has been appointed, every invoice, order for goods or business letter issued by or on behalf of the LLP, or by or on behalf of the receiver or manager or the liquidator of the LLP, being a document on or in which the LLP’s name appears, and all the LLP’s websites must contain a statement that a receiver or manager has been appointed.25 30.8 The powers of an ordinary receiver appointed out of court are contained in the debenture. An administrative receiver’s powers are deemed to include (except insofar as they are inconsistent with any of the provisions of the debenture) the powers specified in Sch 1 to the IA 1986.26 A person dealing with an administrative

20 21 22 23 24 25 26

IA 1986, s 33(1), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 34, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 30, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 31, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 35, as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 39(1), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 42(1), as modified and applied to LLPs by SI 2001/1090, reg 5.

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receiver in good faith and for value is not concerned to inquire whether the receiver is acting within his powers.27

Administrative receivers 30.9 On appointment, an administrative receiver (in the limited circumstances where such an appointment is still permitted)28 must forthwith send to the LLP, and publish in the prescribed manner, a notice of his appointment.29 Within 28 days of his appointment, the administrative receiver must also (unless the court otherwise directs) send a notice of his appointment to all the creditors of the LLP (so far as he is aware of their addresses).30 30.10 An administrative receiver is entitled to apply to the court for an order authorising him to dispose of property which is the subject of security in favour of someone other than the debenture holder (usually a prior fixed chargee) where the disposal would be likely to promote a more advantageous realisation of the LLP’s assets than would otherwise be effected.31 Where such an order is made, the proceeds of the disposal are applied to discharge the sums secured by the security.32 30.11 An administrative receiver is deemed to be the agent of the LLP unless and until the LLP goes into liquidation;33 is personally liable on any contract entered into by him in the carrying out of his functions (except in so far as the contract otherwise provides);34 and is entitled in respect of that liability to an indemnity out of the assets of the LLP.35 Although the receiver’s agency comes to an end on a subsequent liquidation, his appointment and powers are unaffected and he remains able to get in and realise the LLP’s assets either as agent for the debenture holder or as principal.36

27

Ibid, s 42(3), as modified and applied to LLPs by SI 2001/1090, reg 5. 30.4. IA 1986, s 46(1)(a), as modified and applied to LLPs by SI 2001/1090, reg 5. The matters to be stated in, and provisions requiring publication of, the notice are set out in the Insolvency Rules 2016 (‘IR 2016’), r 4.5. IA 1986, s 46(1)(b), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 43(1), as modified and applied to LLPs by SI 2001/1090, reg 5. See IR 2016, r 4.16. IA 1986, s 43(3), as modified and applied to LLPs by SI 2001/1090, reg 5. Where the proceeds are less than such amount as may be determined by the court to be the amount which would be realised on the sale of the property in the open market by a willing vendor, the deficiency must be made up by the receiver: IA 1986, s 43(3)(b). IA 1986, s 44(1)(a), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 44(1)(b), as modified and applied to LLPs by SI 2001/1090, reg 5. Liability on contracts includes, to the extent of any ‘qualifying liability’, any contract of employment adopted by him; see IA 1986, s 44(1)(b), (2)–(2C); Nicoll v Cutts (1985) 1 BCC 99, 427; Re Paramount Airways Ltd (No 3) [1994] BCC 172 and Powdrill v Watson [1995] 2 AC 394. IA 1986, s 44(1)(c), as modified and applied to LLPs by SI 2001/1090, reg 5. A receiver is also likely to have the benefit of a contractual indemnity given by his appointor. The liabilities and right of indemnity of a non-administrative receiver are contained in s 37. See Lightman and Moss, op cit, paras 15–045 to 15–049.

28 See 29

30 31 32

33 34

35

36

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STATEMENT OF AFFAIRS IN ADMINISTRATIVE RECEIVERSHIP 30.12 An administrative receiver must require a statement of affairs for the LLP to be prepared by some or all of the persons mentioned in 30.13.37 The statement must be verified by a statement of truth and must show: (a) (b) (c) (d) (e)

particulars of the LLP’s assets, debts and liabilities; the names and addresses of its creditors; the securities held by them; the dates when the securities were given; and such other information as may be prescribed.38

30.13

The persons who can be required to prepare a statement of affairs are:

(a) those who are or have been members of the LLP;39 (b) those who have taken part in the LLP’s formation at any time within one year before the date of the appointment of the administrative receiver; (c) those who are employees (or have been within that year) and are in the opinion of the administrative receiver capable of giving the information required; (d) those who are or have been within that year members of, or in the employment of, an LLP or officers of, or in the employment of a company, which is, or within that year was, a member of the LLP.40

ADMINISTRATIVE RECEIVER’S REPORT 30.14 Within three months of appointment (or such longer period as the court may allow), an administrative receiver must send a report41 to the Registrar of Companies, to any trustees for secured creditors of the LLP and (so far as he is aware of their addresses) to all such creditors.42 The report must deal with the following matters: (a)

37 38

39

40

41 42

43

the events leading up to his appointment (so far as he is aware of them);43

IA 1986, s 47(1), as modified and applied to LLPs by SI 2001/1090, reg 5. See IR 2016, rr 4.6–4.11. IA 1986, s 47(2), as modified and applied to LLPs by SI 2001/1090, reg 5. The words ‘statement of truth’ were substituted by Legislative Reform (Insolvency) (Miscellaneous Provisions) Order 2010 (SI 2010/18), art 5(1), with effect from 6 April 2010, subject to transitional provisions specified in art 12(4). Where the transitional provisions apply, the statement must be verified by affidavit. Section 47(3) also refers to ‘officers’, but this reference is unlikely to broaden the scope of an eligible person beyond members; see SI 2001/1090, reg 5(2)(b), CA 1985, s 744 and IA 1986, s 251. IA 1986, s 47(3), as modified and applied to LLPs by SI 2001/1090, reg 5. ‘Employment’ includes employment under a contract for services. The persons required to produce the statement must do so within 21 days of being so required (IA 1986, s 47(4)), provided that the receiver or the court may release such a person or extend the time for compliance (s 47(5)). The report must include a summary of the statement of affairs made out and submitted pursuant to s 47 and of the administrative receiver’s comments (if any) on it: s 48(5). IA 1986, s 48(1), as modified and applied to LLPs by SI 2001/1090, reg 5. See IR 2016, r 4.13. In addition, administrative and other receivers have statutory and common law obligations to account; see IA 1986, s 38; Smiths v Middleton [1979] 3 All ER 842. IA 1986, s 48(1)(a), as modified and applied to LLPs by SI 2001/1090, reg 5.

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(b) the disposal or proposed disposal of any property of the LLP, and the carrying on or proposed carrying on by him of any business of the LLP;44 (c) the amounts of principal and interest payable to the debenture holders by whom or on whose behalf he was appointed, and the amounts payable to preferential creditors;45 and (d) the amount (if any) likely to be available for other creditors.46 The administrative receiver must also either send a copy of the report to all unsecured creditors (so far as he is aware of their addresses) or publish a notice stating an address to which the unsecured creditors can write for copies free of charge.47

44 45 46 47

Ibid, s 48(1)(b), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 48(1)(c), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 48(1)(d), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 48(2), as modified and applied to LLPs by SI 2001/1090, reg 5. See IR 2016, r 4.14.

Chapter 31 COMMENCEMENT OF WINDING UP

VOLUNTARY WINDING UP 31.1 The winding up of an LLP may be either voluntary or by the court.1 Voluntary winding up is initiated by a determination by the LLP under IA 1986, s 84 that it be wound up. Section 84(1) does not state how an LLP is to determine that it is to be wound up. As applied to companies, s 84(1)(b) provides that a company may be wound up voluntarily if the company resolves by special resolution (ie a three-quarters majority) that it be wound up voluntarily.2 A well-drafted LLP agreement ought to make provision for the way in which a determination that the LLP be wound up is to be made and, if it is to be made by resolution of the members, the requisite majority. If there is no such provision, the position is unclear. It is arguable that, in the absence of a general majority voting provision in the LLP agreement, a determination could only be made if supported by all the members. However, the determination is a decision of ‘the limited liability partnership’, and the authors suggest that the answer as to how a valid decision is to be made by the LLP (in this, and in other situations requiring a decision by ‘the limited liability partnership’) is to be found in the common law on decision-making by corporate bodies.3 If this suggestion is right, the matter will be decided by a (simple) majority of members attending a meeting of the members at which more than half of all the members are present.4 31.2 Before an LLP can determine that it be wound up voluntarily, it must give written notice under IA 1986, s 84(2A) to the holder of any qualifying floating

1

IA 1986, s 73(1), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. Section 84 as applied to companies also provides that a company may be wound up (a) when the period fixed for the duration of the company by the articles expires, or (b) the event (if any) occurs, on the occurrence of which the articles provide that the company is to be dissolved, and the company passes an ordinary resolution, and (c) if the company passes an extraordinary resolution to the effect that it cannot by reason of its liabilities continue its business and that it is advisable to wind up. These provisions are not applied to LLPs; s 84 is modified for LLPs by SI 2001/1090, Sch 3, para 1. 3 See 17.12. 4 For a contrary view, see Totty, Moss & Segal: Insolvency at I2-23, where the authors suggest that an analogy can be drawn with (a) a case of a company voluntary arrangement where unanimity is required; and (b) the default provisions of the Regulations which provide that no changes in the ‘nature of the business’ of the LLP may be made without consent of all members, with the winding up of the LLP being ‘even more drastic than a change in the nature of its business’. 2

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charge to which IA 1986, s 72A applies.5 Where a notice is given under s 84(2A), a determination that the LLP be wound up may only be made: (a)

after the end of the period of five business days beginning on the day on which notice is given; or (b) if the person to whom the notice is given has consented in writing to the determination.6 A voluntary winding up is deemed to commence at the time when the LLP determines that it be wound up voluntarily.7 From the commencement of the winding up, the LLP must cease to carry on its business except so far as may be required for its beneficial winding up, but it does not lose its corporate status or lose its corporate powers until it is dissolved.8 The interest of a member in the property of the LLP cannot be transferred (without the sanction of the liquidator) after the commencement of the winding up.9

Types of voluntary winding up 31.3 There are two types of voluntary winding up: members’ voluntary winding up and creditors’ voluntary winding up. Where the LLP cannot (or will not in the liquidation) be able to pay all its debts, the liquidation is a creditors’ voluntary winding up.10 If a declaration of solvency can be made by the designated members, the liquidation is a members’ voluntary winding up. The declaration of solvency must be made within the five weeks preceding the determination by the LLP that it be wound up.11

Members’ voluntary winding up 31.4 In a members’ voluntary winding up, the LLP appoints one or more liquidators for the purpose of winding up the LLP’s affairs and distributing its assets.12 Again, the LLP legislation does not provide how the LLP is to make that decision. In the absence of an LLP agreement dealing with this issue (either specifically or in general

5

6 7 8 9

10 11

12

IA 1986, s 84(2A) was inserted by Enterprise Act 2002 (Insolvency) Order 2003 (SI 2003/2096), arts 4, 6, Sch, paras 8 and 10. It is modified for LLPs by SI 2001/1090, Sch 3, para 1, as amended by SI 2005/1989. As to the meaning of the holder of any qualifying floating charge to which s 72A applies, see IA 1986, s 72A(3) and Sch B1, para 14. IA 1986, s 84 (2B), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, s 86, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, s 87, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, s 88, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. This is an odd modification: the LLP’s property is owned by the LLP, and not the members. The members have no direct interest in the LLP’s property; their shares or interests are in the LLP itself. IA 1986, s 90, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, s 89(2), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. A designated member who makes a declaration of solvency without having reasonable grounds for the opinion that the LLP will be able to pay its debts in full within the period specified in the declaration is liable to imprisonment or a fine, or both: s 89(4), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, s 91(1), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1.

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decision-making provisions), the authors suggest that the matter will be decided by a (simple) majority of members attending a meeting of the members at which more than half of all the members are present.13 If the LLP fails to make an appointment, the court has power to do so.14 On the appointment of a liquidator, the powers of the members cease except to the extent that a meeting of the members summoned for the purpose, or the liquidator, sanctions their continuance.15 If no liquidator is appointed, the powers of the members cannot be exercised except with the sanction of the court (save in relation to the powers of the members to dispose of perishable goods, the value of which is likely to diminish if they are not immediately disposed of, and to do all such other things as may be necessary for the protection of the LLP’s assets).16 31.5 If, during the course of the winding up, the liquidator becomes of the view that the LLP will be unable to pay its debts in full within the period stated in the designated members’ declaration under IA 1986, s 89, he must within seven days of forming that opinion:17 (a) make out a statement in the prescribed form as to the affairs of the LLP; and (b) send it to the LLP’s creditors. The liquidation will then become a creditors’ voluntary winding up from the day on which the LLP’s creditors nominate a person to be liquidator under s 95(4B) (such nomination must be sought by the liquidator under s 95(4C)), or from the day on which the procedure by which the LLP’s creditors were to have made such a nomination concludes without a nomination having been made.18 Under s 96(3), where no person is nominated, the existing liquidator will be the liquidator in the creditor’s voluntary winding up.

Creditors’ voluntary winding up 31.6 If the LLP determines pursuant to IA 1986, s 84 that it should be wound up, but no declaration of solvency has been made by the designated members, the liquidation proceeds as a creditors’ winding up. In this event, the members of the LLP are required to produce a statement in the required form as to the affairs of the LLP and send it to the LLP’s creditors not later than seven days after the day on which the LLP determines that it be wound up.19 Under IA 1986, s 100, the LLP may nominate a person to be liquidator at the meeting at which it determines that it should be wound up, or the LLP’s creditors may, in accordance with the rules, nominate a person to

13 See 14 15 16 17 18 19

31.1. IA 1986, s 108, as modified and applied to LLPs by SI 2001/1090, reg 5. See Insolvency Rules 2016 (‘IR 2016’), rr 5.4, 6.22, 7.56. IA 1986, s 91(2), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, s 114, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, s 95 (as amended by paras 19 and 20 of Sch 9(1) to the Small Business, Enterprise and Employment Act 2015), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, s 96 (as amended by paras 19 and 20 of Sch 9(1) to the Small Business, Enterprise and Employment Act 2015), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, s 99 (as amended by Sch 9(1) to the Small Business, Enterprise and Employment Act 2015), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. The previous requirement to summon a creditors’ meeting was abolished (and s 98 repealed) by the 2015 Act.

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be liquidator. The liquidator shall be the person nominated by the creditors, failing which the person nominated by the LLP.20 In the event that different liquidators are nominated, a member or creditor may, within seven days, apply to the court for an order directing that the person nominated by the LLP shall be the liquidator instead of, or jointly with, the person nominated by the creditors, or appointing some other person to be the liquidator instead of the person nominated by the creditors.21 31.7 The creditors may, in accordance with the rules, appoint a liquidation committee of not more than five persons to exercise the functions conferred on it by the IA 1986.22 If such a committee is appointed, the LLP also has the right to appoint up to five members.23 The creditors have the right to veto all or any of the appointments unless the court directs otherwise.24 31.8 On appointment of the liquidator, all the powers of the members cease except so far as the liquidation committee (or, in the absence of a liquidation committee, the creditors) sanction their continuance.25 If no liquidator is appointed, or nominated by the LLP, the powers of the members may not be exercised except with the sanction of the court or so far as may be necessary to secure compliance with IA 1986, ss 99 (statement of affairs) and 100(1B) (nomination of liquidator by creditors), during the period prior to the appointment or nomination.26 This does not apply to the powers of members to dispose of perishable goods and other goods the value of which is likely to diminish if they are not immediately disposed of, and to do all things that may be necessary for the protection of the LLP’s assets.27

COMPULSORY WINDING UP 31.9

The court may order the winding up of an LLP if:28

(a) the LLP has determined that it be wound up by the court; (b) the LLP does not commence its business within a year of its incorporation, or suspends its business for a whole year; (c) the number of members is reduced below two; (d) the LLP is unable to pay its debts; or (e) the court is of the opinion that it is just and equitable that the LLP should be wound up.

20

21 22 23 24 25 26 27 28

IA 1986, s 100 (as amended by Sch 9(1) to the Small Business, Enterprise and Employment Act 2015), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. See IR 2016, rr 6.20 et seq and 7.53 et seq. IA 1986, s 100(3), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, s 101, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, s 101(2), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, s 101(3), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, s 103, as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, s 114(2) (as amended by Sch 9(1) to the Small Business, Enterprise and Employment Act 2015), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, s 114(3), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, s 122, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1.

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Determination by the LLP 31.10 The use of this provision is likely to be extremely rare, given the right of an LLP to determine that it be wound up voluntarily.29

Failure to commence business within a year or suspension of business 31.11 In relation to companies, the court has refused to exercise its discretion where there are good reasons for the delay in the commencement of the business, and where the majority of members wish the company to continue.30 Where the carrying on of a company’s business has merely been suspended, the court usually requires to be satisfied that the company is unable to carry on that business, or has abandoned it, before making an order.31 Again, the wishes of the majority shareholders are taken into account. It seems likely that the courts will apply the same principles to LLPs.

Inability to pay debts 31.12

An LLP is deemed unable to pay its debts:32

(a) if a creditor (by assignment or otherwise) to whom the LLP is indebted in a sum exceeding £750 then due has served on the LLP, by leaving at the LLP’s registered office, a written demand (in the prescribed form) requiring the LLP to pay the sum so due, and the LLP has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; (b) if, in England and Wales, execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the LLP is returned unsatisfied in whole or in part; or (c) if it is proved to the satisfaction of the court that the LLP is unable to pay its debts as they fall due.33 31.13 An LLP is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the LLP’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.34

29

30 31 32 33

34

In the absence of any provision in the LLP agreement as to the making of a determination, the authors suggest that the majority referred to in 31.1 will be applicable. For a contrary view that unanimity is required, see Totty, Moss & Segal: Insolvency at I2-23. Re Capital Fire Insurance Association (1882) 21 Ch D 209. Re Thomlin Patent Horseshoe Company (1887) 55 LT 314. IA 1986, s 123(1), as modified and applied to LLPs by SI 2001/1090, reg 5. As to the significance of the words ‘as they fall due’, see BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL Plc [2013] 1 WLR 1408, approving the approach adopted by Briggs J in In re Cheyne Finance Plc (in receivership) [2008] 1 BCLC 741. See also Synergy Agri Holdings Ltd v Agform Ltd [2020] EWHC 343 (Ch) and Colt Technology Services v SC Global Group Srl [2020] EWHC 1417 (Ch). IA 1986, s 123(2), as modified and applied to LLPs by SI 2001/1090, reg 5.

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31.14 Although a creditor can present a petition based upon an unsatisfied statutory demand, or the return of execution on a judgment unsatisfied, the service of a statutory demand is, unlike the position in personal insolvency, unnecessary. Proof by a creditor that his particular debt has not been paid is prima facie evidence that the LLP is unable to pay its debts as they fall due so long as there is no bona fide dispute as to the existence of the debt in question. The court will not make a winding-up order if the petition is based upon a debt which is genuinely disputed.35 The debt is genuinely disputed for the purpose of winding-up proceedings if the court is satisfied that there is a genuine dispute founded on substantial grounds.36 The court has an overriding discretion as to whether to make a winding-up order but, in circumstances where the petition debt is not disputed on substantial grounds, the court is almost bound to exercise its discretion by making an order. There are, however, some exceptions. For example: (a) where the petitioner’s debt is less than £750; (b) the winding up is opposed by the majority of the other creditors; and (c) the LLP is in the process of being wound up voluntarily.37

Just and equitable winding up 31.15

Just and equitable winding up is discussed in Chapter 32.38

APPLICATION FOR A WINDING-UP ORDER Who can present a petition? 31.16 An application for a winding-up order is made by petition to the court.39 IA 1986, s 124(1), as applying to companies, permits a petition to be presented by ‘the company, or the directors, or by any creditor or creditors (including any contingent or prospective creditor or creditors), contributory or contributories …’.40 A petition by the directors of a company under s 124 is presented in their own names rather than in the name of the company, and they must act unanimously unless there is a valid resolution passed by a majority of the directors at a board meeting, in which case any director has authority to present a petition on behalf of them all.41 35 See

Re Richbell Strategic Holdings Limited [1997] 2 BCLC 429 and Riverbank Hotels Ltd v City Centre Resources Ltd [2013] EWHC 4249 (Ch). 36 See Re a Company No 00685 of 1996 [1997] BCC 830. 37 IA 1986, s 116, as modified and applied to LLPs by SI 2001/1090, reg 5, provides that the voluntary winding up of an LLP does not bar the right of any creditor or contributory to have it wound up by the court, but in the case of an application by a contributory the court must be satisfied that the rights of the contributories will be prejudiced by a voluntary winding up. 38 See Eaton v Caulfield [2011] EWHC 173 (Ch), [2011] BCC 386, where the court was satisfied that there had been a complete breakdown in the relationship between the members of an LLP so as to justify winding up; and Chu v Lau [2020] UKPC 24 for a case on function deadlock (on appeal from the British Virgin Islands). 39 IA 1986, s 124, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. 40 Or by the clerk of a magistrates’ court in the exercise of the power conferred by s 87A of the Magistrates’ Courts Act 1980. 41 Re Instrumentation Electrical Services Limited [1988] BCLC 550 and Re Equiticorp International Plc [1989] 1 WLR 1010.

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As applied to LLPs, s 124 clearly permits a petition to be presented by the LLP itself, or by any creditor or creditors (including any contingent or prospective creditor or creditors).42 How the remainder of s 124(1) is to be applied to LLPs is less clear, however. In s 124(1), as applied to LLPs, the reference to ‘the directors’ becomes, by reason of the general modification contained in reg 5(2)(b) of the LLP Regulations 200143 (to the effect that references in the IA 1986 to a director or to an officer of a company include references to a member of an LLP), a reference to ‘the members’. It would seem, therefore, that the reference in s 124(1) to the directors (which is not specifically modified) is to be read as a reference to the members collectively, and not to embrace any one or more individual members. On this basis, the ability of the members, as a class, to present a petition is unlikely to add anything to the ability of the LLP itself to present a petition.44 The issue which arises is whether individual members have standing to present a winding-up petition. On an ordinary reading of s 124(1), and given what has been said above as to the reference to the members being a reference to them collectively, this would seem to depend on whether individual members are contributories.

Contributories 31.17 By s 79(1) of the IA 1986,45 a ‘contributory’ is defined as (a) every present member of the LLP and (b) every past member of the LLP liable to contribute to the assets of the LLP in the event of its being wound up, and for the purpose of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory. The liability of members and past members to contribute to the assets of the LLP on a winding up is set out in s 74.46 That section provides that when an LLP is wound up every present and past member of the LLP who has agreed with the other members or with the LLP that he will, in circumstances which have arisen, be liable to contribute to the assets of the LLP in the event that the LLP goes into liquidation is liable, to the extent that he has so agreed, to contribute to its assets to any amount sufficient for payment of its debts and liabilities, and the expenses of the winding up, and for the adjustment of the rights of the contributories among themselves. However, a past member is only liable if the obligation arising from the agreement survived his ceasing to be a member. 31.18 In the case of companies limited by shares, every present and past member is liable to contribute to the company’s assets to any amount sufficient for the payment of its debts and liabilities, and the expenses of the winding up, and for the adjustment of the rights of the contributories amongst themselves, but the liability is

42 43 44 45 46

IA 1986, s 124(1), as modified and applied to LLPs by SI 2001/1090, reg 5. SI 2001/1090. As to voting majorities for decisions by ‘the limited liability partnership’ and by ‘the members’ respectively, in the absence of provision in the LLP agreement, see 17.12–17.13. As modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. As modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. See Re Lehman Bros International (Europe) [2017] UKSC 38, [2018] AC 465.

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limited to the amount unpaid on his shares.47 A member, or indeed a past member, whose shares are fully paid up is still a contributory even though he can have no liability on a winding up.48 31.19 A current or past member of an LLP who is party to an agreement pursuant to which he is liable to contribute to the assets of the LLP in the event of a winding up (and under which, in the case of a past member, the liability survives the cessation of his membership) is clearly a contributory. The position of a current member who is not party to such an agreement, or a past member who either was never party to such an agreement or was party to such an agreement but his liability did not survive the cessation of his membership, is more difficult. Although in company law the courts appear to take a broad view of the meaning of contributory, the status of a contributory would seem to depend on the fact that the current or past member was, at some time, liable on his shares, and a view that this status is unaffected by the fact that he has discharged that liability. It is difficult to see, in the light of the way in which ss 74 and 79 have been modified for application to LLPs, on what basis a current or past member of an LLP can be regarded as a contributory if he is not, and has never been, party to an agreement under which he would be obliged to contribute to the assets of the LLP on a winding up. 31.20 In other words, whilst the meaning of contributory can extend to someone under a liability on a winding up, or (at least in relation to companies) someone who once was, but is no longer, under such a liability, or someone who has discharged such liability, it is difficult to see how it can extend to someone who was never under such an obligation, or who was under such an obligation but was released from it by the cessation of his membership. Nevertheless, it seems unlikely that the right for members of an LLP to present a winding-up petition was intended to be limited to members (or past members) who are or were party to agreements under which they are liable to contribute to the LLP’s assets on a winding up. It is to be borne in mind that a winding-up order can be sought where the LLP is solvent (for example, on the just and equitable ground), where no question of contributing to the assets of the LLP will arise.

Individual member? 31.21 In the circumstances, it seems likely that the courts will seek to construe IA 1986, s 124(1) so that members individually have standing to present a winding-up petition. It is, however, extremely difficult to see a justifiable construction of the

47

48

IA 1986, s 74(2)(d). A past member is not liable to contribute if he ceased to be a member a year or more before the commencement of winding up (s 74(2)(a)), and is not liable for any debt or liability contracted after he ceased to be a member (s 74(2)(b)). Re Anglesea Colliery Company (1866) LR 1 Ch App 555; Re Consolidated Goldfields of New Zealand Ltd [1953] Ch 689; and Burnden Group Holdings Ltd v Hunt [2018] BCC 404. A petition presented by a past member of a company who has no interest in the winding up (ie because he is not entitled to any sum from the company qua member or to share in surplus assets) would presumably be struck out as an abuse of process. See Re Compania de Electricidad de la Provincia de Buenos Aires [1980] Ch 146 for a case in which past members had interests as creditors.

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legislation that produces this result. There are, the authors think, two possible arguments. The first is that a person is a ‘contributory’ for the purposes of s 124(1) if he is a member or past member who is either liable to contribute to the assets of the LLP or was, but is no longer, liable. The difficulty with this argument is that it ignores the requirement that the obligation must be to contribute ‘in the event of its being wound up’ rather than at some earlier date. Further, the argument only assists a member who was, at some point, liable to contribute to the LLP’s assets: it would not assist a member who was never under such an obligation. The second argument is that the court should treat s 124(1) as having been modified pursuant to reg 5(2)(g) of the LLP Regulations 2001 so that the reference to ‘directors’ in s 124(1) is read as the members together or individually. Whilst this is clearly a difficult argument, the court is given some flexibility by reg 5(2)(g) which provides for the relevant sections of the IA 1986 to be modified by ‘such further modifications as the context requires for the purpose of giving effect to that legislation as applied by’ the LLP Regulations 2001.49 31.22 The issue as to whether a member is a contributory can, of course, be avoided altogether by including in the LLP agreement an obligation on all members to make a nominal contribution on a winding up.

Sufficient interest? 31.23 It needs to be borne in mind that a contributory petitioner (or contributory petitioners), or an individual member who is not a contributory but who may wish to argue for locus standi under some such argument as is outlined in 31.21, will need to establish that he has a sufficient interest in the winding up.50 In most cases, this will require the contributory and/or member to show that the LLP is solvent, and that he has an interest in the surplus assets, or that, by having the LLP wound up, he will avoid a liability. A current member will usually have such an interest. In most cases, however, past members are unlikely to have a sufficient interest. If, as will often be the case, the LLP agreement makes provision for the financial consequences of cessation, a past member’s rights will be governed by the agreement, and he may have no interest in the LLP or any surplus assets on a winding up. If there is no LLP agreement (or the agreement does not deal with the financial consequences of cessation) the position is more difficult. The authors suggest in Chapter 1951 that, in this situation, a member’s share in the LLP is likely to be determined, with the effect that he will have no interest in any winding up. A past member may, of course, have rights against the LLP in the capacity of creditor, for instance for an ascertained but unpaid profit share, or to enforce cessation rights granted to him in the LLP agreement; and in such a case he will be able present a petition in that capacity.

49

See also Morse and Braithwaite, Partnership and LLP Law, para 13.24, and Totty, Moss & Segal, Insolvency at I2-26. 50 See Charit-Email Technology Partnership LLP v Vermillion International Investments Ltd [2009] BPIR 762. 51 See 19.32–19.40.

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Other possible petitioners 31.24 A petition can be presented by a liquidator appointed in proceedings by virtue of Article 3(1) of the EU Regulation on insolvency proceedings, or by a temporary administrator (within the meaning of Art 52 of the EU Regulation).52 31.25 Where an LLP is being wound up voluntarily, a petition may also be presented by the official receiver on the basis that the voluntary winding up cannot be continued with due regard to the interests of the creditors or contributories.53 31.26 The Secretary of State has power pursuant to s 124A(1) to present a petition where it appears to him from:54 (a)

any report made or information obtained under Pt XIV (except s 448A) of the CA 1985; (b) any report by an inspector or information or documents obtained under certain sections of the Financial Services and Markets Act 2000; (c) any information obtained under s 2 of the Criminal Justice Act 1987; or (d) any information obtained under s 83 of the Companies Act 1989 (powers exercisable for purpose of assisting overseas regulatory authorities), that it is expedient in the public interest that the LLP should be wound up.55

Procedure 31.27 The rules relating to the form, presentation, service and advertisement of the petition are contained in r 7.6 et seq of the IR 2016. On the hearing of a winding-up petition, the court may dismiss it or adjourn the hearing conditionally or unconditionally or make an interim order, or any other order that it thinks fit.56

52

53 54

55

56

Inserted into s 124(1) by the Insolvency Act 1986 (Amendment) (No 2) Regulations 2002 (SI 2002/1240), regs 3 and 8. But see 27.4 as to the application of the EU Regulation on insolvency proceedings after 31 December 2020. IA 1986, s 124(5). IA 1986, s 124A(1)(b), as it applies to companies, was omitted from the IA 1986, as applied to LLPs, by the LLP Regulations 2001. Whether, therefore, either or both of the new s 124A(1)(b) and (bb) inserted by SI 2001/3649, art 305 (which relate to the Financial Services and Markets Act 2000) likewise do not apply to LLPs is unclear. See s 367(1) of the Financial Services and Markets Act 2000, which gives the Financial Conduct Authority the right to petition for the winding up of a body which either is or has been an authorised person or representative or is carrying on or has carried on a regulated activity in an unauthorised way, and the Prudential Regulation Authority the right to petition for the winding up of a body which is a PRA-regulated person; and see Re The Inertia Partnership LLP [2007] EWHC 539 (Ch), [2007] BCC 656. A public interest winding-up petition may be the only sanction in the event of continued breaches of the LLP legislation (such as the requirement for filing of annual accounts or changes of members and such like) by the LLP and its members or designated members in circumstances in which the members are all resident overseas. ‘Expedient in the public interest’ is a phrase of the widest import: In re Senator Hanseatische [1997] 1 WLR 515 at 526 (CA). The Secretary of State also has a further power under IA 1986, s 124B. IA 1986, s 125(1), as modified and applied to LLPs by SI 2001/1090, reg 5.

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31.28 A winding-up order relates back to the time of the presentation of the petition, the winding up being deemed to commence on that date.57 Any disposition of the LLP’s property and any transfer by a member of his interest in the property of the LLP, or alteration in the status of the LLP members, made after the commencement of the winding up is void unless the court otherwise orders.58 Similarly, any attachment, sequestration, distress or execution put in force against the estate or effects of the LLP after commencement of the winding up is void.59 31.29 Once a winding-up order has been made,60 no action or proceeding is to be proceeded with or commenced against the LLP or its property except by leave of the court and subject to such terms as the court may impose.61 Between the date of the presentation of a winding-up petition and the making of an order, the LLP or any creditor or member may apply to the court for a stay of existing proceedings.62

FUNCTIONS OF OFFICIAL RECEIVER AND APPOINTMENT OF A LIQUIDATOR 31.30 The official receiver, by virtue of his office, becomes the liquidator of the LLP, until another person is appointed as liquidator.63 The official receiver may, at any time when he is the liquidator, seek nominations (in accordance with the rules) from the LLP’s creditors and contributories for the purposes of choosing a person to be liquidator of the LLP in place of the official receiver.64 The official receiver has a duty to decide whether to exercise this power as soon as practicable within 12 weeks of the winding-up order being made, and, if he decides not to exercise the

57

58

59 60 61

62 63

64

IA 1986, s 129(2). Where a winding-up order is made subsequent to a determination by the LLP that it be wound up, the winding up is deemed to have commenced at the time of the determination: s 129(1), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. IA 1986, s 127, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. This is an odd modification: the LLP’s property is owned by the LLP not the members. The members have no direct interest in the LLP’s property; their shares or interests are in the LLP itself. Quaere whether the reference to property of the LLP is intended to be a reference to an interest in any surplus assets on completion of the winding up (cf s 127 as it applies to companies). Quaere also whether the effect of s 127 is to prevent a member from ceasing to be a member after the commencement of winding up (whether pursuant to a right in the LLP agreement or pursuant to s 4(3) of the LLP Act 2000) at least where the cessation involves a transfer of the outgoing member’s share or interest in the LLP. See also IA 1986, s 88 in relation to voluntary liquidations. IA 1986, s 128(1), as modified and applied to LLPs by SI 2001/1090, reg 5. Or a provisional liquidator has been appointed. IA 1986, s 130(2), as modified and applied to LLPs by SI 2001/1090, reg 5. See Bourne v Charit-Email Technology Partnership LLP [2009] EWHC 1901 (Ch) and Fennell v Halliwells LLP [2014] EWHC 2744 (Ch). IA 1986, s 126(1), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, s 136(2), as modified and applied to LLPs by SI 2001/1090, reg 5. The official receiver is also the liquidator during any vacancy: IA 1986, s 136(3), as modified and applied to LLPs by SI 2001/1090, reg 5. IA 1986, s 136(4) (as amended by Sch 9(1) to the Small Business, Enterprise and Employment Act 2015), as modified and applied to LLPs by SI 2001/1090, reg 5. The 2015 Act abolished the requirement to summon a meeting for this purpose. See IR 2016, rr 7.52 and 15.2 et seq for rules on decision making.

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power, to give notice of the decision before the end of that period to the court and the LLP’s creditors and contributories. The official receiver also has a duty to exercise the power, if requested, in accordance with the rules, to do so by one quarter in value of the LLP’s creditors.65 Under IA 1986, s 137,66 if nominations are sought but no person is chosen to be a liquidator as a result, the official receiver then has a duty to decide whether to refer the matter to the Secretary of State. Under IA 1986, s 139,67 the creditors and the contributories may nominate a liquidator if nominations are sought from them. IA 1986, s 141 contains provisions relating to the establishment of a liquidation committee. 31.31 The official receiver may require the preparation of a statement of affairs for the LLP.68 He may require it from anyone who is or has been a member of the LLP, anyone who has taken part in the formation of the LLP at any time within one year before the date of the winding-up order,69 anyone who is in the LLP’s employment or has been in its employment within the last year and who is in the official receiver’s opinion capable of giving the information required, or anyone who is or has been, within that year, a member of or in the employment of an LLP or a company which is, or was within that year, itself a member of the LLP. The requirement is made in a prescribed form,70 and requires the information provided (including details of the LLP’s assets, debts and liabilities and the names and addresses of its creditors) to be verified by a statement of truth by the person required to provide it.71 31.32 The official receiver is under a duty pursuant to IA 1986, s 132 to investigate the promotion, formation, business dealings and affairs of the LLP and to make such report (if any) to the court as he thinks fit. Where the LLP ‘has failed’ (which is presumably determined by its solvency), he is under a further duty to investigate the causes of the failure. 31.33 The official receiver may apply to the court for an order for the public examination of any person who: (a) is or has been a member72 of the LLP; (b) has acted as liquidator, administrator or receiver or manager of the LLP; or (c) not falling within (a) or (b) above, is or has been concerned, or has taken part, in the promotion, formation or management of the LLP.73

65

IA 1986, s 136(5) (as amended by Sch 9(1) to the Small Business, Enterprise and Employment Act 2015), as modified and applied to LLPs by SI 2001/1090, reg 5. The notice to the creditors must contain an explanation of the power to require the official receiver to seek nominations: s 136(6). 66 As amended by the 2015 Act. 67 Ibid. 68 IA 1986, s 131, as modified and applied to LLPs by SI 2001/1090, reg 5. 69 Or, where a provisional liquidator is appointed, the date of his appointment. 70 IA 1986, s 131(2), as modified and applied to LLPs by SI 2001/1090, reg 5. 71 IA 1986, s 131(2A), as modified and applied to LLPs by SI 2001/1090, reg 5. 72 Section 133 also refers to ‘officer’, but this reference is unlikely to broaden the scope of eligible person beyond members. 73 IA 1986, s 133, as modified and applied to LLPs by SI 2001/1090, reg 5.

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31.34 Unless the court orders otherwise, the official receiver must make an application for an order for a public examination if requested to do so by one-half in value of the LLP’s creditors or three-quarters in value of the LLP’s contributories.74 As stated above,75 it will not necessarily be clear who is a contributory of the LLP.

74

IA 1986, s 133(2), as modified and applied to LLPs by SI 2001/1090, reg 5. 31.17–31.22.

75 See

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Chapter 32 UNFAIR PREJUDICE AND JUST AND EQUITABLE WINDING UP

INTRODUCTION 32.1

This chapter is concerned with the court’s power:

(a) to grant relief under s 994 of the CA 2006 to a member whose interests have been unfairly prejudiced by the conduct of the LLP’s affairs; and (b) to order the winding up of an LLP on the just and equitable ground pursuant to s 122(1)(e)1 of the IA 1986. 32.2 A detailed exposition of these provisions as they apply to companies is beyond the scope of this work.2 Indeed, as explained below, the significance of these provisions to LLPs is likely to be fairly limited. What follows includes a brief analysis of the relevant law, and a discussion as to how it may be applicable to LLPs.

THE STATUTORY PROVISIONS Companies Act 2006, s 994 32.3

Section 994 provides:3 ‘(1) A member of an LLP4 may apply to the court by petition for an order under this Part [i.e. Part 30] on the ground— (a) that the LLP’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself),5 or

1 2 3 4

5

As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. It should be noted that the equivalent provision in the IA 1986 as it applies to companies is s 122(1)(g). For a detailed exposition, see Joffe, Drake, Richardson, Lightman and Collingwood, Minority Shareholders: Law, Practice and Procedure (OUP, 6th edn, 2018), chapters 5 to 8. As modified and applied to LLPs by SI 2009/1804, reg 48. CA 2006, s 995 (as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3) provides that the Secretary of State also has power to present a petition under s 994 if: (1) he has received a report under s 437 of the Companies Act 1985 (inspector’s report); (2) he has exercised his powers under s 447 or 448 of that Act (powers to require documents and information or to enter and search premises); (3) he (or the Financial Conduct Authority, the Prudential Regulation Authority or the Bank of England) has exercised powers under Pt 11 of the Financial Services and Markets Act 2000 (information gathering and investigations); or (4) he has received a report from an investigator appointed by him (or the FCA, PRA or the Bank of England) under that Part. There is no need to establish discrimination against the petitioner. Therefore, conduct that affects all members equally may be unfairly prejudicial. However, a petition must be based on unfair prejudice to the member’s interest qua member. In the company context, petitions have been dismissed where shareholders have complained of unfair prejudice which relates solely to their interests in some other capacity (for example, where a member is also the freeholder of land occupied by the company and harm is occasioned to the land: Re J E Cade & Son Ltd [1991] BCC 360).

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The Law of Limited Liability Partnerships (b) that an actual or proposed act or omission of the LLP6 (including an act or omission on its behalf) is or would be so prejudicial. (2) For the purposes of subsection (1)(a), a removal of the LLP’s auditor from office— (a) on grounds of divergence of opinions on accounting treatments or audit procedures, or (b) on any other improper grounds, shall be treated as being unfairly prejudicial to the interests of some part of the LLP’s members. (3) The members of an LLP may by unanimous agreement exclude the right contained in subsection (1) either indefinitely or for such period as is specified in the agreement. The agreement must be recorded in writing.’

32.4 If the court is satisfied that a petition is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.7 Without prejudice to these general powers, the court may make an order to: (a) regulate the conduct of the LLP’s affairs in the future;8 (b) require the LLP: (i) to refrain from doing or continuing an act complained of, or (ii) to do an act that the petitioner has complained it has omitted to do; (c) authorise civil proceedings to be brought in the name and on behalf of the LLP by such person or persons and on such terms as the court may direct;9 (d) require the LLP or the members of the LLP not to make any, or any specified, alterations in the LLP agreement without the leave of the court; or (e) provide for the purchase of the rights and interests of any members in the LLP by other members or by the LLP itself. 32.5 The normal order, particularly where the unfairly prejudicial conduct has caused an irretrievable break down in relations, is likely to be that the respondents or the LLP acquire the petitioner’s share and interest in the LLP at a valuation to be

6

7

8

9

While a single act may constitute unfair prejudice when sufficiently serious, if there is no scope for it to recur, the court is unlikely to grant relief (Re Legal Costs Negotiators Limited [1999] BCC 547 at 551). Potential unfairly prejudicial actions and omissions are expressly included within s 994, but the petitioner must show that such act is imminent and may not rely upon mere fear that an act or omission may occur (Re Astec (BSR) plc [1998] BCC 59 at 77). Further, a petitioner may not complain of a past action which occurred before he became a member and to which the members then in being consented (Re Batesons Hotels (1958) Ltd [2013] EWHC 2530 (Ch)). CA 2006, s 996. In considering the appropriateness of any given remedy, the court will have regard to the interests of creditors and other relevant third parties (Hawkes v Cuddy [2007] EWHC 2999 (Ch) at [251]–[252] per Lewison J – upheld on appeal: [2009] EWCA Civ 91) and will take into account all considerations as appear relevant at the date of the hearing, rather than the date of the petition (Grace v Biagioli [2005] EWCA Civ 1222 at [73]). Such regulation may be as simple as ordering the holding of a meeting (McGuiness v Bremner plc [1988] 4 BCC 161] or as complex as stipulating a code for the future conduct of business (Re H R Harmer Ltd [1959] 1 WLR 62). For a detailed discussion of the interrelationship between s 996 and derivative actions, see Joffe, op cit, paras 6.246–6.266.

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determined by an independent expert.10 Conducting such valuations raises a number of complex issues, including whether an assets or earnings basis is to be employed, whether any discount should apply to a minority interest, whether adjustments need to be made to take account of the unfairly prejudicial conduct or historical accounting errors, and the date as at which the valuation is to take place.11 In addition, it needs to be kept in mind that a ‘share’ or ‘interest’ of a member in an LLP is not an abstract item of property (as with a share in a company). Instead, a member’s ‘share’ is the totality of the contractual or statutory rights and obligations which attach to his membership, while an interest of a member is one or more components of such share.12 Accordingly, before commencing the valuation exercise, it will first be necessary to identify precisely the contractual and statutory rights and obligations of a member that are to be valued. 32.6 As noted in 32.4, one of the specific powers of the court is to authorise civil proceedings to be brought in the name of, and on behalf of, the LLP. Initiating such civil proceedings is likely to result in increased costs and procedural complexity. It is therefore unsurprising that petitioners have, on occasion, sought to persuade the court hearing an unfair prejudice petition to order relief in favour of a company/LLP for wrongs done to it without requiring the bringing of separate proceedings. Despite the negative views expressed in relation to the permissibility of such a course of conduct by the Hong Kong Court of Final Appeal,13 the view has been taken at first instance in England and Wales (drawing upon the judgment of the Privy Council, on appeal from Jersey, in Gamlestaden Fastigheter v Baltic Partners Limited)14 that s 996 permits the court to require a respondent company director to provide compensation or account to a company for breaches of duty,15 as well as to provide remedies for wrongs done to a company by other third parties, so long as such third parties are joined to proceedings.16 There is also authority in the company context suggesting that it might be possible in a suitable case for a petitioner to seek the payment of equitable compensation directly to himself.17 There would appear to be no reason, in principle, why this reasoning would not apply equally to wrongs done to LLPs.18 Analogously with this, it has been held that a petitioner seeking relief for unfair prejudice to his interests as a member of an LLP would be permitted to seek a number of declarations pertaining to the contractual arrangements governing his membership in the unfair prejudice proceedings, even though they ought properly to have been sought in a Part 7 claim.19

10 See 11 12

13 14 15 16 17 18 19

Hailes v Hood [2007] EWHC 1616 (Ch), at [62]. For an overview of the main principles pertaining to these issues, see Joffe, op cit, chapter 7. See the discussion at 8.18–8.20 and 19.27–19.40, and the endorsement of this statement of principle by Warren J in Reinhard v Ondra LLP [2015] EWHC 26 (Ch) at [57] and Henderson J in Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch) at [59]. Re Chime Corp Ltd (2004) 7 HKCFAR 546. [2007] UKPC 26 at [36]. Per Briggs J in Sikorski v Sikorski [2012] EWHC 1613 (Ch) at [71]. Per Vos J in Re Fi Call Ltd [2014] BCC 286 at [125]. Atlasview Ltd v Brightview Ltd [2004] 2 BCLC 191; and Re Zetnet Ltd [2011] EWHC 1518 (Ch) at [154]–[155]. The operation of derivative actions in the context of LLPs is considered at 14.37–14.43. Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch) at [31].

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Contracting out of s 994 32.7 The members of an LLP may by unanimous agreement exclude the right contained in s 994(1). Any such agreement must be recorded in writing,20 and can clearly be a term of the LLP agreement. The requirement for such an agreement to be recorded in writing will mean that, for the contracting out from s 994 to remain effective, any new member of the LLP must assent in writing to this agreement.

Insolvency Act 1986, s 122 32.8 Section 122(1)(e) of the IA 198621 provides that an LLP may be wound up by the court if the court is of the opinion that it is just and equitable that the LLP should be wound up. Section 125(2) of the IA 198622 adds that, if a petition is presented by members of the LLP as contributories23 on the ground that it is just and equitable that the LLP should be wound up, and the court is of the opinion that the petitioners are entitled to relief either by winding up the company or by some other means and that, in the absence of any other remedy, it would be just and equitable that the LLP should be wound up, the court must make a winding-up order. However, the court is not obliged to make a winding-up order if it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the LLP wound up instead of pursuing that other remedy.24 In relation to companies, the petitioner will often be regarded as having a reasonable alternative remedy if the respondents have offered to purchase his shares at a price fixed by an independent valuation. It is an abuse of process for a petition to be pursued in circumstances where the petitioner has unreasonably rejected an offer of settlement that gives him all that he could reasonably expect if he succeeded at trial. A petition seeking winding up on just and equitable grounds may also be refused where the matters relied upon amount to unfairly prejudicial conduct and would therefore entitle the petitioner to less draconian relief under s 996 of CA 2006.25 It seems very likely that this approach will be applied to LLPs. 20

CA 2006, s 994(3). The doubt that arose around the way in which exclusion clauses ought to be drafted given the provision in CA 1985, s 459(1A) that such an agreement was ‘for such period as shall be agreed’ has been removed by the wording of CA 2006, s 994(3). 21 As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. 22 As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3. 23 Ie as present or past members of the LLP liable to contribute to the assets of the LLP on a winding up: see further 31.17–31.23. 24 See Chu v Lau [2020] UKPC 24 at [52]–[61]. 25 See Joffe, op cit, paras 5.69–5.88; Re a Company (No 002567 of 1982) [1983] BCLC 151 at 157–160; Re a Company (No 003843 of 1986) [1987] BCLC 562 at 570; Re a Company (No 004415 of 1996) [1997] 1 BCLC 479 at 487–489; Virdi v Abbey Leisure [1990] BCLC 342 at 345–349 (where the Court of Appeal refused to strike out a petition on the basis that, on the facts, the petitioner was not acting unreasonably in rejecting the respondents’ offer to purchase his shares in accordance with the articles where there was a risk that a discounted value would be applied); North Holdings Ltd v Southern Tropics Ltd [1999] 2 BCLC 625 (where the Court of Appeal refused to strike out the petition where the value of the shares depended upon matters of fact and law that would have to be determined by the court); CVC v Almeida [2002] 2 BCLC 108 (where the Privy Council, hearing an appeal from the Cayman Islands Court of Appeal, held that an offer had been unfair and was therefore not unreasonably rejected, and that seeking a just and equitable winding up was justified, given the absence of any other remedy as a matter of Cayman law); cf Maresca v Brookfield Development & Construction [2013] EWHC 3151 (Ch) at [43] (just and equitable

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WHO CAN PRESENT A PETITION? 32.9 It is the members of the LLP who have standing to present a petition under s 994. The term ‘member’ is defined in s 4 of the LLP Act 2000. Section 4(1) provides that, on incorporation, the members of an LLP are the persons who subscribed their names to the incorporation document (other than those who have died or been dissolved). Section 4(2) provides that any other person may become a member of an LLP by and in accordance with an agreement with the existing members.26 In respect of companies, s 994(2) of the CA 2006 provides that the provisions of Pt 30 apply to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law. This provision is not applied in any way to LLPs, so that, for instance, the trustee in bankruptcy of a member, or the personal representatives of a deceased member, will have no standing to present a petition.27 32.10 The standing of individual members to present a winding up petition, whether on the ‘just and equitable’ ground, or any other ground, is discussed at 31.17–31.23. Whilst it is clear that individual members who are also ‘contributories’28 (or creditors) do have such standing, it is a matter of doubt whether individual members who are not contributories (or creditors) equally have such standing. 32.11 One situation in which the court’s powers pursuant to ss 994 and 122(1)(e) may be significant is where a member wishes to cease to be a member of the LLP, but no terms have been agreed between the members as to the financial consequences of cessation. A member who finds himself in this situation will obviously seek to negotiate exit terms with his fellow members. If, however, no terms can be agreed, the member will be in a difficult position. Assuming that there is no binding agreement to the contrary, he has the right, pursuant to LLP Act 2000, s 4(3), to cease to be a member by giving reasonable notice.29 But whether he exercises this statutory right, or a specific right to retire contained in the LLP agreement, the LLP legislation does not contain any provisions as to the financial consequences of a cessation having effect in default of agreement amongst the members. The view of the authors, expressed in Chapter 19, is that, in the event of a member leaving without there being any agreement as to his financial entitlement, he has no implied or inherent right to payment for the value of his share in the LLP (including, in particular, his capital), and that his share is probably determined by the cessation.30 However, so long as he continues to be a member, the person wishing to leave clearly has standing

winding up refused on the grounds that the petitioner could obtain the same result simply by demanding payment of sums due to her from the company). 26 See 8.2 and 8.5. 27 Equally, such persons may not interfere in the management or administration of the business or affairs of the LLP: LLP Act 2000, s 7(2), discussed at 8.21–8.26. 28 As to ‘contributories’, see 31.17–31.23. 29 See 19.2. 30 See 19.27–19.40. He will have a right to payment if an agreement to that effect can be inferred from the dealings of the members prior to his cessation: see 10.5–10.6 for an analysis of the means by which LLP agreements may be inferred.

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to present a petition under s 994 or (if he is also a contributory) s 122(1)(e)31 and may wish to explore whether these provisions might provide a means whereby the value of his share can be realised and/or his capital returned. 32.12 If, however, a member gives notice of retirement and ceases to be a member, the position is less clear. If the authors are correct in Chapter 19 in saying that the ‘share’ of a member who leaves in these circumstances is determined, no purpose is likely to be served by the now former member presenting a petition. Indeed, a petition presented by a former member in these circumstances is likely to be struck out as an abuse of the process of the court on the basis that he does not, in the case of a s 122(1)(e) petition, have a sufficient interest in the winding up or will not, in the case of a s 994 petition, be entitled to any relief.32 32.13 Furthermore, even if, contrary to the authors’ view, an outgoing member’s share or interest survives the cessation of his membership, former members do not have standing to present a petition on the face of s 994. For the outgoing member to have standing, it would be necessary to read the reference to ‘member’ in s 994 as including ‘former member’, or at least ‘former member with whom the LLP and the continuing members have reached no agreement as to the financial consequences of his cessation’. In the authors’ view, such a reading of s 994 is not justified. ‘Member’ in the LLP Act 2000 (including s 4(3)) does not include former members. Similarly, the term ‘member’ as used in the CA 2006 as it applies to companies does not include former members.33

APPLICATION OF STATUTORY PROVISIONS TO LLPs Section 994 32.14 As explained above, s 994(3) of the CA 2006 enables the members of an LLP to agree to exclude the operation of s 994(1). Most LLPs which adopt a written LLP agreement are likely to include a provision excluding the operation of the section. The purpose of an LLP agreement is to regulate the rights and obligations of the members between themselves, and between the members and the LLP: members are unlikely to want to give individual members an opportunity to attempt to go behind the terms of the agreement by asserting unfair prejudice. The authors’ experience is that, at least in relation to professional service LLPs, the right to petition under s 994 is routinely excluded. In any event, if the members of the LLP enter into a reasonably comprehensive LLP agreement, then the scope for the application of the

31

32 33

A member who presents a petition to have the LLP wound up must have a sufficient interest in the winding up; see Joffe, op cit, paras 5.02–5.09. In most cases, this will require the petitioner to show that the LLP is solvent (at least on a balance sheet basis) and that the petitioner will be entitled to a share of the surplus assets. There is an exception where the member is prevented from establishing a surplus because he has not been provided with accounts and other information to which he is entitled: Re Newman and Howard Ltd [1962] Ch 257 at 262. See Joffe, op cit, paras 5.02–5.09 and 6.13; and Charit-Email Technology Partnership LLP v Vermillion International Investments Ltd [2009] BPIR 762. See CA 2006, s 112.

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unfair prejudice and just and equitable winding-up principles underlying ss 994 and 122(1)(e) respectively is likely to be limited, even if the operation of s 994 is not specifically excluded.

O’Neill v Phillips 32.15 The leading authority on the court’s jurisdiction under s 994 is the House of Lords decision in O’Neill v Phillips.34 The facts were, briefly, as follows.35 Pectel Ltd employed Mr O’Neill as a manual worker. Mr Phillips, the sole shareholder in Pectel Ltd, gave Mr O’Neill 25 per cent of the shares, and appointed him as a director. Mr Phillips indicated that he hoped Mr O’Neill would take over the running of the company and that, if he did, he would be entitled to 50 per cent of the profits. Mr O’Neill duly took over the running of the company, and was credited with half the profits. Mr Phillips indicated in negotiations that he was in principle willing to increase Mr O’Neill’s shareholding and voting rights to 50 per cent when certain targets were reached. However, Mr Phillips then lost confidence in Mr O’Neill, and took back control. He told Mr O’Neill that he would no longer receive 50 per cent of the profits but only his salary and any dividends payable on his 25 per cent shareholding. The judge dismissed a s 459 (predecessor to s 994) petition presented by Mr O’Neill and (in which Mr O’Neill sought, inter alia, an order that Mr Phillips or the company purchase his shares at a fair value). The judge’s decision was reversed by the Court of Appeal but restored by the House of Lords. 32.16 In his speech, Lord Hoffmann (with whom the other Law Lords agreed) undertook a detailed analysis of what constitutes unfairly prejudicial conduct.36 His starting point was that the purpose of what is now the s 994 jurisdiction is to give the court power to grant relief in circumstances in which it is just to do so, and to free the courts from technical considerations of legal right.37 However, he stressed that what is fair depends upon the context and background and that, in the case of s 994, the background has two features. First, a company is an association of persons for an economic purpose, the terms of which are contained in the articles of association (and, sometimes, in collateral agreements between the shareholders). As such, the manner in which the affairs of the company may be conducted is clearly regulated by rules to which the shareholders have agreed. Secondly, company law has developed from the law of partnership, which was treated by equity as a contract of good faith; and one of the traditional roles of equity was to restrain the exercise of strict legal rights in certain relationships in which it considered that such exercise would be contrary to good faith.38 Consequently: ‘The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach

34

[1999] 1 WLR 1092. Taken from the headnote, ibid at 1092. 36 His speech is also instructive in relation to the court’s power to order winding up on the just and equitable ground. 37 Ibid at 1098. 38 Ibid. 35

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The Law of Limited Liability Partnerships of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith. This approach to the concept of unfairness in s [994] runs parallel to that which your Lordships’ House, in In re Westbourne Galleries Ltd [1973] AC 360, adopted in giving content to the concept of “just and equitable” as a ground for winding up … I would apply the same reasoning to the concept of unfairness in s [994]. The Law Commission, in its Report on Shareholder Remedies (1997) (Law Com No 246), p 43, para 4.11, expresses some concern that defining the content of the unfairness concept in the way I have suggested might unduly limit its scope and that “conduct which would appear to be deserving of a remedy may be left unremedied”. In my view, a balance has to be struck between the breadth of the discretion given to the court and the principle of legal certainty. Petitions under s [994] are often lengthy and expensive. It is highly desirable that lawyers should be able to advise their clients whether or not a petition is likely to succeed. Lord Wilberforce [in Westbourne Galleries] … said that it would be impossible “and wholly undesirable” to define the circumstances in which the application of equitable principles might make it unjust, or inequitable (or unfair) for a party to insist on legal rights or to exercise them in particular way. This of course is right. But that does not mean that there are no principles by which those circumstances may be identified. The way in which such equitable principles operate is tolerably well settled and in my view it would be wrong to abandon them in favour of some wholly indefinite notion of fairness.’

32.17 The authors consider that this analysis is likely to be treated by the courts as equally applicable to LLPs, but they caution against unthinking transposition of the quasi-partnership concept and its consequences to LLPs. First, whilst it may be tempting simply to assume that the relationship between members of any LLP is one of quasi-partnership for these purposes, in the authors’ view such an assumption would not be justified. LLPs are corporate entities that can be and are used in myriad different circumstances, and where the relationships between members can be and are crafted in bespoke ways. Whilst an LLP with a handful of members created as a vehicle for their joint venture, in circumstances where there is an expectation of continuing mutual involvement, may justify the epithet ‘quasi-partnership’, an LLP created to be used as part of a large corporate structure or an LLP created with an intention of having hundreds of members, most of whom have little or no involvement in management, may well not. Secondly, whether or not the quasi-partnership label is justified, where the members of an LLP have entered into a reasonably comprehensive LLP agreement, the scope for the application of the principles underlying s 994 is likely to be limited (at least, if the bargain is being complied with). A member will not usually be able to appeal to concepts of fairness and good faith if the affairs of the LLP are being conducted in accordance with the terms of the agreement to which he is a party. Where there is no LLP agreement, or the agreement does not deal with particular issues, the default provisions for LLP agreements (‘default rules’) will apply.39 Again, a member is unlikely to be able to complain of unfairness if the affairs 39

SI 2001/1090, regs 7 and 8. See generally, on the default rules, 10.7–10.11.

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of the LLP are governed in accordance with a default rule in the absence of agreement made between the members. It has to be borne in mind that an LLP agreement need not be made in writing. An oral agreement, or even understanding with contractual force, will oust the default rules, and can be enforced by the members. Conduct in accordance with the LLP agreement (oral or written) and/or the default rules will only be unfair if there are equitable considerations which make it unfair for the other members to rely upon their strict legal powers.40 32.18 In company cases, such unfairness often arises from the fact that the legal framework (ie the CA 2006 and the articles of association) pursuant to which the affairs of the company are conducted does not reflect the true agreement or understanding between the members. In other words (and having regard to the second background matter referred to by Lord Hoffmann), the true agreement or understanding makes it unconscionable for the other members to stand on their strict legal rights. Whilst the same principles are likely to be applied to LLPs, the occasions on which the true understanding is not reflected in the operative agreement are likely to be relatively few.

Section 122(1)(e) 32.19 Will similar considerations apply to petitions presented on the just and equitable ground under s 122(1)(e) of the IA 1986? In general terms, Lord Hoffmann’s analysis will be applicable to petitions presented under s 122(1)(e), although it is now accepted that the court’s jurisdiction under s 122(1)(e) is broader than that under s 994, and it is not statutorily constrained by a need to find unfairly prejudicial conduct. Petitions for the winding up of companies on the just and equitable ground are commonly advanced on the grounds that there has been a loss of substratum, mismanagement or an exclusion from management, and deadlock. A loss of substratum will occur where it is shown that the original purposes for which the company was incorporated have been fully achieved or may no longer be pursued. This will generally require the petitioner to demonstrate that the sole remaining purpose of the company is to get in its assets and wind up its affairs. It will not be sufficient simply to show that the main commercial purpose may no longer be pursued, so long as some other commercial pursuit which a company may permissibly pursue remains available.41 In the context of an LLP, it would appear that determining whether or not there has been a loss of substratum will depend on the scope of the business as set out in, or contemplated by, the LLP agreement.42 In the absence of any such restriction, the substratum of the LLP will not be lost so long as the LLP remains capable of carrying on any legal business with a view to profit (this being the existential requirement for the valid creation of an LLP, stipulated by s 2(1)(a) of the LLP Act 2000). Whether there has been mismanagement and/or improper exclusion from management will be determined by reference to the principles developed in the context of unfair prejudice petitions described further below. The issue of deadlock is addressed at 32.28–32.30.

40 See 41 42

17.28–17.32 for obligations of good faith in relation to decision making. Re Perfectair Holdings Ltd [1990] BCLC 423. As to which, see 11.3.

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Obtaining relief 32.20 When will a member obtain relief under s 994 or a winding-up order pursuant to s 122(1)(e)? If the petitioner can establish that the conduct of the other members is in breach of the LLP agreement or the default rules, he may be entitled to relief. Of particular significance are rights conferred by the LLP agreement or the default rules to participate in the management and carrying on of the business of the LLP. In Eaton v Caulfield,43 unfair prejudice was held to exist, and winding up on the just and equitable ground justified, where a member of an LLP was expelled, purportedly pursuant to the terms of an alleged oral agreement by which another member was to be entitled to expel him (and the third LLP member) and to exercise all powers of management. Having concluded that there was no such oral agreement, Proudman J found that the default rules applied. As a result the petitioner had been unfairly prejudiced by his exclusion from management contrary to reg 7(3) and wrongful purported expulsion contrary to reg 8. 32.21 A serious failure to comply with the terms of an LLP agreement may well constitute unfairly prejudicial conduct, but it does not necessarily follow that the court will grant relief whenever there is such a failure. Relief under s 996 may not be required if the prejudice to the wronged member can adequately be compensated by ordinary contractual remedies and the wronged member is able to secure an exit from the LLP on reasonable terms without requiring a buy-out order. In Flanagan v Liontrust Investment Partners LLP,44 Henderson J held that expulsion and exclusion from management were unfairly prejudicial where an agreement between the members conferred a power to expel which had been exercised improperly. However, in the context of that case, no relief was required, given that it remained open to the other members to remove the petitioner by a valid exercise of the power, and the petitioner’s interest in the LLP had no inherent value. 32.22 Beyond breaches of the agreements governing the rights and obligations of members and the LLP, and exclusion from management/expulsion, the categories of unfair prejudice are not closed. In the company context, petitioners have succeeded where they have demonstrated a failure to consult or to provide information, mismanagement by those entrusted with the conduct of the company’s business, the payment of excessive remuneration, bonuses and other benefits to those involved in management (especially where this leads to a failure to pay dividends), illegality and breaches of duty owed to the company.45 In principle, each of these categories is capable of applying to LLPs with appropriate modification. Further, relief may be granted if (notwithstanding what is said above) the member can establish that other members are acting unconscionably or contrary to good faith, albeit in accordance with their strict legal rights. The broader scope for obtaining winding up on just and equitable grounds has been addressed at 32.19 above and is considered further at 32.28–32.32 below.

43 44 45

[2011] EWHC 173 (Ch). Ibid at [251]. For a detailed exposition of each category, see Joffe, op cit, paras 6.143–6.245.

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32.23 Whatever ground of unfair prejudice is relied upon, relief is unlikely to be granted if the LLP agreement gives the member a reasonable ‘exit route’, or if the other members make a reasonable offer to purchase the disenchanted member’s share.46 A written LLP agreement will usually make detailed provision for the circumstances in which a member can cease to be a member, and the financial consequences of cessation. Where such terms have been agreed, relief is also unlikely to be granted under s 122(1)(e). Notwithstanding this, relief under s 994 or s 122(1)(e) may still be available if the compensation payable to an outgoing member pursuant to the LLP agreement is well below the true value of his share,47 and the conduct of the other members is such that he is, in effect, being forced out against his will. In this situation, relief may be granted unless the other members make a reasonable offer to purchase his share at its true value.48 32.24 Petitions under s 994 may also be dismissed in the event that the court is satisfied that there has been wrongdoing on the part of the petitioner. Such wrongdoing will also be taken into account in considering the appropriateness of any given form of relief. An obvious example is where complaint is made of exclusion from management when the petitioner’s conduct justified his dismissal.49 Further, while there is no limitation period for the bringing of unfair prejudice proceedings, relief will be barred if the petitioner has acquiesced in the alleged unfairly prejudicial conduct or has delayed the bringing of his petition for an inordinate and unexplained period of time.50

Breakdown of relationship between members 32.25 Will relief be granted to a member merely because he wishes to leave the LLP in circumstances in which the LLP agreement does not make provision for the financial consequences of cessation, and he cannot come to an agreement with his fellow members as to his entitlement on leaving? As mentioned in 32.11–32.12, although a member has a right to cease to be a member by giving reasonable notice to the other members (in default of any agreed leaving provision),51 the LLP Act 2000 and the LLP Regulations 2001 do not include any express default provision as to the financial consequences of cessation. Unless an ad hoc agreement is made by the members, the only option available to a member wishing to leave, and to realise his share in the LLP, may be to petition the court pursuant to s 994 for an order that the other members acquire his share, or pursuant to s 122(1)(e) for an order that the LLP be wound up. 32.26 In the authors’ view, a petition pursuant to s 994 is unlikely to succeed if the member merely wishes to leave, and the majority have refused to purchase 46 See 47 48 49

50 51

Williams v Wilsons Solicitors LLP (29 June 2012), Briggs J at [51]–[61]. For example, if an outgoing member is entitled only to payment of his capital and current account balances and the true value of the net assets is substantially in excess of their book value. See Joffe, op cit, paras 6.267–6.279. Re London School of Electronics [1986] Ch 211; Richardson v Blackmore [2005] EWCA Civ 1356 (where the Court of Appeal set the bar for misconduct very high, holding that the deployment of a forged letter at trial was not sufficiently serious to deprive the petitioner of a remedy). Re Grandactual [2005] EWHC 1415 (Ch). LLP Act 2000, s 4(3).

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his share. A submission was made in O’Neill v Phillips that the trust and confidence between the parties had broken down and that, because of this, there ought to be a parting of the ways. The unfairness was said to lie in Mr Phillips not being willing to allow Mr O’Neill to recover his stake in the company. It was argued that, even if Mr Phillips was not at fault in causing the breakdown, it would be unfair to leave Mr O’Neill locked into the company as a minority shareholder. Lord Hoffmann rejected this argument on the basis that, in effect, the jurisdiction under s 994 does not extend to ‘no fault divorce’. Lord Hoffmann stated that:52 ‘[Counsel’s] submission comes to saying that, in a “quasi-partnership” company, one partner ought to be entitled at will to require the other partner or partners to buy his shares at a fair value. All he need do is to declare that trust and confidence has broken down. In the present case, trust and confidence broke down, first, because Mr Phillips failed to do certain things which, on the judge’s findings, he had never promised to do; secondly, because Mr O’Neill wrongly thought that Mr Phillips had committed various improprieties; and finally because, as the judge said [1997] 2 BCLC 739, 742, he was “inclined to see base motives in everything that Mr Phillips did.” Nevertheless it is submitted that fairness requires that Mr Phillips or the company ought to raise the necessary liquid capital to pay Mr O’Neill a fair price for his shares. I do not think that there is any support in the authorities for such a stark right of unilateral withdrawal. There are cases, such as In re A Company (No 006834 of 1988), ex parte Kremer [1989] BCLC 365, in which it has been said that if a breakdown in relations has caused the majority to remove a shareholder from participation in the management, it is usually a waste of time to try to investigate who caused the breakdown. Such breakdowns often occur (as in this case) without either side having done anything seriously wrong or unfair. It is not fair to the excluded member, who will usually have lost his employment, to keep his assets locked in the company. But that does not mean that a member who has not been dismissed or excluded can demand that his shares be purchased simply because he feels that he has lost trust and confidence in the others. I rather doubt whether even in partnership law a dissolution would be granted on this ground in a case in which it was still possible under the articles for the business of the partnership to be continued. And as Lord Wilberforce observed in In re Westbourne Galleries Ltd [1973] AC 360, 380, one should not press the quasi-partnership analogy too far: “A company, however small, however domestic, is a company not a partnership or even a quasi-partnership.” The Law Commission Report on Shareholder Remedies to which I have already referred considered whether to recommend the introduction of a statutory remedy “in situations where there is no fault” (paragraph 3.65) so that members of a quasi-partnership could exit at will. They said, at p 39, para 3.66: “In our view there are strong economic arguments against allowing shareholders to exit at will. Also, as a matter of principle, such a right would fundamentally contravene the sanctity of the contract binding the members and the company which we considered should guide our approach to shareholder remedies.” The Law Commission plainly did not consider that s [994] already provided a right to exit at will and I do not think so either.’ 52

O’Neill v Phillips above, at 1104. See also Grace v Biagioli [2006] 2 BCLC 70 (CA).

Unfair Prejudice and Just and Equitable Winding Up

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32.27 There are, the authors suggest, two distinct situations to be considered: first, where a member decides that he wants to leave, and seeks to negotiate terms with the other members, but they refuse to buy him out and it is this that causes a breakdown in relations; and, secondly, where relations between one member and the others break down (without fault on either side) to such an extent that it is not feasible for them to carry on in business together and, at that point, one member wishes to leave. Under s 994, relief cannot be granted in either situation unless there is unfairly prejudicial conduct on the part of the other members. In an ordinary company case, there will not be unfairly prejudicial conduct unless the majority exclude the minority from involvement in the company contrary to a legitimate expectation of involvement on the part of the minority.53 The authors’ view is that, in relation to LLPs, it is almost certain that Lord Hoffmann’s analysis will be applied to both situations, so that relief will not be granted under s 994.54 32.28 The statutory jurisdiction to wind up an LLP on the just and equitable ground is, however, prima facie, broader than the jurisdiction under s 994. In Hawkes v Cuddy55 the Court of Appeal rejected the conclusion of Jonathan Parker J in Re Guidezone56 that the jurisdictions under ss 122(1)(e) and 994 are co-terminous. As a result, the doubt as to whether a just and equitable winding up of a company could be ordered where deadlock existed, but was not occasioned by unfair prejudice, has now been removed:57 a winding-up order can be made if it is just and equitable in all the circumstances. Although a court is unlikely to make a winding-up order merely because the petitioner wishes to realise his investment (even if his desire to leave has caused an irretrievable breakdown in relations),58 there may well be circumstances in which it would be just and equitable to make a winding-up order in the absence of unfairly prejudicial conduct on the part of any member. Suppose, for instance, that an LLP is formed by four members in circumstances in which they agree to carry on business together through the vehicle of an LLP. Relations between one of the members and the other three break down (with no fault on the part of any of them), making it impossible for them to continue in business together, and the one wishes to leave. He is willing to be bought out (at a valuation to be fixed by an independent expert), but the others refuse. If no ‘exit regime’ has been agreed, either in advance or on an ad hoc basis following the breakdown, it may well, in these circumstances, be just and equitable to wind up the LLP in order to enable the one member to realise the value of his share. The more flexible approach is consistent with the position in partnership law. In partnership cases, the court has a discretion to order dissolution on the just and equitable ground pursuant to s 35(f) of the Partnership Act 1890 if there has been a complete breakdown in relations between the partners. However, it appears that relief will be refused, whether sought in respect of a

53 See

Larvin v Phoenix Office Supplies Ltd [2003] 1 BCLC 76. See also McKee v O’Reilly [2003] EWHC 2008 (Ch), [2004] 2 BCLC 145. 55 [2009] EWCA Civ 291 at [101]–[108]. 56 [2000] 2 BCLC 321. 57 Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426 at 435; Re Brand & Harding Limited [2014] EWHC 247 (Ch) at [53]. 58 See Re Anglo-Continental Produce Co Ltd [1939] 1 All ER 99 at 102–103. 54

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partnership or a company, if the breakdown has been solely caused by the petitioning partner.59 32.29 The circumstances in which a court may order the winding up of a company on the just and equitable ground, where there is deadlock or a breakdown in relations between the members, were considered by the Privy Council in Chu v Lau.60 Lord Briggs said: ‘14. A just and equitable winding-up may be ordered where the company’s members have fallen out in two related but distinct situations, which may or may not overlap. First, a winding-up may be ordered to resolve what may conveniently be labelled a functional deadlock. This is where an inability of members to co-operate in the management of the company’s affairs leads to an inability of the company to function at board or shareholder level. Functional deadlock of this paralysing kind was first clearly recognised as a ground for a just and equitable winding-up by Vaughan Williams J in In re Sailing Ship Kentmere Co [1897] WN 58, a decision on the jurisdiction conferred by section 79 of the (UK) Companies Act 1862 (25 & 26 Vict, c 89). 15. Secondly, where the company is a corporate quasi-partnership, an irretrievable breakdown in trust and confidence between the participating members may justify a just and equitable winding-up, essentially on the same grounds as would justify the dissolution of a true partnership.’

32.30

Lord Briggs explained61 that the importance of the distinction was that:

‘If there is a complete functional deadlock, then a winding-up may be ordered regardless whether the company is a corporate quasi-partnership. But if the company is of that type, then a breakdown of trust and confidence may justify a winding-up even where there may not be a complete functional deadlock. In the former case winding-up is a remedy for paralysis. In the latter it is the response of equity to a state of affairs between individuals who agreed to work together on the basis of mutual trust and confidence where that trust and confidence has completely gone. But of course both may exist together, and a complete breakdown in trust and confidence may well be the cause of functional deadlock, in a two party quasi-partnership like the present.’62

32.31 It is not easy to predict how the courts will approach such petitions by members of LLPs. The courts will inevitably be influenced strongly by the law relating to companies and partnerships. That said, the courts will, within the s 994 and s 122(1)(e) framework, have to resolve the difficulties arising from the grant to members of a statutory right to cease to be members but the omission from the legislation of provisions dealing with the financial consequences of such retirement. If the distinction elucidated in Chu v Lau is applied,63 the court will refuse to exercise

59 See

Chu v Lau [2020] UKPC 24 at [64]; Blackett-Ord, Partnership (Bloomsbury Publishing, 6th edn, 2020), paras 17.24–17.26; Ebrahimi v Westbourne Galleries [1973] AC 360 at 387. 60 [2020] UKPC 24. 61 At [17]. 62 And see Lady Arden at [87]–[92]. 63 See 32.29.

Unfair Prejudice and Just and Equitable Winding Up

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its power under s 122(1)(e) unless either the breakdown in relations has caused functional deadlock, in the sense explained by Lord Briggs and Lady Arden, or the LLP can be treated as a quasi-partnership where the circumstances justify the use of the equitable overlay to provide the member with an exit route to which he is not entitled under the legal terms governing the relationship. There is obvious scope for this distinction to operate in ways that might be regarded as harsh: unless the courts are willing to exercise their powers under ss 994 and 122(1)(e), either to require the other members to purchase the outgoing member’s share, or to order a winding up, a member who wishes to leave will have a stark choice: either he continues as a member until such time as agreement can be reached,64 or he gives notice and ceases to be a member and thereby possibly forfeits his share. But whether this operates any more harshly on a member of an LLP who is entitled to cease to be a member, but who has no right to extract the value of his share, than it does on a minority shareholder of a company, who may theoretically have a right to sell his shares but in practice that is impossible, is questionable. 32.32 The authors’ view is that the courts are likely to develop the law on just and equitable winding up as applied to LLPs so that a member will be entitled to relief if the LLP is a quasi-partnership, there has been a complete breakdown in relations (for reasons unconnected with his desire to exit the LLP), and the other members unreasonably refuse to acquire his share, even in the absence of prior misconduct or bad faith on the part of the non-petitioning members.65 However, it is extremely doubtful, in our view, whether the courts will grant relief under either s 994 or s 122(1)(e) in cases where the petitioner is attempting to use the statutory provisions simply as a means of exiting from the LLP with compensation for the value of his share in a situation where relations had not (prior to his wishing to leave) broken down.

64 65

Or the LLP is wound up by a creditor or by determination of the members, or he has grounds for a s 994 petition or a just and equitable winding-up petition. See also Re Magi Capital Partners LLP [2003] EWHC 2790 (Ch) and Tower Taxi Technology LLP v Marsden [2005] EWCA Civ 1503 (although see Chu v Lau [2020] UKPC 24 at [38]–[43] in relation to the question whether the facts are to be assessed at the date of issue of the petition or at the date of the hearing).

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Chapter 33 CONDUCT OF THE LIQUIDATION

GENERAL 33.1 In very general terms, it is the liquidator’s duty to get in and realise the assets of the LLP and to distribute them to those entitled. Normally, the persons entitled will be limited to the LLP’s creditors. However, if there is a surplus, this will fall to be distributed between the members in accordance with their rights and interests in respect of the LLP.1 The IA 1986 contains provisions relating to the conduct of liquidations, and the powers of liquidators and the court, in respect of both voluntary and compulsory winding up.2 These provisions are not modified substantially for LLPs, and reference should be made to the standard insolvency texts.3 Particular aspects of the conduct of liquidations are considered below.

STATUS OF MEMBERS’ CLAIMS 33.2 In company law, a sum due to a member, in his capacity as a member, by way of dividends, profits or otherwise, is not deemed to be a debt of the company payable to that member where there is competition between that member and any other creditor not a member of the company. However, under IA 1986, s 74(2)(f) such sums may be taken into account for the purpose of the final adjustment of the rights of contributories (which, for companies, will include all shareholders) among themselves. Further, a member of a company can prove for sums due to him otherwise than in his capacity as a member, and such claims rank alongside those of all the other creditors. A member of a company is not entitled to any payment in respect of his shares as such but, if there is a surplus, it is distributed in a voluntary winding up among the members according to their rights and interests in the company.4 In the case of a compulsory winding up, it is distributed among the persons entitled after adjustment by the court of the rights of the contributories among themselves.5

1

2 3 4 5

See IA 1986, s 107 (voluntary liquidations) and ss 143(1), 144(1) and 154 (compulsory liquidations), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. See, in relation to the interaction between receiverships and winding up, Buchler v Talbot [2004] 1 All ER 1289 at [28]–[37] per Lord Hoffmann. See also Proceeds of Crime Act 2002, s 426, as amended by the Policing and Crime Act 2009, in relation to property subject to restraint orders. See IA 1986, ss 107–116, 143–200, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. See, for example, Palmer’s Company Law, Part 15; Totty and Moss, Insolvency, Part D. IA 1986, s 107, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 154.

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33.3 The first issue which arises in relation to LLPs is the extent to which a member can prove for sums owed to him by the LLP and, to the extent that he can, whether his claim ranks alongside those of ordinary creditors. The authors suggest that a member will be able (in the same way as in company law) to prove for sums due to him otherwise than in his capacity as a member, and that such claims will rank alongside the ordinary creditors: for example, a claim by an employed member for sums due to him as an employee such as salary; or, for example, if the member has made a loan to the LLP. 33.4 Sums due to a member in his capacity as a member are not so straightforward. Rather oddly, s 74(2)(f) of the IA 1986 has not been applied to LLPs. Given that para 1 of Sch 3 to SI 2001/1090 sets out a bespoke provision to apply to LLPs, s 74(2)(f) was presumably omitted deliberately. As a result, the legislation does not include an express provision deferring the rights of members in their capacities as members in a liquidation. The types of claim that may fall into this category will include claims in respect of capital contributions and accrued, but unpaid, profit share. Although the legislation does not impose a capital or share structure for LLPs, the legislation does recognise the concept of members’ ‘capital’.6 It seems likely that LLP agreements will impose on members (or at least on ‘equity’ members) obligations to contribute ‘capital’ in the same way as traditional partnership agreements currently do. In the authors’ view, it is inherent in a contribution by a member of a sum ‘by way of capital’ (rather than ‘by way of loan’)7 that the member has no implied right to repayment either during the continuance of the LLP’s trading or on a winding up.8 A right to repayment will arise either when he ceases to be a member (if the LLP agreement makes provision in this regard) or otherwise by way of express agreement,9 or if there is a surplus of assets on a winding up. It must follow that a member cannot prove for his capital in a winding up: a member’s entitlement will be limited to a share in any surplus assets distributable. 33.5 As to accrued profit share, a member’s entitlement to call for his profit share in respect of any period, and as a creditor to enforce that entitlement against the LLP, will probably depend upon whether or not there has been a division amongst the individual members of their respective shares of the profits of the LLP for that period. The issue of division is discussed at 16.12–16.14. Where there has been a division, and resulting allocation, of profits to the individual members, and in the absence of any statutory deferral of members’ claims, the authors’ view is that the amount is due to the member as a debt. Consequently, a member is entitled to submit a proof in respect of that debt in an insolvency, and the amount due would be capable of being set off against a sum due from the member to the LLP.10 In McTear v Eade,11

6 See

16.2. For a judicial endorsement of the view that LLPs have capital where contributions are made and credited to members’ capital accounts, see HMRC v Hamilton & Kinneil (Archerfield) Ltd [2015] UKUT 130 (TCC) at [28] (Warren J CP). 7 The distinction is discussed in 16.2. 8 See McTear v Eade [2019] EWHC 1673 (Ch) at [118]. 9 See 16.7. 10 Insolvency Rules 2016, rr 14.24 and 14.25. 11 [2019] EWHC 1673 (Ch).

Conduct of the Liquidation

601

sums were paid to members on account of anticipated profits that never materialised. ICC Judge Jones held12 that those sums were therefore loans to the members that they were liable to repay and that they were not entitled to set off that liability against sums due to them from the LLP. ICC Judge Jones took the view that an entitlement to do so would be contrary to IA 1986, s 107. 33.6 In reaching this view, ICC Judge Jones relied on his earlier analysis in relation to capital:13 ‘The issue of capitalisation has caused difficulty and it is convenient here to set out the following basic principles relevant to matters raised during submissions. The context is that whilst a member who has lent money unsecured to an LLP ranks together with all other unsecured creditors in a liquidation and can rely upon the same rights of set off: a)

b)

Members’ capital, the working funds provided as equity, is an investment upon terms which leave the member at risk of loss. A member cannot set off capital as though it is debt whether within or without an insolvency. Capital will be recovered in a liquidation only if there are funds available after payment of the costs, expenses, debts and obligations of the LLP. That results from the fundamental nature of capital and its distinction from debt. It is also expressly provided within section 107 of the Insolvency Act, which applies to LLPs. It has been drawn to my attention in support of the submission that capital can be set off against debt that section 74(2)(f) of the Insolvency Act has not been applied to LLPs. Instead Schedule 3 of the Regulations provides a substituted section 74 provision for LLPs. However, that has no effect upon the principles summarised in sub-paragraph (a) above. The provisions of section 74 concern the liability of members to contribute to the assets of the company/LLP upon winding up and section 74(2)(f) allows members’ claims to be taken into account upon the final adjustment of the rights between members. Whilst section 74(2)(f) also expressly provides that a sum due to a member in that capacity cannot be ranked as a creditor’s debt, the omission of those words within the substituted LLP provision cannot lead to the conclusion that the opposite is intended for LLPs. Such conclusion would need an express provision and would be contrary to section 107 (above).’

33.7 In relation to capital, the authors’ view is that ICC Judge Jones’ conclusion was right, and that he was also right that the omission of s 74(2)(f) from the version of s 74 as it applies to LLPs does not affect that analysis.14 But, in the authors’ view, ICC Judge Jones was wrong to hold that the same analysis applies to other sums due from an LLP to a member. It should be noted that, although his decision in [136] concerns the entitlement on the part of members to exercise a right of set-off, if his reasoning is right, then it would follow that a sum due to a member by way of allocated but unpaid profit would not be a debt and would not be provable

12 13 14

At [136]. At [118]. But the authors take the view that he was wrong to suggest in [118a)] that s 107 expressly provides that capital is only recoverable by way of a share of a surplus.

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in an insolvency. In the authors’ view, the reasons why ICC Judge Jones was wrong are as follows: (1) The absence of s 74(2)(f), in the provision as it is applicable to LLPs, is ­significant. As a matter of general principle, in the absence of such a statutory provision, if an LLP is indebted to a member, the fact that the creditor happens to be a member (even if the debt may be said to be due to him ‘in his character as a member’) does not impinge on his ability to prove for it alongside other ordinary creditors. The material question is simply whether the sum concerned has become a debt owed by the LLP to the member as opposed to being a sum in which the member may ultimately be interested via a surplus in a winding up. (2) Section 107 does not assist the analysis. Section 107 is concerned with the application of an LLP’s property in a winding up and provides that (subject to the provisions as to preferential payments) an LLP’s property shall, in a ­voluntary winding up, be applied in satisfaction of the LLP’s liabilities pari ­passu and, after that, shall (unless the LLP agreement provides otherwise) be distributed among the members according to their rights and interests in the LLP. Section 107 does not assist in determining whether a sum due to a member is properly treated as a liability. ICC Judge Jones did not explain in detail why he considered that s 107 provides the answer, but he seems to have proceeded on the basis that, because the section refers to any sum left after liabilities have been paid being distributable among members, it follows that sums due to members cannot be liabilities payable pari passu. But s 107 does not say that expressly,15 and there is no reason, in the authors’ view, why it should be treated as so providing implicitly, particularly given the omission of s 74(2)(f). 33.8 The second issue which arises in relation to LLPs is how a surplus in a winding up is to be shared. By ‘surplus’ is meant anything remaining after satisfaction of the liabilities of the LLP and the expenses of the liquidation. Sections 107 and 154 are modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. Section 107 (distribution in a voluntary winding up) provides that, after the LLP’s liabilities have been satisfied, its property ‘shall (unless the limited liability partnership agreement otherwise provides) be distributed among the members according to their rights and interests in the limited liability partnership’; and s 154 (distribution in a compulsory winding up) provides that the court ‘shall … distribute any surplus among the persons entitled to it’. Although ss 107 and 154 do not use the same wording, their effect for present purposes is the same.16 Any surplus is to be distributed in accordance with members’ ‘rights and interests’ in the LLP. The rights and interests of the members will be governed by the terms of the LLP agreement. The members are free to agree whether, and how much, each of them is to contribute to the assets of the LLP, both in

15 16

Cf [118a)] which uses the word ‘expressly’. See, for instance, Birch v Cropper (1889) 14 Ch App 525 at 544. Section 154, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1, provides that the court ‘shall adjust the rights of the contributories among themselves and distribute any surplus among the persons entitled to it’. The meaning of ‘contributories’ is discussed at 31.17–31.23. It does not automatically include all members. Nevertheless, although s 154 refers to the rights of ‘contributories’ being adjusted, there seems to be no reason to limit ‘persons entitled to it’ in s 154 to contributories.

Conduct of the Liquidation

603

the ordinary course of trading and in the event of a winding up; and, in addition, what rights and interests they will each acquire at any time by reason of their contributions and/or membership. In the absence of a tailor-made LLP agreement, default rule (1) contains rights and interests of members. In particular, default rule (1) provides that all the members are entitled to share equally in the capital and profits of the LLP. As is stated in 16.16, ‘profits’ in the rule includes capital profits. Capital profits will include any rise or fall in the value of the LLP’s assets (such as fixed plant or land);17 and the balance of any surplus left in a winding up after repayment of capital (and after payment to the members of their respective shares of any undivided and unallocated profits18 of the LLP for the previous financial year credited to ‘Other reserves’) is likely to be properly regarded as capital profits.19 33.9

The authors suggest, therefore, that a surplus is to be distributed as follows:

(a)

If the members have agreed how a surplus on a winding up is to be distributed, then that agreement will govern the distribution. (b) If the members have agreed how capital and profits are to be shared, but have not distinguished between the position before and after a winding up, then the position is likely to be that a surplus will be applied as follows: first, in the payment to the members of their respective shares of any undivided and unallocated profits of the LLP for the previous financial year credited to ‘Other reserves’ (rateably if the surplus is insufficient to pay the whole of such sums);20 secondly, in the repayment of members’ capital (rateably if the surplus is insufficient to repay all capital); and, thirdly, as to any balance remaining thereafter, by way of distribution pro rata to the agreed profit shares.21 (c) If the members have not made any agreement at all as to the sharing of capital or profits (so that default rule (1) applies), then the position is likely to be that a surplus will be shared equally (even if capital has been contributed in unequal shares). This conclusion is consistent with the fact that s 24 of the

17 See 18 19

20

21

Robinson v Ashton (1875) LR 20 Eq 25 (a partnership case). And see, in a company context, In re Bridgewater Navigation Co Ltd [1891] 2 Ch 317 at 328–9 (‘the second question’). And, if the analysis in McTear v Eade is right, also allocated but unpaid shares of profit: see 33.5 to 33.7. Not to be confused with ‘capital’ referred to in the rule, namely working capital contributed by members: see 16.5. Whether the possibility remains, at least in principle, of some surplus funds existing which are not properly regarded as ‘profits’ is unclear. If such surplus can and does arise, the authors suggest that the correct basis of distribution is that which is most ‘equitable’ amongst the members. See the discussion in Birch v Cropper, above, concerned with a company limited by shares; and see Griffith v Paget (1877) LR 6 Ch D 511, referring (pre-1890) to the general rule of law in a commercial partnership that a surplus is distributed in proportion to partnership capital, and Re Syston and Thurmanston Gas, Light and Coke Co Ltd [1937] 2 All ER 322 at 324, where it was held, in the corporate context, that, in default of any other basis for distribution, such surplus should be distributed pari passu. An identifiable sum in the LLP’s ‘reserves’ representing undivided and unallocated income profits of the business for a previous financial year will be distributed pro rata to the agreed income profit shares, if different from the entitlement to capital shares: see In re Bridgewater Navigation Co Ltd above. If the members have agreed different shares in income and capital profits, then the shares in capital profits will apply absent agreement to the contrary.

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Partnership Act 1890 (on which default rule (1) is based) applies both before and after the dissolution of a partnership.22 Following the interpretation of s 24 for partnership purposes, it seems reasonable to interpret default rule (1), if and so far as this may be necessary, as also applying before and after the commencement of a winding up of an LLP. (d) Where the members appear not to have made any agreement as to the sharing of capital or profits, but have contributed capital unequally, the result that a surplus is to be shared equally is likely to be regarded as unfair. In this situation, the slightest indication of an implied agreement between the members that their shares in capital should correspond with their contributions is likely to suffice to displace the default rule that they are entitled to share equally.23

DISCLAIMER OF ONEROUS PROPERTY 33.10 A liquidator may, by the giving of a prescribed notice, disclaim onerous property; and may do so notwithstanding that he has taken possession of it, endeavoured to sell it or otherwise exercised rights of ownership in relation to it.24 Onerous property is any unprofitable contract and any other property of the LLP which is unsaleable or not readily saleable, or is such that it may give rise to a liability to pay money or perform any other onerous act.25 If a liquidator disclaims onerous property, the effect is to determine, as from the date of the disclaimer, the rights, interests and liabilities of the LLP in or in respect of the property disclaimed.26 A disclaimer does not, except so far as is necessary for the purpose of releasing the LLP from any liability, affect the rights or liabilities of any other person.27 Disclaimed property vests in the Crown as bona vacantia. If a freehold is disclaimed, the freehold interest is determined and the land escheats to the Crown, but charges and leaseholds created out of a disclaimed freehold survive.28 A person interested in any property of the LLP can apply in writing to the liquidator requiring him to decide whether he will disclaim the property.29 A liquidator cannot disclaim the property after the period of 28 days (or such longer period as the court may allow) from the date of the application has elapsed.30 Any person sustaining loss or damage as a result of a disclaimer is deemed a creditor of the LLP and may prove for the loss or damage.31 22

Popat v Shonchhatra [1997] 1 WLR 1367 at 1374B–H, where the sale of the leasehold premises in July 1992 was two and a half years after the dissolution of the partnership; cf Sandhu v Gill [2006] Ch 456 at [55]–[57] (Neuberger LJ), [98] (Black J) and [102(7)] (Mummery LJ). See generally In re Bridgewater Navigation Co Ltd above, IRC v Burrell [1924] 2 KB 52 at 67–8 and, more recently, Deacon v Yaseen [2020] EWHC 465 (Ch) at [36]–[49]. 23 See Popat v Shonchhatra above at 1373B–C. The accounts for previous years might demonstrate such an agreement. 24 IA 1986, s 178(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1; Insolvency (England and Wales) Rules 2016, SI 2016/1024, rr 19.1–19.11, as applied to LLPs by SI 2001/1090, Sch 6, Part II, para 3. 25 IA 1986, s 178(3), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. 26 Ibid, s 178(4)(a). 27 Ibid, s 178(4)(b). 28 SCMLLA Properties Ltd v Gesso Properties (BVI) Ltd [1995] BCC 793 at 808; Hunt v Conwy County Borough Council [2014] 1 WLR 254 at [16]. 29 IA 1986, s 178(5), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. 30 Ibid. 31 Ibid, s 178(6); see Re Park Air Services Plc [2000] 2 AC 172.

Conduct of the Liquidation

33.11

605

A disclaimer of a leasehold does not take effect unless:

(a) a copy of the disclaimer has been served (so far as the liquidator is aware of their addresses) on every person claiming under the LLP as underlessee or mortgagee; and (b) no application for a vesting order32 is made within a period of 14 days beginning on the day on which the last notice is served or, where an application for a vesting order has been made, the court directs that the disclaimer take effect.33 33.12 Any person who claims an interest in disclaimed property, or any person who is under any liability in respect of the disclaimed property (not being a liability discharged by the disclaimer), may apply to the court for a vesting order.34 The court may, on such an application, make an order, on such terms as it thinks fit, vesting the property in, or for its delivery to, a person entitled to it or a person subject to an undischarged liability (or a trustee for such a person).35 Where the disclaimed property is leasehold, there are additional requirements.36 The court cannot make a vesting order of property of a leasehold nature in favour of any person claiming under the LLP as underlessee or mortgagee except on terms making that person subject to the same liabilities and obligations as the LLP was subject to at the commencement of the winding up or, if the court thinks fit, subject to the same liabilities and obligations as that person would be subject to if the lease had been assigned to him at the commencement of the winding up.37 If no person claiming under the LLP as underlessee or mortgagee is willing to accept an order on the terms required, the court may vest the LLP’s estate or interest in the property in any person who is liable to perform the lessee’s covenants in the lease.38 A person claiming under the LLP as underlessee or mortgagee not willing to accept an order is excluded from all interest in the property.39

RESCISSION OF CONTRACTS 33.13 A person who is, as against the liquidator, entitled to the benefit, or subject to the burden, of a contract made with the LLP may make an application to the court for an order rescinding the contract on such terms as to payment by or to either party of damages for the non-performance of the contract, or otherwise, as the court thinks just.40 Any damages which the court orders the LLP to pay may be proved as a debt in the winding up.41

32 33 34 35 36 37

38 39 40 41

Pursuant to IA 1986, s 181, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. See further 33.12. IA 1986, s 179, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 181(2). IA 1986, s 181(3), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 182. IA 1986, s 182(1), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. The court may make an order relating to only part of any property comprised in a lease and the requirements of s 182(1) apply to the part: s 182(2). Ibid, s 182(3). Ibid, s 182(4). Ibid, s 186(1). Ibid, s 186(2).

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CROWN PREFERENCE AND TOP SLICING 33.14 In a winding up, an LLP’s preferential debts (as also a company’s) are paid in priority to all other debts.42 Preferential debts rank equally amongst themselves after the expenses of the winding up, and are paid in full unless the assets are insufficient, in which case they abate in equal proportions.43 If the assets are insufficient, preferential debts have priority over the claim of a holder of a debenture secured by a floating charge and, accordingly, are paid out of any property comprised in or subject to that charge.44 The categories of preferential debts are set out in IA 1986, Sch 6. An important aspect of the insolvency law reforms introduced by the Enterprise Act 2002 was the abolition of the preference given to Crown debts (ie unpaid income tax deducted pursuant to the PAYE regulations and unpaid VAT).45 As a result, and prior to 1 December 2020, the only preferential debts were those owed to employees and debts and deposits covered by the Financial Services Compensation Scheme, together with levies on coal and steel production. From 1 December 2020, HMRC regained its status as a preferential creditor in respect of outstanding taxes paid by employees and customers that are held by a business on its behalf, such as Pay As You Earn employer income tax contributions, Value Added Tax, student loan repayments, and employer National Insurance Contributions and Construction Industry Scheme deductions.46 33.15 IA 1986, s 176A47 makes provision for top slicing rules which apply where there is a floating charge in relation to the property of an LLP: (a) (b) (c) (d)

which has gone into liquidation; which is in administration; of which there is a provisional liquidator; or of which there is a receiver.48

Where the top slicing rules apply, the liquidator, administrator or receiver is obliged to make a prescribed part of the LLP’s net property49 available for the satisfaction of unsecured debts, and must not distribute that part to the proprietor of a floating charge except in so far as it exceeds the amount required for the satisfaction of unsecured debts.50 The prescribed part is: (a)

42 43 44 45 46 47 48 49

50 51

50 per cent, if the LLP’s net property does not exceed £10,000;51 or

Ibid, s 175(1). Ibid, s 175(2)(a). Ibid, s 175(2)(b). IA 1986, Sch 6, paras 1–7, repealed by Enterprise Act 2002, ss 251(1), 278(2) and Sch 26. Added by Finance Act 2020, s 98, amending IA 1986, Sch 6 so as to include a new paragraph 15D (Category 9) providing for HMRC debts of this type. Inserted by Enterprise Act 2002, s 252. IA 1986, s 176A(1), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. An LLP’s net property is the amount of its property which would, but for IA 1986, s 176A, be available for satisfaction of claims of holders of debentures secured by, or holders of, any floating charge created by the LLP: IA 1986, s 176A(6), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. IA 1986, s 176A(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Insolvency Act 1986 (Prescribed Part) Order 2003 (SI 2003/2097), art 3(1)(a).

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(b) 50 per cent of the first £10,000 in value and 20 per cent of that part of the LLP’s property which exceeds £10,000, if the LLP’s net property exceeds £10,000,52 but the prescribed part cannot exceed £800,000.53 33.16 There is no obligation to apply the prescribed part for the benefit of the unsecured creditors if: (a) the LLP’s net property is less than the prescribed minimum (ie less than £10,000),54 and the liquidator, administrator or receiver thinks that the cost of making a distribution to unsecured creditors would be disproportionate to the benefits;55 or (b) the obligation is disapplied by a voluntary arrangement in respect of the LLP, or by a compromise or arrangement agreed under CA 2006, s 895;56 or (c) the liquidator, administrator or receiver applies to the court for an order on the ground that the cost of making a distribution to unsecured creditors would be disproportionate to the benefits, and the court orders that the obligation shall not apply.57

52 53 54 55 56 57

SI 2003/2097, art 3(1)(b). Ibid, art 3(2), as amended by Insolvency Act 1986 (Prescribed Part) (Amendment) Order 2020, SI 2020/211, art 2(2). SI 2003/2097, art 2. IA 1986 s 176A(3), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 176A(4). Ibid, s 176A(5).

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Chapter 34 MISFEASANCE AND ADJUSTMENT OF PRIOR TRANSACTIONS

MALPRACTICE AND MISFEASANCE 34.1 Sections 206–211 of the IA 19861 create various offences arising out of dishonesty on the part of members of the LLP. Section 212 of the IA 19862 provides a summary civil procedure for obtaining redress in respect of the misapplication and retention of, and accountability for, money and other property of the LLP, and for misfeasance and breach of fiduciary or other duty in relation to the LLP. Section 212 does not impose substantive liabilities. Instead, it simply provides a procedure by which relief can be sought against a wrongdoing member, usually by a liquidator. The section applies where the LLP is in the course of being wound up in relation to any person who is or has been a member of the LLP,3 has acted as liquidator, administrator4 or administrative receiver of the LLP5 or is, or has been, concerned in the promotion, formation or management of the LLP.6 The section enables the court to examine into the conduct of the person concerned, and to compel him to repay, restore or account for property of the LLP, or to contribute

1

2

3

4 5 6

As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Such offences consist of: fraud by a member within the 12 months preceding a winding up (in terms of fraudulently concealing or removing property, making false entries, fraudulently parting with documentation concerning the LLP’s property or affairs, or pawning, pledging or disposing of property which has not been paid for) (s 206); members gifting, transferring, charging or conniving in the levying of execution against LLP property, or concealing or removing property after, or within two months prior to, the date of an unsatisfied judgment for money against the LLP (s 207); misconduct by members in the course of a winding up (in the sense of failing to discover LLP property to the liquidator, failing to deliver up LLP property, books and papers in a member’s custody or control, or failing to inform the liquidator that a creditor has falsely proved for a debt) (s 208); falsifying LLP books when an LLP is being wound up (s 209); material omissions in statements of affairs (s 210); and making false representations or committing other frauds for the purpose of obtaining the consent of creditors to an agreement with reference to the LLP’s affairs or winding up (s 211). As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. For an example of misfeasance proceedings being commenced against members of an LLP under s 212, see Davidson (as liquidator of Finnan Developments (Raynes Park) LLP) v Finnan & Ors [2020] EWHC 1607 (Ch) (dismissal of an application by member for reverse summary judgment in respect of a liquidator’s s 212 claim alleging misfeasance by virtue of payments made by the LLP to certain members without properly making provision for contingent liabilities). IA 1986, s 212(1)(a), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. By analogy with the position in relation to companies, it would appear that s 212 applies to de facto members, but not shadow members: HMRC v Holland [2010] 1 WLR 2793 at [22], [29] (Lord Hope) and [74] (Lord Collins). Misfeasance in relation to administrators is now addressed by IA 1986, Sch B1, para 75, following the amendments made by the Enterprise Act 2002 (in force from 15 September 2003). IA 1986, s 212(1)(b). Ibid, s 212(1)(c).

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such sum to the LLP’s assets by way of compensation as the court thinks just.7 An application pursuant to the section can be made by the liquidator, by any creditor or, with the leave of the court,8 any contributory.9 34.2 As noted in 34.1, one of the purposes for which s 212 can be used in both the company and LLP context is to pursue claims for breach of fiduciary duty. In Re A&C Restoration LLP,10 ICC Judge Jones held11 that designated members of an LLP owed fiduciary duties to creditors when the LLP was insolvent in the same way as directors of companies.12 While it was not necessary to consider the point for the purpose of his decision (the LLP being insolvent at the relevant time), ICC Judge Jones further held that the principles established in the company law context by the Court of Appeal in BTI 2014 LLC v Sequana SA13 applied to LLPs. As a result, members may owe fiduciary duties to creditors when they know or should know that the LLP is or is likely to become insolvent.

FRAUDULENT TRADING 34.3 Where the business of an LLP has been carried on with intent to defraud creditors, or for any fraudulent purpose, under IA 1986, s 213 the court may declare that any persons who were knowingly party to the carrying on of the business (with intent to defraud creditors or for any fraudulent purpose) are liable to make such contribution to the LLP’s assets as the court may think proper.14 An application can only be made by a liquidator or administrator,15 with the result that the cause of action does not accrue for limitation purposes until a liquidator or administrator is appointed.16 It is not enough for the liquidator to show that the LLP carried on trading 7

Ibid, s 212(3). As to the need to satisfy relevant causation tests for such compensation, see Re Simmons Box (Diamonds) Ltd [2002] BCC 82 at [20]. 8 Ibid, s 212(5). 9 Ibid, s 212(3). 10 [2020] EWHC 1404 (Ch). 11 At [10]. 12 The suggestion that members can owe fiduciary duties to creditors in cases of insolvency is uncontroversial, but any suggestion that those duties arose specifically because the members were designated members would be wrong: see 12.3. 13 [2019] EWCA Civ 112. 14 See Morris v State Bank of India [2005] 2 BCLC 328 at [99]. See also CA 2006, s 993, as modified and applied to LLPs by SI 2009/1804, Part 11, reg 47, which makes ‘fraudulent trading’ a criminal offence (whether or not the LLP has been, or is in the course of being, wound up) carrying a maximum sentence of 10 years (Fraud Act 2006, s 10(1)). A person who is guilty of fraudulent trading may also be made the subject of a disqualification order under CDDA 1986, ss 4 and 10. For further discussion of these provisions as applied to LLPs, see 37.26 and 37.33. The cause of action accrues on the day when the winding-up order is made, and not from the date of the presentation of the petition. Section 213 has extra-territorial effect such that an English court, when winding up an English company/LLP, has jurisdiction to make an order under s 213 against persons ordinarily resident outside the UK: Bilta (UK) Ltd v Nazir (No 2) (in liquidation) [2015] 2 WLR 1168 at [109]–[110]. 15 IA 1986, s 213(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. The power of administrators to bring proceedings for fraudulent trading was introduced by s 117 of the Small Business, Enterprise and Employment Act 2015 which, on 1 October 2015, added a new s 246ZA to the IA 1986. The application of this extension to LLPs was confirmed by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119. 16 Re Overnight Ltd [2010] BCC 787 at [24]–[27], [34] and [36].

Misfeasance and Adjustment of Prior Transactions

611

at a time when the members knew that it was insolvent. Actual dishonesty must be established, in the sense of a subjective intent to defraud or a reckless indifference as to whether or not the creditors were defrauded.17 The court has a wide discretion as to the amount which the wrongdoer may be ordered to contribute to the assets of the LLP. The principle on which the court’s power is be exercised is that the contribution to the assets in which the company’s creditors will share in the liquidation should reflect (and compensate for) the loss which has been caused to those creditors by the carrying on of the business in the manner which gives rise to the exercise of the power. There is no power to include in an order a punitive, as well as a compensatory, element.18 Given the wrongful trading provisions in IA 1986, ss 214 and 246ZB, which do not require proof of dishonesty, applications to the court under s 213 are not made very often. Proof of fraudulent (rather than simply wrongful) trading may, however, be of significance in the assessment by the court of the amount to be contributed to the LLP’s assets on a wrongful trading application under s 214 or 246ZB. It is to be noted, however, that orders pursuant to s 214 or 246ZB can only be made against members or former members,19 shadow members or former shadow members20 and, probably, de facto members or former de facto members,21 whereas s 213 applies in relation to any person who was knowingly a party to the fraudulent carrying on of the business. In Bilta UK Ltd (in liquidation) v Natwest Markets plc,22 Snowden J emphasised that this means that liability is not limited to those who have been involved in the management of the LLP (or, as it was in Bilta, the company) whose business has been carried on with intent to defraud, but potentially extends to outsiders who simply deal with the LLP or company.23

WRONGFUL TRADING 34.4 On an application by a liquidator in the course of a winding up, or by an administrator in the course of an administration,24 the court may make a declaration

17 18 19 20

21

22 23 24

Re Patrick and Lyon Ltd [1933] Ch 786 at 789–790; Bilta UK (in liquidation) v Natwest Markets plc [2020] EWHC 546 (Ch) at [176]. Morphitis v Bernasconi [2003] Ch 552 at 579. IA 1986, s 214(1), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 214(7). ‘Shadow member’ means a person in accordance with whose directions or instructions the members of the LLP are accustomed to act (but a person is not deemed to be a shadow member by reason only that the members of the LLP act on advice given by him in a professional capacity); IA 1986, s 251, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Shadow members are discussed at 8.33–8.36. Re Hydrodam (Corby) Ltd [1994] BCC 161 at 162 (the point was conceded vis-à-vis de facto directors of companies by counsel but regarded as correct by Millett J). De facto members are discussed at 8.37–8.39. [2020] EWHC 546 (Ch). At [186]. Administrators gained the power to bring wrongful trading applications under IA 1986, s 246ZB, introduced by the Small Business, Enterprise and Employment Act 2015 from 1 October 2015 (see fn 15 above), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1, as amended by SI 2017/1119.

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that a member or former member of an LLP, against whom the requirements of wrongful trading are satisfied, must make such contribution to the assets of the LLP as the court thinks proper. There is also specific statutory provision for current and former shadow members to be made liable for wrongful trading, and it is likely (but not entirely clear) that current and former de facto members may also be liable. The prerequisites for liability are that: (a) (b)

(c)

the LLP has gone into insolvent liquidation or insolvent administration; at some time before the commencement of the winding up, or the LLP entering administration, the defendant knew or ought to have concluded that there was no reasonable prospect that the LLP would avoid going into insolvent liquidation or insolvent administration; and he was a member or shadow member at that time; it also probably suffices if he was a de facto member.25

34.5 However, a defendant to a wrongful trading claim will escape liability if he took every step with a view to minimising the potential loss to the LLP’s creditors as he ought to have taken (assuming him to have known that there was no reasonable prospect that the LLP would avoid insolvent liquidation or insolvent administration).26 The conclusions which a defendant ought to reach, and the steps which he ought to take, are assessed by reference to the conclusions or steps that would have been reached and taken by a reasonably diligent person having the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by the defendant in relation to the LLP and the general knowledge, skill and experience that that defendant has.27 The functions carried out by the defendant include any functions which he does not carry out but which have been entrusted to him.28 34.6 The test for wrongful trading is, therefore, essentially objective. The objectivity is, however, modified by reference to the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by the defendant, and a subjective element is introduced by reference to the general knowledge, skill and experience that the defendant has. The objective element makes it necessary for all members (whether or not they are generally involved in the management of the LLP) to keep up to date with the financial position of the LLP. In cases where the LLP is of doubtful solvency, each member will need to be in a position to assess for himself whether the LLP will be able to avoid insolvent liquidation. This is likely to require the production of regular and reliable profit and loss and cash flow forecasts as well as historic management accounts. Further, members are expected to have knowledge of the basic accountancy principles applicable to the business of the LLP and to look at the

25

26 27 28

IA 1986, ss 214(2) and (7) and 246ZB(2) and (7), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. For a discussion of the uncertainty concerning de facto members, see 8.37–8.39. Ibid, ss 214(3) and 246ZB(3). Ibid, ss 214(4) and 246ZB(4). Ibid, ss 214(5) and 246ZB(5).

Misfeasance and Adjustment of Prior Transactions

613

accounts and understand them, if necessary with the assistance of the LLP’s auditors and other professional advisers (albeit that they are not expected to have specialist accountancy knowledge, skills or experience).29 Clearly, members directly involved in management will be most at risk; but it seems unlikely that the courts will be particularly lenient when it comes to ‘ordinary’ members.30 As regards the contribution that is to be made following a finding of wrongful trading, in Re Produce Marketing Consortium Ltd (1989) 5 BCC 569 at 597,31 Knox J set out several principles relevant to the content of the declaration: (a) The jurisdiction under s 214 is primarily compensatory rather than penal. (b) Prima facie the appropriate amount that a defendant is declared to be liable to contribute is the amount by which the LLP’s assets can be discerned to have been depleted by his wrongful conduct. (c) However, the statute uses wide words of discretion, and it would be undesirable to impose restrictions on that discretion or to limit the factors that may be taken into account.32 In Re Ralls Builders Ltd33 and Brooks v Armstrong34 it was emphasised that, for a contribution to be justified, there must be a causal connection between the continuation of trading and the increase in the losses suffered by creditors. 34.7 Pursuant to s 12 of the Corporate Insolvency and Governance Act 2020 (CIGA 2020), the wrongful trading regime was modified in the light of the Covid-19 pandemic. Where s 12 applies35 then, for the purposes of determining any contribution for wrongful trading liability under both ss 214 and 246ZB, the court is to assume that the defendant is not responsible for any worsening of the financial position of the company or LLP, or of its creditors, during the period when the ‘suspension’ is in force.36 The heading to the section – ‘Suspension of wrongful trading’ – is misleading. The effect of the modification is simply to change the remedy that could be awarded following a finding of wrongful trading under s 214 or 246ZB. It has no effect on duties owed to creditors at common law or on the potential for disqualification proceedings to be pursued on the grounds that wrongful trading has occurred (see 37.33). The continuation of these bases of liability may therefore provide a back door through which financial compensation may be ordered to be paid if wrongful

29 See 30

31 32 33 34 35

36

Re Continental Assurance Co of London Plc [2001] BPIR 733 at [258]. See, by analogy, Brooks v Armstrong [2015] EWHC 2289 (Ch) (especially [308]), in which Registrar Jones held that, in the circumstances of that case, a non-executive director of an insolvent company should share equal responsibility with the executive director for wrongful trading. Approved by the Court of Appeal in Re Farmizer (Products) Ltd [1997] BCC 655 (CA). See also Re Idessa (UK) Ltd (in liquidation) [2012] BCC 315, at [121] et seq, as to remedies and the relationship between ss 212 and 214. [2016] EWHC 243 (Ch). [2016] EWHC 2893 (Ch). By virtue of the modification and application of ss 214 and 246ZB to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1, the wrongful trading suspension automatically applied to members of an LLP in both the liquidation and administration context. However, the ‘suspension’ is specifically excluded from applying to a number of categories of LLP: CIGA 2020, s 12(3)–(9). No change was made to s 214A.

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trading is successfully established. In this regard, it is important to be aware of the new provision for compensation orders to be made under the disqualification regime (see 37.36). The ‘suspension’ was originally in operation between 1 March and 30 September 2020. There was then a ‘re-introduction’ of the suspension from 26 November 2020 until 30 April 2021 pursuant to the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020.37 This leaves a period from 1 October 2020 to 25 November 2020 when the ‘suspension’ did not apply. At the time of publication, it is not known whether there will be any further suspension beyond 30 April 2021.

ADJUSTMENT OF WITHDRAWALS 34.8 Section 214A of the IA 1986 was inserted by the LLP Regulations 2001.38 The purpose of the section (which does not apply to companies) is to enable a liquidator to claw back withdrawals made by members within the two years prior to the commencement of the liquidation. As with s 214 (wrongful trading), s 214A applies also in relation to shadow members.39 As discussed at 8.38, since it is a bespoke provision inserted into the IA 1986 and applying only to members of an LLP, s 214A is less likely to apply to de facto members than s 214 of the IA 1986 which was a pre-existing IA 1986 provision subject to the general modifications in respect of LLPs.40 34.9 A member or former member is liable under s 214A to make a contribution to the LLP’s assets if: (a) within the period of two years prior to the commencement of winding up he was a member of the LLP who withdrew property of the LLP, whether in the form of a share of profits, salary, repayment of, or payment of interest on, a loan to the LLP, or any other withdrawal of property;41 and

37 38

39 40 41

SI 2020/1349. It may be arguable that s 214A is ultra vires the LLP Act 2000, although the authors consider that such an argument would be likely to fail. Section 14(1) of the LLP Act 2000 provides that regulations shall make provision about the insolvency and winding up of LLPs by applying or incorporating, with such modifications as appear appropriate, Pts I–IV, VI and VII of the IA 1986. LLP Regulations 2001, reg 5(1) provides that, subject to paras (2) and (3), Pts I–IV, VI and VII of the IA 1986 shall apply to LLPs as they apply in relation to companies. LLP Regulations 2001, reg 5(2)(f) provides that the application of the IA 1986 shall be subject to the modifications set out in Sch 3 to the LLP Regulations 2001. Section 214A appears in Sch 3. The issue would be whether s 214A, which is an entirely new substantive provision, is merely a ‘modification’. See R v Secretary of State for the Environment, Transport and the Regions, ex parte Spath Holme Ltd [2001] 2 AC 349 at 370 (Court of Appeal) and 382 (HL, per Lord Bingham); R v Secretary of State for the Environment, ex parte Berkshire Royal County Council (1996) 95 LGR 249 at 256; and R v Secretary of State for Social Security, ex parte Britnell [1991] 1 WLR 198 at 204. IA 1986, s 214A(8). As to shadow members, see fn 20 above. See also fn 21 above and 8.37–8.39. IA 1986, s 214A(2)(a).

Misfeasance and Adjustment of Prior Transactions

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(b) it is proved by the liquidator to the satisfaction of the court that at the time of the withdrawal he knew or had reasonable ground for believing that the LLP: (i) was at the time of the withdrawal unable to pay its debts within the meaning of IA 1986, s 123;42 or (ii) would become so unable to pay its debts after the assets of the LLP had been depleted by that withdrawal taken together with all other withdrawals (if any) made by any members contemporaneously with that withdrawal or in contemplation when that withdrawal was made;43 and (c) he knew or ought to have concluded that after each withdrawal referred to above there was no reasonable prospect that the LLP would avoid going into insolvent liquidation.44 34.10 For the purpose of s 214A, an LLP goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up.45 34.11 The facts which a member ought to know or ascertain, and the conclusions which he ought to reach, are those which would be known, ascertained or reached by a reasonably diligent person having both: (a)

the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by the member in relation to the LLP; and (b) the general knowledge, skill and experience that that member actually has.46 The same considerations that apply in relation to ss 214 and 246ZB47 will apply to the knowledge of members in respect of s 214A. 34.12 Section 214A was considered by ICC Judge Jones in McTear v Eade.48 The judge observed the analogy with s 214 and, as a result, held that it was permissible to make up for the lack of reported authority on s 214A by drawing upon the principles concerning whether or not the defendant had the requisite degree of knowledge from the extensive ss 214 and 246ZB jurisprudence.49 The judge nevertheless considered that there were a number of important distinctions between ss 214/246ZB and 214A, including: the specific focus in s 214A on withdrawals of property and the need to have the requisite knowledge after each such withdrawal; its confinement to knowledge of insolvent liquidation rather than insolvent administration; the liability cap set by reference to the aggregate amount of withdrawals within the relevant period

42

As to which, see 31.12–31.14. IA 1986, s 214A(2)(b). 44 Ibid, s 214A(5). 45 Ibid, s 214A(7). 46 Ibid, s 214A(6). 47 See 34.6. 48 [2019] EWHC 1673 (Ch). 49 At [183]–[186]. See also Milne v Rashid [2018] CSOH 23. 43

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(see 34.13); and the absence of any ‘every step to minimise loss’ defence.50 While these latter two considerations meant that the starting point for assessing causation and compensation is the amount or value withdrawn rather than the consequential effect on the net deficiency, the judge held that it was still necessary to bear in mind that the remedy is discretionary and to take account of situations where continued trading did not result in an increase in the net deficiency. The judge also held that, in an appropriate case, compensation could be capped at the level of such increase, even if greater amounts had been withdrawn. He also considered that a further implication of this approach is that the court is entitled to take account of events subsequent to the withdrawal in appraising causation and quantification.51 34.13 An application under s 214A can only be made by a liquidator. If a member (as described in 34.8) is found liable, the court may declare that that member is to be liable to make such contribution (if any) to the LLP’s assets as the court thinks proper.52 The potential liability of a member is, however, capped: the court cannot make ‘a declaration in relation to any person the amount of which exceeds the aggregate of the amounts or values of all the withdrawals referred to in subsection (2)53 made by that person within the period of two years referred to in that subsection’.54 The wording is not entirely clear, but the authors suggest that the cap is to be calculated by reference to the total of the withdrawals within the relevant two-year period in respect of which the member had the requisite knowledge for the purposes of IA 1986, s 214A(2)(b), rather than simply all of the withdrawals within the two-year period. This follows, it is suggested, from the fact that the reference in s 214A(4) is to the whole of IA 1986, s 214A(2) and not just to s 214A(2)(a).55

TRANSACTIONS AT AN UNDERVALUE 34.14 (a)

50

An LLP enters into a transaction56 at an undervalue with a person if it:

makes a gift to that person or otherwise enters into a transaction on terms that provide for it to receive no consideration; or

At [184]. At [191]–[194]. 52 IA 1986, s 214A(3). 53 See 34.9(a) and (b). 54 Ibid, s 214A(4). 55 Cf Morse and Braithwaite, Partnership and LLP Law, at para 17.10, where the contrary view is suggested. The authors of that text also suggest that, because the provision is compensatory rather than restitutionary, a member who is made subject to an order in respect of a withdrawal cannot then prove in the insolvency for the amount of the impugned withdrawal. The authors would respectfully question whether that is right. Where the purpose of an order under s 214A(3) is, in substance, to reverse a withdrawal, it would seem particularly harsh not to permit the member to prove for the restored amount, although a court could produce the same financial outcome by exercising its discretion to discount the amount to be repaid by the amount of the dividend from the insolvency that the member could have obtained if he had not withdrawn the amount in the first place. 56 ‘Transaction’ includes a gift, agreement or arrangement: IA 1986, s 436, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. The term may extend to a contract to which the company is not a party, but which is linked to a further contract to which the company is a 51

Misfeasance and Adjustment of Prior Transactions

(b)

617

enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the LLP.57

34.15 IA 1986, s 23858 provides that where the LLP has, at a relevant time,59 entered into a transaction at an undervalue, and it has subsequently had an administration order made, or has gone into liquidation, the administrator or liquidator may apply to the court for an order restoring the position to what it would have been if the LLP had not entered into the transaction.60 34.16

The court is not entitled to make an order if it is satisfied that:

(a) the LLP entered into the transaction in good faith and for the purpose of carrying on its business; and (b) at the time there were reasonable grounds for believing that the transaction would benefit the LLP.61

party: Phillips v Brewin Dolphin Bell Lawrie [2001] 1 WLR 143 at [20] (Lord Scott). However, at a minimum, a ‘transaction’ requires some form of mutual dealing or engagement, and does not extend to unilateral actions: Re Taylor Sinclair (Capital) Ltd [2001] 2 BCLC 176 at [20]; Ailyan v Smith [2010] BPIR 289 at [21]–[26]; Hunt v Hosking [2013] EWHC 311 (Ch) at [57]; Re Hampton Capital [2015] EWHC 1905 (Ch) at [36]–[38]. 57 IA 1986, s 238(4), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. See Re M C Bacon Ltd [1990] BCC 78 at 92 (the test requires a comparison to be made between the value obtained by the company/LLP for the transaction and the value of the consideration provided by the company/LLP, both measured in money or money’s worth and appraised from the point of view of the company/LLP); Re Lewis’s of Leicester Limited [1995] BCC 514 at 523 (no transaction at an undervalue where effect of transaction was simply to accelerate sums which would become due in the ordinary course of future trading); Philips v Brewin Dolphin Bell Lawrie [2001] 1 WLR 143 at 150 (where transactions are linked the Court will have regard to the totality of the consideration provided under all of the linked transactions); Re Barton Manufacturing Co Ltd [1998] BCC 827 at 831 (where monies are received gratuitously, the onus is upon the recipient to justify the basis of payment even where such recipient is not a fiduciary or under any other duty to account); Re Shapland Inc [2000] BCC 106 at 110 (retrospective agreement to pay an additional amount of interest capable of being a transaction at an undervalue); Re Mistral Finance Ltd [2001] BCC 27 (granting of valid security for continuation of existing lending (where invalid security previously granted) was not a transaction at an undervalue but was a preference); Re Thoars (decd) [2003] 1 BCLC 499 at [17]–[21] (note case under analogous bankruptcy provision under IA 1986, s 339 – the value is to be assessed as at the date of the transaction, but if it depends on the occurrence or non-occurrence of subsequent events and their likelihood, these matters have to be taken into account in appraising value); Re Sonatacus Ltd [2007] 2 BCLC 627 at [18]–[19] (a payment which is susceptible to challenge as a preference cannot constitute consideration to be taken into account in ascertaining whether or not there has been a transaction at an undervalue); and Stanley v TMK Finance Ltd [2011] BPIR 876 at [6]–[18] (in valuing real estate, it was legitimate to have regard to the price achieved at a sale subsequent to the date of the impugned transaction in order to infer the market value as at the date of such transaction, so long as there had been no material change in market conditions and the circumstances of the sale are such that it can truly be regarded as establishing market value). 58 As modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. 59 See 34.17. 60 IA 1986, s 238(1) and (3), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3 para 1. 61 Ibid, s 238(5).

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34.17 IA 1986, s 240 provides that a transaction at an undervalue is entered into at a ‘relevant time’ if: (a)

it is entered into in the period of two years ending with the onset of insolvency (or in the case of an administration, during the period between the presentation of the administration petition and the making of the order);62 and (b) at the time the LLP enters into the transaction it is unable to pay its debts within the meaning of IA 1986, s 123 or becomes unable to pay its debts in consequence of the transaction.63 34.18 If the provisions of ss 238 and 240 are satisfied, the court is to make such order as it thinks fit for restoring the position to what it would have been if the LLP had not entered into that transaction.64 The court has a broad discretion to determine what order is to be made to restore the position.65 The possibilities include making orders against third parties who were not a party to the transaction in question but who benefited therefrom if they have not acted in good faith and given value.66 34.19 The limitation period for an application to set aside a transaction at an undervalue is 12 years (the application being an action on a speciality). The period is, however, six years if the application is to recover compensation rather than to set aside the transaction.67

62

63

64 65

66 67

Ibid, s 240(1). The onset of insolvency is defined in s 240(3). If the LLP is in administration, or has gone into liquidation immediately upon the discharge of an administration order, the onset of insolvency is the date of the presentation of the administration petition. If the LLP went into liquidation at any other time, the onset of insolvency is the date of the commencement of the winding up. IA 1986, s 240(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. The requirements of s 240(2) are presumed to be satisfied, unless the contrary is shown, in relation to any transaction at an undervalue which is entered into with a person connected to the LLP. For the definition of ‘connected person’ see ss 249 and 435. Section 240(2) does not apply where the transaction is entered into after the presentation of an administration petition. As to IA 1986, s 123, see 31.12–31.14. IA 1986, s 238(3). Ibid, s 241. It would appear that, even if the provisions of ss 238 and 240 are satisfied, the court has a discretion whether or not to make any order: see Re Paramount Airways Ltd (in administration) [1993] Ch 223 at 239–240. In the context of the equivalent section for bankruptcy (IA 1986, s 339), see also Singla v Brown [2008] Ch 357 at [54]–[60] and Claridge’s Trustee in Bankruptcy v Claridge [2011] BPIR 1529 at [48]–[49]. Quaere, however, whether, in the light of the word ‘shall’ in s 238(3), the discretion should not be properly regarded as limited to the nature of the order, and as not extending to whether an order should be made at all. It was held that a liquidator could not recover the costs of pursuing claims under s 238 or 239 out of the liquidation estate: Lewis v IRC [2001] 3 All ER 499. This was reversed by IR 1986, r 4.218, a position which is maintained under the Insolvency (England and Wales) Rules 2016, SI 2016/1024 (the ‘IR 2016’), rr 6.42(2) and 7.108(2), as applied to LLPs by SI 2001/1090, Sch 6, Part II, para 3 (as amended by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, Sch 1, para 1). Sections 214(1)(d) and 241(2), as applied in Re Whitestar Management Limited [2018] EWHC 743 (Ch). Limitation Act 1980, ss 8 and 9; Re Priory Garage (Walthamstow) Ltd [2001] BPIR 144.

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PREFERENCES 34.20

An LLP gives a preference to a person if:

(a)

that person is one of the LLP’s creditors, or a surety or a guarantor for any of the LLP’s debts or other liabilities; and (b) the LLP does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the LLP going into insolvent liquidation, will be better than the position he would have been in if that thing had not been done.68 34.21 IA 1986, s 239 provides that where the LLP has, at a relevant time,69 given a preference, and it has subsequently had an administration order made, or has gone into liquidation, the administrator or liquidator may apply to the court for an order restoring the position to what it would have been if the LLP had not given the preference.70 A preference may be given, for example, where the LLP pays a debt owed to one creditor in preference to others, or gives security for an existing debt by creating a fixed or floating charge over its assets,71 or returns goods delivered but for which payment has not been made. 34.22 The court has no power to make an order in respect of a preference unless the LLP was influenced in deciding to give the preference by a desire to put the creditor in a better position, in the event of the LLP going into insolvent liquidation, than the creditor would have been in had the preference not been given.72 This imports a subjective test. A preference will not be set aside unless the LLP positively wished to improve the creditor’s position in the event of insolvent liquidation. An LLP can, therefore, act in a way that improves a creditor’s position so long as it is motivated by commercial considerations and not by a desire to prefer the creditor. For example, in order to secure the continued provision of necessary supplies from a creditor, the LLP may be forced to pay existing debts or provide security for such debts. The fact that such action inevitably prefers that creditor (and therefore the LLP ‘intends’ to prefer the creditor) is irrelevant.73 In Re MSD Cash and Carry plc74 it was held that the time when the preference is given is also the time to assess whether the requisite desire was held or whether the presumption discussed at 34.23 below is rebutted. 34.23 Where an LLP has given a preference to a person connected with it (otherwise than by reason of that person being its employee) at the time that the

68

IA 1986, s 239(4), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. As to the identification of the relevant creditor, see Re Thirty-Eight Building Ltd [1999] BCC 260 at 266. 69 See 34.25. 70 IA 1986, s 239(1)–(3), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. 71 See Re Mistral Finance Ltd, discussed in fn 57 above. 72 IA 1986, s 239(5), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. 73 Re M C Bacon Ltd [1990] BCC 78 at 87. 74 [2018] EWHC 1325 (Ch) at [121].

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The Law of Limited Liability Partnerships

preference was given, it is presumed, unless the contrary is shown, that the LLP was influenced by a desire to prefer.75 34.24 The fact that something is done in pursuance of a court order does not, without more, prevent it from constituting a preference.76 34.25

A preference is given at a ‘relevant time’ if it is given:

(a)

at a time in the period of six months ending with the onset of insolvency or, if the preference is given to a person connected with the LLP (otherwise than by reason only of being its employee), at a time in the period of two years ending with the onset of insolvency; or (b) in the case of an administration, during the period between the presentation of the administration petition and the making of the order;77 and (c) at the time the LLP gave the preference it is unable to pay its debts within the meaning of IA 1986, s 123 or becomes unable to pay its debts in consequence of the preference.78 34.26 If the provisions of ss 239 and 240 are satisfied, the court is to make such order as it thinks fit for restoring the position to what it would have been if the LLP had not given the preference.79 The court has a broad discretion to determine what order is to be made to restore the position.80 The limitation period for an application to set aside a preference is the same as for an application to set aside a transaction at an undervalue discussed in 34.19.

EXTORTIONATE CREDIT TRANSACTIONS 34.27 Where the LLP has been party to a transaction for, or involving, the provision of credit to the LLP, and it has subsequently had an administration 75

76 77

78

79 80

IA 1986, s 239(6), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. The presumption was rebutted in Re Fairway Magazines Ltd [1992] BCC 924 at 930 (granting of debenture to secure trade finance to keep a publishing company afloat pending a sale in circumstances where the company’s bank had refused to increase an overdraft facility). However, the respondents failed to rebut the presumption in Re Shapland Inc [2000] BCC 106 at 109–110 (no commercial justification for retrospective agreement to pay interest) and in Re Stealth Construction [2012] 1 BCLC 297 at [64]–[65] (voluntary decision to grant charge at a time when the company was unable to pay its debts not explicable by any motive other than to improve the position of a relative of a director person). For the definition of ‘connected person’, see IA 1986, ss 249 and 435, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 239(7). Ibid, s 240(1). The onset of insolvency is defined in s 240(3). If the LLP is in administration or has gone into liquidation immediately upon the discharge of an administration order, the onset of insolvency is the date of the presentation of the administration petition. If the LLP went into liquidation at any other time, the onset of insolvency is the date of the commencement of the winding up. IA 1986, s 240(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Section 240(2) does not apply where the preference is given after the presentation of an administration petition. As to IA 1986, s 123, see 28.13–28.14. IA 1986, s 239(3), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 241. And see fn 65 above.

Misfeasance and Adjustment of Prior Transactions

621

order made, or has gone into liquidation, the court may, on an application by the administrator or liquidator, make an order in respect of the transaction if the transaction is or was extortionate and was entered into in the period of three years ending with the day on which the administration order was made or the LLP went into liquidation.81 34.28 A transaction is extortionate if, having regard to the risk accepted by the person providing the credit: (a) the terms of it are or were such as to require grossly exorbitant payments to be made (whether conditionally or in certain contingencies) in respect of the provision of credit; or (b) it otherwise grossly contravened ordinary principles of fair dealing.82 It is presumed, unless the contrary is shown, that a transaction with respect to which an application is made by the administrator or liquidator is (or was) extortionate.83 34.29 The court may (concurrently with its powers in respect of transactions at an undervalue84) make an order doing one or more of the following: (a) setting aside the whole or part of any obligation created by the transaction; (b) varying the terms of the transaction or varying the terms on which any security for the purposes of the transaction is held; (c) requiring any party to the transaction to pay to the administrator or liquidator any sums paid to that party, by virtue of the transaction, by the LLP; (d) directing accounts to be taken between any persons.85

AVOIDANCE OF FLOATING CHARGES 34.30 Under IA 1986, s 245, where an LLP grants a floating charge86 on its undertaking or property at a relevant time,87 and the LLP subsequently has an

81

IA 1986, s 244, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 244(3). The stringent requirements, and fact-sensitive nature, of this test were discussed in White v Davenham Trust Ltd [2011] BCC 77 at [42]–[50]. Floyd J cited with approval Dyson LJ’s observation in Paragon Finance plc v Nash & Anr [2002] 1 WLR 685 at [67] that even unreasonably high interest rates will not be sufficient to demonstrate that the transaction was extortionate; it must be shown that the terms of the bargain are so unfair as to be oppressive. In Re Contract Utility Services (CUS) Ltd [2019] EWHC 1657 (Ch), ICC Judge Prentis characterised the test as being whether the payments required were grossly exorbitant and a gross contravention of principles of fair dealing. These questions were to be appraised having regard to the risk assumed by the credit provider (at [48]). 83 Ibid, s 244(3). 84 Ibid, s 244(5). As to transactions at an undervalue, see 34.14–34.19. 85 Ibid, s 244(4). 86 ‘Floating charge’ includes a charge which was originally created as a floating charge but which has become a fixed charge: IA 1986, s 251, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. 87 See 34.31. 82

622

The Law of Limited Liability Partnerships

administration order made, or goes into liquidation, the charge is invalid except to the extent of the aggregate of: (a) the value of so much of the consideration for the creation of the charge as consists of money paid, or goods or services supplied, to the LLP at the same time as, or after, the creation of the charge; (b) the value of so much of the consideration as consists of the discharge or reduction, at the same time as, or after, the creation of the charge, of any debt of the LLP; and (c) the amount of such interest (if any) as is payable on the amount falling within para (a) or (b) in pursuance of any agreement under which the money was so paid, the goods or services were so supplied or the debt was so discharged or reduced.88 34.31 For the purposes of s 245, the time at which a floating charge is created is a relevant time: (a)

in the case of a charge created in favour of a person who is connected with the LLP, in the period of two years ending with the onset of insolvency; or (b) in the case of a charge created in favour of any other person, at a time in the period of 12 months ending with the onset of insolvency, so long as the LLP was unable to pay its debts when due at the time the charge was created or became unable to do so as a result of the creation of such charge; or (c) in either case, at a time between the presentation of a petition for the making of an administration order in relation to the LLP and the making of such an order on that petition.89

UNENFORCEABILITY OF LIENS 34.32 Where an LLP has gone into administration or liquidation, or a provisional liquidator has been appointed, a lien is unenforceable to the extent that its enforcement would deny possession of any books, papers or other records to the administrator or liquidator or provisional liquidator (as the case may be).90 This does not apply to a lien on documents which give a title to property and are held as such.91 88

89

90 91

IA 1986, s 245(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. The value of any goods or services supplied by way of consideration for a floating charge is the amount in money which at the time they were supplied could reasonably have been expected to be obtained for supplying the goods or services in the ordinary course of business and on the same terms (apart from consideration) as those on which they were supplied to the LLP: IA 1986, s 245(6), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. When appraising services, the court looks to the value of the services actually supplied to the LLP rather than the contractually stipulated price for the same. As a result, an overly high fixed fee for legal services was ignored in favour of the amount that could reasonably have been charged for such services in the ordinary course of business: Re Peak Hotels and Resorts Limited (in liquidation) [2019] EWCA Civ 345. IA 1986, s 245(3), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. The onset of insolvency is, in the case of an LLP in administration, the date of the presentation of the petition on which the order was made and, in the case of an LLP in liquidation, the date of the commencement of the winding up: IA 1986, s 245(5), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. IA 1986, s 246, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 246(3). See Re SEIL Trade Finance Ltd [1992] BCC 538 at 539–541.

Misfeasance and Adjustment of Prior Transactions

623

TRANSACTIONS DEFRAUDING CREDITORS 34.33 Under IA 1986, s 423, if an LLP enters into a transaction with another at an undervalue, and has done so for the purpose either of putting assets beyond the reach of a person who is making or may at some time make a claim against it, or of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make, the court may (on the application of a person referred to in 34.35) make such order as it thinks fit for restoring the position to what it would have been if the transaction had not been entered into, and for protecting the interests of those who are victims of the transaction. This provision is similar to IA 1986, s 238.92 The difference is that s 423 does not require the impugned transaction to have occurred within a particular period of time prior to the LLP’s insolvency, and the LLP need not have gone into administration or liquidation at the time of the application.93 However, an application can only succeed under s 423 if the transaction is entered into for the purpose of putting assets beyond the reach of creditors or otherwise prejudicing the rights of creditors.94 A number of first-instance decisions held that there was a need to demonstrate that such purpose must be a ‘substantial purpose’ (albeit that it need not be the dominant purpose).95 In JSC BTA Bank v Ablyazov,96 Leggatt LJ noted that s 423 did not use the word ‘substantial’ or any other adjective, and considered that such a requirement should not be read into the section. Instead, the court should simply ask whether the transaction was entered into for the prohibited purpose. If it was, the test is satisfied, even if the transaction was also entered into for one or more other purposes.97 Because the purpose of an order under s 423 is to ‘restore the position’ to that which it would have been if the transaction had not been entered into, it fulfils a primarily restitutionary rather than compensatory role. As a result, in Johnson v Arden98

92 See 93

94 95 96 97 98

34.14–34.19. By contrast, s 238 requires that the transaction occur within the ‘relevant time’: see 34.17. However, under s 423, applications to set aside very old transactions may well face evidential difficulties. Further, s 423 remains subject to a limitation period of 12 years under Limitation Act 1980, s 8, as a claim on a specialty, or (where a monetary payment is sought) six years under s 9, on the basis that it is a sum recoverable by virtue of an enactment. Time will normally start to run in respect of each victim of a transaction at an undervalue when that status is acquired. Further, while no new limitation period starts to run upon the appointment of a liquidator or a trustee in bankruptcy, he will be entitled to make an application under s 423 so long as there remains a victim whose claim is not statute-barred: Hill v Spread Trustee Co Ltd [2007] 1 WLR 2404 at [115]–[129]. Notwithstanding this, in Giles v Rhind [2009] Ch 191 at [39]–[55], the Court of Appeal held that a contravention of s 423 was capable of constituting a breach of duty so as to bring into play the provisions of s 32(2) of the Limitation Act 1980 delaying the start of time running in cases of deliberate concealment. IA 1986 s 423(3), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Hashmi v IRC [2002] BCC 943 at [23]–[26]; Kubiangha v Ekpenyong [2002] 2 BCLC 597 at [12]; and 4Eng Ltd v Harper [2009] EWHC 2633 (Ch) at [5]–[9]. [2018] EWCA Civ 1176. At [13]–[14]. This approach was followed in Wood v Watkin [2019] EWHC 1311 (Ch) at [218] and National Bank Trust v Yurov [2020] EWHC 100 (Comm) at [1370]. [2018] EWHC 1624 (Ch).

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The Law of Limited Liability Partnerships

a claim against a director of a company who had caused a transaction offending s 423 to take place, but had not benefited from the transaction, was struck out: the appropriate remedy lay under s 212. 34.34 An LLP enters into a transaction at an undervalue for the purposes of s 423 if: (a) (b)

it makes a gift to the other person or otherwise enters into a transaction with the other on terms that provide for it to receive no consideration; or it enters into a transaction with the other for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the LLP.99

34.35 An application can be made whether or not the LLP is insolvent, and whether or not it is in administration or being wound up. If the LLP is in the process of being wound up, or an administration order is in force in relation to it, the application is usually made by the liquidator or the administrator.100 A victim of the transaction (ie a person who is, or is capable of being, prejudiced by it101) can only make an application with the permission of the court (whether the LLP is in administration or being wound up, or not).102 If a victim of the transaction is bound by a voluntary arrangement approved under Pt I of the IA 1986, this does not preclude him from making an application; and an application can also be made by the supervisor of the voluntary arrangement or by any person who is a victim, whether or not he is bound.103 In all other situations, the application is made by a victim of the transaction,104 who will be treated as making the application on behalf of every victim of the transaction.105

RE-USE OF LLP NAMES 34.36 IA 1986, s 216 is designed to prevent aspects of the so called ‘Phoenix’ syndrome, in which those responsible for a failed company or LLP buy the assets from the administrator or liquidator at a knock-down price, and then restart the business through the medium of a company or LLP using or trading under the name of the failed company or LLP. 34.37 Insofar as LLPs are concerned, s 216 applies to any person who was, within the 12 months prior to the LLP going into insolvent liquidation, a member or shadow

99 100 101 102 103 104 105

IA 1986, s 423(1), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 424(1)(a). Ibid, s 423(5). Ibid, s 424(1)(a). Ibid, s 424(1)(b). Ibid, s 424(1)(c). Ibid, s 424(2).

Misfeasance and Adjustment of Prior Transactions

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member of the LLP.106 For the purposes of s 216, a name is prohibited in relation to such a person if: (a) (b)

it is a name by which the liquidating LLP was known at any time in that period of 12 months; or it is a name which is so similar to a name falling within (a) above as to suggest an association with that LLP.107

34.38 Section 216(3) imposes the prohibition, but it is not entirely clear how it has been modified to apply to LLPs. This has significance in relation to the scope of the civil liability of a person acting contrary to s 216.108 As it applies to companies, s 216(3) provides that a person to whom it applies shall not, without the leave of the court or in such circumstances as may be prescribed,109 in the period of five years beginning on the day on which the company went into liquidation: (a) be a director of any other company that is known by a prohibited name; (b) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of any such company; or (c) in any way, whether directly or indirectly, be concerned or take part in the carrying on of a business carried on (otherwise than by a company) under a prohibited name. 34.39 As s 216(3) applies to companies, (a) and (b) above apply only to impose restrictions in relation to companies. Section 216(3)(c) is broader and prevents a person who was a director or shadow director of a company which went into insolvent liquidation from being concerned or taking part in the carrying on of a business in another form, ie as a sole trader or in a partnership. The distinction between (a) and (b) on the one hand and (c) on the other hand is important, because civil liability is only imposed under s 217 in respect of persons acting in contravention of s 216

106

IA 1986, s 216(1), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. An LLP goes into insolvent liquidation for the purpose of s 216 if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of winding up: s 216(7). Shadow members are discussed at 8.33–8.36. 107 IA 1986, s 216(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. References to a name by which an LLP is known are to the name of the LLP at that time or to any name under which the LLP carries on business at that time: s 216(6). In assessing similarity, the court takes into account the circumstances in which the names have actually been used or in which they are likely to be used. However, simply changing the get-up of a similar name will not suffice. The following are cases in the corporate sphere where names have been held to be sufficiently similar to come within the prohibition: Ricketts v Ad Valorem Factors Ltd [2004] 1 All ER 894 (Air Equipment Limited / The Air Component Co Ltd); Archer Structures Limited v Griffiths [2003] EWHC 957 (Ch) (MPK Construction Limited / MPJ Contractors Limited); ESS Production Ltd v Sully [2005] BCC 435 (Electronic Sales Services Ltd trading as ESS / ESS Fabricating Limited); Revenue and Customs Commissioners v Walsh [2005] 2 BCLC 455 (Walsh Construction Limited / SG & T Walsh Company Limited); R (Griffin) v Richmond Magistrates’ Court [2008] BCC 575 (Saxon Drinks Ltd / Saxon 1050); and First Independent Factors & Finance Ltd v Mountford [2008] 2 BCLC 297 (Classic Conservatories & Windows Ltd / Classic Roofs Ltd). 108 Civil liability is imposed by IA 1986, s 217, as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. 109 IR 2016, rr 22.1–22.7, as applied to LLPs by SI 2001/1090, Sch 6, Part II, para 3.

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through the medium of a company. Sections 216 and 217 have not been specifically modified to apply to LLPs, but apply with the general modifications set out in reg 5(2) of the LLP Regulations 2001. By reg 5(2)(a), references to a company shall include references to an LLP. In most cases, this necessitates a simple transposition of ‘LLP’ for ‘company’. The question here, however, is whether in ss 216(3) and 217 references to a ‘company’ ought to be read as references to a company or an LLP. In the authors’ view, references to a ‘company’ ought to be read in this way, with the result that, in (a) and (b) above as applying to a person who was a member or shadow member of an LLP, ‘company’ should be read as ‘company and/or LLP’. Whilst the purpose of the word ‘include’ in reg 5 is less clear than it might be, it seems to have been intended that, where appropriate, references to a company ought to be read as references to a company and/or LLP. Had the intention been otherwise, no purpose would have been served by the use of the word ‘include’. The mischief behind ss 216 and 217 is the misuse of limited liability. Where s 217 applies, the wrongdoer becomes jointly and severally liable for relevant debts. In other words, so far as it applies to companies, personal liability is imposed on the wrongdoer in circumstances in which he would otherwise be able to shelter behind a corporate veil. Prior to the introduction of LLPs, other widely used business entities (which are caught by s 216(3)(c)) did not provide the same limited liability. Now that there are two forms of body corporate providing limited liability, there is no reason why civil liability under s 217 should not apply whether the new entity is a company or an LLP (a point emphasised in Re Newton110 by Mr Registrar Jones).111 34.40 If a person acts in contravention of s 216, he is liable to imprisonment or a fine, or both.112 34.41 The court has power to permit use of a name that would otherwise result in a person acting in contravention of s 216, and may make any such grant of permission subject to conditions designed to mitigate risks to creditors of the new company or LLP.113 For example, a court may grant permission if the insolvency was not caused by blameworthy conduct on the part of the member.114 Permission cannot be granted retrospectively.115

110

[2016] EWHC 3068 (Ch) at [17.3]. However, the modifications to the IA 1986 only apply to LLPs: LLP Regulations 2001, reg 5(1) provides that ‘the … provisions of the 1986 Act shall apply in relation to limited liability partnerships as they apply in relation to companies …’. The modifications do not effect general amendments to the IA 1986. As a result, if the original entity which went into insolvent liquidation was a company, references in ss 216(3) and 217 will remain simply to companies, with the result that if person subsequently uses a prohibited name in relation to an LLP he will act in contravention of s 216(3)(c) (and thereby commit an offence) but he will not be subject to civil liability under s 217. 112 IA 1986, s 216(4), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. 113 Ibid, s 216(3) and IR 2016, rr 22.1–22.7, as applied to LLPs by SI 2001/1090, Sch 6, Part II, para 3. 114 See Re Bonus Breaks Ltd [1991] BCC 546 (permission granted subject to undertakings to maintain capital base and not to redeem redeemable shares for a period of time), Penrose v Official Receiver [1996] 1 WLR 482 and Re Lightning Electrical Contractors Ltd [1996] BCC 950 (unconditional permission granted where the circumstances of the liquidation of the old company did not disclose any risks to the creditors of the new company). 115 Re Neath Rugby Limited [2007] EWHC 2999 (Ch) at [35]. 111

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The Insolvency Rules 2016 also provide for three cases in which s 216(3) does not apply, as follows: (a) where a successor LLP or company acquires the whole or substantially the whole of the business of an insolvent LLP under arrangements made by an insolvency practitioner acting as liquidator, administrator or administrative receiver, or as supervisor of a voluntary arrangement, and notice is given to the creditors of the insolvent LLP that the successor LLP or company has assumed, or will assume, a prohibited name (naming a person to whom s 216 applies as having been a member or shadow member of the insolvent LLP);116 (b) where a person applies for leave, he may act contrary to s 216(3) during the period commencing on the day the LLP goes into liquidation and ending on the day falling six weeks after that date or on the day on which the court disposes of the application, whichever occurs first;117 and (c) where the successor LLP or company has been known by the name for the whole of the period of 12 months ending on the day the liquidating LLP went into liquidation and has not been dormant at any time in those 12 months within the meaning of s 392 of the CA 2006.118 34.42 A person is personally responsible for all the debts119 of an LLP or company if, at any time, he is involved in the management of the LLP or company in contravention of s 216 or, as a person who is involved in the management120 of the LLP or company, he acts or is willing to act on instructions given (without the leave of the court) by a person whom he knows at that time to be in contravention of s 216 in relation to the LLP or company.121 A person personally responsible for debts under s 217 is jointly and severally liable with the LLP or company and any other person who is liable.122

116 117 118 119 120 121 122

IR 2016, r 22.4–22.5, as applied to LLPs by SI 2001/1090, Sch 6, Part II, para 3. Ibid, r 22.6. Ibid, r 22.7. As defined in IA 1986, s 217(3), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. As defined in IA 1986, s 217(4), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. IA 1986, ss 217(1) and (5), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. IA 1986, s 217(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1.

628

Chapter 35 COMPLETION OF THE WINDING UP AND DISSOLUTION

INTRODUCTION 35.1 After completion of the winding up process, the LLP is dissolved. The dissolution marks the end of the LLP’s legal personality.

VOLUNTARY WINDING UP 35.2 In a voluntary winding up, as soon as the LLP’s affairs are fully wound up, the liquidator prepares an account of the winding up, showing how it has been conducted and how the LLP’s property has been disposed of.1 In the case of a members’ voluntary winding up, the liquidator must send a copy of the account to the LLP’s members within 14 days of it being made up and to the Registrar of Companies, again within 14 days, but not before sending it to the members.2 In the case of a creditors’ voluntary liquidation, the liquidator is obliged to send a copy of the account to the members and the creditors (other than creditors who have opted out from receiving communications), and to give the creditors a notice explaining the effect of IA 1986, s 173(2)(e) and how they may object to the liquidator’s release.3 The liquidator must then, within seven days of the last day of the period within which the creditors may object to his release, send to the Registrar a copy of the account and a statement of whether any creditors have objected.4 A liquidator who fails to comply with such requirements is liable to a fine.5 35.3 Once the Registrar has received the liquidator’s account and return (and, in the case of a creditors’ voluntary liquidation, the account and statement), he registers them and, on the expiration of three months from the date of registration, the LLP is deemed dissolved.6 The court may, on the application of the liquidator or of any other interested person, make an order deferring the date of dissolution.7 It is the duty of the person on whose application an order of the court deferring the date of

1 2

3 4 5 6 7

IA 1986, s 94(1) (members’ voluntary); IA 1986, s 106(1) (creditors’ voluntary), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 94(2) (members’ voluntary), as modified and applied to LLPs by SI 2001/1090, reg 5. See Insolvency Rules 2016 (IR 2016) rr 5.9, 5.10 and 18.14, as modified and applied to LLPs by SI 2001/1090, reg 10(1)(b) and Sch 6. Ibid, s 106(1), (2), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 106(3), (4), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 94(4), (5) (members’ voluntary); s 106(5), (6) (creditors’ voluntary), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 201(2), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 201(3), as modified and applied to LLPs by SI 2001/1090, reg 5.

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dissolution is made to deliver to the Registrar, within seven days after the making of the order, an office copy of the order for registration.8

COMPULSORY LIQUIDATION 35.4 In a compulsory liquidation, if it appears to the liquidator that the winding up is for practical purposes complete (and the liquidator is not the official receiver), the liquidator must make up an account of the winding up, showing how it has been conducted and how the property has been disposed of.9 That account must then be sent to the creditors (other than opted-out creditors) along with a notice explaining the effect of IA 1986, s 174(4)(d) and how they may object to the liquidator’s release.10 The liquidator must then, within seven days of the last day of the period within which the creditors may object to his release, send to the Registrar a copy of the account and a statement of whether any creditors have objected.11 The liquidator is entitled to his release unless an objection is made within the prescribed period.12 Once the Registrar has received the final account and statement, or a notice has been given by the official receiver that the winding up by the court is complete (see 35.5 below), they are registered and, on the expiration of three months from the date of registration, the LLP is dissolved.13 The Secretary of State may, on the application of the official receiver or any other interested person, give a direction deferring the date at which the dissolution of the LLP is to take effect for such period as the Secretary of State thinks fit.14 35.5 The official receiver may, if he is liquidator, and it appears to him that the realisable assets of the LLP are insufficient to cover the expenses of the winding up, and that the affairs of the LLP do not require any further investigation, apply to the Registrar for the early dissolution of the LLP.15 Before doing so, however, the official receiver must give 28 days’ notice to the LLP’s creditors (other than opted-out creditors) and contributories and, if there is an administrative receiver, to the receiver.16 Once he has given this notice to the creditors and the contributories, the official receiver ceases (subject to any directions under s 203) to be required

8 9 10 11 12 13 14

15 16

Ibid, s 201(4), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 146(2), as modified and applied to LLPs by SI 2001/1090, reg 5. Release of the liquidator in a compulsory winding up is governed by IA 1986, ss 172(8) and 174. Ibid, s 146(3), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 146(4), (5), as modified and applied to LLPs by SI 2001/1090, reg 5. IR 2016, r 7.61, as modified and applied to LLPs by SI 2001/1090, reg 10(1)(b) and Sch 6. IA 1986, s 205(1) and (2), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 205(3), as modified and applied to LLPs by SI 2001/1090, reg 5. An appeal to the court lies from any decision of the Secretary of State on an application for such a direction: IA 1986, s 205(4), as modified and applied to LLPs by SI 2001/1090, reg 5. It is the duty of the person on whose application a direction is given or in whose favour an appeal with respect to an application for such a direction is determined within seven days after the giving of the direction or the determination of the appeal to deliver to the Registrar for registration a copy of the direction or determination as is prescribed; s 205(6), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 202(2), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 202(3), as modified and applied to LLPs by SI 2001/1090, reg 5.

Completion of the Winding Up and Dissolution

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to perform any duties imposed on him in relation to the LLP, its creditors or contributories by virtue of any provision of the IA 1986, apart from a duty to make an application for early dissolution as mentioned above.17 On the receipt of the official receiver’s application, the Registrar registers it and, on the expiration of three months from the date of registration, the LLP is dissolved.18 If the 28 days’ notice has been given, the official receiver or any other person who appears to the Secretary of State to be interested may apply to the Secretary of State for directions19 on the ground that the realisable assets of the LLP are sufficient to cover the expenses of the winding up, or that the affairs of the LLP do require further investigation, or that for any other reason the early dissolution of the LLP is inappropriate.20 The Secretary of State may give directions making provision for the winding up of the LLP to proceed as if no 28 days’ notice had been given, or deferring the date on which the dissolution of the LLP is to take effect for such period as he thinks fit.21

CONSEQUENCES OF DISSOLUTION 35.6 Upon dissolution, any property still vested in the LLP (other than as trustee), or held on trust for the LLP, vests in the Crown as bona vacantia.22 The Crown has power to disclaim property so vesting.23 If the Crown does disclaim such property, the property is deemed not to have vested in it.24 The Crown’s disclaimer operates so as to terminate, as from the date of the disclaimer, the rights, interests and liabilities of the LLP in or in respect of the property disclaimed, but it does not, except so far as is necessary for the purpose of releasing the LLP from any liability, affect the rights or liabilities of any other person.25 A disclaimer of a leasehold does not take effect unless a copy of the disclaimer has been served (so far as the Crown representative is aware of their addresses) on every person claiming under the LLP as underlessee or mortgagee, and either: (a) no application for a vesting order is made under CA 2006, s 1017 in respect of the property by a person claiming an interest in it before the end of the period of 14 days beginning with the day on which the last notice under (a) was served; or

17 18 19 20 21

22 23 24 25

Ibid, s 202(4), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 202(5), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 203(1), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 203(2), as modified and applied to LLPs by SI 2001/1090, reg 5. Ibid, s 203(3), as modified and applied to LLPs by SI 2001/1090, reg 5. An appeal to the court lies from any decision of the Secretary of State on an application for directions under s 203; IA 1986, s 203(4), as modified and applied to LLPs by SI 2001/1090, reg 5. It is the duty of the person on whose application any directions are given under s 203, or in whose favour an appeal with respect to an application for such directions is determined, within seven days after the giving of the directions or the determination of the appeal, to deliver to the Registrar for registration such a copy of the directions or determination as is prescribed: IA 1986, s 203(5), as modified and applied to LLPs by SI 2001/1090, reg 5. CA 2006, s 1012, as modified and applied to LLPs by SI 2009/1804, reg 52. Ibid, s 1013, as modified and applied to LLPs by SI 2009/1804, reg 52. Ibid, s 1014(1), as modified and applied to LLPs by SI 2009/1804, reg 52. Ibid, s 1015, as modified and applied to LLPs by SI 2009/1804, reg 53.

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The Law of Limited Liability Partnerships

(b) where an application for a vesting order has been made, the court on that application directs that the disclaimer takes effect.26 CA 2006, s 101727 gives the court power to make an order for the vesting of the disclaimed property in, or its delivery to: (a) a person entitled to it (or a trustee for such a person); or (b) a person who is under a liability in respect of the disclaimed property and which liability is not discharged by the disclaimer.28

26 27 28

Ibid, s 1016, as modified and applied to LLPs by SI 2009/1804, reg 53. As modified and applied to LLPs by SI 2009/1804, reg 53. And see CA 2006, ss 1018 (as to the protection of persons holding under a lease) and 1019 (in relation to land subject to rentcharge), both as modified and applied to LLPs by SI 2009/1804, reg 53.

Chapter 36 ARRANGEMENTS AND RECONSTRUCTIONS

INTRODUCTION 36.1 The CA 2006 and the IA 1986 include provisions that enable companies to enter into arrangements and reconstructions with their members and creditors.1 Compliance with the statutory procedures binds a dissentient member or creditor, enabling a company to put a scheme into effect which, although supported by a substantial majority of the members or creditors, does not command unanimity. The LLP legislation applies these provisions to LLPs.

COMPANIES ACT 2006, SECTIONS 895 TO 900 36.2 Sections 895 to 900 of the CA 2006 lay down a procedure for effecting a compromise or arrangement between an LLP and: (a) its creditors or any class of them; or (b) its members or any class of them.2 This procedure permits a number of different kinds of scheme. Schemes may be used by a company to effect an internal reorganisation of its share structure, to effect a composition agreement or scheme of arrangement with creditors3 or to effect a merger with another company. In relation to mergers, a scheme may provide for the business, assets and liabilities of one company to be transferred to another. 36.3 Given the absence of a share structure, the scope for the application of ss 895 to 900 to the internal organisation of an LLP is likely to be limited; but there is no reason why these sections should not be used to facilitate mergers. It has been held in relation to companies that a court has no jurisdiction to sanction an arrangement that does not have the approval of the company either by a board resolution or, if appropriate, by resolution of the members in general meeting.4 The same principle is likely to apply to LLPs. The process by which the LLP determines whether to approve a proposal will be determined by the LLP agreement. It is arguable that, in

1

2 3

4

See particularly CA 2006, ss 895–900, as modified and applied to LLPs by SI 2009/1804, reg 45(1), and IA 1986, s 110, as amended, modified and applied to LLPs by SI 2001/1090, Sch 3, para 1 and Sch 5, para 15. Voluntary arrangements under Part I of the IA 1986 are discussed in Chapter 28. CA 2006, s 895(1), as modified and applied to LLPs by SI 2009/1804, reg 45(1). See generally Palmer’s Company Law, chapter 12, and Re T&N Limited [2007] 1 All ER 851. In this regard, see IA 1986, Pt I and s 14, as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1. See also Lucio Pena v Coyne [2004] 2 BCLC 730, where the court approved proposals under IA 1986, s 423 in circumstances in which there had been a transaction at an undervalue. Re Savoy Hotel Ltd [1981] 3 All ER 646; Palmer, op cit, para 12.035.

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The Law of Limited Liability Partnerships

the absence of a relevant provision in the LLP agreement, a proposal can only be approved by the LLP if it is supported by all the members. However, the decision is a decision of ‘the limited liability partnership’ and the authors suggest that, as discussed in 17.12, the answer as to how a valid decision is to be made by the LLP (in this, and in other situations requiring a decision by ‘the limited liability partnership’) is to be found in the common law on decision-making by corporate bodies. If this suggestion is right, the matter will be decided by a (simple) majority of members attending a meeting of the members at which more than half of all the members are present. Ultimately, however, in order to satisfy CA 2006, s 899(1), approval is likely to be required from 75 per cent in value of the members present and voting at the meeting held under CA 2006, s 896.

INSOLVENCY ACT 1986, SECTION 110 36.4 The purpose of s 110 of the IA 1986 is to enable a liquidator of an LLP to transfer the assets of the LLP to a new LLP or company in exchange for shares or other interests in the new entity. Section 110 applies where an LLP (known as ‘the transferor LLP’) is proposed to be, or is being, wound up voluntarily.5 Section 110 can be invoked where it is proposed that the whole or part of the LLP’s business or property should be transferred or sold to another company (whether or not it is a company within the meaning of the CA 2006) (known as ‘the transferee company’) or to an LLP (known as ‘the transferee LLP’). 36.5

With the requisite sanction, the liquidator of the transferor LLP may:

(a)

receive, in compensation or part compensation for the transfer or sale, shares, policies or other like interests in the transferee company or LLP for distribution among the members of the transferor LLP;6 or (b) enter into any other arrangement whereby the members of the transferor LLP may, in lieu of receiving cash, shares, policies or other like interests (or in addition thereto), participate in the profits, or receive any other benefit from the transferee company or LLP.7 36.6 The requisite sanction is, in the case of a members’ voluntary winding up, a determination by the LLP at a meeting of the members conferring either a general authority on the liquidator or an authority in respect of any particular arrangement;8 and, in the case of a creditors’ voluntary winding up, is that of either the court or the liquidation committee.9 The process by which the LLP determines whether to confer

5 6 7 8 9

IA 1986, s 110, as amended, modified and applied to LLPs by SI 2001/1090, Sch 3, para 1 and Sch 5, para 15. Ibid, s 110(2), as amended, modified and applied to LLPs by SI 2001/1090, Sch 3, para 1 and Sch 5, para 15. Ibid, s 110(4), as amended, modified and applied to LLPs by SI 2001/1090, Sch 3, para 1 and Sch 5, para 15. The LLP agreement and quorum requirements of IA 1986, s 92(3) and (4), as modified and applied to LLPs by SI 2001/1090, Sch 3, para 1, apply for this purpose. IA 1986, s 110(3), as amended, modified and applied to LLPs by SI 2001/1090, Sch 3, para 1 and Sch 5, para 15.

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authority on the liquidator will be determined by the LLP agreement. In default of such agreement, the authors suggest that the matter will be determined in the manner set out in 36.3. 36.7 A sale or arrangement made in pursuance of s 110 is binding on all the members of the LLP.10 A determination by the LLP is not invalid by reason that it is made before or concurrently with a determination by the LLP that it be wound up voluntarily, or for appointing a liquidator; but, if an order is made within a year for winding up the LLP by the court, the determination to sanction the arrangement is not valid unless sanctioned by the court.11 36.8 A member who votes against the proposal, and expresses his dissent from it in writing addressed to the liquidator within seven days after the date on which the sanction was given, may require the liquidator either to abstain from carrying the arrangement into effect or to purchase his interest at a price to be determined by agreement or arbitration.12 If the liquidator elects to purchase the member’s interest, the purchase money must be paid before the LLP is dissolved, and must be raised by the liquidator in such manner as may be determined by the LLP.13

COMPANIES (CROSS-BORDER MERGERS) REGULATIONS 36.9 The Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 apply the Companies (Cross-Border Mergers) Regulations 2007 (SI 2007/2974) (‘the 2007 Regulations’) to LLPs, with modifications.14 The 2007 Regulations (along with the corresponding amendment regulations)15 were revoked with effect from IP completion day (ie 11pm on 31 December 2020) by the Companies, Limited Liability Partnerships and Partnerships (Amendment etc) (EU Exit) Regulations 2019.16

10 11 12 13 14 15

16

Ibid, s 110(5), as amended, modified and applied to LLPs by SI 2001/1090, Sch 3, para 1 and Sch 5, para 15. Ibid, s 110(6), as amended, modified and applied to LLPs by SI 2001/1090, Sch 3, para 1 and Sch 5, para 15. Ibid, s 111(2), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. Ibid, s 111(3), as modified and applied to LLPs by SI 2001/1090, reg 5 and Sch 3, para 1. SI 2009/1804, reg 46. See Re Lanber Properties LLP [2014] EWHC 4713 (Ch). The Companies (Cross-Border Mergers) (Amendment) Regulations 2008, SI 2008/583; Part 4 of the Companies (Reporting Requirements in Mergers and Divisions) Regulations 2011, SI 2011/1606; and the Companies (Cross-Border Mergers) (Amendment) Regulations 2015, SI 2015/180. SI 2019/348, reg 5; and European Union (Withdrawal Agreement) Act 2020, Sch 5, para 1(1). The position under the 2007 Regulations is summarised in Chapter 36 of the 4th edition.

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Chapter 37 DISQUALIFICATION

THE LEGISLATION AND THE SCOPE OF A DISQUALIFICATION ORDER 37.1 The CDDA 1986 is modified and applied to LLPs by the LLP Regulations 2001.1 The CDDA 1986 empowers2 the court, in a number of circumstances, to make a disqualification order and, in two circumstances,3 requires the court to make such

1

2

SI 2001/1090, reg 4(2), as amended by the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order (SI 2009/1941), Sch 1, para 192(2). The CDDA 1986 has also been amended by the Insolvency Act 2000, ss 5–8 and Sch 4 (modification of form of disqualification order / creation of disqualification undertakings); the Enterprise Act 2002, s 204 (introduction of disqualification for competition infringements); SI 2009/1941, Sch 1, para 85 (modification of various grounds of unfitness); and the Small Business, Enterprise and Employment Act 2015, discussed in fn 2. Where specific commencement orders and regulations have not been made in relation to LLPs, the authors’ view is that the amendments apply automatically to LLPs: see 1.15–1.19 and 27.3. Significant amendments were made to the CDDA 1986 by Part 9 of the Small Business, Enterprise and Employment Act 2015. These provisions came into force as a result of commencement orders taking effect in May and October 2015, and April 2016. Among the more significant changes: 1. Sections 104 and 105 add two new grounds for disqualification, namely foreign conviction (CDDA 1986, s 5A) and instructing an unfit director of an insolvent company (CDDA 1986, ss 8ZA–8ZE). 2. Section 106 makes a person’s conduct in relation to foreign companies relevant to unfitness (see eg CDDA 1986, s 6(1)(b), as amended), and substitutes a new statutory list of factors to which the court must have regard when making a disqualification order (CDDA 1986, s 12C and Sch 1). 3. Section 108 extends the time limit for the starting of disqualification proceedings by the Secretary of State from two to three years (CDDA 1986, s 7). 4. Section 110 makes provision for disqualification orders and undertakings to provide for the payment of compensation to the LLP or a particular creditor who has suffered loss as a result of improper conduct (CDDA 1986, s 15A).



3

Given the application of the whole of the provisions of the CDDA 1986 to LLPs by virtue of SI 2001/1090, reg 4(2) (discussed further below), the authors consider that these amendments automatically apply to LLPs with the modifications mandated by reg 4(2). The editors of Mithani, Directors’ Disqualification (LexisNexis, loose-leaf), paras III2329A, agree that there is a compelling case for saying that they should, but nevertheless set out arguments that might be advanced to the contrary (including that SI 2001/1090, reg 4(2) does not expressly apply the CDDA 1986 as amended from time to time, and the fact that no amendments were made to SI 2001/1090 when the Small Business, Enterprise and Employment Act 2015 came into force). But, given that SI 2001/1090, Sch 2, Part 2 (which applied the Schedule of matters relevant to unfitness as it existed under the CDDA 1986 prior to the amendments made by the Small Business, Enterprise and Employment Act 2015) has been repealed by the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, there seems to be a clear legislative intent to apply to LLPs the amendments to the CDDA made by the Small Business, Enterprise and Employment Act 2015. Unfit directors/members of insolvent companies/LLPs (s 6); unfit directors/members breaching competition law (s 9A).

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an order. A person who is subject to a disqualification order made in respect of an LLP must not: (a)

be a member of an LLP or a director of a company, act as receiver of an LLP’s or a company’s property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of an LLP or a company unless (in each case) he has the leave of the court; and (b) act as an insolvency practitioner, for a specified period.4 As a result of the amendments made by IA 2000, s 6, the Secretary of State now has power to accept a disqualification undertaking rather than make or proceed with a disqualification application.5 The terms of the undertaking are that the person giving the undertaking will not be a member of an LLP or a director of a company, act as receiver of an LLP’s or a company’s property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of an LLP or a company unless (in each case) he has the leave of a court, and will not act as an insolvency practitioner.6 The Secretary of State has power to accept an undertaking if the conditions in CDDA 1986, s 6(1) are satisfied and it appears to him that it is expedient in the public interest that he should do so (instead of applying, or proceeding with an application, for a disqualification order).7 The conditions in s 6(1) are that the person is or has been a member of an LLP which has at any time become insolvent (whether while he was a member or subsequently) and that his conduct as a member of that LLP (either taken alone or taken together with his conduct as a member of any other LLP or as a director of any company or companies) makes him unfit to be concerned in the management of an LLP or a company.8 In Re Bell Pottinger LLP,9 members of the LLP who 4

CDDA 1986, s 1(1), as modified and applied to LLPs by SI 2001/1090, reg 4(2). See CDDA 1986, s 22(10) in relation to acting as a receiver. 5 CDDA 1986, ss 1A, 7(2A), 8(2A), 8A, 9(1A), as modified and applied to LLPs by SI 2001/1090, reg 4(2). See Secretary of State for Trade and Industry v Davies (No 3) [2002] 2 BCLC 263. The Small Business, Enterprise and Employment Act 2015 added CDDA 1986, ss 5A, 8ZC and 8ZE, and amended s 1A accordingly, to permit undertakings to be given in respect of the new grounds of unfitness identified in fn 2. The Competition and Markets Authority has power to accept a disqualification undertaking from a person who is a member of an LLP if the Competition and Markets Authority thinks that the LLP has committed a breach of competition law and that the conduct of the person as a member makes him unfit to be concerned in the management of an LLP: CDDA 1986, ss 9A and 9B, as amended by Enterprise and Regulatory Reform Act 2013 (Competition) (Consequential, Transitional and Saving Provisions) Order 2014 (SI 2014/892), Sch 1, para 53(c), with effect from 1 April 2014. 6 CDDA 1986, s 1A, as modified and applied to LLPs by SI 2001/1090, reg 4(2). 7 CDDA 1986, ss 7(2A) and 8(2A), as modified and applied to LLPs by SI 2001/1090, reg 4(2). 8 See 37.5–37.10. The Small Business, Enterprise and Employment Act 2015, s 106(2) amended s 6 in two respects. First, s 6(1)(b) was augmented to make a person’s conduct as a director of overseas companies relevant. The new s 5A(5) defines ‘company’ as including ‘an overseas company’. As modified and applied to LLPs, a reference in the CDDA 1986 to a company is read as including a reference to a limited liability partnership: SI 2001/1090, reg 4(2)(a). It is unclear whether the reference to ‘overseas company’ in the new CDDA 1986, s 5A(5) should be read as including a reference to an overseas LLP, but presumably not, given that the general reference in SI 2001/1090, reg 4(2)(a) is a reference to UK companies and LLPs. Second, CDDA 1986, s 6(1A) was added so as to make explicit that references to a person’s conduct as director includes, where the company becomes insolvent, references to his conduct in relation to any matter connected with or arising out of the insolvency. This is capable of being applied directly to LLPs. 9 [2021] EWHC 672 (Ch).

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had not been members of the LLP’s management board argued that disqualification proceedings against them should be struck out. They contended that the intention of Parliament in applying the provisions of the CDDA 1986 to LLPs was solely to permit the disqualification of members who are the equivalent of directors in an LLP. Michael Green J dismissed the strike-out application and held that there was no basis for imposing any restriction on the types of members of an LLP against whom disqualification proceedings might be pursued, ‘looking at the words used, the structure of the CDDA and Parliament’s clear intention to cover all those trading with the benefit of limited liability’. He added: ‘The conduct that can be relied on is anything that is done in the capacity of a member of the LLP’.10 37.2 It is important to note the distinction between an order made pursuant to the CDDA 1986 itself and an order made pursuant to the CDDA 1986 as applied by the LLP Regulations 2001 to LLPs. Regulation 4(2) of the LLP Regulations 2001 provides that the provisions of the CDDA 1986 shall apply to LLPs, except where the context otherwise requires, with a number of general modifications including, pursuant to reg 4(2)(a), that references to a company shall include references to an LLP. The Regulations do not, therefore, purport to effect general amendments to the CDDA 1986 itself. So far as the CDDA 1986 (as applied to LLPs by the LLP Regulations) is concerned, the reference in s 1(1) of the Act to a company will, presumably, be read in the light of the general modifications, as a reference to an LLP or a company, with the result that (as set out in 37.1) a person who is subject to a disqualification order as a result of his involvement with an LLP will not be able to be a director of a company or be concerned or take part in the promotion, formation or management of a company as well as an LLP.11 If, however, a disqualification order is made against a person (by reason of his involvement with a company) pursuant to the CDDA 1986 itself, the person against whom the order is made would not, it seems, be disqualified from acting in respect of an LLP: such an order would be made under the CDDA 1986 itself, unmodified by the LLP Regulations. The authors accept that the contrary is arguable (and probably desirable, from a policy perspective). Such contrary argument would be that, by providing in the 2001 Regulations that the CDDA 1986 applies to LLPs and not merely to members, and by providing that references to ‘a company include references to a limited liability partnership’,12 the CDDA 1986 as applied to LLPs catches a person who is disqualified as a director as a result of conduct in relation to a company and operates to prevent that person from acting both in relation to companies and LLPs.13 But, however desirable that outcome might be

10 11

12 13

[2021] EWHC 672 (Ch) at [77]–[79]. The application of the CDDA 1986 to insolvent partnerships (pursuant to the Insolvent Partnerships Order 1994 (SI 1994/2421), as amended by the Insolvent Partnerships (Amendment) Order 2001 (SI 2001/767)) operates in a slightly different way. A disqualification order made against a person by reason of his involvement with an insolvent partnership operates so as to prevent him from being a director of a company or from being involved in the management etc of a company. It does not operate so as to prevent such a person from being a partner in another firm or from being involved in the management etc of a firm: see Mithani, op cit, paras III2219–III2237. SI 2001/1090, r 4(2)(a). The argument may gain some support from Re Bell Pottinger LLP [2021] EWHC 672 (Ch) at [36]. This view appears to be taken by the Department for Business, Energy and Industrial Strategy (see Mithani, op cit, at paras III2337–III2341), and is shared by the editors of Morse and Braithwaite, Partnership and LLP Law, para 12.14. See also Blackett-Ord and Haren, Partnership Law (6th ed), para 25.105.

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from a policy perspective, the authors’ view is that it ignores the actual legislative approach adopted in applying the CDDA 1986 to LLPs and the creation, in effect, of parallel Acts rather than by the amendment of the CDDA 1986 itself. Although r 4(2) of the LLP Regulations 2001 provides for references to a director to include references to a member of an LLP, and references to a company to include references to an LLP, the appropriate modification is not ‘director or member’ or ‘company or LLP’ where the context requires otherwise. If the reference in, for example, s 6(1)(a) of the CDDA 1986 to the lead entity (ie the entity which has become insolvent and in respect of which the application is made) is to an ‘LLP or company’, an application for disqualification could be made pursuant to the CDDA 1986 (as applied to LLPs by the LLP Regulations 2001), even if the entity in respect of which the application is made is a company. This, it is suggested, would be bizarre, and would be to treat the CDDA 1986 as having been amended generally rather than applied to LLPs with modifications.14 37.3 As set out in 37.1, a disqualification order made under the CDDA 1986 (as applied by the LLP Regulations 2001 to LLPs) will operate to prevent the person against whom the order is made not only from being a member of an LLP, but also from being a director of a company or being involved in the promotion, formation or management of an LLP or a company. ‘Management’ connotes an element of decision-making affecting the corporate enterprise as a whole, ie activities involving policy and decision-making related to the affairs of a corporation where the formation of those policies or the making of those decisions may have some significant bearing on the financial standing of the corporation or the conduct of its affairs.15 That said, management does not require involvement in the ‘ultimate control’ of the company. Consequently, it is very difficult, in any given case, to draw the line between management and administration. This is particularly so, given that s 1(1) includes the words ‘be concerned’ as well as ‘take part’ in management. These considerations are likely to apply in an LLP context. 37.4 One particular issue that may arise is the effect of a disqualification order on a professional. Subject to the grant of leave pursuant to s 17 (which is discussed further below), a professional who is the subject of a disqualification order (made as a result of his conduct as a member of an LLP) will not be able to be a member of an LLP (or a director of a company), although he could be a partner in a partnership.16 Employment of a person as a solicitor or accountant by an LLP will not necessarily involve participation in the management of the LLP within the meaning of s 1(1). Nevertheless, a professional will need to consider extremely carefully the scope of his duties as an employee and whether the carrying out of such duties will result in the breach by him of the order. Where there is any doubt, the professional will

14 See

37.9. Re Market Wizard Systems (UK) Ltd [1998] 2 BCLC 282; Commissioner of Corporate Affairs v Bracht (1989) 7 ACLC 40; R v Campbell [1984] BCLC 83; Re Clasper Group Services (1988) 4 BCC 673; and Wirecard Bank AG v Scott [2010] EWHC 451 (QB). See fn 11 above.

15 See

16

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not wish to take any risk, given that breach of a disqualification order is a criminal offence,17 and an application for leave to act would be appropriate.

UNFITNESS 37.5 The CDDA 1986 provides for a disqualification order to be made in a number of different circumstances, the most important of which is (pursuant to s 6) that the person has been a member of an insolvent LLP and his conduct as a member makes him unfit to be concerned in the management of an LLP or a company.18 37.6 The court is obliged to make a disqualification order against a person in any case where, on an application under s 6, it is satisfied that he is or has been a member of an LLP which has at any time become insolvent (whether while he was a member or subsequently) and that his conduct as a member of that LLP (either taken alone or taken together with his conduct as a member of any other LLP or as a director of any company or companies including foreign companies)19 makes him unfit to be concerned in the management of an LLP or a company. Under s 7, the Secretary of State is permitted to make an application for a s 6 disqualification order against a person if it appears to the Secretary of State that it is expedient in the public interest to do so. Such an application must not be made after the end of the period of three years20 beginning with the day on which the relevant company or LLP became insolvent, unless the court gives leave. 37.7

For the purposes of s 6, an LLP or company becomes insolvent if:

(a)

it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up; (b) the LLP or company goes into administration; or (c) an administrative receiver of the LLP or company is appointed.21 37.8 References to a person’s conduct as a member of an LLP or LLPs or as a director of any company or companies include, where that LLP or company or any of those LLPs or companies has become insolvent, that person’s conduct in

17

18

19 20 21

CDDA 1986, s 13. The offence is one of strict liability: a belief that the relevant conduct did not breach the order is irrelevant: R v Brockley [1994] 1 BCLC 606. A breach will also make the professional responsible, jointly and severally with the LLP, for the debts and other liabilities of the LLP incurred at a time when he is involved in the management of the LLP; see CDDA 1986, s 15(2). See, in relation to the right of the official receiver to make an application under IA 1986, s 236 to obtain information for the purposes of instituting disqualification proceedings, Re Pantmaenog Timber Co Ltd [2004] 1 AC 158. The extension to foreign companies occurred as a result of the amendments made by Small Business, Enterprise and Employment Act 2015, s 106(2). Increased from two years by Small Business, Enterprise and Employment Act 2015, s 108. CDDA 1986, s 6(2). The Small Business, Enterprise and Employment Act 2015, s 106(2) added a new s 6(2) and (2A) providing that an overseas company becomes insolvent if the company enters into insolvency proceedings of any description (including interim proceedings) in any jurisdiction.

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relation to any matter connected with or arising out of the insolvency of that LLP or company.22 37.9 It is not entirely clear how s 6 is to be treated as modified for the purpose of its application to LLPs. Regulation 4(2)(a) of the LLP Regulations 2001 provides that references to a company shall include references to an LLP. In relation to companies, a distinction is drawn between the conduct of the director in relation to the ‘lead company’ (ie the company in respect of which the application is made) which, it must be shown, has become insolvent, and his conduct in relation to ‘collateral companies’, which may or may not have become insolvent. In the authors’ view, the reference in s 6(1)(a) to ‘company’ and the reference in s 6(1)(b) to ‘that company’ (ie to the ‘lead company’) are modified so that they are to be read solely as references to ‘LLP’ and ‘that LLP’ respectively, and the reference in s 6(1)(b) to ‘any other company or companies’ (ie ‘collateral companies’) is to be read as ‘any other LLP or LLPs or company or companies’. As discussed in 37.2, although reg 4(2) provides for references to a director to include references to a member of an LLP, and references to a company to include references to an LLP, the appropriate modification is not ‘director or member’ or ‘company or LLP’ where the context requires otherwise. For the authors’ view as to why, in light of this, it is not possible for the lead entity in respect of which a disqualification order has been made under the CDDA 1986 (as applied to LLPs by the LLP Regulations 2001) to be a company, see 37.2. 37.10 If the authors have correctly concluded (in 37.2) that an order made pursuant to the CDDA 1986 (as applied to LLPs by the LLP Regulations 2001) imposes both LLP and company prohibitions, whereas an order made pursuant to the CDDA 1986 itself only imposes company prohibitions, this point is not merely of academic interest. At the same time, although references to the lead entity are, in our view, to be read as references to an LLP (and not an LLP or company), there would seem no reason why the references in s 6(1)(b) to ‘any other company or companies’ should not be read as references to ‘any other LLP or LLPs or company or companies’. 37.11

In ss 6 and 7, ‘the court’ means:

(a) where the LLP in question is being or has been wound up by the court, that court; (b) where the LLP in question is being or has been wound up voluntarily, any court which has or (as the case may be) had jurisdiction to wind it up; and (c) where neither of the preceding paragraphs applies, but an administrator or administrative receiver has at any time been appointed in respect of the LLP in question, any court which has jurisdiction to wind it up.23

22 23

CDDA 1986, s 6(2). See CDDA 1986, s 6(3), as modified and applied to LLPs by SI 2001/1090, reg 4(2). See Mithani, op cit, paras III108–III129. The entity referred to here is the lead entity such that references to

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37.12 In ss 6 and 7, ‘member’ includes a shadow member.24 Under s 6, the minimum period of disqualification is two years, and the maximum period is 15 years. In Re Sevenoaks Stationers (Retail) Ltd,25 the Court of Appeal divided the two- to 15-year period into three brackets suggested by counsel for the official receiver: ‘(i) The top bracket of disqualification for periods over ten years should be reserved for particularly serious cases. These may include cases where a director who has already had one period of disqualification imposed on him falls to be disqualified yet again. (ii) The minimum bracket of two to five years’ disqualification should be applied where, though disqualification is mandatory, the case is, relatively, not very serious. (iii) The middle bracket of disqualification for from six to ten years should apply for serious cases which do not merit the top bracket.’

37.13 In determining whether a person’s conduct as a member or shadow member of a particular LLP or LLPs, or as a director or shadow director of any particular company or companies, makes him unfit to be concerned in the management of an LLP or company, and in considering whether to exercise any discretion to make a disqualification order on the grounds set out in CDDA 1986, ss 2–4, 5A, 8 and 10 (addressed further below), the court is required to take account of the matters set out in CDDA 1986, Sch 1, Part I in all cases, and the matters set out in CDDA 1986, Sch 1, Part II in relation to a person who is or has been a member.26

24

25 26

‘company’ should, in the authors’ view, be read as references to ‘LLP’. As to disqualification proceedings commenced after administration and automatic dissolution, see Secretary of State for Trade and Industry v Arnold [2008] 1 BCLC 581. CDDA 1986, s 6(3C), as modified and applied to LLPs by SI 2001/1090, reg 4(2). ‘Shadow member’ means, in relation to an LLP, a person in accordance with whose directions or instructions the members of the LLP are accustomed to act (but so that a person is not deemed a shadow member by reason only that the members act on advice given by him in a professional capacity; in accordance with instructions, a direction, guidance or advice given by that person in the exercise of a function conferred by or under an enactment; or in accordance with guidance or advice given by that person in that person’s capacity as a Minister of the Crown): CDDA 1986, s 22(5), as amended by Small Business, Enterprise and Employment Act 2015, s 90(2) (in force from 26 May 2015: Small Business, Enterprise and Employment Act 2015, s 164(3)(g)(iii)). As to the meaning of ‘shadow member’, see Secretary of State for Trade and Industry v Deverell & anor [2001] Ch 340, esp at [35] (considering the meaning of ‘shadow director’) and Re Coroin Ltd (No 2) [2012] EWHC 2343 (Ch), affirmed on appeal [2013] 2 BCLC 583. In In re Wolstenholmes LLP, Secretary of State for Business, Innovation and Skills v Saddique and Cardinali (unreported; see Mithani’s Disqualification Newsletter, 58, October 2014), the Secretary of State sought disqualification orders against two individuals who were involved in a missing trader intra-community VAT fraud whilst working for the solicitors Wolstenholmes LLP. Neither individual was qualified to be a member of the LLP. However, HHJ Bird held that they were both liable to be disqualified under CDDA 1986, s 6, because they had acted as de facto and/or shadow members of the LLP. See 8.37–8.39 in relation to de facto members. [1991] Ch 164 at 174E–G. The Schedule which previously existed, and drew a distinction between solvent and insolvent companies/LLPs, has been replaced in its entirety. SI 2001/1090 has also been modified (pursuant to the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, Sch 1(2), para 5) by the deletion of Part II of Schedule 2, which previously spelt out how the earlier CDDA 1986 Schedule was to be modified in relation to LLPs.

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The same matters are required to be taken into account when determining the period of disqualification where an order is made based on unfitness, or pursuant to the grounds of disqualification provided for by CDDA 1986, ss 2–4, 5A, 8 or 10 and addressed at 37.22 onwards below. Further, the Secretary of State must also consider these matters when deciding whether or not to accept an undertaking. 37.14 CDDA 1986, Sch 1, Part I, as modified in accordance with SI 2001/1090, reg 4(2), provides that the following matters should be take into account: • • • •

Paragraph 1: The extent to which the person was responsible for the causes of any material contravention by a company, LLP or overseas company of any applicable legislative or other requirement. Paragraph 2: Where applicable, the extent to which the person was responsible for the causes of a company, LLP or overseas company becoming insolvent. Paragraph 3: The frequency of any conduct falling within paragraphs 1 and 2. Paragraph 4: The nature and extent of any loss or harm caused, or any potential loss or harm which could have been caused, by the person’s conduct in relation to a company, LLP or overseas company.

37.15 • • •

As amended, CDDA 1986, Sch 1, Part II lists:

Paragraph 5: Any misfeasance or breach of any fiduciary duty by the member in relation to a company, LLP or overseas company. Paragraph 6: Any material breach of any legislative or other obligation of the member which applies as a result of being a director of a company or overseas company or a member of an LLP. Paragraph 8: The frequency of conduct of the member which falls within paragraph 5 or 6.27

Case law 37.16 Although the question of unfitness is one for the trial judge on the facts of each case, a substantial body of reported case law has been developed.28 It is beyond the scope of this work to undertake an analysis of the case law as it applies to companies; and, indeed, many of the cases, particularly those at first instance, are only helpful (if at all) as examples of conduct which has or has not, in the light of all the relevant circumstances, been regarded as rendering the director concerned unfit. The general function of the court is to: ‘decide whether [the conduct of the director], viewed cumulatively and taking into account any extenuating circumstances, has fallen below the standards of probity and competence appropriate for persons fit to be directors of companies’.29

37.17 The key issue for members of LLPs will be how the courts apply the existing case law. Given that the matters identified by the statute as being relevant are

27 28 29

SI 2001/1090, reg 4(2). See the cases cited in Mithani, op cit, Ch 2. Re Grayan Building Services Ltd [1995] Ch 241 at 253F per Hoffmann LJ; applied in Cathie v Secretary of State for Business, Innovation and Skills (No 2) [2012] BCC 813 (CA), at [49].

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essentially the same,30 and that members of LLPs are in many respects equated with directors, the expected standards of conduct are likely to be very similar. That said, in view of the flexibility of LLPs as business vehicles, the precise roles of members, and the extent of their involvement in management, may vary much more than the roles and involvement of directors. In the case of small LLPs, in which all the members are closely involved in the management of the LLP, there may be little difference. For larger professional LLPs, however, there are likely to be members who have little (if any) involvement in the day-to-day management or decision-making of the LLP and whose roles are not readily equated with company directors. Notwithstanding this, in dismissing the strike-out application brought by two LLP members in Re Bell Pottinger LLP,31 Michael Green J was prepared to hold, in principle at an interlocutory stage, that an allegation of unfitness could be made against two of the defendant members on the basis of their conduct of a specific account and advertising campaign, as opposed to any wider involvement in management or decision making of the LLP. 37.18 In Re Westmid Packing Services Ltd, Lord Woolf MR made the following comments:32 ‘Each individual director owes duties to his company to inform himself about its affairs and to join with his co-directors in supervising and controlling them. A proper degree of delegation and division of responsibility is of course permissible, and often necessary, but not total abrogation of responsibility … It is of the greatest importance that any individual who undertakes the statutory and fiduciary obligations of being a company director should realise that these are personal responsibilities.’

‘LLP member’ may be substituted for ‘company director’ in this statement.

Collegiate responsibility 37.19 The members as a whole have a collegiate or collective responsibility for the conduct of the LLP’s affairs as against the outside world, and in particular creditors. In this connection each member owes continuing duties to the LLP to inform himself about its affairs and to join with his co-members in supervising and controlling these affairs. There certainly can be a proper and reasonable degree of delegation, and division of responsibility, in the management of the business. But, on the other hand, like a company director, no individual member can simply abrogate his part of the collegiate responsibility for the LLP’s dealings with the outside world and the impact of its financial position on creditors.33 Delegation of functions to a management committee (of other members and/or non-members) will not, therefore, absolve a member from all responsibility, and from his duty to keep himself informed; nor will it absolve him from his part in the collegiate responsibility of supervising

30 See 31 32 33

37.14–37.15 above in relation to the new Schedule introduced by Small Business, Enterprise and Employment Act 2015, s 106. See fn 9 above. [1998] 2 All ER 124 at 130 and 131. See Lord Woolf MR in Re Westmid above, at 130a–c.

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and controlling the carrying out of the delegated functions.34 In particular, where statutory duties are laid on the members as a whole, each member has, as a general rule, a duty to inform himself properly, and not simply to leave the decision-making to the other members.35 37.20 The extent to which, for the purposes of disqualification proceedings, a member may safely leave responsibility for delegated matters36 to those to whom they have been delegated will need to be worked out through judicial decisions; and it will, in any event, in any particular case turn largely on how the particular LLP’s business is organised and the part which the member could reasonably be expected to play.37 37.21 Those members of the LLP who are members of the management committee (or otherwise take an active part in the management of the LLP’s affairs) will have their conduct considered, on any application for disqualification, in the context of the management role which they in fact had.38

OTHER GROUNDS FOR DISQUALIFICATION 37.22 Section 2(1) of the CDDA 1986 provides that the court may make a disqualification order against a person if he is convicted of an indictable offence (whether on indictment or summarily) in connection with the promotion, formation, management, liquidation or striking off of an LLP, with the receivership or management of an LLP’s property or with his being an administrative receiver of an LLP.39

34 See

35

36 37 38 39

Re Barings Plc (No 5) [1999] 1 BCLC 433 at 487e–f and 489b–c (Jonathan Parker J), the second passage being expressly approved by the Court of Appeal in the same case [2000] 1 BCLC 523 at 535, at [36]. See also Madoff Securities International Ltd (In Liquidation) v Raven [2013] EWHC 3147 (Comm) at [191]. See, for example, Re Landhurst Leasing Plc [1999] 1 BCLC 286 at 346e–h; Re Galeforce Pleating Co Ltd [1999] 2 BCLC 704 at 716a–d; Weavering Capital (UK) Ltd (In Liquidation) v Dabhia [2013] EWCA Civ 71; and Secretary of State for Business, Innovation and Skills v Reza [2013] CSOH 86, at [17]. In Re Bell Pottinger LLP, Michael Green J was firmly of the view that Parliament intended all members of an LLP to take these responsibilities seriously, and he made reference to reports arising from the Select Committee stage which made clear that the expectation was that members of an LLP should feel responsible for the general affairs of an LLP in the same way as would partners in a partnership. In Michael Green J’s view, ‘As the policy of the CDDA is to target directors of companies who have benefited from trading with the benefit of limited liability … so the application of the CDDA to LLPs should similarly target those who are benefiting from trading with limited liability, namely the members, who would otherwise be partners with unlimited liability’ ([2021] EWHC 672 (Ch) at [47]–[48]). As opposed to matters allocated by statute to the members as a whole. See generally Re Landhurst Leasing Plc [1999] 1 BCLC 286 at 345e–346h and Re Barings Plc (No 5) in the Court of Appeal above at 536, para 36(iii). Ibid: and see Jonathan Parker J in Re Barings Plc (No 5) at first instance above at 484b–e. See Re Vintage Hallmark Plc [2008] BCC 150, [2007] 1 BCLC 788. This section should not, presumably, be treated as having been modified so that it reads ‘… striking off of an LLP or company, or … management of an LLP’s or a company’s property’. If the section

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37.23 The ‘court’ for the purpose of s 2 means any court having jurisdiction to wind up the LLP in relation to which the offence was committed, or the court by or before which the person is convicted of the offence, or in the case of a summary conviction in England and Wales, any other magistrates’ court acting for the same petty sessions area.40 The maximum period of disqualification under s 2 is, where the disqualification order is made by a court of summary jurisdiction, five years, and in any other case, 15 years.41 37.24 Section 3(1) of the CDDA 1986 provides that the court may make a disqualification order against a person where it appears that he has been persistently in default in relation to provisions of the companies legislation or the LLP Act 2000 or LLP Regulations 2001 requiring any return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the Registrar of Companies.42 On an application under s 3, the fact that a person has been persistently in default in relation to such provisions may (without prejudice to its proof in any other manner) be conclusively proved by showing that in the five years ending with the date of the application he has been adjudged guilty (whether or not on the same occasion) of three or more defaults in relation to those provisions.43 A person is to be treated under s 3(2) as being adjudged guilty of a default in relation to any provision if either: (a)

he is convicted (whether on indictment or summarily) of an offence consisting in a contravention of or failure to comply with that provision (whether on his own part or on the part of any company or LLP); or (b) a default order is made against him under CA 2006, s 452 (order requiring delivery of company accounts), CA 2006, s 456 (order requiring preparation of revised accounts), CA 2006, s 1113 (enforcement of company’s filing obligations), IA 1986, s 41 (enforcement of receiver’s or manager’s duty to make returns), or IA 1986, s 170 (corresponding provision for liquidator in winding up), in respect of any such contravention of or failure to comply with that provision (whether on his own part or on the part of any LLP or company).44

40 41

42

43 44

is treated as having been modified in this way, an application could be made pursuant to the CDDA 1986 (as applied to LLPs by the LLP Regulations 2001) notwithstanding that the relevant conduct related to a company. CDDA 1986, s 2(2). Ibid, s 2(3). In determining the period of disqualification, the court will have regard to the Sevenoaks brackets of seriousness: Secretary of State for Business, Innovation and Skills v Rahman [2017] EWHC 2468 (Ch). It is not clear whether this section (as applied to LLPs) should be treated as applying to offences in relation to either LLPs or companies. Where at least one of the offences relates to an LLP there would seem no reason why the application could not be made pursuant to the CDDA 1986 (as applied to LLPs by the LLP Regulations 2001) but it would be very odd if an application could be made in this way if all the offences related to companies. This issue is significant because of the wider scope of an order made under the LLP legislation: see 37.2. CDDA 1986, s 3(2), as modified and applied to LLPs by SI 2001/1090, reg 4(2). CDDA 1986, s 3(3), as modified and applied to LLPs by SI 2001/1090, reg 4(2). The effect of s 3(3) is that the meaning of ‘in default’ in and for the purposes of the CA 2006 and the IA 1986 (discussed at 12.9–12.12) is imported into the CDDA 1986.

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37.25 In s 3 ‘the court’ means any court having jurisdiction to wind up any of the LLPs or companies in relation to which the offence or other default has been or is alleged to have been committed.45 The maximum period of disqualification under s 3 is five years.46 37.26 Section 4(1) of the CDDA 1986 provides that the court may make a disqualification order against a person if, in the course of the winding up of an LLP, it appears that he has been guilty of an offence for which he is liable (whether he has been convicted or not) under s 993 of the CA 2006 (fraudulent trading), or has otherwise been guilty, while a member or liquidator of the LLP or receiver of the LLP’s property or administrative receiver of the LLP, of any fraud in relation to the LLP or of any breach of his duty as such member, liquidator, receiver or administrative receiver.47 In s 4 ‘the court’ means any court having jurisdiction to wind up any of the LLPs in relation to which the offence or other default has been or is alleged to have been committed; and ‘member’ includes a shadow member.48 The maximum period of disqualification under s 4 is 15 years.49 37.27 Section 5 of the CDDA 1986 provides that where a person is convicted of a relevant summary offence the court by which he is convicted (or, in England and Wales, any other magistrates’ court acting for the same petty sessions area) may make a disqualification order against him if, during the five years ending with the date of the conviction, he has had made against him, or has been convicted of, in total not less than three default orders and relevant offences.50 37.28 An offence is relevant for the purposes of s 5(2) if it is a conviction (either on indictment or summarily) in consequence of a contravention of, or failure to comply with, any provision of the companies legislation or the LLP Act 2000 or LLP Regulations 2001 requiring a return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the Registrar of Companies (whether the contravention or failure is on the person’s own part or on the part of any LLP).51 The maximum period of disqualification under s 5 is five years.

45 46 47

48 49 50

51

Ibid, s 3(4). Ibid, s 3(5). This section should not, presumably, be treated as having been modified so that s 4(1)(b) reads ‘… while an officer of an LLP or company … of fraud in relation to the LLP or company …’. If the section is treated as having been modified in this way, an application could be made pursuant to the CDDA 1986, as modified and applied to LLPs by SI 2001/1090, reg 4(2), notwithstanding that the relevant conduct related to a company. Similarly, presumably, an offence pursuant to CA 2006, s 993 would have to relate to an LLP so as to fall within CDDA 1986, s 4(1), as applied to LLPs by the LLP Regulations 2001. This issue is significant because of the wider scope of an order made under the LLP legislation: see 37.2. CDDA 1986, s 4(2), as modified and applied to LLPs by SI 2001/1090, reg 4(2). Ibid, s 4(3). CDDA 1986, s 5(1) and (3), as modified and applied to LLPs by SI 2001/1090, reg 4(2). ‘Default’ means the same as in s 3(3)(b). The Small Business, Enterprise and Employment Act 2015 inserted a new s 5(4B) to include overseas companies in the definition of ‘company’ and created a new head of disqualification under s 5A (disqualification for convictions abroad). Ibid, s 5(1). This section should not, presumably, be read as modified to apply to offences relating to companies as well as LLPs. See fn 47 above.

Disqualification

649

37.29 Section 5A of the CDDA 1986 (added by the Small Business, Enterprise and Employment Act 2015 and as modified by SI 2001/1090, reg 4(2)) permits the court to make a disqualification order, or the Secretary of State to accept an undertaking, for a period of up to 15 years, where a person has been convicted of a foreign offence involving the promotion, formation, management, liquidation or striking off of a company or an LLP, the receivership of a company or LLP’s property or a person being an administrative receiver, so long as such foreign offence corresponds to an indictable offence under the law of England and Wales or the law of Scotland as the case may be. 37.30 Section 8(1) of the CDDA 1986 provides that if it appears to the Secretary of State from investigative material that it is expedient in the public interest that a disqualification order should be made against any person who is or has been a member or shadow member of any LLP, he may apply to the court for such a disqualification order.52 ‘Investigative material’ means a report made by inspectors under s 437 of the CA 1985, ss 167, 168, 169 or 284 of the Financial Services and Markets Act 2000, or from information or documents obtained under ss 437, 446E, 447, 448, 451A or 453A of the CA 1985,53 s 2 of the Criminal Justice Act 1987, s 83 of the Companies Act 1989 or ss 165, 171, 172, 173 or 175 of the Financial Services and Markets Act 2000.54 However, the court may only make a disqualification order against a person under s 8 if it is satisfied that his conduct in relation to the LLP makes him unfit to be concerned in the management of an LLP.55 In s 8 ‘the court’ means the High Court.56 The maximum period of disqualification under s 8 is 15 years.57 37.31 Sections 8ZA to 8ZE of the CDDA 1986 (introduced by s 105 of the Small Business, Enterprise and Employment Act 2015 and as modified by SI 2001/1090, reg 4(2)) provide that the court may make a disqualification order, and the Secretary of State may accept an undertaking, in respect of a person who gave directions or instructions in relation to the conduct of a member (but not a shadow member) which led to such member being made the subject of a disqualification order or giving a disqualification undertaking on the grounds of unfitness under CDDA 1986, ss 6 to 8. Such influence will not be found to exist in connection with advice given in a professional capacity (CDDA 1986, ss 8ZA(3) and 8ZD(4)). This is a narrower exception than applies in the context of shadow membership.58 37.32 Section 9A of the CDDA 1986 provides that the court must make a disqualification order against a person if an LLP of which he is a member commits

52 53 54 55 56 57 58

This section should not, presumably, be read as modified to apply to companies as well as LLPs. See fn 47 above. The Secretary of State’s powers of inspection and investigation under the CA 1985 are considered in Chapter 24. CDDA 1986, s 8(1A). The amendments provided for by the Small Business, Enterprise and Employment Act 2015 extended the definition of companies to include overseas companies. Ibid, s 8(2). Ibid, s 8(3). Ibid, s 8(4). See fn 24 above.

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a breach of competition law and the court considers that his conduct as a member makes him unfit to be concerned in the management of an LLP.59 37.33 Section 10 of the CDDA 1986 provides that where the court makes a declaration under s 213 or s 214 of the IA 1986 that a person is liable to make a contribution to an LLP’s assets, then, whether or not an application is made by any person, the court may, if it thinks fit, also make a disqualification order against the person to whom the declaration relates.60 The maximum period of disqualification under s 10 is 15 years.61 37.34 Section 11(1) of the CDDA 1986 (as it applies in England and Wales) provides that it is an offence for a person to act as a member of an LLP or a director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of an LLP or a company, without the leave of the court, at a time when he is an undischarged bankrupt, a moratorium period under a debt relief order applies in relation to him, or a bankruptcy restrictions order, or a debt relief restrictions order, is in force in respect of him.62 For the purpose of s 11, ‘the court’ is the court by which the person was adjudged bankrupt, the court which made the debt relief restrictions order or, in any other case, the court to which the person would make an application under s 251M(1) of the IA 1986.63 The leave of the court cannot be given unless the bankrupt gives notice to the official receiver of his intention to apply for it. It is the duty of the official receiver, if he is of opinion that it is contrary to the public interest that the application should be granted, to attend on the hearing of the application and oppose it.64 37.35 If a court under s 429 of the IA 1986 revokes an administration order under Pt VI of the County Courts Act 1984, the person to whom that section applies by virtue of the order under s 429(2)(b) cannot, except with the leave of the court which made the order, act as a member or liquidator of an LLP, or directly or indirectly take part or be concerned in the promotion, formation or management of, an LLP.65

59 60

61 62

63 64 65

The relevant law is set out in CDDA 1986, s 9A(4). See s 9B in relation to competition undertakings and s 9C in relation to competition investigations. This section should not, presumably, be read as modified to apply to companies as well as LLPs. See fn 47 above. Oddly, a reference to s 214A has not been added to s 10. Section 214A was specifically referenced in the modifications imposed by SI 2001/1090, Sch 2, Pt II (on the previous version of the Schedule) of matters to take account of, but this modification has now been repealed (see fn 26 above). CDDA 1986, s 10(2), as modified and applied to LLPs by SI 2001/1090, reg 4(2). It does not matter whether s 11 is treated as modified to refer to companies and LLPs. An undischarged bankrupt will be prevented from acting in relation to a company by CDDA 1986, s 11 itself, or in relation to an LLP by CDDA 1986, s 11, as modified and applied to LLPs by SI 2001/1090, reg 4(2). CDDA 1986, s 11(2), as amended by Tribunals, Courts and Enforcement Act 2007 (Consequential Amendments) Order (SI 2012/2404), Sch 1, para 1. Ibid, s 11(3). Ibid, s 12. It does not matter whether s 12 is treated as modified to refer to companies and LLPs. A person affected by the order is prevented from acting in relation to a company by CDDA 1986, s 12 itself, or in relation to an LLP by CDDA 1986, s 12, as modified and applied to LLPs by SI 2001/1090, reg 4(2).

Disqualification

651

COMPENSATION ORDERS 37.36 The Small Business, Enterprise and Employment Act 2015 introduced new provisions at CDDA 1986, ss 15A–15B which empower a court to make a compensation order, and the Secretary of State to accept a compensation undertaking, pursuant to which a disqualified director is required to pay compensation to the LLP or an individual creditor or creditors if the conduct which led to his disqualification has caused loss to one or more creditors of an insolvent LLP. In determining the amount of compensation to be paid, regard will be had to the amount of the loss caused, the nature of the conduct and whether any financial recompense has already been made. Under a compensation order/undertaking, the compensation may either be paid directly to creditors suffering loss and/or the LLP in question, or to the Secretary of State for onward transmission to such creditors/the LLP. Pursuant to CDDA 1986, s 15C the court may, on the application of a person subject to a compensation undertaking, reduce the amount payable or provide for the undertaking not to have effect. It is only the Secretary of State who may apply for a compensation order (or accept a compensation undertaking). The procedure governing such applications is contained in the Compensation Orders (Disqualified Directors) Proceedings (England and Wales) Rules 2016.66 Such applications must be brought within two years from the date on which the disqualification order is made.67 The provisions are not expressed as having extra-territorial effect. The first compensation order under CDDA 1986, s 15A was made in Re Noble Vintners Ltd.68 The defendant director was disqualified for 15 years and ordered to pay compensation in an amount of £559,484 reflecting the amount misappropriated by the defendant from the company, and comprising £460,067.37 payable to 28 creditors at whose direct expense the director had benefitted himself, and a further contribution of £99,416.63 to the assets of the insolvent company. ICC Judge Prentis gave the following guidance on the operation of the CDDA 1986 compensation regime: • •

66 67 68

Its purpose is to provide individual creditors with a remedy beyond the wrongful trading, preference, undervalue and other measures providing for personal liability in the IA 1986 (at [19]). There is no need to show loss to the company, and compensation may be paid to individual creditors rather than back to the company or all creditors within the same class. Accordingly, a creditor need not show they have a provable claim, so long as they can demonstrate they are owed an obligation by the insolvent company sounding in money, and suffered loss caused by the misconduct.

SI 2016/890. CDDA 1986, s 15A(5). [2019] EWHC 2806 (Ch).

652

•

•

The Law of Limited Liability Partnerships

Further, compensation may be awarded in respect of the full range of conduct that led to the disqualification order, and under all heads of disqualification provided for by the CDDA 1986 (at [24]–[31]). There is no need to show that the misconduct leading to disqualification is the predominant cause. However, ‘but for’ causation will not, in every case, justify an award of compensation. Instead ‘using hindsight and common sense but without considering foreseeability the court must be satisfied that the misconduct has caused loss within the meaning of the [CDDA] to a creditor of a relevant insolvent company’ (at [40]). In approaching quantification, the court should consider (non-exhaustively): the amount of loss caused; the nature of the misconduct (including the relative fault of the defendant and other directors, and whether the seriousness of the breach correlates to the degree of harm caused); and any other financial recompense that has already been made by the defendant director. In ICC Judge Prentis’s view, taking these factors into account ought to avoid any issue of double recovery if relief has also been sought under the IA 1986 (at [42]–[46]).

CONSEQUENCES OF CONTRAVENTION 37.37 If a person acts in contravention of a disqualification order or disqualification undertaking, or is guilty of an offence under s 11, he is liable on conviction on indictment, to imprisonment for not more than two years or a fine, or both; and on summary conviction, to imprisonment for not more than six months or a fine not exceeding the statutory maximum, or both.69 37.38 Further, under CDDA 1986, s 15, a person is personally responsible for all the relevant debts70 of an LLP or a company if, at any time: (a) in contravention of a disqualification order or disqualification undertaking or of s 11, 12A or 12B, he is involved in the management of the LLP or company; or (b) as a person who is involved in the management of the LLP or company, he acts or is willing to act on instructions given without the leave of the court by a person whom he knows at that time to be the subject of a disqualification order or disqualification undertaking or to be an undischarged bankrupt. Where a person is personally responsible under s 15 for the relevant debts of an LLP or company, he is jointly and severally liable in respect of those debts with the LLP or company and any other person who, whether under s 15 or otherwise, is liable.71

69

CDDA 1986, s 13, as modified and applied to LLPs by SI 2001/1090, reg 4(2). See also CDDA 1986, ss 12A and 12B, as amended by SI 2009/1941, para 85, in respect of Northern Irish disqualification orders / undertakings. 70 See 37.39. 71 CDDA 1986, s 15(2), as modified and applied to LLPs by SI 2001/1090, reg 4(2). See Re Prestige Grindings Limited [2006] 1 BCLC 440; and Wirecard Bank AG v Scott [2010] EWHC 451 (QB).

Disqualification

37.39

653

For the purposes of s 15, the relevant debts of an LLP or company are:

(a) in relation to a person who is personally responsible under (a) in 37.38, such debts and other liabilities of the LLP or company as are incurred at a time when that person was involved in the management of the LLP or company; and (b) in relation to a person who is personally responsible under (b) in 37.38, such debts and other liabilities of the LLP or company as are incurred at a time when that person was acting or was willing to act on instructions given as mentioned in that paragraph.72 37.40

For the purposes of s 15:

(a)

a person is involved in the management of an LLP or company if he is a member of an LLP or director of the company or if he is concerned, whether directly or indirectly, or takes part, in the management of the LLP or company;73 and (b) a person who, as a person involved in the management of an LLP or company, has at any time acted on instructions given without the leave of the court by a person whom he knew at that time to be the subject of a disqualification order or disqualification undertaking or to be an undischarged bankrupt is presumed, unless the contrary is shown, to have been willing at any time thereafter to act on any instructions given by that person.74

APPLICATIONS FOR LEAVE TO ACT 37.41 A disqualified member can apply to the court for leave to act.75 Leave can be granted for a disqualified member to be a member of an LLP or a director of a company, or can be limited to permission to act in the management of a particular LLP or company. The court may also impose conditions on the grant of leave. On the hearing of an application for leave, the Secretary of State (or the official receiver or the liquidator) must appear and call the attention of the court to any matters which seem relevant, and may give evidence or call witnesses.76 The discretion to grant leave is unfettered. The suggestion in some authorities that particular factors or circumstances amount to prerequisites for the granting of leave has been rejected.77 The discretion is to be exercised by the court in the light of all the circumstances which will, of course, vary considerably from case to case. The granting of leave does not require the respondent to show exceptional circumstances or necessity; in an appropriate case, it may be sufficient that the granting of leave is desirable.78 There are several matters which will ordinarily fall to be considered in deciding

72

Ibid, s 15(3). Ibid, s 15(4). 74 Ibid, s 15(5). 75 See CDDA 1986, ss 1 and 17, as modified and applied to LLPs by SI 2001/1090, reg 4(2). 76 Ibid, s 17. 77 See Re Barings Plc (No 3) [1999] 1 All ER 1017; Re Dawes & Henderson (Agencies) Ltd (In Liquidation) (No 2) [1999] 2 BCLC 317; and Re Portland Place (Historic House) Ltd [2012] EWHC 4199 (Ch) at [13]. 78 See Secretary of State for Trade and Industry v Rosenfield [1999] BCC 413 at 414E–F and 415E–G and Secretary of State for Business, Enterprise & Regulatory Reform v Meade [2011] EWHC 4091 (Ch) at [10]. 73

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whether the discretion ought to be exercised. These matters fall, broadly, under two heads. First, whether the granting of the leave sought would undermine the purposes of the disqualification order. Secondly, the reasons the applicant has advanced for the granting of leave. 37.42 In considering whether the purpose of the disqualification order would be undermined, there are a number of factors which may be relevant. The court will inevitably be concerned with the question whether the involvement of the applicant with a limited liability entity would pose a risk to the public if leave is granted. This will involve a consideration of, inter alia: (a) the nature of the conduct for which the applicant was disqualified; (b) the nature of the role the applicant wishes to undertake and the terms of the leave which are proposed; (c) other evidence relevant to the possibility of the applicant repeating the conduct for which he was disqualified including evidence: (i) of the applicant’s past employment history; (ii) from the applicant as to whether he has ‘learnt his lesson’; and (iii) as to his conduct since the events giving rise to the disqualification proceedings. 37.43 In considering the reasons advanced by the applicant for the granting of leave (referred to in the cases as the ‘need’ for the order) the court will primarily be concerned with: (a) reasons personal to the applicant; and (b) reasons relevant to the LLP or company in respect of which leave is sought. 37.44 It is for the judge to decide in the light of all the circumstances whether to exercise his discretion. Courts acting in an appellate capacity are slow to interfere with the exercise by the judge of his discretion, and only interfere if the judge has erred in principle.79 It appears that the courts may be more inclined to grant leave if the leave sought is for the applicant to be involved in management (in circumstances in which the applicant is supervised and does not have power to make decisions affecting the financial position of the company or LLP) rather than as a director or member.80 37.45 A person who is subject to a disqualification undertaking may apply to the court to reduce the period for which the undertaking is to be in force, or for an order that it cease to be in force.81 On the hearing of an application, the Secretary of State must appear and call the attention of the court to any matters which seem to him to be relevant, and may give evidence or call witnesses.82

79

Secretary of State v Collins [2000] 2 BCLC 223.

80 Ibid. 81 82

CDDA 1986, s 8A(1). Ibid, s 8A(2).

Appendix 1 LIMITED LIABILITY PARTNERSHIPS ACT 2000 An Act to make provision for limited liability partnerships. [20th July 2000] BE IT ENACTED by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:Introductory 1  Limited liability partnerships (1) There shall be a new form of legal entity to be known as a limited liability partnership. (2) A limited liability partnership is a body corporate (with legal personality separate from that of its members) which is formed by being incorporated under this Act; and– (a) in the following provisions of this Act (except in the phrase ‘oversea limited liability partnership’), and (b) in any other enactment (except where provision is made to the contrary or the context otherwise requires), references to a limited liability partnership are to such a body corporate. (3) A limited liability partnership has unlimited capacity. (4) The members of a limited liability partnership have such liability to contribute to its assets in the event of its being wound up as is provided for by virtue of this Act. (5) Accordingly, except as far as otherwise provided by this Act or any other enactment, the law relating to partnerships does not apply to a limited liability partnership. (6) The Schedule (which makes provision about the names and registered offices of limited liability partnerships) has effect.

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The Law of Limited Liability Partnerships

Incorporation 2  Incorporation document etc (1) For a limited liability partnership to be incorporated– (a)

two or more persons associated for carrying on a lawful business with a view to profit must have subscribed their names to an incorporation document, [(b) the incorporation document or a copy of it must have been delivered to the registrar, and]1 (c) there must have been so delivered a statement […]2 made by either a solicitor engaged in the formation of the limited liability partnership or anyone who subscribed his name to the incorporation document, that the requirement imposed by paragraph (a) has been complied with. (2) The incorporation document must– (a) […]2 (b) state the name of the limited liability partnership, (c) state whether the registered office of the limited liability partnership is to be situated in England and Wales, in Wales[, in Scotland or in Northern Ireland]1, (d) state the address of that registered office, [(e) give the required particulars of each of the persons who are to be members of the limited liability partnership on incorporation, […]3]1 (f) either specify which of those persons are to be designated members or state that every person who from time to time is a member of the limited liability partnership is a designated member; [and]4 [(g) include a statement of initial significant control.]4 [(2ZA) The required particulars mentioned in subsection (2)(e) are the particulars required to be stated in the LLP’s register of members and register of members’ residential addresses.]5 [(2A) […]2 (2B) […]2]6 (3) If a person makes a false statement under subsection (1)(c) which he– (a) knows to be false, or (b) does not believe to be true, he commits an offence. (4) A person guilty of an offence under subsection (3) is liable– (a)

on summary conviction, to imprisonment for a period not exceeding six months or a fine not exceeding the statutory maximum, or to both, or (b) on conviction on indictment, to imprisonment for a period not exceeding two years or a fine, or to both.

Limited Liability Partnerships Act 2000

657

Amendments 1

Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 1(1), (2), (4)(b), (c) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

2

Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 1(1), (3), (4)(a), (6) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

3

Repealed by the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016, SI 2016/340, reg 5, Sch 3, para 1(a) (6 April 2016)

4

Inserted by the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016, SI 2016/340, reg 5, Sch 3, para 1 (6 April 2016)

5

Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 1(1), (5) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

6

Inserted by the Limited Liability Partnerships (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002, SI 2002/915, reg 15, Sch 2, para 1 (2 April 2002)

3  Incorporation by registration [(1) The registrar, if satisfied that the requirements of section 2 are complied with, shall— (a) register the documents delivered under that section, and (b) give a certificate that the limited liability partnership is incorporated. (1A) The certificate must state— (a) the name and registered number of the limited liability partnership, (b) the date of its incorporation, and (c) whether the limited liability partnership’s registered office is situated in England and Wales (or in Wales), in Scotland or in Northern Ireland.]1 (2) The registrar may accept the statement delivered under paragraph (c) of subsection (1) of section 2 as sufficient evidence that the requirement imposed by paragraph (a) of that subsection has been complied with. (3) The certificate shall either be signed by the registrar or be authenticated by his official seal.

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(4) The certificate is conclusive evidence that the requirements of section 2 are complied with and that the limited liability partnership is incorporated by the name specified in the incorporation document.

Amendment 1

Substituted for sub-s (1) by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 2 (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11) Membership

4 Members (1) On the incorporation of a limited liability partnership its members are the persons who subscribed their names to the incorporation document (other than any who have died or been dissolved). (2) Any other person may become a member of a limited liability partnership by and in accordance with an agreement with the existing members. (3) A person may cease to be a member of a limited liability partnership (as well as by death or dissolution) in accordance with an agreement with the other members or, in the absence of agreement with the other members as to cessation of membership, by giving reasonable notice to the other members. (4) A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership. [4A  Minimum membership for carrying on business (1) This section applies where a limited liability partnership carries on business without having at least two members, and does so for more than 6 months. (2) A person who, for the whole or any part of the period that it so carries on business after those 6 months— (a) is a member of the limited liability partnership, and (b) knows that it is carrying on business with only one member, is liable (jointly and severally with the limited liability partnership) for the payment of the limited liability partnership’s debts contracted during the period or, as the case may be, that part of it.]1

Limited Liability Partnerships Act 2000

659

Amendment 1

Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 3 (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

5  Relationship of members etc (1) Except as far as otherwise provided by this Act or any other enactment, the mutual rights and duties of the members of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its members, shall be governed– (a) (b)

by agreement between the members, or between the limited liability partnership and its members, or in the absence of agreement as to any matter, by any provision made in relation to that matter by regulations under section 15(c).

(2) An agreement made before the incorporation of a limited liability partnership between the persons who subscribe their names to the incorporation document may impose obligations on the limited liability partnership (to take effect at any time after its incorporation). 6  Members as agents (1) Every member of a limited liability partnership is the agent of the limited liability partnership. (2) But a limited liability partnership is not bound by anything done by a member in dealing with a person if– (a)

the member in fact has no authority to act for the limited liability partnership by doing that thing, and (b) the person knows that he has no authority or does not know or believe him to be a member of the limited liability partnership. (3) Where a person has ceased to be a member of a limited liability partnership, the former member is to be regarded (in relation to any person dealing with the limited liability partnership) as still being a member of the limited liability partnership unless– (a) (b)

the person has notice that the former member has ceased to be a member of the limited liability partnership, or notice that the former member has ceased to be a member of the limited liability partnership has been delivered to the registrar.

(4) Where a member of a limited liability partnership is liable to any person (other than another member of the limited liability partnership) as a result of a wrongful act or omission of his in the course of the business of the limited liability partnership or

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with its authority, the limited liability partnership is liable to the same extent as the member. 7 Ex-members (1) This section applies where a member of a limited liability partnership has either ceased to be a member or– (a) (b) (c) (d)

has died, has become bankrupt or had his estate sequestrated or has been wound up, has granted a trust deed for the benefit of his creditors, or has assigned the whole or any part of his share in the limited liability partnership (absolutely or by way of charge or security).

(2) In such an event the former member or– (a) his personal representative, (b) his trustee in bankruptcy[, the trustee or interim trustee in the sequestration, under the Bankruptcy (Scotland) Act 2016, of the former member’s estate or the former member’s]1 liquidator, (c) his trustee under the trust deed for the benefit of his creditors, or (d) his assignee, may not interfere in the management or administration of any business or affairs of the limited liability partnership. (3) But subsection (2) does not affect any right to receive an amount from the limited liability partnership in that event.

Amendment 1

Substituted by the Bankruptcy (Scotland) Act 2016 (Consequential Provisions and Modifications) Order 2016, SI 2016/1034, art 7(1), Sch 1, para 22 (30 November 2016)

8  Designated members (1) If the incorporation document specifies who are to be designated members– (a) they are designated members on incorporation, and (b) any member may become a designated member by and in accordance with an agreement with the other members, and a member may cease to be a designated member in accordance with an agreement with the other members. (2) But if there would otherwise be no designated members, or only one, every member is a designated member. (3) If the incorporation document states that every person who from time to time is a member of the limited liability partnership is a designated member, every member is a designated member.

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(4) A limited liability partnership may at any time deliver to the registrar– (a) notice that specified members are to be designated members, or (b) notice that every person who from time to time is a member of the limited liability partnership is a designated member, and, once it is delivered, subsection (1) (apart from paragraph (a)) and subsection (2), or subsection (3), shall have effect as if that were stated in the incorporation document. (5) […]1 (6) A person ceases to be a designated member if he ceases to be a member.

Amendment 1

Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 4 (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

9  Registration of membership changes (1) A limited liability partnership must ensure that– (a) where a person becomes or ceases to be a member or designated member, notice is delivered to the registrar within fourteen days, and (b) where there is any change in the [particulars contained in its register of members or its register of members’ residential addresses]1, notice is delivered to the registrar within [14 days]1. (2) Where all the members from time to time of a limited liability partnership are designated members, subsection (1)(a) does not require notice that a person has become or ceased to be a designated member as well as a member. [(3) A notice delivered under subsection (1) that relates to a person becoming a member or designated member must contain— (a) a statement that the member or designated member consents to acting in that capacity, and (b) in the case of a person becoming a member, a statement of the particulars of the new member that are required to be included in the limited liability partnership’s register of members and its register of residential addresses.]1 [(3ZA) Where— (a) a limited liability partnership gives notice of a change of a member’s service address as stated in its register of members, and (b) the notice is not accompanied by notice of any resulting change in the particulars contained in its register of members’ residential addresses, the notice must be accompanied by a statement that no such change is required.]2

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[(3A) […]3 (3B) […]3]4 (4) If a limited liability partnership fails to comply with [this section]1, the partnership and every designated member commits an offence. (5) But it is a defence for a designated member charged with an offence under subsection (4) to prove that he took all reasonable steps for securing that [this section]1 was complied with. (6) A person guilty of an offence under subsection (4) is liable on summary conviction to a fine not exceeding level 5 on the standard scale.

Amendments 1

Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 5(1)–(3), (6) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

2

Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 5(1), (4) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

3

Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 5(1), (5) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

4

Inserted by the Limited Liability Partnerships (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002, SI 2002/915, reg 15, Sch 2, para 3 (2 April 2002) Taxation

10  Income tax and chargeable gains (1) […]1 (2) […]2 (3) In the Taxation of Chargeable Gains Act 1992, after section 59 insert–

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‘59A Limited liability partnerships (1) Where a limited liability partnership carries on a trade or business with a view to profit– (a)

assets held by the limited liability partnership shall be treated for the purposes of tax in respect of chargeable gains as held by its members as partners, and (b) any dealings by the limited liability partnership shall be treated for those purposes as dealings by its members in partnership (and not by the limited liability partnership as such), and tax in respect of chargeable gains accruing to the members of the limited liability partnership on the disposal of any of its assets shall be assessed and charged on them separately. (2) Where subsection (1) ceases to apply in relation to a limited liability partnership with the effect that tax is assessed and charged– (a) on the limited liability partnership (as a company) in respect of chargeable gains accruing on the disposal of any of its assets, and (b) on the members in respect of chargeable gains accruing on the disposal of any of their capital interests in the limited liability partnership, it shall be assessed and charged on the limited liability partnership as if subsection (1) had never applied in relation to it. (3) Neither the commencement of the application of subsection (1) nor the cessation of its application in relation to a limited liability partnership is to be taken as giving rise to the disposal of any assets by it or any of its members.’ (4) After section 156 of that Act insert– ‘156A Cessation of trade by limited liability partnership (1) Where, immediately before the time of cessation of trade, a member of a limited liability partnership holds an asset, or an interest in an asset, acquired by him for a consideration treated as reduced under section 152 or 153, he shall be treated as if a chargeable gain equal to the amount of the reduction accrued to him immediately before that time. (2) Where, as a result of section 154(2), a chargeable gain on the disposal of an asset, or an interest in an asset, by a member of a limited liability partnership has not accrued before the time of cessation of trade, the member shall be treated as if the chargeable gain accrued immediately before that time. (3) In this section “the time of cessation of trade”, in relation to a limited liability partnership, means the time when section 59A(1) ceases to apply in relation to the limited liability partnership.’

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Amendments 1

Repealed by the Corporation Tax Act 2010, s 1181, Sch 3, Pt 1 (1 April 2010: for corporation tax purposes for accounting periods ending on or after that day, and for income tax and capital gains tax purposes, for the tax year 2010-11 and subsequent tax years, subject to transitional provisions and savings specified in the Corporation Tax Act 2010, Sch 2)

2

Repealed by the Income Tax Act 2007, s 1031, Sch 3, Pt 1 (6 April 2007: for income tax purposes, for the tax year 2007-08 and subsequent tax years and for corporation tax purposes for accounting periods ending after 5 April 2007, subject to savings and transitional provisions specified in the Income Tax Act 2007, s 1030(1) and Sch 2)

11  Inheritance tax In the Inheritance Tax Act 1984, after section 267 insert– ‘267A Limited liability partnerships For the purposes of this Act and any other enactments relating to inheritance tax– (a)

property to which a limited liability partnership is entitled, or which it occupies or uses, shall be treated as property to which its members are entitled, or which they occupy or use, as partners, (b) any business carried on by a limited liability partnership shall be treated as carried on in partnership by its members, (c) incorporation, change in membership or dissolution of a limited liability partnership shall be treated as formation, alteration or dissolution of a partnership, and (d) any transfer of value made by or to a limited liability partnership shall be treated as made by or to its members in partnership (and not by or to the limited liability partnership as such).’ 12  Stamp duty (1) Stamp duty shall not be chargeable on an instrument by which property is conveyed or transferred by a person to a limited liability partnership in connection with its incorporation within the period of one year beginning with the date of incorporation if the following two conditions are satisfied. (2) The first condition is that at the relevant time the person– (a)

is a partner in a partnership comprised of all the persons who are or are to be members of the limited liability partnership (and no-one else), or (b) holds the property conveyed or transferred as nominee or bare trustee for one or more of the partners in such a partnership. (3) The second condition is that– (a) the proportions of the property conveyed or transferred to which the persons mentioned in subsection (2)(a) are entitled immediately after the [transfer]1 are the same as those to which they were entitled at the relevant time, or

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(b) none of the differences in those proportions has arisen as part of a scheme or arrangement of which the main purpose, or one of the main purposes, is avoidance of liability to any duty or tax. (4) For the purposes of subsection (2) a person holds property as bare trustee for a partner if the partner has the exclusive right (subject only to satisfying any outstanding charge, lien or other right of the trustee to resort to the property for payment of duty, taxes, costs or other outgoings) to direct how the property shall be dealt with. (5) In this section ‘the relevant time’ means– (a)

if the person who conveyed or transferred the property to the limited liability partnership acquired the property after its incorporation, immediately after he acquired the property, and (b) in any other case, immediately before its incorporation. (6) An instrument in respect of which stamp duty is not chargeable by virtue of subsection (1) shall not be taken to be duly stamped unless– (a) (b)

it has, in accordance with section 12 of the Stamp Act 1891, been stamped with a particular stamp denoting that it is not chargeable with any duty or that it is duly stamped, or it is stamped with the duty to which it would be liable apart from that subsection. Amendment

1

Substituted by the Finance Act 2003, s 125(4), Sch 20, para 3 (10 July 2003)

13  Class 4 national insurance contributions In section 15 of the Social Security Contributions and Benefits Act 1992 and section 15 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (Class 4 contributions), after subsection (3)insert– ‘(3A) Where income tax is (or would be) charged on a member of a limited liability partnership in respect of profits or gains arising from the carrying on of a trade or profession by the limited liability partnership, Class 4 contributions shall be payable by him if they would be payable were the trade or profession carried on in partnership by the members.’

Regulations 14  Insolvency and winding up (1) Regulations shall make provision about the insolvency and winding up of limited liability partnerships by applying or incorporating, with such modifications[— (a) in relation to a limited liability partnership registered in Great Britain, [Parts A1]1 to 4, 6 and 7 of the Insolvency Act 1986;

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(b) in relation to a limited liability partnership registered in Northern Ireland, [Parts 1A]2 to 5 and 7 of the Insolvency (Northern Ireland) Order 1989, and so much of Part 1 of that Order as applies for the purposes of those Parts.]3 (2) Regulations may make other provision about the insolvency and winding up of limited liability partnerships, and provision about the insolvency and winding up of oversea limited liability partnerships, by– (a)

applying or incorporating, with such modifications as appear appropriate, any law relating to the insolvency or winding up of companies or other corporations which would not otherwise have effect in relation to them, or (b) providing for any law relating to the insolvency or winding up of companies or other corporations which would otherwise have effect in relation to them not to apply to them or to apply to them with such modifications as appear appropriate. (3) In this Act ‘oversea limited liability partnership’ means a body incorporated or otherwise established outside [the United Kingdom]3 and having such connection with [the United Kingdom]3, and such other features, as regulations may prescribe.

Amendments 1

Substituted by the Corporate Insolvency and Governance Act 2020, s 2(1), Sch 3, para 36 (26 June 2020)

2

Substituted by the Corporate Insolvency and Governance Act 2020, s 5(1), Sch 7, para 31 (26 June 2020)

2

Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 6 (9 July 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

15  Application of company law etc Regulations may make provision about limited liability partnerships and oversea limited liability partnerships (not being provision about insolvency or winding up) by– (a) (b) (c)

applying or incorporating, with such modifications as appear appropriate, any law relating to companies or other corporations which would not otherwise have effect in relation to them, providing for any law relating to companies or other corporations which would otherwise have effect in relation to them not to apply to them or to apply to them with such modifications as appear appropriate, or applying or incorporating, with such modifications as appear appropriate, any law relating to partnerships.

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16  Consequential amendments (1) Regulations may make in any enactment such amendments or repeals as appear appropriate in consequence of this Act or regulations made under it. (2) The regulations may, in particular, make amendments and repeals affecting companies or other corporations or partnerships. 17 General (1) In this Act ‘regulations’ means regulations made by the Secretary of State by statutory instrument. (2) Regulations under this Act may in particular– (a) make provision for dealing with non-compliance with any of the regulations (including the creation of criminal offences), (b) impose fees (which shall be paid into the Consolidated Fund), and (c) provide for the exercise of functions by persons prescribed by the regulations. (3) Regulations under this Act may– (a)

contain any appropriate consequential, incidental, supplementary or transitional provisions or savings, and (b) make different provision for different purposes. (4) No regulations to which this subsection applies shall be made unless a draft of the statutory instrument containing the regulations (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament. (5) Subsection (4) applies to– (a) regulations under section 14(2) not consisting entirely of the application or incorporation (with or without modifications) of provisions contained in or made under the Insolvency Act 1986 [ or the Insolvency (Northern Ireland) Order 1989]1, [(b) regulations under section 15 not consisting entirely of the application or incorporation (with or without modifications) of provisions contained in or made under the following provisions of the Companies Act 2006 (c. 46)— Part 4 (a company’s capacity and related matters); Part 5 (a company’s name); Part 6 (a company’s registered office); Chapters 1 and 8 of Part 10 (register of directors); Part 15 (accounts and reports); Part 16 (audit); Part 19 (debentures); Part 21 (certification and transfer of securities); Part 24 (a company’s annual return); Part 25 (company charges); Part 26 (arrangements and reconstructions[: general]2);

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The Law of Limited Liability Partnerships

[Part 26A (arrangements and reconstructions: companies in financial difficulty);]2 Part 29 (fraudulent trading); Part 30 (protection of members against unfair prejudice); Part 31 (dissolution and restoration to the register); Part 35 (the registrar of companies); Part 36 (offences under the Companies Acts); Part 37 (supplementary provisions); Part 38 (interpretation).]3 (c) regulations under section 14 or 15 making provision about oversea limited liability partnerships, and (d) regulations under section 16. (6) A statutory instrument containing regulations under this Act shall (unless a draft of it has been approved by a resolution of each House of Parliament) be subject to annulment in pursuance of a resolution of either House of Parliament.

Amendments 1

Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 7(1), (2) (9 July 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

2

Inserted by the Corporate Insolvency and Governance Act 2020, s 7, Sch 9, para 21 (26 June 2020)

3

Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 7(1), (3) (9 July 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11) Supplementary

18 Interpretation In this Act– […]1 ‘business’ includes every trade, profession and occupation, ‘designated member’ shall be construed in accordance with section 8, ‘enactment’ includes subordinate legislation (within the meaning of the Interpretation Act 1978), ‘incorporation document’ shall be construed in accordance with section 2, ‘limited liability partnership’ has the meaning given by section 1(2), ‘member’ shall be construed in accordance with section 4,

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669

‘modifications’ includes additions and omissions, ‘name’, in relation to a member of a limited liability partnership, means– (a) if an individual, his forename and surname (or, in the case of a peer or other person usually known by a title, his title instead of or in addition to either or both his forename and surname), and (b) if a corporation or Scottish firm, its corporate or firm name, ‘oversea limited liability partnership’ has the meaning given by section 14(3), [‘the registrar’ means— (a) if the registered office of the limited liability partnership is, or is to be, in England and Wales (or Wales), the registrar of companies for England and Wales, (b) if the registered office of the limited liability partnership is, or is to be, in Scotland, the registrar of companies for Scotland, and (c) if the registered office of the limited liability partnership is, or is to be, in Northern Ireland, the registrar of companies for Northern Ireland;]2 ‘regulations’ has the meaning given by section 17(1).

Amendments 1

Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 8(1), (2) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

2

Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 8(1), (3) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

19  Commencement, extent and short title (1) The preceding provisions of this Act shall come into force on such day as the Secretary of State may by order made by statutory instrument appoint; and different days may be appointed for different purposes. (2) The Secretary of State may by order made by statutory instrument make any transitional provisions and savings which appear appropriate in connection with the coming into force of any provision of this Act. (3) For the purposes of the Scotland Act 1998 this Act shall be taken to be a precommencement enactment within the meaning of that Act. [(4) This Act extends to the whole of the United Kingdom.]1 (5) This Act may be cited as the Limited Liability Partnerships Act 2000.

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The Law of Limited Liability Partnerships

Amendment 1

Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 9 (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

SCHEDULE 1 NAMES AND REGISTERED OFFICES Part I Names 1 […]1 […]1 Amendments 1

Repealed by the Companies Act 2006, s 1295, Sch 16 (1 October 2009)

2  Name to indicate status (1) The name of a limited liability partnership must end with– (a) the expression ‘limited liability partnership’, or (b) the abbreviation ‘llp’ or ‘LLP’. (2) But if the incorporation document for a limited liability partnership states that the registered office is to be situated in Wales, its name must end with– (a) one of the expressions ‘limited liability partnership’ and ‘partneriaeth atebolrwydd cyfyngedig’, or (b) one of the abbreviations ‘llp’, ‘LLP’, ‘pac’ and ‘PAC’. 3 […]1 […]1

Amendment 1

Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 10(1), (2) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

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4  Change of name (1) A limited liability partnership may change its name at any time. [(2) The name of a limited liability partnership may also be changed— (a) on the determination of a new name by a company names adjudicator under section 73 of the Companies Act 2006 (c. 46) as applied to limited liability partnerships (powers of adjudicator on upholding objection to name); (b) on the determination of a new name by the court under section 74 of the Companies Act 2006 as so applied (appeal against decision of company names adjudicator); (c) under section 1033 as so applied (name on restoration to the register).]1 Amendment 1

Substituted for paras (2)–(9) by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 10(1), (3) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

5  Notification of change of name (1) Where a limited liability partnership changes its name it shall deliver notice of the change to the registrar. (2) […]1 (3) Where the registrar receives [notice of a change of name]2 he shall (unless the new name is one by which a limited liability partnership may not be registered)– [(a) enter the new name on the register in place of the former name, and]2 (b) issue a certificate of the change of name. (4) The change of name has effect from the date on which the certificate is issued.

Amendments 1

Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 10(1), (4)(a) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

2

Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 10(1), (4)(b) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

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The Law of Limited Liability Partnerships

6  Effect of change of name A change of name by a limited liability partnership does not– (a) affect any of its rights or duties, (b) render defective any legal proceedings by or against it, and any legal proceedings that might have been commenced or continued against it by its former name may be commenced or continued against it by its new name. 7  Improper use of ‘limited liability partnership’ etc (1) If any person carries on a business under a name or title which includes as the last words– (a) the expression ‘limited liability partnership’ or ‘partneriaeth atebolrwydd cyfyngedig’, or (b) any contraction or imitation of either of those expressions, that person, unless a limited liability partnership or oversea limited liability partnership, commits an offence. (2) A person guilty of an offence under sub-paragraph (1) is liable on summary conviction to a fine not exceeding level 3 on the standard scale. 8 […]1 […]1

Amendment 1

Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 10(1), (5) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

Part II Registered offices […]1 Amendment 1

Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 10(1), (6) (1 October 2009: subject to transitional provisions and savings specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1 and Sch 3, para 11)

Appendix 2 LIMITED LIABILITY PARTNERSHIPS REGULATIONS 2001, SI 2001/1090 PART I CITATION, COMMENCEMENT AND INTERPRETATION 1  Citation and commencement These Regulations may be cited as the Limited Liability Partnerships Regulations 2001 and shall come into force on 6th April 2001. 2 Interpretation In these Regulations— ‘the 1985 Act’ means the Companies Act 1985; ‘the 1986 Act’ means the Insolvency Act 1986; ‘the 2000 Act’ means the Financial Services and Markets Act 2000; ‘devolved’, in relation to the provisions of the 1986 Act, means the provisions of the 1986 Act which are listed in Schedule 4 and, in their application to Scotland, concern wholly or partly, matters which are set out in Section C.2 of Schedule 5 to the Scotland Act 1998 as being exceptions to the reservations made in that Act in the field of insolvency; ‘limited liability partnership agreement’, in relation to a limited liability partnership, means any agreement express or implied between the members of the limited liability partnership or between the limited liability partnership and the members of the limited liability partnership which determines the mutual rights and duties of the members, and their rights and duties in relation to the limited liability partnership; ‘the principal Act’ means the Limited Liability Partnerships Act 2000; and ‘shadow member’, in relation to limited liability partnerships, means a person in accordance with whose directions or instructions the members of the limited liability partnership are accustomed to act (but so that a person is not deemed a shadow member by reason only that the members of the limited partnership act on advice given by him in a professional capacity). [2A  Application of provisions (1) The provisions of these Regulations applying— (a) the Company Directors Disqualification Act 1986, or (b) provisions of the Insolvency Act 1986, have effect only in relation to limited liability partnerships registered in Great Britain. (2) The other provisions of these Regulations have effect in relation to limited liability partnerships registered in any part of the United Kingdom.]1

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The Law of Limited Liability Partnerships

Amendment 1

Inserted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (2) (1 October 2009: subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1)

PART II ACCOUNTS AND AUDIT 3 […]1 […]1 Amendment 1

Repealed by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, reg 58(1)(a) (1 October 2008: subject to transitional provision specified in the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, reg 58(3))

PART III COMPANIES ACT 1985 AND COMPANY DIRECTORS DISQUALIFICATION ACT 1986 4  Application of [certain provisions]1 of the 1985 Act and of the provisions of the Company Directors Disqualification Act 1986 to limited liability partnerships (1) The provisions of the 1985 Act specified in the first column of Part I of Schedule 2 to these Regulations shall apply to limited liability partnerships, except where the context otherwise requires, with the following modifications— (a) references to a company shall include references to a limited liability partnership; (b) […]2 (c) references to the Insolvency Act 1986 shall include references to that Act as it applies to limited liability partnerships by virtue of Part IV of these Regulations; [(d) references in a provision of the 1985 Act to— (i) other provisions of that Act, or (ii) provisions of the Companies Act 2006, shall include references to those provisions as they apply to limited liability partnerships.]1 (e) […]2 (f) […]2 (g) references to a director of a company or to an officer of a company shall include references to a member of a limited liability partnership; (h) the modifications, if any, specified in the second column of Part I of Schedule 2 opposite the provision specified in the first column; and

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(i)

675

such further modifications as the context requires for the purpose of giving effect to that legislation as applied by these Regulations.

(2) The provisions of the Company Director Disqualification Act 1986 shall apply to limited liability partnerships, except where the context otherwise requires, with the following modifications— (a) references to a company shall include references to a limited liability partnership; (b) references to the Companies Acts shall include references to the principal Act and regulations made thereunder and references to the companies legislation shall include references to the principal Act, regulations made thereunder and to any enactment applied by regulations to limited liability partnerships; (d) references to the Insolvency Act 1986 shall include references to that Act as it applies to limited liability partnerships by virtue of Part IV of these Regulations; (e) […]3 (f) references to a shadow director shall include references to a shadow member; (g) references to a director of a company or to an officer of a company shall include references to a member of a limited liability partnership; (h) the modifications, if any, specified in the second column of Part II of Schedule 2 opposite the provision specified in the first column; and (i) such further modifications as the context requires for the purpose of giving effect to that legislation as applied by these Regulations. Amendments 1

2

3

Substituted by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (3)(a), (b)(ii) (1 October 2009: subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1) Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (3)(b)(i) (1 October 2009: subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1) Repealed by the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009, SI 2009/1941, art 2(1), Sch 1, para 192(1), (2) (1 October 2009)

PART IV WINDING UP AND INSOLVENCY 5  Application of the 1986 Act to limited liability partnerships (1) Subject to paragraphs (2) and (3), the following provisions of the 1986 Act, shall apply to limited liability partnerships— (a)

Parts I, II, III, IV, VI and VII of the First Group of Parts (company insolvency; companies winding up),

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(b)

The Law of Limited Liability Partnerships

the Third Group of Parts (miscellaneous matters bearing on both company and individual insolvency; general interpretation; final provisions).

(2) The provisions of the 1986 Act referred to in paragraph (1) shall apply to limited liability partnerships, except where the context otherwise requires, with the following modifications— (a) references to a company shall include references to a limited liability partnership; (b) references to a director or to an officer of a company shall include references to a member of a limited liability partnership; (c) references to a shadow director shall include references to a shadow member; (d) references to [the Companies Acts]1, the Company Directors Disqualification Act 1986, the Companies Act 1989 or to any provisions of those Acts or to any provisions of the 1986 Act shall include references to those Acts or provisions as they apply to limited liability partnerships by virtue of the principal Act; (e) references […]2 to the articles of association of a company shall include references to the limited liability partnership agreement of a limited liability partnership; (f) the modifications set out in Schedule 3 to these Regulations; and (g) such further modifications as the context requires for the purpose of giving effect to that legislation as applied by these Regulations. (3) In the application of this regulation to Scotland, the provisions of the 1986 Act referred to in paragraph (1) shall not include the provisions listed in Schedule 4 to the extent specified in that Schedule.

Amendments 1 2

Substituted by the Companies Act 2006 Transitional Provisions and Savings) Order Sch 1, para 192(1), (3)(a) (1 October 2009) Repealed by the Companies Act 2006 Transitional Provisions and Savings) Order Sch 1, para 192(1), (3)(b) (1 October 2009)

(Consequential Amendments, 2009, SI 2009/1941, art 2(1), (Consequential Amendments, 2009, SI 2009/1941, art 2(1),

PART V FINANCIAL SERVICES AND MARKETS 6  Application of provisions contained in Parts XV and XXIV of the 2000 Act to limited liability partnerships (1) Subject to paragraph (2), sections 215(3),(4) and (6), 356, 359(1) to (4), 361 to 365, 367, 370 and 371 of the 2000 Act shall apply to limited liability partnerships. (2) The provisions of the 2000 Act referred to in paragraph (1) shall apply to limited liability partnerships, except where the context otherwise requires, with the following modifications—

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(a) references to a company shall include references to a limited liability partnership; (b) references to body shall include references to a limited liability partnership; and (c) references to the 1985 Act, the 1986 Act or to any of the provisions of those Acts shall include references to those Acts or provisions as they apply to limited liability partnerships by virtue of the principal Act. PART VI DEFAULT PROVISION 7  Default provision for limited liability partnerships The mutual rights and duties of the members and the mutual rights and duties of the limited liability partnership and the members shall be determined, subject to the provisions of the general law and to the terms of any limited liability partnership agreement, by the following rules: (1) All the members of a limited liability partnership are entitled to share equally in the capital and profits of the limited liability partnership. (2) The limited liability partnership must indemnify each member in respect of payments made and personal liabilities incurred by him— (a) in the ordinary and proper conduct of the business of the limited liability partnership; or (b) in or about anything necessarily done for the preservation of the business or property of the limited liability partnership. (3) Every member may take part in the management of the limited liability partnership. (4) No member shall be entitled to remuneration for acting in the business or management of the limited liability partnership. (5) No person may be introduced as a member or voluntarily assign an interest in a limited liability partnership without the consent of all existing members. (6) Any difference arising as to ordinary matters connected with the business of the limited liability partnership may be decided by a majority of the members, but no change may be made in the nature of the business of the limited liability partnership without the consent of all the members. (7) The books and records of the limited liability partnership are to be made available for inspection at the registered office of the limited liability partnership or at such other place as the members think fit and every member of the limited liability partnership may when he thinks fit have access to and inspect and copy any of them. (8) Each member shall render true accounts and full information of all things affecting the limited liability partnership to any member or his legal representatives.

678

The Law of Limited Liability Partnerships

(9) If a member, without the consent of the limited liability partnership, carries on any business of the same nature as and competing with the limited liability partnership, he must account for and pay over to the limited liability partnership all profits made by him in that business. (10) Every member must account to the limited liability partnership for any benefit derived by him without the consent of the limited liability partnership from any transaction concerning the limited liability partnership, or from any use by him of the property of the limited liability partnership, name or business connection. 8 Expulsion No majority of the members can expel any member unless a power to do so has been conferred by express agreement between the members. PART VII MISCELLANEOUS 9  General and consequential amendments (1) Subject to paragraph (2), the enactments mentioned in Schedule 5 shall have effect subject to the amendments specified in that Schedule. (2) In the application of this regulation to Scotland— (a) paragraph 15 of Schedule 5 which amends section 110 of the 1986 Act shall not extend to Scotland; and (b) paragraph 22 of Schedule 5 which applies to limited liability partnerships the culpable officer provisions in existing primary legislation shall not extend to Scotland insofar as it relates to matters which have not been reserved by Schedule 5 to the Scotland Act 1998. 10  Application of subordinate legislation (1) The subordinate legislation specified in Schedule 6 shall apply as from time to time in force to limited liability partnerships and— (a)

in the case of the subordinate legislation listed in Part I of that Schedule with such modifications as the context requires for the purpose of giving effect to the provisions of the Companies Act 1985 which are applied by these Regulations; (b) in the case of the subordinate legislation listed in Part II of that Schedule with such modifications as the context requires for the purpose of giving effect to the provisions of the Insolvency Act 1986 which are applied by these Regulations; and (c) in the case of the subordinate legislation listed in Part III of that Schedule with such modifications as the context requires for the purpose of giving effect to the provisions of […]1 the Company Directors Disqualification Act 1986 which are applied by these Regulations.

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(2) In the case of any conflict between any provision of the subordinate legislation applied by paragraph (1) and any provision of these Regulations, the latter shall prevail.

Amendments 1

Repealed by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, SI 2009/1804, reg 85, Sch 3, para 13(1), (4) (1 October 2009: subject to transitional provisions specified in the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Sch 1)

[Schedules 1–6 not reproduced]

680

INDEX [All references are to paragraph number] Account to LLP duty of members to, 13.7 Accountants partnership of, statutory auditor, conversion to LLP, 7.19 Accounting records failure to keep adequate, 13.31 generally, 21.3–21.6 members’ right to inspect, 14.3–14.17 precautions against falsification, 13.31 preservation of, members’ duty to ensure, 13.30 registered office, and, 3.13, 13.31 Accounting reference date change of, 23.71–23.73 taxation, and corporate members, 23.31 income tax, 23.16 Accounts abridged accounts, 21.19–21.20 accounting records, 21.3–21.6 accounting standards, 21.15 annual accounts, approval of, 13.29, 21.38 balance sheet members’ drawings, shown in, 16.14, 16.15 trading loss (unallocated), shown in, 16.18 circulation, 13.31, 21.45–21.46 delegation of statutory duties relating to, 17.22 designated members, and, 12.14–12.16 dormant subsidiary LLPs, 21.25 euros, in, 21.50 filing with Registrar derogation for small LLPs, 21.44 generally, 21.39–21.43 financial year, 21.7 formats (balance sheet and profit and loss account), 21.16–21.18 group accounts generally, 21.26 IAS, 21.27–21.28 non-IAS, 21.29–21.30 IAS accounts groups, 21.27–21.28 individual, 21.8–21.9 individual accounts IAS, 21.8–21.9 non-IAS, 21.10–21.14

Accounts – contd introduction, 21.1–21.2 management accounts, 11.5 medium-sized LLP, see Medium-sized LLP members delegation of obligations, as to, 17.22 obligation to approve, 13.29 obligation to prepare, 13.29 micro-entity LLPs, 21.24 non-statutory accounts, meaning of, 13.31 periodic accounts, 11.5 periodic divisions, 16.15 preparation, members’ duty, 13.29 publication, 13.31, 21.45–21.46 Registrar of Companies filing accounts with, 21.39–21.44 notice of receipt of accounts by, 1.11 reports, 21.21–21.23 revision, 21.47–21.48 small LLP, see Small LLP SORP (Statement of Recommended Practice for LLPs), see SORP (Statement of Recommended Practice) term in LLP agreement as to, 11.4 ‘true and fair view’, need to reflect, 7.18 Adjustment of withdrawals ‘claw-back’, 34.8–34.13 Administration administrators appointment, of court, by, 29.4–29.6 holder of floating charge, by, 29.7–29.8 introduction, 29.2 LLP, by, 29.9 distribution, by, 29.18 functions, of, 29.17 general duties, of, 29.19 introduction, 29.2–29.3 proposals and creditors’ approval, 29.14–29.16 termination of appointment, of, 29.20–29.25 conduct of, 29.17–29.25 creditors’ meetings, 29.15–29.16 distribution, 29.18 introduction, 29.1–29.3

682 Administration – contd moratorium, 29.10–29.12 proposals, 29.14 purpose of, 29.2 statement of affairs, 29.13 termination, 29.20–29.25 Administrative receivership appointment generally, 30.2–30.6 limitation, on, 30.4–30.5 receivers’ duties and powers, 30.7–30.11 receiver’s report, 30.14 statement of affairs, 30.12–30.13 Administrative restoration to register generally, 24.30–24.32 supplementary issues, 24.38–24.39 ‘Affairs of an LLP’ investigations, and, 3.20, 24.2 obligation of members to assist investigation, 13.30 Age discrimination alternatives to mandatory retirement age, 15.99–15.101 appointment/promotion on basis of post-qualification experience, 15.107 direct age discrimination claims, 15.77 generally, 15.77–15.81 lockstep profit-sharing system, 15.102–15.106 mandatory retirement ages (Seldon), 15.82–15.83 Court of Appeal/Supreme Court (2010/2012), 15.88–15.91 effect of Seldon, 15.96–15.98 Employment Appeal Tribunal (2008), 15.87 second round (2014), 15.94–15.95 Employment Tribunal (2007), 15.85–15.86 second round (2013), 15.92–15.93 factual background, 15.84 Agency of members actual authority cessation of membership, and, 5.20 claim management, authority to conduct, term as to, 11.28 duty of member to act within, 13.27 extent of, 5.10–5.12 indemnity insurance, authority to effect, term as to, 11.16 LLP bound by acts within, 5.3, 5.13 term in LLP agreement as to, 11.15–11.16, 11.28 apparent authority cessation of membership, and, 5.20 extent of, 5.14–5.18

Index Agency of members – contd apparent authority – contd no ‘knowledge or belief’ by third party as to membership, 5.17–5.19 third party ‘knowing’ no authority, 5.15–5.16 attribution of members’ acts to LLP, 3.4 cessation of membership, and, 5.20, 19.14 generally as to agency of, 5.1–5.2 LLP act through members, 3.4 vicarious liability of LLP, and, 5.22–5.25 Agency of non-members actual authority, LLP bound by acts within, 5.3 affixing LLP’s official seal outside UK, and, 4.18 apparent authority generally, 5.4 scope of, 5.5–5.8 scope of LLP’s business, and, 5.5, 11.3 term in LLP agreement as to, 5.7, 11.3 generally as to agency of, 5.1 vicarious liability, and, 5.26 ‘Alternative inspection location’ charges register, and, 3.13, 6.14 may only be one, 6.23 meaning of, 6.23 register of debenture holders, and, 3.13, 6.17 register of members, and, 2.26, 3.13 Alternative investment funds (AIFs) activity of managing, introduction, 20.8 AIFM, definition and functions, 20.11 AIFM, regulatory obligations, 20.12 AIFMD regime generally, 20.9–20.12, 20.31 Brexit, 20.37 ‘collective investment undertaking’, 20.33 definition, 20.10, 20.32 European Securities and Markets Authority (ESMA) Guidelines, 20.33, 20.35, 20.36 generally, 20.31–20.32 ‘raising capital with view to investment’, 20.34–20.35 use of LLP, 20.36 Amendment of LLP agreement generally, 10.18–10.19 term in LLP agreement, as to, 11.52 Annual accounts, see Accounts Annual return notice of receipt by Registrar, 1.11 Annuities conversion from partnerships, and, 7.17 income tax relief on payments of, 23.95–23.96 reflection in LLP’s balance sheet, 7.18 Annuity transfers taxation, and, 23.97

Index Anti-avoidance legislation taxation, and, 23.139–23.143 Anti-forestalling rules mixed membership partnerships rules and accounting periods straddling 6 April 2014, 23.56 Anti-money laundering financial services regulation, and, 20.21 Apparent authority, see Agency of members; Agency of non-members Appointment of designated members, see Designated members Arbitration discrimination claims, 15.55–15.58 Arrangements and reconstructions CA 2006, under, 36.2–36.3 Companies (Cross-Border Mergers) Regulations, under, 36.9 IA 1986, under, 36.4–36.8 introduction, 36.1 Arranging transactions in investments, see Financial services regulation Assignment of member’s share default rule, as to, 8.24 economic interest only, of, 8.21–8.22 generally, 8.21–8.26 management of LLP, and, 8.21–8.22 meaning of ‘share’, 8.18–8.19 operation of law, by, 8.21, 8.26 restrictions on assignee, 8.21–8.22, 8.26 term in LLP agreement as to, 8.24–8.25, 11.30 ‘unfair prejudice’, and, 8.26 voluntary assignment agreement as to governance rights, 8.22–8.23 consent of members required, 8.24 ‘Associated’ incorporation, and, 2.5 Associated entity, investigation of, 24.8 Associates taxation, and, 23.59–23.64 Auditors appointment generally, 22.2–22.8 notification of cessation of appointment to appropriate authority, 22.30–22.32 requirements for, 22.11–22.13 termination of, 22.17–22.23 duties, 22.14 ‘in default’, 22.29 indemnities, 22.34 liability limitation agreements, 22.34 name of omission from report, 22.15

683

Auditors – contd relief from liability, 22.33 remuneration fixing of, 22.16 rights of generally, 22.14 role of, 22.1 section 519 statements, 22.24–22.28 term of office, 22.9–22.10 Audits, see also Accounts; Auditors exemptions, 21.51 dormant LLP, 21.54 small LLP, 21.52 subsidiary LLP, 21.53 generally, 21.31–21.37 Authority, see Agency of members; Agency of non-members Avoidance of floating charges winding up or administration, and, 6.31, 34.30–34.31 Banking facilities conversion from partnerships, and, 7.13 relationship with LLPs, and, 3.9 Bankruptcy application in relation to overseas LLP, of, 26.9 cessation of membership, and, 19.10 restrictions on undischarged bankrupt, 2.4, 26.9, 37.34 term in LLP agreement as to, 11.38 trustee in, rights of, 8.21–8.26, 19.10 Bankruptcy restrictions orders disqualification orders, and, 37.34 overseas LLPs, and, 26.9 restrictions on persons under, 2.4, 26.9 Banks borrowing by members from, guarantee by LLP of, 11.39 conversion from partnerships, and, 7.13 relationship with LLPs, and, 3.9 Belize LLPs outline of, 25.33–25.34 Bills of exchange disclosure of name on, 4.5 formalities, and, 4.16 Bodies corporate legal personality, and, 3.1 Bona vacantia disclaimer by liquidator, and, 33.10 dissolution of LLP, and striking off the register, 24.20–24.22, 24.39 winding up, 35.6 Brexit alternative investment funds, 20.37

684

Index

Brussels Convention jurisdiction, and, 26.3 Bullying and sexual harassment background, 15.60 dealing with accused LLP member, 15.75–15.76 grievance and disciplinary procedures, 15.71–15.74 purpose or effect, 15.68–15.69 relevant claims and liability, 15.61–15.65 responding to allegations, 15.70 unwanted conduct, 15.66–15.67 Burden of proof discrimination claims, 15.40–15.46 Business LLP ‘operated by way of’ for regulatory purposes, 20.29 Business letters and documents disclosures on, 4.5–4.6 registered office, and, 3.14 Business of the LLP carrying on, see Decision-making participation in conduct of, 17.2–17.3 requirement that LLP be incorporated for, 2.6 term in LLP agreement as to, 11.3 ‘Business with a view to profit’ incorporation, and, 2.6–2.10 LLP ceases to carry on, effect of, 3.21–3.22 meaning of ‘business’, 2.6 ‘Buy out’ orders generally, 32.3–32.32 remedies for breach of LLP agreement, and, 10.50 Canada LLPs application of CDDA 1986 to, 26.9 introduction of, 25.1 outline of, 25.27 Capacity generally, 3.7–3.8 Capital AIFs and raising capital with view to investment, 20.34–20.35 cessation of membership, and, 11.39, 19.21 ‘claw-back’, and, 16.7, 34.8–34.13 contributions of, provision as to, 11.6, 16.6 tax relief on loans for, 23.106–23.109 covenants to bank as to, 7.13 default equal sharing, 16.10–16.11 distinguished from assets, 16.5 distinguished from loan, 16.2–16.3, 16.9 foreign currency, designated in, 16.4 FCA authorisation and financial resources requirements, 20.19–20.20

Capital – contd funding, 16.1–16.11 profits, 16.16 reduction of, 16.6–16.7 return of, 16.7, 16.11, 19.21, 33.4–33.9 ‘sideways tax relief’, and, 23.75–23.82 tax relief on loan for contribution of, 23.106–23.109 term of LLP agreement contributing, 11.6 return of, on retirement, 11.39 ‘Tier 1’, 20.19, 20.20 Capital allowances generally, 23.10 regime changes, 23.11 writing down allowances, 23.12 Capital gains tax contribution of assets, 23.120–23.121 generally, 23.115–23.119 rollover relief, 23.122 Care, duty of exclusion, of, 14.30–14.33, 18.18–18.26 LLP, to, 13.25–13.26 other members, to, 13.35, 14.33 third parties, to, 18.6–18.17 Carrying on business in the UK overseas LLPs, and, 26.7–26.8 Cause of action by member against another, 13.36–13.37 by member against LLP, 14.36 Cayman Islands LLPs outline of, 25.35–25.36 Certificate of debenture stock allotment, of, 6.30 Certificate of incorporation body corporate, and, 3.1 copy of, 1.13, 2.41 generally, 2.37–2.40, 3.19 inspection of, 1.13, 2.41 notice of issue of, 1.11 Certificate of registration, see also Charges charges, of copy of, 1.13 generally, 6.10 inspection of, 1.13 Cessation of membership agency of member, and, 5.20, 19.14 agreement, by, 8.28, 8.32, 11.37–11.40, 19.2–19.5 bankruptcy of member, on, 11.38, 19.10 comparison with companies and partnerships company limited by guarantee, 19.34 company limited by shares, 19.35–19.36 LLPs, 19.38 partnership, 19.37 compulsory retirement, and, 19.12–19.13

Index Cessation of membership – contd conclusions, 19.39–19.40 consequences of agency, 5.20, 19.14 notification to Registrar, 8.29, 19.14 obligations and rights of outgoing member, 19.15–19.25 death of member, on, 8.28, 19.9 designated members, and, 12.7 dissolution, on, 19.9 expulsion of member, on generally, 19.12–19.13 term in LLP agreement as to, 11.41 financial interests, potential capital, 19.21 generally, 19.17 loans, 19.22 reserve, 19.24–19.25 share of profits for current year, 19.20 share of profits for previously finished year, 19.18–19.19 term in LLP agreement as to, 11.39 unrealised capital profits, 19.23 generally, 8.28–8.32 introduction, 19.1 liquidation corporate member, 19.11 LLP in liquidation, 19.26 no agreement as to financial entitlement, and extent of right to payment for value of ‘share’, 19.29–19.31 extent of survival of ‘share’ following cessation, 19.32–19.33 generally, 19.27–19.28 notice given under LLP Act 2000, s 4(3), 8.32 obligations and rights of outgoing member generally, 19.15–19.16 potential financial interests, 19.17–19.25 reasonable notice, on, 19.6–19.8 repudiation of LLP agreement, 10.41 retirement, on compulsion, by, 19.12–19.13 generally, 19.3 terms in LLP agreement as to, 11.37–11.40 Change of name of LLP, see Registered name Changes of membership generally, 8.5–8.6 notice in London Gazette, 1.11, 8.8 notice to Registrar of, 8.6–8.7, 8.29 Changes of name or address of members duty to notify changes, 4.27 generally, 8.7 notice in London Gazette, of, 1.11, 8.8

685

Charges certificate of registration, 6.10 copies of, right of inspection, 6.15–6.16, 6.24–6.25 floating charges administration, and, 34.30–34.31 generally, 6.2, 6.31 liquidation, and, 34.30–34.31 moratorium, and, 28.1–28.3 ‘top-slicing’, and, 33.14–33.16 generally, 6.1–6.3 LLP register of alternative inspection location, 6.23 duty to keep, 6.14 form, 6.22 generally, 6.14–6.16 inspection, failure to allow, 13.31 right of inspection, 6.15–6.16, 6.24–6.25 receiver appointed under notice to Registrar of appointment of, 6.11 notice to Registrar of cesser of appointment of, 6.11 registered office, and, 3.13 registration certificate of, 6.10 extension of time, 6.13 general duty, 6.4–6.7 particulars sent to Registrar, 6.8–6.9 post-registration, 6.10–6.12 rectification, 6.13 release from, statement to Registrar of, 6.12 Charity, 2.10, 23.143 Claims by members against LLP, 14.36 against other members, 13.36, 14.33 discrimination burden of proof, 15.40–15.46 mandatory early conciliation, 15.38–15.39 time limits, 15.37 winding up, and, 33.2–33.9 ‘Claw-back’ adjustment of withdrawals, 8.17, 34.8–34.13 de facto members, and, 8.38 shadow members, and, 8.34 Client contracts conversion from partnerships, and, 7.7–7.10 Collective investment schemes, see also Financial services regulation ‘commercial purposes’, 20.30 ‘day-to-day control over management’, 20.27–20.28 generally, 20.22–20.26 LLP agreement, and, 11.2 operated by way of business, 20.29

686

Index

Committees, see Management committee; Members Companies Act 2006 application to LLPs, of, 1.5, 1.16–1.18 arrangements and reconstructions, and, 36.1–36.3 duties of LLP, and designated members ‘in default’, 12.9–12.13 members ‘in default’, 13.31 duties of members, and individual members, for, 13.30 members as a whole, for, 13.29 rights of members, and generally, 14.22–14.24 waiver, 14.25–14.26 Company searches generally, 1.13 Compensation decision-making, and, 17.44–17.45 discrimination claims, 15.49–15.50 part-time worker claims, 15.187 whistleblowing claims, 15.171 Compromises and arrangements CA 2006, under, 36.2–36.3 IA 1986, under, 36.4–36.8 Compulsory retirement cessation of membership, and, 19.12–19.13 Compulsory winding up, see also Winding up applications for orders contributories, and, 31.17–31.20, 31.23 generally, 33.16–31.29 individual member, and, 31.21–31.22 liquidator, by, 31.24 official receiver, by, 31.25 Secretary of State, by, 31.26 business not commenced, 31.11 determination by LLP, 31.10 dissolution, 35.4–35.5 consequences of, 35.6 generally, 31.9 inability to pay debts, 31.12–31.14 just and equitable winding up (IA 1986, s 122), see Just and equitable winding up official receiver’s functions, 31.30–31.34 petitioners, 33.16–31.26 procedure, 31.27–31.29 Conduct of business of LLP, see Decision-making Conduct of liquidation disclaimer of onerous property, 33.10–33.12 generally, 33.1 preferential debts, 33.14 rescission of contracts, 33.13 status of members’ claims, 33.2–33.9 top slicing, 33.14–33.16

Confidentiality orders protection of residential addresses from disclosure, and, 8.14 Confirmation statement duty to deliver to Registrar, 4.28–4.30 Conflicts of interest duty to avoid, 13.9 term in LLP agreement as to, 11.25 Connected persons taxation, and, 23.59–23.64 Constitutional documents notification of changes, 1.11 Contracts of LLP general formalities, 4.10–4.18 liability of individual member to third parties, and, 18.3 pre-incorporation, 4.19–4.21 Contributories meaning of, 31.17–31.20 rights of under IA 1986, 14.27–14.28 term in LLP agreement as to, 11.48 winding up petition, and, 31.23, 33.16 Conversion of partnerships accountants’ partnerships, and, 7.19 annuities, generally, 7.17 taxation, and, 23.95–23.96 annuity transfers, 23.97 banking facilities, 7.13 costs of, 23.137–23.138 customer/client contracts, 7.7–7.10 decision to convert, 7.2–7.4 employees, 7.11 generally, 7.1 income tax, and, 23.15 indemnities, 7.16 investments, 7.14 leases, 7.12 partial conversion, 23.110–23.112 professional indemnity insurance, 7.15 stamp duty, 7.5, 23.125–23.126 stamp duty land tax, 7.5, 23.127 transfer of business and assets, 7.6 ‘true and fair’ accounts, future need for, 7.18 value added tax, 23.134–23.136 Corporate entity (LLP as) banks, and, 3.9 landlords, and, 3.10 LLP agreement, and, 11.2 ‘opaque’ for taxation purposes overseas, 23.158 ‘piercing the corporate veil’, 3.5–3.6 separate legal personality, 3.1–3.4 ‘unlimited capacity’, 3.7–3.8 Corporate members, see also Members cessation of membership, dissolution, on, 8.28, 19.9 notice to Registrar of, 8.29–8.30

Index Corporate members – contd corporation tax, and accounting periods straddling 6 April 2014, 23.55–23.56 Alternative Investment Fund Manager, 23.51 appropriate notional profit, 23.43–23.45 generally, 23.27–23.32 international businesses, 23.52–23.53 losses, 23.54 mixed membership, 23.33–23.40 ‘power to enjoy’ diverted profits, 23.41 profit reallocation, 23.46–23.50 relevant tax amount, 23.42 transfer of assets and income streams, 23.57–23.58 dissolution, cessation of membership on, 8.28, 19.9 first members, and, 2.2, 2.4, 8.2 liquidation member, of, 19.11 subscriber of, 2.4, 8.2 register of members, and, 2.25 required particulars of members, and, 2.25 term in LLP agreement cessation of membership, and, 11.38 representation at meetings, 11.29 ‘Corporate veil’ piercing of, 3.5–3.6 Corporation tax accounting periods straddling 6 April 2014, 23.55–23.56 Alternative Investment Fund Manager, 23.51 appropriate notional profit, 23.43–23.45 generally, 23.27–23.32 international businesses, 23.52–23.53 losses, 23.54 mixed membership, 23.33–23.40 ‘power to enjoy’ diverted profits, 23.41 profit reallocation, 23.46–23.50 relevant tax amount, 23.42 transfer of assets and income streams, 23.57–23.58 Court-ordered restoration of LLP to register generally, 24.33–24.37 supplementary issues, 24.38–24.39 Creditors’ meetings administration, and, 29.15–29.16 voluntary arrangements, and, 28.10–28.11 Crown bona vacantia, and, disclaimer by liquidator, 33.10 striking off register, 24.20–24.22, 24.39 winding up, 35.6

687

Crown – contd disclaimer by, 24.21 preference, abolition of, 33.14 restoration of LLP to register, payment by, 24.39 Customer contracts conversion from partnerships, and, 7.7–7.10 Damages remedies for breach of LLP agreements, and, 10.48–10.49 whistleblowing claims, 15.174 Data protection, 15.190–15.196 Death of member cessation of membership on, 8.28, 19.9 taxation, 23.74 decision-making, and, 17.24 notice to Registrar of, 8.29 personal representatives, position of management of LLP, and, 8.21–8.22, 19.9 restoration of LLP to register, right to apply for, 24.33 right to information, of, 14.18 ‘unfair prejudice’, and, 8.26 Debentures allotment of, 6.30 debenture holders’ rights, 6.27–6.28 generally, 6.2 LLP registers alternative inspection location, 6.23 form, 6.22 generally, 6.17–6.21 right of inspection, 6.17–6.18, 6.24–6.25 meaning, 6.2 perpetual debentures, 6.2 re-issue of redeemed debentures, 6.26 trustees’ liability, 6.29 Debenture holders register of form of, 6.22 generally, 6.17–6.21 inspection of, 6.24–6.25 failure to allow, 13.31 location for inspection of, 6.17, 6.23 rights of inspection of, 6.17–6.20 rights of, 6.27–6.28 Debt funding generally, 16.1–16.3 repayment to members, and ‘claw-back’, 8.17, 34.8–34.13 winding up, 33.3 term in LLP agreement as to, 11.6–11.7 Debt relief orders prohibition on person subject to, and, 2.4, 37.34

688

Index

Debt relief restrictions order overseas LLPs, and, 26.9 prohibition on persons subject to, 2.4, 37.34 Deceased member, see Death of member Decision-making, see also Management of LLP assignment of share, and, 8.22–8.24, 17.24 business connected matters, 17.5–17.7 death of member, and, 8.22–8.24, 17.24 delegation of statutory powers and duties, 17.22–17.23 designated members, by, 12.25 Duomatic principle, 17.17 duties, 13.42 fetters consequences of invalidity, 17.41–17.46 generally, 17.26–17.27 objective, 17.33–17.39 reasons, 17.40 subjective, 17.28–17.32 generally, 17.1, 17.4 individual membership rights, 14.29 enforcement of participation rights, 17.18 invalidity, consequences of compensation, 17.44–17.45 generally, 17.41 just and equitable winding up, 17.46 re-exercise, 17.43 unfair prejudice, 17.46 void or voidable, 17.42 LLP, by, 17.12 management committee, 17.19–17.21 members, by, 17.13 membership matters, 17.16 non-business connected matters generally, 17.8 legislative provisions, under, 17.9–17.14 other non-membership matters, 17.15 participation rights of members, enforcement of, 17.18 winding up, effect of, 17.25 Deduction from wages, 15.189 Deeds and other documents general formalities, 4.10–4.18 liability of members to third parties, and, 18.4 pre-incorporation documents, 4.19–4.21 De facto members ‘claw-back’ liability, and, 8.38 distinguished from shadow member, 8.37 duties to LLP, of, 8.38 liability to disqualification order, and, 8.38 meaning of, 8.37–8.39 wrongful trading, and, 8.38

Default rules, see also Rights of members accounting to LLP for personal profits from competing business, 13.11 carrying on business in competition with LLP, and, 13.11 contents of LLP agreements, and, 11.50 decision-making, and LLP agreement, and, 11.26–11.29 generally, 1.6, 1.23, 10.7–10.11, 11.1, 14.1–14.2 indemnity from LLP, 14.19–14.21 inspecting books and records of LLP, 14.3–14.17 list of, 10.8 new members, and, 8.5 obtaining information from other members, 13.38–13.39, 14.18 repudiation of LLP agreement, 10.42–10.44 sharing equally in capital and profits of LLP, 16.10–16.11 surplus in winding up, and, 33.8–33.9 ‘true accounts’, rendering of, 13.38–13.39, 14.18 use of property, name or business connection of LLP, 13.11 Delegation of statutory duties and powers rights of members to make decisions, and, 17.22–17.23 Derivative claim by minority of members Companies 2006, and, 14.48, 14.40–14.41 divergence of LLPs from companies, 14.41, 14.43 generally, 14.37–14.43 procedure for, 14.39–14.40 similarities with companies, 14.42 Designated members annual accounts, 12.14 appointment of cessation of appointment, 12.5, 12.7 corporation may be, 12.1 generally, 12.1 members automatically designated members, when, 2.30–2.31, 12.6 notice to Registrar of, 12.5–12.6 options as to, 2.30–2.31 specifying named members, 12.4–12.5 termination of appointment generally, 12.7 notice to Registrar of, 12.5–12.6 term in LLP agreement as to, 11.12 auditors, and, 12.15–12.16, 22.4–22.7, 22.10, 22.15, 22.16, 22.23, 22.29 CDDA 1986, 12.26 cessation of membership of LLP, and, 12.7 compliance with statutory requirements, 12.17

Index Designated members – contd contents of LLP agreement, and, 11.12–11.14 decision-making by, 12.25 declaration of solvency, and, 12.19 direct duties and powers, 12.8 annual accounts and audit, 12.14–12.16 insolvency, 12.18–12.21 disqualification orders, and, 12.26 duty of care existence of, 12.22 exclusion of, 12.23–12.24 fiduciary obligations of, 12.22 incorporation document, and, 2.29–2.31 insolvency, 12.18–12.21 liability ‘in default’, 12.9–12.12 subject to defence, 12.13 LLP agreements, and, 11.12–11.14 relationship with LLP, 12.22–12.25 responsibility for compliance by LLP with obligations, 12.8 members ‘in default’, 12.9–12.12 members liable subject to a defence, 12.13 role of, 12.2 signature of, on forms, 1.9, 8.6, 8.29 winding up, 12.12, 12.18–12.21 Direction to LLP to produce documents and provide information generally, 24.11–24.13 restrictions on disclosure of information, 24.13, 24.16 Disability discrimination definition of disability, 15.131–15.136 direct, 15.137–15.138 ‘discrimination arising from a disability’, 15.139–15.141 duty to make reasonable adjustments, 15.142–15.152 costs, 15.153 enquiries about disability and health, 15.154–15.157 generally, 15.130 long-term disability cover, 15.158 permanent health insurance, 15.158 Disciplinary hearing, 15.189 Disclaimer of onerous property winding up, and, 33.10–33.12 Disclosure duty of by member to LLP, 13.9 by prospective member, 13.15 Disclosure of information on business letters, websites etc effect of failure to comply, 4.8–4.9 generally, 4.3–4.7 introduction, 4.1

Discrimination arbitration, 15.55–15.58 claims burden of proof, 15.40–15.46 mandatory early conciliation, 15.38–15.39 time limits, 15.37 Employment Tribunal jurisdiction, 15.55–15.58 equal pay, 15.121–15.122 exemptions to discriminatory treatment, 15.25 expulsion, 15.7 flexible working requests, 15.129 generally, 15.1–15.10 litigation and access for information data subject access request (DSAR), 15.191–15.196 discrimination questionnaire, 15.197–15.198 generally, 15.190 prohibited conduct, 15.11 aiding discrimination, 15.23 direct discrimination, 15.12–15.15 former relationships, 15.24 harassment, 15.18–15.20 indirect discrimination, 15.16–15.17 instructing, causing or inducing discrimination, 15.22 victimisation, 15.21 protections, 15.2–15.10, 15.59 age discrimination, see Age discrimination disability discrimination, see Disability discrimination discrimination law, and, 15.36 pregnancy discrimination, 15.110–15.117 maternity equal pay concept and clause, 15.122 maternity leave for members, 15.123–15.126 profit share entitlement for members, 15.118–15.120 sex discrimination, 15.108–15.109 equal pay, 15.121–15.122 maternity leave for members, 15.123–15.126 remedies compensation, 15.49–15.50 declaration, 15.48 duty to mitigate, 15.51 generally, 15.47 injury to feelings, 15.53–15.54 recommendation, 15.52 sexual harassment and bullying background, 15.60

689

690

Index

Discrimination – contd sexual harassment and bullying – cont dealing with accused LLP member, 15.75–15.76 grievance and disciplinary procedures, 15.71–15.74 purpose or effect, 15.68–15.69 relevant claims and liability, 15.61–15.65 responding to allegations, 15.70 unwanted conduct, 15.66–15.67 shared parental leave and pay, 15.127–15.128 territorial scope of law, 15.26–15.36 unfair dismissal, 15.28, 15.33 Disqualification order application by disqualified member for leave to act after, 37.41–37.44 for reduction of period of, 37.45 bankruptcy restrictions orders, and, 37.34 compensation orders, 37.36 consequences of contravention of, 37.37–37.40 debt relief orders, and, 37.34 debt relief restrictions order, and, 37.34 de facto members, and, 8.38 designated members, and, 12.26 failure to comply with obligations as to accounts, and, 13.32 grounds for breach of competition law and unfitness, 37.32 conviction of indictable offence, 37.22–37.23 conviction of relevant foreign offence, 37.29 conviction of relevant summary offence, 37.27–37.28 declaration by court under ss 213 and 214 IA 1986, 37.33 fraud or beach of duty as to LLP, 37.26 fraudulent trading, 37.26 instructing unfit directors, 37.31 persistent default as to companies legislation, 37.24–37.25 public interest, 37.30 unfitness, 37.5–37.21 legislative provisions, 37.1–37.4 ‘management’, 37.3 revocation of administration order, and, 37.35 scope, 37.1–37.4 shadow member, and, 8.33, 37.12 unfitness case law, 37.16–37.18 collegiate responsibility, 37.19–37.21 ‘court’ for determining, 37.11 generally, 1.8, 37.5–37.10 ‘insolvent’, 37.7

Disqualification order – contd unfitness– contd minimum and maximum periods of disqualification, 37.12 Part I matters, 37.13, 37.14 Part II matters, 37.13, 37.15 Disqualification undertakings generally, 37.1 Dissolution of LLP compulsory winding up, 35.4–35.5 consequences, 35.6 generally, 35.1 restoration to register after, effect of, 24.31, 24.37 struck off register, and, 24.19 voluntary winding up, 35.2–35.3 Display of LLP’s name at locations duty to, 4.1–4.2 failure to, effect of, 4.8–4.9 Dispute resolution term in LLP agreement as to, 11.1, 11.51 Distribution of surplus assets winding up, and, 33.8–33.9 Documents, deeds and contracts general formalities, 4.10–4.18 pre-incorporation documents, 4.19–4.21 Dormant LLPs exemption from audit requirements, 21.54 Dormant subsidiary LLPs accounts, 21.25 Dubai International Financial Centre LLPs in, outline of, 25.6–25.7 UK LLP registrable in, 23.161 Duomatic principle rights of members to make decisions, and, 17.17 Duties of designated members, see also Designated members term in LLP agreement as to, 11.12–11.14 Duties of members, see also Designated members; Fiduciary duties of members account to LLP, to, 13.7 act within authority, to, 13.27 care, of LLP, to, 13.25–13.26 other members, to, 13.35 third parties, to, 18.6–18.17 CDDA 1986, and, 13.32 Companies Act 2006, under individual members, 13.30 members as a whole, 13.29 punishment of offences, and, 1.25 decision-making, 13.42 equity, in, 13.24 express obligations of good faith or trust and confidence, 13.40–13.41 implied term, 13.41

Index Duties of members – contd fiduciary, 13.8–13.15, 13.34 forfeiture, 13.16–13.23 full information, providing, 13.38–13.39 generally, 13.1–13.5 Insolvency Act 1986, and, 13.32 liability of member, and, 13.28 LLP, to account, to, 13.7 act within authority, to, 13.27 care, of, 13.25–13.26 Companies Act 2006, under, 13.29–13.30 fiduciary, 13.8–13.15 generally, 13.2–13.3, 13.6 liability of member, and, 13.28 prior to becoming member, 13.15 LLP agreements, and, 10.4, 13.24 LLP under CA 2006, to generally, 13.4 individual members, on, 13.30 liability of member ‘in default’, and, 13.31 members as whole, on, 13.29 other members, to care, of, 13.35 cause of action, and, 13.36–13.37 generally, 13.5, 13.33 good faith between negotiating parties, 13.34 prior to becoming member, 13.15 rendering of ‘true accounts’ to, 13.38–13.39 solvency of LLP, not to jeopardise solvency, 13.13 Duty of care, see Care, duty of Employee members ‘claw-back’ liability, and, 11.35 ‘employee partners’, differences, 9.21 entitlement in winding up, 33.3 NIC, and, 23.113–23.114 Employees, see also Employment status conversion from partnerships, and, 7.11 Employment status concern member treated as employed, 9.14–9.15 determination, 9.16–9.21 effect of LLP Act 2000, s 4(4), 9.14–9.21 ‘employee partners’ and ‘employee members’, difference, 9.21 generally, 9.1 objection to dual status, 9.2, 9.14 juridical objection, 9.2–9.5 sociological objection, 9.2, 9.6–9.9 partnership law position, 9.2–9.13 ‘rule against dual status’, 9.2, 9.19 challenge, 9.10–9.12 transfer of undertakings, 9.29–9.34

691

Energy and carbon report revision of, 21.49 Enforcement of participation rights rights of members to make decisions, and, 17.18 Entrepreneurs’ relief availability, 23.5 Entry to premises by inspector or investigator generally, 24.15 restrictions on disclosure of information, 24.16 Equal pay generally, 15.121–15.122 maternity equality clause, 15.122 sex equality clause, 15.122 ‘Equity’ (capital), see also Capital generally, 16.1–16.9 term in LLP agreement as to, 11.6 Estoppel agency, and, 5.1 EU Council Regulations insolvency (1346/2000), 27.4 insolvency (848/2015), 27.4 jurisdiction (1215/2012), 26.3–26.5 European Securities and Markets Authority (ESMA) Guidelines AIF definitions, and, 20.33, 20.35, 20.36 Euros accounts in, 21.50 Exclusion of liability auditors of LLP, of, 22.34 of members Consumer Rights Act 2015, 18.25 LLP, to, 14.30–14.32 other members, to, 14.33 third parties, to, 18.18–18.26 UCTA 1977, and, 18.19–18.24 term in LLP agreement, of members LLP, to, 11.20–11.23 other members, to, 11.24 third parties, to, 11.19 Execution of documents before incorporation contracts, 4.19–4.21 LLP agreement, 10.12–10.16 generally, 4.10–4.18 Expulsion term in LLP agreement as to, 11.41 Extortionate credit transactions winding up, and, 34.27–34.29 Failure to notify Registrar generally, 3.11 FCA authorisation application for authorisation, 20.14 approved person regime, 20.17 capital required by LLP, 20.19–20.20

692

Index

FCA authorisation – contd carrying on regulated activity while application pending, 20.15 close links, 20.16 ‘fit and proper’ test, 20.16 generally, 20.13–20.20 individual registration, 20.17 Principles for Business, 20.18 resources requirements, 20.16 Senior Managers Regime, 20.17 threshold conditions, 20.16 Fiduciary duties of members de facto members, owed by, 8.38 forfeiture of right to remuneration, 13.16–13.24 LLP, to, application of LLP money or property, as to, 13.9 breach of, remedies for, 13.14 Companies 2006, and, 13.6, 13.10 disclosure of interest, and, 13.9 disclosure of information, of, 13.9 disclosure of material facts, 13.9 exclusion of, 13.12–13.13 generally, 13.8–13.15 good faith, of, 13.9, 13.9 ‘no conflict’ rule, 13. 9 ‘no profit’ rule, 13.9 prospective members, and, 13.15 single-minded loyalty, and, 13.9 other members, to, no general fiduciary duty, 13.33 prospective members, between, 13.34 repudiation of LLP agreement, and, 10.46 shadow members, owed by, 8.35 third parties, to, 18.15–18.16, 18.31 Fiduciary members generally, 8.27 term in LLP agreement as to, 11.36 Film partnerships/LLPs ‘sideways tax relief’, and, 23.82 Financial Conduct Authority, see FCA authorisation ‘Financial institution’ allotment of debentures or debenture stock, 6.30 Financial promotion financial services regulation, and, 20.21 Financial services regulation alternative investment funds, see Alternative investment funds (AIFs) anti-money laundering, and, 20.21 authorised persons, and, 1.27 collective investment schemes, see Collective investment schemes financial promotion, and, 20.21 general prohibition, 20.3 generally, 20.1–20.2

Financial services regulation– contd insider dealing, and, 20.21 market abuse, and, 20.21 regulated activities, alternative investment fund, see Alternative investment funds (AIFs) categories of, 20.5, 20.8 collective investment schemes, see Collective investment schemes failure to be authorised to carry out, 20.4 ‘general prohibition’, and, 20.3 ‘investments’, meaning of, 20.8 use of LLPs, 20.7–20.8 threshold conditions, 20.16 Financial year accounts, and, 21.7 First members ‘associated’, 2.5 generally, 8.2–8.4 particulars in incorporation document, 2.24–2.27 ‘persons’, 2.2–2.3 subscribing, 2.14 Flexible working requests for, and discrimination, 15.129 Floating charges, see Charges Foreign connections of UK LLPs expanding business overseas, 23.156–23.171 generally, 26.1–26.2 jurisdiction of English courts, 26.3–26.6 Foreign currency annual accounts in Euros, 21.50 funding, and, 16.4 Foreign law LLP agreements governed by, 10.51–10.52 Foreign LLPs, see also Overseas LLPs Belize, 25.33–25.34 Canada, see Canada LLPs Cayman Islands, 25.35–25.36 CDDA 1986, application to, 26.9 corporate entity LLPs, 25.6–25.23 Dubai International Financial Centre, see Dubai International Financial Centre Gibraltar, 25.22 Guernsey, see Guernsey LLPs Hong Kong, 25.29 India, see India LLPs Ireland, 25.29 Japan, see Japan LLPs Jersey, see Jersey LLPs Kazakhstan, see Kazakhstan LLPs Labuan International Business and Financial Centre, 25.10–25.11 Malaysia, see Malaysia LLPs

Index Foreign LLPs – contd Mauritius, 25.23 non-corporate entity LLPs, 25.24–25.36 Pakistan, 25.17 Qatar Financial Centre, see Qatar Financial Centre LLPs recognition by English Court of limited liability of members, 26.14–26.36 Singapore, see Singapore United States, see United States Formalities confirmation statement, 4.28–4.30 contracts, deeds and other documents generally, 4.10–4.18 pre-incorporation contracts, 4.19–4.21 disclosure of information business letters etc, on, 4.5–4.6 effect of failure to comply, 4.8–4.9 generally, 4.3–4.7 introduction, 4.1 list of members’ names, 4.7 websites, on, 4.4 display of name effect of failure to comply, 4.8–4.9 registered office, inspection place etc, at, 4.2 duty to notify changes, 4.27 Fraudulent trading winding up, and, 34.3 Funding, see also Capital; Loan to LLP generally, 16.1–16.11 term in LLP agreement as to, 11.6–11.7 Garden leave generally, 11.46 remuneration during, 11.47 term in LLP agreement as to, 11.46–11.47 Gibraltar LLPs outline of, 25.22 Good faith duties of members express and implied contractual terms, 13.40–13.41 fiduciary obligations, 13.9 mutual obligations between negotiating parties, 13.34 term in LLP agreement as to, 11.31 Great Britain CDDA 1986, and, 26.9 relevance for insolvency purposes, of, 3.12 Grievance hearings, 15.189 Groups accounts, and generally, 21.26 IAS, 21.27–21.28 non-IAS, 21.29–21.30 membership of LLP, and, 1.28

693

Guernsey LLPs outline of, 25.20–25.21 Hong Kong LLPs introduction of, 25.1 outline of, 25.29 Human rights legal personality, and, 3.3 IAS accounts groups, 21.27–21.28 individual, 21.8–21.9 Implied contractual terms good faith or mutual trust and confidence, 13.41 LLP agreement, of, 10.5–10.6 Imprisonment, false statement to Registrar, for, 1.10 Inability to pay debts compulsory winding up, and, 31.12–31.14 Income tax generally, 23.13–23.26 Incorporation document certificate, 2.37–2.40 designated members, 2.29–2.31 form of, 1.9 generally, 2.1, 2.16 inspection, 1.13, 2.41 members’ particulars, 2.24–2.27 name, 2.17–2.20 notification of receipt by Registrar, 1.11 registered office, 2.22–2.23 registration, 2.37–2.40 Incorporation of an LLP certificate of incorporation, 2.37–2.40 designated members, 2.29–2.31 incorporation document certificate, 2.37–2.40 designated members, 2.29–2.31 generally, 2.16 inspection, 1.13, 2.41 members’ particulars, 2.24–2.27 name, 2.17–2.20 registered office, 2.22–2.23 registration, 2.37–2.40 inspection, 1.13, 2.41 legality of business, and, 2.11–2.13 members’ particulars, 2.24–2.27 name, 2.17–2.20 register of members, 2.24–2.28 registered office, 2.22–2.23 registration, 2.37–2.40 requirements, 2.1 generally, 2.1 incorporation document, 2.16–2.31 name, 2.17–2.20 statement of compliance, 2.32–2.36 two or more persons subscribe, 2.2–2.15

694

Index

Incorporation of an LLP – contd statement of compliance, 2.32–2.36 trading not commenced, and, 2.42 two or more persons subscribe ‘associated’, 2.5 ‘business with a view to profit’, 2.6–2.10 legality of business, 2.11–2.13 members reduced below two, 2.15 ‘persons’, 2.2–2.4 procedure of subscribing, 2.14 winding up, and, 2.42 Indemnities auditors of LLP, and, 22.34 conversion from partnerships, and, 7.16 default rights of members, and, 14.19–14.21 generally designated members, for, 12.23–12.24 members, for, 14.32 terms in LLP agreement as to, designated members, for, 11.14 members, for, 11.20–11.24 Indemnity insurance conversion from partnerships, and, 7.15 expectation of court as to, 14.32 generally, 14.32 payment by LLP for, 14.32 term in LLP agreement as to, 11.16, 11.19, 11.23, 14.32 India LLPs outline of, 25.15–25.16 Inheritance tax generally, 23.132–23.133 Injury to feelings discrimination claims, 15.53–15.54 Insider dealing financial services regulation, and, 20.21 Insolvency CDDA 1986, for purposes of, 37.7 generally, 27.1–27.4 reduction of LLP’s capital, and, 16.7 rescission of LLP agreement, and, 10.23 waiver of fiduciary duties, and, 13.13 winding up for, 31.12–31.13 Insolvency Act 1986 arrangements and reconstructions, and, 36.1, 36.4–36.8 duties of members, and, 13.32 rights of members, and, 14.27–14.28 Inspection, see also Inspection location books and records, of rights of members, and, 14.3–14.17 term in LLP agreement as to, 11.18 certificate of incorporation, of, 2.41 charges register, of, 6.14–6.16, 6.24–6.25 copies of charges, of, 6.15–6.16, 6.24–6.25

Inspection – contd incorporation document, of, 2.41 records kept by Registrar, right of public, and, 1.13–1.14 register of debenture holders, of, 6.17–6.21, 6.24–6.25 register of members, of, 2.26 Inspection location ‘alternative inspection location’, 2.26, 6.23 ‘inspection place’ disclosure of to inquiry in course of business, 4.3 display of LLP name at, 4.2 meaning of, 4.2 registered office, 2.26, 6.14 ‘Inspection place’, see Inspection location Inspectors, see Investigation of LLP’s affairs International businesses mixed membership rules, 23.52–23.53 Investigation of LLP’s affairs ‘affairs of an LLP’, 3.20, 24.2 appointment of inspectors, 24.4–24.5 direction to LLP to produce documents and provide information, by generally, 24.11–24.13 restrictions on disclosure of information, 24.16 entry of premises, and generally, 24.15 restrictions on disclosure of information, 24.13, 24.16 inspectors, by appointment of, 24.4–24.5 directions by Secretary of State to, 24.6 entry of premises by, 24.15 powers of, 24.7–24.9 report by, 24.10 introduction, 24.1–24.3 investigators appointed under s 447, appointment of, 24.11 entry of premises, 24.15 generally, 24.11–24.13 limitations on, 24.12 restrictions on disclosure of information by, 24.13, 24.16 obligations to assist, 13.30, 24.7–24.9, 24.11 private, in, 24.3 Secretary of State, by applications to court, for, disqualification, 24.18 under CA 2006, Pt 30, 24.18 winding-up, 3.20, 24.18 voluntary winding-up, in, 24.17 statutory provisions, 24.1

Index Investigation of LLP’s affairs – contd voluntary disclosure, and generally, 24.14 restrictions on disclosure of information, 24.13, 24.16 Investment advice, see Financial services regulation ‘Investment LLP’ meaning for anti-avoidance taxation legislation, 23.140 Investment management, see Financial services regulation Investments conversion from partnerships, and, 7.14 Ireland LLPs introduction of, 25.1 outline of, 25.29 Japan LLPs introduction of, 25.4 outline of, 25.28 Jersey LLPs introduction of, 25.2 outline of, 25.30–25.32 Joint tortfeasors relationship of members with the outside world, and, 18.28–18.29 Jurisdiction Employment Tribunal in discrimination claims, 15.55–15.58 English courts generally, 26.3–26.6 overseas LLPs, and juridical party, 26.10 service out of the jurisdiction, 26.13 service within the jurisdiction, 26.11–26.12 ‘Just and equitable’ winding up application of statutory provisions, 32.8 breakdown of relationship between members, and, 32.25–32.32 business with a view to profit, LLP ceases to carry on, and, 3.21 decision-making, and, 17.46 grant of relief, 32.20–32.24 introduction, 32.1–32.2 LLP agreement, remedies for breach of, and, 10.50 petitioners contributories, 31.17–31.20, 32.10 generally, 32.9–32.13 individual member, 31.21–31.22 right to apply for, cannot be excluded, 11.32 Kazakhstan LLPs outline of, 25.18–25.19

695

‘Knowingly’ ‘in default’ under IA 1986, and, 12.12 Knowledge apparent authority, and, 5.15–5.19 Labuan International Business and Financial Centre LLPs in, outline of, 25.10–25.11 Landlords relationship with LLPs, and, 3.10 Leases conversion from partnerships, and, 7.12 generally, 3.10 Leaving members, see also Cessation of membership cessation of authority of, 5.20 generally, 8.28–8.32 notification by Registrar in London Gazette, 8.8 Registrar, notice of, to, 8.29 Legal personality LLPs, and, 1.3, 3.1–3.4 overseas LLPs, and, 26.25–26.36 Legal professional privilege right to inspect documents, 14.13 Legality of business generally, 2.11–2.13 Legislation scheme of for LLPs, 1.15–1.20, 11.52 Liability limitation agreements auditors of LLP, and, 22.34 members of auditing LLP, and, 18.26 Liability of members, see also Limited liability acting outside authority, 13.27–13.28 actuary, 18.30 cathedral architect, 18.30 contracts, 18.3 contribute in winding-up, to, 1.2, 11.48 deeds, 18.4 designated members, and breach of statutory duties, 12.13 duty of care, 12.22 ‘in default’, 12.9–12.12 exclusion, Consumer Rights Act 2015, 18.25 generally, 14.30–14.33 member of LLP of auditors, 18.26 retainer agreement, 18.18 terms in LLP agreement as to, 11.14, 11.19–11.24 Unfair Contract Terms Act 1977, 18.19–18.24 ‘in default’ generally, 13.31 breach of statutory duties, and, 13.31 insolvent liquidation, in, 18.32 insolvency practitioner, 18.30

696 Liability of members – contd introduction, 18.1–18.2 involved in management of LLP, and, 37.38–37.40 joint liability with LLP, 18.28 LLP, to, 11.20–11.23, 13.25–13.28, 14.30–14.32 negligence, assumption of responsibility, 18.9–18.14 generally, 13.25–13.26, 13.28, 18.6–18.8 professional advisers, 18.15–18.17 other members, to, 11.24, 14.33 overseas LLPs, and generally, 26.14–26.17 overseas LLP with separate legal personality, 26.18–26.24 overseas LLP without separate legal personality, 26.25–26.36 professional advisers, firms of, 18.15–18.16 relief, application to court for, 14.34–14.35 third parties, to, 11.19, 14.32, 18.6–18.14 torts other than negligence, 18.5, 18.27 winding-up, and adjustment of withdrawals, 8.17, 34.8–34.13 contribution, 1.2, 8.15–8.16, 11.48 fraudulent trading, 8.17, 34.3 generally, 18.32 misfeasance, 8.17, 34.1–34.2 wrongful trading, 8.17, 34.4–34.7 Liens winding up, and, 34.32 Limited liability generally, of members, 1.2–1.4, 8.15–8.17 overseas LLPs, and generally, 26.14–26.17 overseas LLP with separate legal personality, recognition of, 26.18–26.24 overseas LLP without separate legal personality, recognition of, 26.25–26.36 Limited liability companies (LLCs) in US, 25.26 Limited liability partnerships (LLPs) agreement governing (‘LLP agreement’), 1.5–1.6 characteristics, 1.2 differences from company, 1.5 incorporation, 2.1 legal personality, 1.3, 3.1–3.4 legislative scheme, 1.15–1.20

Index Limited liability partnerships (LLPs) – contd members, limited liability of, 1.2–1.4, 8.15–8.17 new form of entity, 1.1 partnership law, and, 1.23–1.24 PSC Register, 8.40–8.43 requirements for, 2.1 transitional provisions as to, 1.21–1.22 UK, and, 1.26 using ‘LLP’ when not LLP, 2.21 Liquidation of corporate member effect on membership, 19.11 taxation, and, 23.123–23.124 term in LLP agreement as to, 11.38 Liquidation of LLP, see Winding up of LLP Liquidators appointment of, 31.30–31.34 winding up, and, 31.24 LLP agreement amendment of generally, 10.18–10.19 term in LLP agreement as to, 11.52 assignment of member’s share, and, 8.24–8.25, 11.30 authority of members, and, 5.11 authority of non-members, and, 5.7, 11.3 business of the LLP, and, 11.3 conduct, agreement by, 10.6 construction of, 10.5 contractual status of, 10.5 copy, whether right to, 10.6, 14.5 default rules generally, 10.7–10.11 list of, 10.8 matters not covered by, 11.1 term of LLP agreement as to, 11.50 designated members, 12.23–12.25 execution pre-incorporation, 10.12–10.16 foreign law governing, 10.51–10.52 form of conduct, and, 10.6 estoppel, and, 10.6 oral, may be, 10.6 general principles default position, 10.7–10.11 partnership law, and, 1.23–1.24, 11.1 statutory provisions affecting, 10.4 generally, 1.5–1.6, 10.1–10.3 members’ duties and responsibilities, and, 10.4 non-disclosure, 10.31 pre-incorporation execution, 10.12–10.16 private agreement, 1.5

Index LLP agreement – contd rectification of, 10.17 remedies for breach of ‘buy-out’ orders, 10.50 damages, 10.48–10.49 generally, 10.47 ‘just and equitable’ winding up orders, 10.50 repudiation, see Repudiation of LLP agreement rescission and termination, 10.20–10.21 rescission for misrepresentation, 10.22–10.24 agreement to enter into new LLP agreement, 10.30 agreement to form LLP, 10.25–10.26 agreement to join existing LLP, 10.27–10.29 terms in, as to accounting obligations, 11.4–11.5 amendment of agreement, 11.52 assignment of member’s share, 11.30 auditors appointment of, 11.4 remuneration of, 11.4 authority of members business of LLP, as to, 11.15 claims management, as to, 11.28 execution of documents, as to, 11.15 indemnity insurance, effecting, 11.16 management, as to, 11.15 bankruptcy of member, 11.38 business of the LLP, 11.3 capital, provision of, 11.6 charges, authority create, 11.7 claims management, 11.28 conflicts of interest, 11.25 corporate member liquidation of, 11.38 representation at meetings, 11.29 decision-making, 11.26–11.29 default rules, and, 11.50 designated members appointment of, 11.12 functions of, 11.13 limitations on liability of, 11.14, 12.23–12.24 dispute resolution, 11.51 employee members indemnity from full members, 11.35 restrictive covenants, 11.44 rights of access to books, 11.34 expulsion, 11.41 fiduciary members, 11.36 financial consequences of retirement, 11.39 funding, 11.6–11.7 garden leave, 11.46–11.47

697

LLP agreement – contd good faith between members, 11.31 indemnity insurance authority to effect, 11.16 effecting of, 11.19 funding of, 11.19 management (‘directors and officers’), 11.23 inspection of books and records, 11.18 liability of members to LLP, limitations on, 11.20–11.22 liability of members to other members, limitations on, 11.24 liability to third parties insurance as to, 11.19 retainer agreements with third parties, 11.19 liability to contribute in winding up (‘contributories’), 11.48 management, 11.26–11.29 committee of, 11.28 management accounts, 11.5 meetings as to, 11.26–11.27 structure for, 11.26, 11.28 meetings, 11.26–11.29 new members, 11.11 obtaining information, 11.18 outgoing members, 11.22 predecessor partnership, 11.19 profits and losses, 11.8–11.10 property of LLP, 11.17 restrictive covenants, 11.42–11.45 retirement compulsory, 11.37 financial consequences of, 11.39 notice period for, 11.40 right to, 11.37 surplus in winding up, 11.49 tax, retention for, 11.8 unfair prejudice petitions, 11.32, 32.14 variation of, 10.6, 10.18–10.19 LLP register of charges, see Register of charges LLP register of debenture holders, see Register of debenture holders ‘LLP search’ right to carry out, 1.13–1.14 Loans to LLP cessation of membership, and, 19.22 distinguished from capital, 16.2–16.3, 16.9 funding of LLP by, 16.1 redesignation as capital, 16.8 repayment of ‘claw-back’, possibility of, 16.7, 34.9 right to, 16.2 subordinated to bank, 7.13 term of LLP agreement as to, 11.6–11.7

698 Loan interest relief taxation, and, 23.106–23.109 Lockstep profit-sharing system age discrimination, 15.102–15.106 London Gazette, publication in alternative method of publication, possibility of, 1.11 list of matters to be published, 1.11 notice of, administrative restoration to register, 24.30 appointment of liquidators, 1.11 certificate of change of name, 4.25 certificate of incorporation, issue of, 2.37 change in appointment of designated members, 2.31 change in membership, 8.8 change in particulars of members, 8.8 change of registered office, 3.15 court-ordered restoration to register, 24.37 final meeting of LLP in winding up, 1.11 LLP’s name struck off the register, 24.19, 24.23, 24.27 order for dissolution on winding up, 1.11 receipt by Registrar of annual accounts, 1.11 annual return, 1.11 winding-up order, 1.11 Loss relief taxation, and, 23.75–23.81 film scheme cases, 23.82 Losses allocation, mixed membership partnerships, 23.54 generally, 16.17–16.18 incurred overseas, taxation of, 23.167–23.168 mitigation in discrimination claims, 15.51 term of LLP agreement as to, 11.9–11.10 Lugano Convention jurisdiction, and, 26.3, 26.6 Malaysia LLPs outline of, 25.14 Management accounts term in LLP agreement as to, 11.5 Management committee CDDA 1986, and, 37.19–37.21 decision-making by, 17.19–17.21 need for agreement of members to, 11.28 term in LLP agreement as to, 11.28

Index Management of LLP, see also Decision-making; Management committee; Rights of members assignment of share, and, 8.21–8.24 CDDA 1986, and, 37.5–37.15 collegiate responsibility, and, 37.19–37.21 death of member, and, 8.21–8.24 duty of care, 13.25–13.26 instructions of undischarged bankrupt or disqualified person, acting on, 8.36 no right to remuneration for acting in, 11.33 participation in, 17.2–17.3 person involved in, when personally liable for debts, 34.42, 37.38–37.40 prohibition on acting in, 26.9, 37.34 remuneration for acting in, no right to, 11.33 term in LLP agreement as to, 11.26–11.29 Market abuse financial services regulation, and, 20.21 Maternity leave and pay, see also Pregnancy discrimination direct sex discrimination, 15.126 indirect sex discrimination, 15.124 shared parental leave and pay, 15.127–15.128 statutory maternity allowance/pay entitlement, 15.118–15.120 Mauritius LLPs outline of, 25.23 Meetings members, of, 17.9–17.14, 17.23 procedure at, 17.5–17.7, 17.17 quorum, 17.19 term in LLP agreement as to, 11.26–11.29 Members, see also Agency of members; Cessation of membership; Changes of membership; Changes of name or address of members; Death of member; Designated members; Duties of members; Employee members; Fiduciary duties of members; Negligence of members; New members; Register of members; Residential addresses; Rights of members attribution of acts to LLP, 3.4 CDDA 1986 generally, and, 1.8, 8.17, 13.32 claims against LLP, by, 14.36 claims in winding up of LLP, by, 33.2–33.9 collegiate responsibility of, 37.19–37.21 committees of CDDA 1986, and, 37.19–37.21 management committee, 17.19–17.21 powers of, 17.9

Index Members – contd de facto members, 8.37–8.39 delegation, 17.22–17.23 fiduciaries as members, 8.27, 11.36 first members generally, 8.2–8.4 particulars in incorporation document, 2.24–2.27 Insolvency Act 1986 generally, and, 13.32 limited liability of, 1.2–1.4, 1.8, 8.15–8.17 LLP acting through, 3.4 LLP agreement, and, 10.1–10.3 names of, on business letters, 4.6–4.7 power of court to relieve from liability, 14.34–14.35 salaried members disguised salary, 23.86–23.89 generally, 11.33–11.35 taxation, and, 23.83–23.94 shadow members, 8.33–8.36 share and interests of, alienation, 8.21–8.26 generally, 8.18–8.20 single member, liability after 6 months, 2.15, 8.3 status, see Employment status; Worker status vicarious liability of LLP for acts of, 5.22–5.25 Members’ capital, see Capital Members’ interests, see Share and interests in LLP Members’ particulars incorporation document, and, 2.24–2.28 Members’ shares, see Share and interests in LLP Memorandum of association, see also Incorporation document generally, 2.16 Misfeasance and malpractice fraudulent trading, 34.3 generally, 34.1–34.2 wrongful trading, 34.4–34.7 Misrepresentation LLP agreements, and, 10.22–10.30, 13.15 Mixed membership partnerships allocation of losses, 23.54 computation of taxable profits, 23.33–23.40 transfer of assets and income streams, 23.57–23.58 Moratorium administration, and, 29.10–29.12 voluntary arrangements, and, 28.1–28.3

699

Mortgages, see also Charges generally, 6.4 Mutual trust and confidence express and implied contractual terms, 13.40–13.41 Name of LLP, see Registered name Names adjudicators orders of, 4.24–4.25 National Insurance contributions generally, 23.113–23.114 National Minimum Wage, 15.189 Negligence of members assumption of personal responsibility by member, 18.9–18.17 exclusion of liability of members Consumer Rights Act 2015, 18.25 generally, 14.30–14.33 members of auditing LLP, 18.26 retainer agreement with client, and, 18.18 terms in LLP agreement as to, 11.19–11.24 UCTA 1977, 18.19–18.24 designated members, and, 12.22 duty of care on members to LLP, 13.25–13.26 indemnity as to, 11.24, 14.19–14.21, 14.32–14.33 indemnity insurance for, 11.16, 11.19, 11.23, 14.32 performance of services causing economic loss, in, 18.6–18.8 professional advisers, by, 18.15–18.17 relief from liability for, 14.34–14.35 vicarious liability of LLP for, 5.21–5.26 New members agreement of existing members as to, 8.5 generally, 8.5–8.6 notice to Registrar of, 8.6 notification in London Gazette of, 8.8 protection of address from disclosure, 8.9–8.14 term in LLP agreement as to, 11.11 No conflict rule application to members of, 13.9 No profit rule application to members of, 14.8 Northern Ireland application of LLP Act 2000 to, 1.26 CDDA 1986 not extend to, 1.26 IA 1986 not extend to, 1.26 transitional provisions, and, 1.26 Notification to Registrar cessation of membership, and, 19.14 change in membership particulars, and, 8.6–8.7, 8.29, 12.5 change of inspection location, and, 6.23

700

Index

Notification to Registrar – contd change of method of appointing designated members, and, 2.31 change of name, and, 4.25 change of registered office, and, 3.16–3.17 failure to give, effect of, 3.11 forms for, 1.9 requirements for delivery of, 1.12 Obtaining information from other members rights of members, and, 14.18 term in LLP agreement as to, 11.18 Office of Tax Simplification (OTS), review of tax rules, 23.6 Official receiver application by disqualified member to act, and, 37.41 functions and powers of, 31.30–31.34 voluntary winding up, power to present petition, 31.25 Ostensible authority (apparent authority), see Agency of members; Agency of non-members Outgoing member term in LLP agreement as to, 11.22 Overseas LLPs, see also Foreign LLPs bankruptcy restrictions orders, and, 26.9 carrying on business in the UK, requirements for, 26.7–26.8 CDDA 1986, and, 26.9 debt relief restrictions orders, and, 26.9 jurisdiction juridical party, 26.10 service out of the jurisdiction, 26.13 service within the jurisdiction, 26.11–26.12 recognition of limited liability of members generally, 26.14–26.17 overseas LLP with separate legal personality, 26.18–26.24 overseas LLP without separate legal personality, 26.25–26.36 UK branches of, taxation and, 23.172 Pakistan outline of, 25.17 ‘Parent undertaking’ generally, 1.28 Part-time worker protection appropriate comparable full-time worker, 15.180–15.182 claims brought before an Employment Tribunal and remedies, 15.186

Part-time worker protection – contd compensation, 15.187 full-time contract comparisons, 15.180–15.184 generally, 15.176–15.188 ‘less favourable treatment’, 15.178–15.179 written statement, 15.188 Partnership law LLPs, and, 1.23–1.24, 11.1 repudiation of LLP agreement, 10.32 Partnerships, see also Conversion of partnerships generally, 1.3, 11.2, 19.37 Pension auto-enrolment 15.189 Pension relief taxation, and, 23.98–23.105 People with significant control LLP’s PSC register, 8.40–8.43 Perpetual debentures, see Debentures Personal representatives of deceased member, see Death of member ‘Persons’ incorporation, and, 2.2–2.4 Petition, unfair prejudice, see Unfair prejudice petition ‘Phoenix’ syndrome winding up, and, 34.36 ‘Piercing the corporate veil’ generally, 3.5–3.6 Place of business display of name, and, 4.2 Power of entry to premises inspector or investigator under CA 1985, Part 14, of, 24.15 restrictions on disclosure of information obtained, 24.13, 24.16 Pre-incorporation documents generally, 4.19–4.21 Preferences winding up, and, 34.20–34.26 Pregnancy discrimination generally, 15.110–15.117 maternity equal pay concept and clause, 15.122 maternity leave ‘compulsory’, 15.112 generally, 15.123–15.126 ordinary or additional, 15.111–15.126 profit share entitlement for members, 15.118–15.120 protected period, 15.113–15.116 unfavourable treatment, 15.115–15.117 ‘Principles for Business’ financial services regulation, and, 20.18 Professional indemnity insurance, see Indemnity insurance

Index ‘Profit’ with a view to, ceasing to conduct business, 3.21–3.22 with a view to, on incorporation, 2.6–2.10 Profits of the LLP allocation of, 16.4 mixed memberships partnerships, see Mixed membership partnerships expansion of LLP overseas, 23.165–23.167 garden leave, and, 11.47 generally, 16.12–16.16 sharing of term in LLP agreement as to, 11.8 taxable, computation of, 23.7 winding up, surplus in, and, 33.9 Promissory notes disclosure of name, on, 4.5 formalities, and, 4.16 Property term in LLP agreement as to, 11.17 ‘Property investment LLP’ meaning for anti-avoidance taxation legislation, 23.140 Proposals administration, and, 29.14 voluntary arrangements, and, 28.5–28.9 consideration of proposal, 28.10–28.11 Protected information, see also Residential addresses generally, 8.9–8.14 public inspection, and, 1.14 Public disclosure generally, 1.7, 1.9–1.11 LLP agreement, not subject to, 1.5 ‘LLP search’, 1.13 membership, composition of, 2.25–2.26, 8.6–8.7, 8.29 protected information, 1.14 public register, right of inspection of, 1.13 Public interest disqualification under CDDA 1986, in, 37.30 LLP ceasing to carry on business with view to profit, and, 3.21 winding up, in, 31.26 Punishment of offences duties of members, and, 1.25 Qatar Financial Centre LLPs outline of, 25.8–25.9 Reasonable notice cessation of membership, on, 19.6–19.8 Receivership, see also Administrative receivership appointment of receivers court, by, 30.1 generally, 30.6 secured creditors, by, 30.2

701

Receivership – contd introduction, 30.1–30.3 receivers’ duties and powers, 30.7–30.11 Reconstructions CA 2006, under, 36.2–36.3 generally, 36.1 IA 1986, under, 36.4–36.8 Records of LLP, see also Accounting records books and available for inspection by members, 14.3–14.4 categories of document, 14.7–14.8 meaning of, 14.5 right to inspect agent, through, 14.9–14.11 legal professional privilege, 14.13 limitation/exclusion, 14.15–14.16 liquidation, and, 14.17 refusal, 14.10–14.12 scope, 14.6 where to keep/at all times open for inspection, 14.14 Rectification LLP agreements, of, 10.17 register, of, 24.40–24.48 Register of charges, see also Charges alternative inspection location of, 6.23 contents of, 6.14 copies of charges, 6.14–6.16 duty to keep, 6.14 form of, 6.22 generally, 6.14–6.16 registered office, and, 3.13 right of inspection, of, 6.15–6.16, 6.24–6.25 Register of debenture holders, see also Debenture holders form of, 6.22 generally, 6.17–6.21 inspection of, 6.24–6.25 location for inspection of, 6.17, 6.23 registered office, and, 3.13 rights of inspection of, 6.17–6.20 Register of members available for inspection, 2.26 contents of, corporate members and firms, 2.25 individual members, 2.25 duty to keep, 1.7, 2.25 form of, 2.28 generally, 2.24–2.26 LLP’s PSC register, 8.40–8.43 notice to Registrar of inspection location, 2.26

702

Index

Register of members – contd protection of residential addresses from disclosure, and, 8.9–8.14 registered office, and, 3.13 Register of members’ residential addresses, see also Residential addresses contents of, 2.27 duty to keep, 2.27 form of, 2.28 generally, 2.27–2.28 not open to inspection, 2.27 Registered name change of certificate of, 4.25 directions by Secretary of State, as to, 4.23 generally, 4.22–4.26 notice to Registrar, of, 4.25 notification in London Gazette, 1.11, 4.25 requirements and restrictions, as to, 2.17–2.19 duty of disclosure of business letters etc, on, 4.4 websites, on, 4.5 duty to display ‘inspection location’, at, 4.2 nature of display, 4.2 other business locations, at, 4.2 registered office, at, 4.2 engraved on LLP’s seal, 4.12 incorporation document, and, 2.16–2.21 LLP contracting in another name, 4.11 rectification of register, 24.40–24.48 requirements as to, 2.17–2.21 re-use of name (‘Phoenix’), 34.36–34.42 striking off register, 24.19–24.29 restoration to register after striking off, 24.30–24.39 Wales, registered office situated in, and, 2.23 Registered number duty of disclosure of business letters and order forms, on, 4.5 websites, on, 4.4 given on incorporation, 2.37 Registered office accounting records to be kept at, 3.13 books and records of LLP available to members at, 14.3 change of act on, duty of LLP to, 3.16–3.17 failure to notify Registrar, effect of, 3.11 notice in London Gazette of, 1.11 notice to Registrar of, 3.15 power for LLP to, 3.15 procedure for, 3.18

Registered office – contd duty of LLP disclose on inquiry in course of business, to, 4.3 disclose on websites, to, 4.4 display registered name at, 4.2 effect of breach of duties, 4.8–4.9 include on business letters and order forms, to, 4.5 generally, 3.12–3.18 incorporation document, and, 2.22–2.23 inspection location, 3.13 inspection of documents, and, 3.13 need for, 2.22, 3.12 registers, available for inspection at, 2.26, 6.14 situation of, 2.22 Wales, situated in, 2.23 Registrar of Companies failure to notify, effect of, 3.11 power to determine form of copies supplied on search, 1.13 disclose protected information, 8.10 make requirements as to documents, 1.9 place member’s residential address on public record, 8.12 restore LLP to register, 24.30–24.32 serve notice requiring delivery of document, 1.10 use protected information, 6.4, 8.10 requirements for proper delivery to, 1.12 role of, 1.9 seal of, 2.37 Registration incorporation document, and, 2.37–2.40 Registration of charges, see Charges ‘Regulated activities’, see Financial services regulation Relief from liability power of court to give auditors, to, 14.34–14.35, 22.33 members, to, 14.34–14.35 Remuneration no right of member to, 11.33 Rendering of ‘true accounts’ duties of members to, 13.38–13.39 Repudiation of LLP agreement application of doctrine to LLPs, 10.33–10.39 consequences, 10.40 applicable notice period, 10.45 cessation of membership, 10.41 default rules, application, 10.42–10.44 fiduciary duties, 10.46 partnership law, 10.32

Index Rescission contracts of, in winding up, 33.13 LLP agreement, of, for misrepresentation, 10.22–10.30 Residential addresses, see also Register of members’ residential addresses protection from disclosure confidentiality orders pre-October 2009, and, 8.14 court order for disclosure, 8.11 generally, 8.9–8.14 placed by Registrar on public record application to be unavailable for inspection, 8.13 when placed, 8.12 Restoration of LLP to register administrative, by Registrar, 24.30–24.32 court-ordered, 24.33–24.37 issues supplementary to, 24.38–24.39 rectification of register following, 24.46 Restrictive covenants categories of, 11.43 damages for breach of, 11.45 employees members, and, 11.44 garden leave, and, 11.47 requirements for validity of, 11.42 term in LLP agreement as to, 11.42–11.45 Retirement cessation of membership, and, compulsion, by, 19.12–19.13 generally, 19.3 terms in LLP agreement as to, 11.37–11.40 ‘Return date’ for delivery of annual return, 4.28 Re-use of names winding up, and, 34.36–34.42 Rights of members annual accounts, right to receive, 14.22 apply to court, right to, proposed compromise or arrangement, and, 14.22 relief from liability, for, 14.34–14.35 restoration of LLP to register, for, 24.33 apply to Registrar, strike LLP off register, 24.19, 24.24–24.27 apply to Secretary of State, right to, appointment of inspectors, for, 14.24, 24.5 auditors, right to receive statement of, 14.22 books and records of LLP, available for inspection by members, 14.3–14.4 categories of document, 14.7–14.8 meaning of, 14.5 right to inspect agent, through, 14.9–14.11 legal professional privilege, 14.13

703

Rights of members – contd books and records of LLP – contd right to inspect – contd limitation/exclusion, 14.15–14.16 liquidation, and, 14.17 refusal, 14.10–14.12 scope, 14.6 where to keep/at all times open for inspection, 14.14 capital and profits, share equally in, 16.10, 16.16 charges, copies of, right to inspect, 6.15–6.16, 14.22 cease to be member, see Cessation of membership Companies Act 2006, under generally, 14.22–14.24 waiver, 14.25–14.26 contributories, rights when, 14.27–14.28, 31.17–31.20 default rules, under, indemnity from LLP, 14.19–14.21 inspecting books and records of LLP, 14.3–14.17 involvement in management of LLP, 17.2 obtaining information from other members, 14.18 sharing equally in capital and profits of LLP, 16.10, 16.16 derivative claim, right of minority to apply to court for, see Derivative claim by minority of members filing document with Registrar, right to serve notice requiring, 14.23 indemnity from LLP, to, 14.19–14.21 Insolvency Act 1986, under contributories, rights when, 14.27–14.28, 31.17–31.20 winding up petition, and, 33.16, 31.21 inspect books and records of LLP, to, 14.3–14.17 obtaining information from other members, 14.18 register of charges, right to inspect, 6.15–6.16, 14.22 register of debenture holders, right to inspect, 6.17, 14.22 register of members, right to inspect, 2.26 take part in decision-making, to assignment of share, and, 8.21–8.24 business connected matters, 17.5–17.7 death of member, and, 8.21–8.22 Duomatic principle, 17.17 enforcement of rights to, 17.18 non-business connected matters, 17.8–17.15 winding up, effect of, 17.25 winding up, in, 14.27–14.28

704

Index

Rollover relief capital gains tax, and, 23.122 Rome Convention I (EC Council Regulation 1864/2007) LLP agreement, and, 10.51 Salaried members, see also Employee members generally, 11.33–11.35 taxation capital contribution (Condition C), 23.91–23.94 disguised salary (Condition A), 23.86–23.89 post-6 April 2014 position, 23.83–23.85 significant influence (Condition B), 23.90 Seal execution of documents, and, 4.11–4.13 no need for LLP to have, 4.12 official seal for use outside UK, 4.18 registered name of LLP engraved on, 4.12 Registrar, of, 2.37 Secretary of State acceptance of disqualification undertaking by, 37.1 application by disqualified member to act, and, 37.41 appointment of inspectors by, 3.21, 24.4–24.5 appointment of liquidator by, 31.30 direction to LLP to produce documents, by, 24.11 disqualification proceedings by, 24.18 LLP ceasing to carry on business with view to profit, and, 3.21 ‘unfair prejudice’ petition by, 3.21, 24.18, 32.3 voluntary winding up, report to, by liquidator, 24.17 winding up petitions, and, 3.21, 24.18, 31.26 Secretary of State investigations, see also Inspectors; Investigations applications to court inspectors carrying out, by, 24.4–24.10 Secretary of State, by, 24.18 voluntary winding up, in, 24.17 Section 447 investigators entry to premises, 24.15 generally, 24.11–24.13 restrictions on disclosure of information, 24.13, 24.16 Separate legal personality generally, 3.1–3.4 Service out of the jurisdiction overseas LLPs, and, 26.13

Sex discrimination, see also Pregnancy discrimination equal pay, 15.121–15.122 generally, 15.108–15.109 maternity leave for members, 15.123–15.126 direct sex discrimination, 15.126 Sexual harassment and bullying background, 15.60 dealing with accused LLP member, 15.75–15.76 grievance and disciplinary procedures, 15.71–15.74 purpose or effect, 15.68–15.69 relevant claims and liability, 15.61–15.65 responding to allegations, 15.70 unwanted conduct, 15.66–15.67 Shadow members CDDA 1986, and, 8.33, 37.12 directing mind and will of LLP, and, 8.33 duty of care to LLP, and, 8.35 fiduciary duties, and, 8.35 IA 1986 provisions, and, 8.34 meaning of, 8.33 SORP, and, 8.34 Share and interests in LLP, see also Assignment of member’s share meaning of, 8.18–8.20 Shared parental leave and pay generally, 15.127–15.128 Singapore LLPs in, CDDA 1986, and, 26.9 corporate entity LLPs, 25.12–25.13 introduction of, 25.4 UK LLP registrable in, 23.161 Small LLPs audits, exemption from, 21.52 SORP (Statement of Recommended Practice) allocation of profits, and, 11.8 division of profits, and, 16.13 drawings on account of profits, and, 16.15 generally, 23.3, 23.26 guarantee from LLP as to loan, and, 11.39 ‘loans and other debts due to members’, and, 16.2, 16.9 members’ capital analysis required of, 16.9 definition of, 16.3 ‘other reserves’ trading losses, and, 16.18 unallocated profits, and, 16.14 retained losses, and, 11.9 shadow members, and, 8.34 UK GAAP, and, 23.3, 23.117, 23.119 Stamp duty conversion from partnerships, and, 7.5 generally, 23.125–23.126

Index Stamp duty land tax conversion from partnerships, and, 7.5 generally, 23.127–23.131 Statement of compliance incorporation, condition of, 2.32–2.36 ‘Statutory accounts’ non-statutory accounts, meaning of, 13.31 Statutory maternity allowance/pay entitlement, 15.120 Striking name off register bona vacantia, and, 24.20–24.21, 24.39 consequences, 24.28–24.29 generally, 24.19–24.22 members’ application, on, 24.24–24.27 Registrar’s initiative, on, 24.23 restoration to register administrative, by Registrar, 24.30–24.32 bona vacantia property, and, 24.39 court-ordered, 24.33–24.37 name after, 24.38 Subscribing incorporation document, and, 2.1, 2.14 ‘Subsidiary undertaking’ audit, exemption from, 21.53 dormant subsidiary LLPs, accounts of, 21.25 generally, 1.28 ‘Sufficient interest’ winding up petitions, and, 31.23 Surplus in winding up shared between members, 33.8–33.9 term in LLP agreement as to, 11.49 Taking part in decision-making and management of LLP, see Decision-making Tax reserve cessation of membership, and, 19.24–19.25 term in LLP agreement as to, 11.8 Taxation annuity payments, 23.95–23.96 annuity transfers, 23.97 anti-avoidance legislation, 23.139–23.143 associates, 23.59–23.64 capital allowances, 23.10–23.12 capital gains tax contribution of assets, 23.120–23.121 generally, 23.115–23.119 rollover relief, 23.122 ceasing to carry on business with a view to profit, 3.22 cessation of membership, on, 23.74 change of accounting reference date, 23.71–23.73 computation of taxable profits associates, 23.59–23.64 capital allowances, 23.10–23.12

705

Taxation – contd computation of taxable profits – contd connected persons, 23.59–23.64 corporation tax, 23.27–23.58 income tax, 23.13–23.26 introduction, 23.7–23.9 mixed membership partnerships, see Mixed membership partnerships connected persons, 23.59–23.64 corporation tax accounting periods straddling 6 April 2014, 23.55–23.56 Alternative Investment Fund Manager, 23.51 appropriate notional profit, 23.43–23.45 generally, 23.27–23.32 international businesses, 23.52–23.53 losses, 23.54 mixed membership, 23.33–23.40 ‘power to enjoy’ diverted profits, 23.41 profit reallocation, 23.46–23.50 relevant tax amount, 23.42 transfer of assets and income streams, 23.57–23.58 costs of conversion, and, 23.137–23.138 double-taxation treaties, and, 23.160 entrepreneurs’ relief, availability, 23.5 generally, 23.1–23.7 HMRC publications/manuals, 23.2–23.3 income tax, 23.13–23.26 individual members annuity payments, 23.95–23.96 annuity transfers, 23.97 cessation of membership, on, 23.74 change of accounting reference date, 23.71–23.73 commencement rules, 23.67–23.70 generally, 23.65–23.66 loan interest relief, 23.106–23.109 loss relief, 23.75–23.81 film scheme cases, 23.82 pension relief, 23.98–23.105 salaried members, 23.83–23.94 inheritance tax, 23.132–23.133 liquidation, and, 23.123–23.124 loan interest relief, 23.106–23.109 loss relief, 23.75–23.81 mixed membership partnerships, see Mixed membership partnerships National Insurance contributions, 23.113–23.114 Office of Tax Simplification (OTS), 23.6 overseas expansion branch of UK LLP, 23.167–23.168 company, use of, 23.171 double taxation treaties, and, 23.160 local tax advice, 23.169–23.170 separate entities overseas, 23.163

706

Index

Taxation – contd overseas expansion – contd structure for expansion, 23.156–23.158 tax-credit relief, and, 23.160 transparency/opacity, 23.159, 23.161–23.163 UK LLP, operation as, 23.164–23.166 partial incorporation to LLP, on, 23.110–23.112 pension relief, 23.98–23.105 review of tax rules, 23.4 rollover relief, 23.122 salaried members capital contribution (Condition C), 23.91–23.94 disguised salary (Condition A), 23.86–23.89 post-6 April 2014 position, 23.83–23.85 significant influence (Condition B), 23.90 ‘sideways relief’, 23.75, 23.76, 23.81 stamp duty, 23.125–23.126 stamp duty land tax, 23.127–23.131 transfer pricing, 23.144–23.155 ‘transparency’ of LLP for purposes of, 3.22, 23.7, 23.27 UK branches of overseas LLP, 23.172 UK LLPs operating overseas, and, 23.156–23.171 US, election in, 23.161 value added tax, 23.134–23.136 winding up, 23.123–23.124 Time limits discrimination claims, 15.37 whistleblowing claims, 15.170 ‘Top slicing’ winding up, and, 6.31, 33.14–33.16 Tort duties in, to LLP de facto members, 8.38 members generally, 13.24–13.26 shadow members, 8.35 relationship of members with the outside world, and, 18.5–18.30 Trading not commenced incorporation, and, 2.42, 31.11 Transactions at an undervalue winding up, and, 34.14–34.19 Transactions defrauding creditors winding up, and, 34.33–34.35 Transfer of assets and income streams taxation, and, 23.57–23.58 Transfer of business as a going concern conversion from partnerships, and, 7.6 Transfer of member’s share, see Assignment of member’s share Transfer of undertakings ‘employees’/‘workers’ and status of, 9.29–9.34

Transfer pricing taxation, and, 23.144–23.155 ‘Transparency’ of LLP for tax purposes generally, 3.22, 23.27 ‘True and fair’ accounts conversion from partnerships, and, 7.18 duties of members, and, 13.29 Two members reduction below effect of, 2.15, 3.19, 8.3 winding up, ground for, 3.19, 31.9 ‘Two or more persons subscribe’ ‘associated’, 2.5 ‘business with a view to profit’, 2.6–2.10 legality of business, 2.11–2.13 members reducing below two, prior to incorporation, 2.36, 8.3 ‘persons’, 2.2–2.4 procedure of subscribing, 2.14 UK branches of overseas LLP taxation, and, 23.172 UK GAAP accounts, and, 21.2, 21.8, 21.15 introduction of FRS 102, and, 23.3 Unenforceability of liens winding up, and, 34.32 Unfair contract terms Consumer Rights Act 2015, 18.25 UCTA 1977, and, 18.19–18.24, 18.26 Unfair prejudice petitions application of statutory provisions, 32.14–32.32 assignee of share, and, 8.26 breakdown of relationship between members, and, 32.25–32.32 decision-making, and, 17.46 exclusion of, agreement between members as to, 11.32, 32.3, 32.7, 32.14 grant of relief, 32.20–32.24 investigation of LLP’s affairs, and, 8.26 loss of substratum, 32.19 mismanagement/exclusion from management, 32.19 petitioners, 32.9–32.13 protection of members, 32.3–32.6 contracting out, 32.3, 32.7 removal of auditors, and, 22.21 Secretary of State, by, 3.21, 24.18, 32.3 term in LLP agreement as to, 11.32, 32.14 transferee of share, and, 8.26 valuation of share, and, 32.5 Unfitness, see Disqualification order United States election for ‘tax transparency’, 23.161 introduction of LLPs in, 25.1 LLPs, application of CDDA 1986 to, 26.9 LLPs in, generally, 13.26, 25.24–25.26

Index Unlawful business incorporation, and, 2.11 LLP carrying on, 3.20, 13.9 Unrealised capital profits cessation of membership, and, 19.23 Value added tax generally, 23.134–23.136 Vicarious liability of LLP acts of members, for, 5.22–5.25 acts of non-member employees, for, 5.26 generally, 5.21 Voluntary arrangements administration, 28.13 challenges, 28.12 creditors’ meetings, 28.10–28.11 introduction, 28.1 meaning, 28.4 moratorium, 28.1–28.3 proposal, 28.5–28.9 consideration of, 28.10–28.11 Voluntary disclosure to Secretary of State generally, 24.14 restrictions on further disclosure of information, 24.13, 24.16 Voluntary winding up commencement, 31.2 completion of, 35.2–35.3 creditors’ voluntary winding up, 31.6–31.8 generally, 31.1–31.2 members’ voluntary winding up, 31.4–31.5 notice to holder of qualifying floating charge, 31.2 types, 31.3 Websites disclosure of information, and, 3.14, 4.4 Whistleblower protection detriment, 15.168–15.169 generally, 15.159–15.161 protected disclosure, 15.167 qualifying disclosure, 15.162–15.166 remedies, 15.171–15.174 statutory requirements, 15.161 territorial scope, 15.175 time limits, 15.170 ‘Wilfully’ meaning of, 12.12 Winding up of LLP adjustment of prior transactions adjustment of withdrawals, 34.8–34.13 avoidance of floating charges, 34.30–34.31 extortionate credit transactions, 34.27–34.29

707

Winding up of LLP – contd adjustment of prior transaction – contd preferences, 34.20–34.26 transactions at an undervalue, 34.14–34.19 transactions defrauding creditors, 34.33–34.35 unenforceability of liens, 34.32 applications for orders petitioners, 31.16–31.26 procedure, 31.27–31.29 appointment of liquidator, 31.30–31.34 avoidance of floating charges, 34.30–34.31 claims by members, 33.2–33.9 completion compulsory winding up, 35.4–35.5 dissolution consequences, 35.6 generally, 35.1 voluntary winding up, 35.2–35.3 compulsory winding up, see Compulsory winding up conduct disclaimer of onerous property, 33.10–33.12 general, 33.1 members’ claims, 33.2–33.9 preferential debts, 33.14–33.16 rescission of contracts, 33.13 top slicing, 33.14–33.16 Crown preference, abolition of, 33.14 decision-making, and, 17.25 designated members, and, 12.18–12.21 disclaimer of onerous property, 33.10–33.12 dissolution compulsory winding up, 35.4–35.5 consequences, 35.6 introduction, 35.1 voluntary winding up, 35.2–35.3 EU law, 27.4 extortionate credit transactions, 34.27–34.29 fraudulent trading, 34.3 introduction, 27.1–27.4 just and equitable winding up, see Just and equitable winding up limited liability, and, 8.15–8.17 members’ claims, 33.2–33.9 misfeasance and malpractice fraudulent trading, 34.3 generally, 34.1–34.2 wrongful trading, 34.4–34.7 notification of order in London Gazette, 1.11 official receiver’s functions, 31.30–31.34 petitioners contributories, 31.17–31.20

708

Index

Winding up of LLP – contd petitioners – contd generally, 33.16 individual members, 31.21–31.22 liquidators, 31.24 official receiver, 31.25 Secretary of State, 31.26 ‘sufficient interest’, 31.23 petitions, 31.27–31.29 ‘Phoenix’ syndrome, 34.36 preferences, 34.20–34.26 preferential debts, 33.14–33.16 procedure, 31.27–31.29 public interest, 31.26 rescission of contracts, 33.13 re-use of names, 34.36–34.42 rights of contributories, and, 14.27–14.28 surplus in, shared between members, 33.8–33.9 term in LLP agreement as to, 11.49 taxation, and, 23.123–23.124 top slicing, 33.14–33.16 transactions at an undervalue, 34.14–34.19 transactions defrauding creditors, 34.33–34.35 unenforceability of liens, 34.32 unfair prejudice petitions (CA 2006, s 994), see Unfair prejudice petitions

Winding up of LLP – contd voluntary winding up, see Voluntary winding up wrongful trading, 34.4–34.7 working capital, see Capital ‘Worker’ protections, see also Whistleblower protection generally, 15.159 other quasi-employment protections, 15.189 part-time worker protection, 15.176–15.188 Worker status determination, 9.23–9.24 contractual obligation to provide services, 9.27 ‘employed by’, 9.25 subordination notion, 9.26 statutory rights, 9.28 transfer of undertakings, 9.29–9.34 ‘worker’, meaning, 9.1, 9.22 ‘Working day’ meaning, 3.11 Working time, 15.189 Wrongful acts or omissions vicarious liability, and, 5.22–5.23 Wrongful trading generally, 34.4–34.7