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Lord McIntosh of Haringey: My Lords, I am grateful to all noble Lords for the care that they have taken to scrutinise these regulations and the detail in which they have responded to them. I accept that these are long regulations. I do not believe that I ever preened myself on their brevity, as the noble Lord, Lord Burnham, suggested. In my introduction I explained why the regulations had to be long. I said that since limited liability partnerships were being brought within the context of existing company and partnership law, without changing them more than absolutely essential for the purpose, it had to be done by reference to company and partnership law rather than by incorporating whole chunks of either, or indeed insolvency law, into the regulations.

I was asked by the noble Lord, Lord Goodhart, how soon it would be before we would have a consolidated document. I understand that Butterworths Tolley is well on the way to producing a limited liability partnership handbook which it hopes to publish in late April of this year. I hope that that will ease the problem for those who find this a difficult area. I acknowledge that there are elements of difficulty.

The noble Lord, Lord Burnham, was particularly concerned by the incorporation of criminal offences and penalties by secondary legislation. That was also of concern to the Delegated Powers and Deregulation Committee. It is a fact that offences are covered in the regulations. We intend to apply to members of limited liability partnerships existing criminal offences which are punishable by imprisonment when applied to company directors. At this stage we do not intend to create any new offence for members of limited liability partnerships that do not already exist for officers of a company. The criminal offence created under Section 391A(5), to which the noble Lord, Lord Burnham, referred, is already an offence under the Companies Act. It is not a new crime, although it was not included in the earlier publications.

Many of the comments made by the noble Lord, Lord Goodhart, refer to matters that he disagreed with when we were dealing with the original legislation. Although I enjoyed listening to them again, it is a little abusive of our procedures when we are considering regulations. Of course he is still worried and he is entitled to be, but unless a change of policy is introduced by the regulations it is not entirely appropriate to go over the ground again.

Lord Goodhart: My Lords, I thank the Minister for giving way. The noble Lord is being unfair. I

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acknowledge that I am raising issues that I raised when the Bill was being debated, but what we were talking about at Third Reading was what should go into the default provisions. Now that we have seen the default provisions and certain matters which we regard as omissions from them, it is perfectly legitimate to raise those issues again in this context.

Lord McIntosh of Haringey: My Lords, it is indeed. I did not mean that I was not going to respond to all of the noble Lord's points; I am simply saying that some of them are not to be found in the regulations. I cut out from my opening speech the page or two relating to default provisions. I shall now have to put them back in again.

Before I leave the issue of the new offence under Section 391A(5), perhaps I may say that we have had to make appropriate modifications to companies legislation in its application to LLPs. One of the occasions is Section 391A(5) which deals with effective circulation of an auditor's report on his removal from office. In these circumstances, it will be agreed that whether one is a company or an LLP it is desirable that the members receive a copy of the auditor's report.

Under the company structure, when the directors fail to circulate the report, there is provision for it to be read out at the meeting of the company which considers the removal of the auditor. But LLP legislation is silent on its internal structure, so it was not possible to have a comparable decision. Because it is important that the auditor's representations are made known to the members of the LLP, the regulations require the designated members to circulate the representations and impose an offence if they fail to do so.

Lord Phillips of Sudbury: My Lords, I am obliged to the Minister for giving way. Perhaps I may give solace to the noble Lord, Lord Burnham, on his point. The provision is a toothless tiger in any event because it makes liable to a prosecution only,


    "any designated member in default".

Section 8 of the principal Act requires one of these LLPs to have only a single designated member. Indeed, the single designated member could be a limited liability company. Unless the single designated member is also "in default", there will be no one who can be prosecuted under the provisions. The same applies to a great many of the provisions of the Act.

Lord McIntosh of Haringey: My Lords, I cannot accept that. We had a great deal of discussion about a designated member when the Bill was passing through this House. We made very clear our reasons for saying that there must be at least one designated member, because there must be someone who can be held responsible for the formal procedures of the business and for making the returns necessary. So there will always be a designated member. That designated member can be pursued if, as I have just said, he is in

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default of, in particular, this obligation to circulate or make available the report of the auditor on his removal from office. That is adequate protection.

Lord Phillips of Sudbury: My Lords, I thank the Minister for giving way again. The answer is whether or not the Minister is right in assuming that if an LLP has a single designated member and there is default in circulation of the auditor's report, that designated member will automatically, and in all circumstances, be deemed responsible under the amendment to Section 391A. I was rather thinking that where it says,


    "any designated member in default",

that implied some personal responsibility on behalf of the designated member. If I am wrong, then the Minister is right. None the less, the point remains that only one member of a partnership of 500 could ever be responsible under these criminal provisions, and that member could be a limited company.

1.15 p.m.

Lord McIntosh of Haringey: My Lords, the point is that it is not less than one person. It would be unenforceable if 500 members of a limited liability partnership were all jointly and severally responsible for any default. It must be necessary for there to be one identifiable person as the designated member. It applies to this obligation, as to all the other obligations as in the filing of returns of accounts and so on. It does not make any difference whether that person is a limited liability company or not. That person can still be pursued if he does not do what is required.

I was asked by the noble Lord, Lord Goodhart, about the commencement of the regulations. I thought that I had made it clear in my opening speech that we have set out 6th April 2001 as being the commencement date. That date has been chosen to enable those wishing to take up LLP status to be aware of any amendments that may be made to the tax treatment of LLPs in the light of the tax review that was carried out last year by the Inland Revenue.

Ministers in another place gave a commitment not to commence the LLP legislation until the outcome of the review was known, so that anyone wishing to become an LLP would be certain of the tax treatment they could expect. That is what is secured by this commencement date.

There was some discussion on the issue of usual residential addresses. There is agreement in this matter between the noble Lords, Lord Goodhart and Lord Phillips. I am not in a position to arbitrate on that matter, except to say that we intend in subsequent regulations to apply to LLPs the provisions of the Criminal Justice and Police Bill which relate to directors' home addresses, assuming that these are agreed by Parliament.

The noble Lord, Lord Goodhart, again raised the issue of a duty of good faith. That issue is not particularly raised by the regulations rather than by the Bill. We considered carefully, and we have listened to all the arguments on this point, whether there should be a statutory duty of good faith between

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members. We sought views in our February 2000 consultation document. The responses were evenly divided, with comments for and against. We decided that there was no advantage in imposing a statutory duty.

The elements traditionally thought of as making up a duty of good faith include a duty of honesty and good faith owed to each partner; a requirement for openness; a duty to act in favour of the firm and not against it; the fair treatment by partners of a minority within a firm; and a duty not to compete with the firm or make a profit at the expense of other partners. That matter will be adequately catered for by the default provisions under regulations 7 and 8 and will offer a safety net where there is no agreement between members, either generally or on a specific issue. Even if there is no statutory requirement for a duty of good faith, that will not prevent members of an LLP from agreeing to owe a duty of good faith to each other if they wish.

I know that will not satisfy the noble Lord, Lord Goodhart. The noble Lord was not satisfied with it before, but it is the way the Bill has been constructed. The regulations simply follow on from that.

We argued at the time that there was no benefit in having the default provisions appearing on the face of the Act rather than in regulations. That would not have given them more certainty or made them more enforceable. The provisions will be variable by agreement between the members. They are not a rigid statutory requirement. If we had them in primary legislation, it would be difficult to amend them if they needed adjustment in circumstances which we did not anticipate. I shall not read out the two pages on default provisions from my original speech because I think that I have answered that point.

The noble Lord, Lord Goodhart, asked what would happen if a person ceased to be a member. Any member's account balance will be repayable. That will be a matter for discussion between the personal representative of a deceased member and the limited liability partnership itself.


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