|Draft Limited Liability Partnerships Regulations 2001 Draft Limited Liability (fees) Regulations 2001
Mr. Gibb: On a point of order, Mr. Cunningham. I have just picked up another copy of one set of the regulations from the Committee Room, and a schedule to those regulations says that the registration fee for a limited liability partnership will be £130, not £95 as the Minister said. Is it in order for us to proceed to debate those regulations, given that they are inaccurate? It is not merely a technical drafting error but a substantive error in the regulations.
The Chairman: These are the papers that have been reported to the Committee, and the Committee will have to report back to the House.
Mr. Gibb: I am a little confused about what that means, Mr. Cunningham. Given that the Minister has talked about a statutory instrument that is different from the one that we are debating, how should we proceed?
The Chairman: We must proceed with the regulations and report to the House. In other words, hon. Members can continue the debate, but it will have to be reported to the House.
Mr. Gibb: I am grateful for that explanation, Mr. Cunningham. It seems difficult for the Committee to proceed with the statutory instrument as it is now. I hope very much that, in view of the ruling from the Chair, the Minister will withdraw it and introduce a different one at a later date.
Mr. Burnett: The hon. Gentleman's eyes and mine have alighted on one mistake. I wonder whether, like me, he would be interested to hear from the Minister whether there are any other errors in the regulations and the fees that are likely to be charged.
Mr. Gibb: I give way to the Minister.
Dr. Howells: I thank the hon. Member for Torridge and West Devon for asking that question and giving me an opportunity to say that there are no other mistakes as far as I am aware.
Mr. Gibb: I am grateful for the Minister's response. While the issue is being resolved behind closed doors, I should like to proceed, if I may, to points on the main LLP regulations.
Dr. Howells: Will the hon. Gentleman give way?
Mr. Gibb: Certainly.
Dr. Howells: I thank the hon. Gentleman for his patience. I may be able to help the Committee, because I have learned that the amount is a printing error, which can and will be changed when the order proof is read.
Mr. Gibb: I am grateful for the Minister's helpful clarification. We will look out for the reprinted statutory instrument coming before the House later.
When the Limited Liability Partnerships Bill went through the House of Commons, we spent several hours in the Chamber debating it on Second Reading, three days in Committee and several more hours in the Chamber on Report and Third Reading. That was to scrutinise just 19 clauses and one schedule over some 16 pages of legislation. We are now scrutinising 57 pages of legislation, 10 regulations and six schedules in just one and a half hours. More than that, the regulations contain the meat of the whole LLP regime. Without them, it is hard, if not impossible, to determine even the basic tenets of the regime. A substantial element of the regulations should have been incorporated into the primary legislation as it went through Parliament.
The regulations are also incredibly difficult to read. To follow the rules that apply to LLP, one must have to hand the regulations, the Limited Liability Partnerships Act 2000, the Companies Act 1985, the Insolvency Act 1986, the Financial Services and Markets Act 2000 and the Company Directors Disqualification Act 1986. However, it is worse than that. To determine the company law provisions that apply, one must refer not only to schedules 1 and 2 to see which provisions do and do not apply and which provisions are amended and how, but to regulation 3 of the regulations that we are discussing today. Regulation 3 says that
Hon. Members may have lost track of what I am talking about, including my hon. Friend the Member for North Wiltshire (Mr. Gray)[Laughter.] It is an incredibly complicated, tedious and intellectually challenging task to read the legislation applicable to LLPs. It would have been better to put all the provisions into one separate piece of legislation. That would have made it easier to understand and subsequently to amend. That is the reason that the Government give for keeping it in a piecemeal form. The Government's insouciant response to our pleas for help is:
I turn now to some of the specific provisions in the legislation. The first relates to regulations 7 and 8 in the default provisions, to which the Minister referred, which apply where no partnership agreement exists or where the agreement is silent on certain issues. I still believe, as does the hon. Member for Torridge and West Devon, that a general default provision back to partnership law should have been inserted in the Limited Liability Partnerships Act 2000. The specific instances laid out in regulations 7 and 8 cover only a small proportion of the likely scenarios that are covered by general partnership law that has evolved over more than a century.
Now, any partnership that converts to an LLP will have to do a major revamp of its partnership agreement if it previously relied on the Partnership Act 1890 and the subsequent case law. Looking at the specific list in regulations 7, will the Minister explain why there is no reference to the retirement of members from the LLP? An earlier draft contained a provision that members could retire on giving notice to the other members. Will he also explain regulation 7(8), which states:
Will the Minister explain his responses to the hon. Member for Torridge and West Devon about which law the courts should have regard to when a lacuna is spotted and they are asked to fill it? His initial response when he referred to the consultation document was that the courts would have regard to the nature of the entity. The nature of the entity is a partnership. His later response was that the default provisions would be interpreted in the corporate context. There is some confusion here. We have effectively a partnership and a corporation. The Minister's response leaves us no wiser. It is unfortunate that it was not set out clearly in the legislation precisely what happens when there is a gap.
The Minister will not be surprised that we are still concerned about the incorporation of criminal offences and penalties by secondary legislation. I understand the purpose, which is to incorporate the criminal provisions of company law into the LLP regimes, but those provisions were themselves correctly introduced by primary legislation and so should these. I will not go through the points made at all three stages of the passage of the Limited Liability Partnership Bill, but this was an issue of concern to the House of Lords Delegated Powers and Deregulation Committee. Even worse, not only do the regulations, particularly regulation 4, incorporate the existing criminal company law into the LLP regime but the Act permits future criminal law and penalty to be incorporated by secondary legislation. Moreover, it is clear that the regulations themselves have created new criminal offences. More than just incorporating existing offences, they have created a new one.
In particular, a criminal offence is being created by the regulations for something that is not criminal under parallel companies legislation.
I refer the Minister to page 23 of the regulations, on which subsection (5) of section 391 is replaced by new wording that makes it a criminal offence if
In his excellent opening briefing, the Minister referred to clawback provisions, under which amounts withdrawn by an individual from a partnership up to two years before an LLP is put into liquidation can be clawed back if the LLP was insolvent at the time of withdrawal. Concern was expressed that the wording was much harsher than for companies, which might act as a disincentive for an LLP to trade out of insolvency when it might have been possible to do so. The wording emphasises that there will be no clawback
We hoped that the regulations, in their final form, would be readmitted to the Trade and Industry Select Committee. It is a pity that, for whatever reason, they were not, because it means that our pre-legislative scrutiny has not been as comprehensive as it should have been.
I am not sure that the regulations deal with the problem highlighted in Committee about merger and acquisition accounting. When a company acquires another company, acquisition accounting is meant to ensure that the shares issued in exchange for that company fully reflect the value. As LLPs do not have shares, the most appropriate method of accounting when two LLPs merge is the simpler form of merger accounting. However, because the regulations incorporate Companies Act provisions, when two firms merge and one is smaller or larger than the other, the rules will require acquisition accounting which, because it requires a valuation to be carried out, is cumbersome and expensive.
The Government have amended the regulations to remove references to shares, but they still retain the requirement to comply with general accounting principles, which means that acquisition accounting will continue to apply. Has the Consultative Committee of Accounting Bodies produced a new standard of recommended practice to deal with that issue, and is the Minister confident that the provision will not cause the problem to which I referred?
On schedule 1, will the Minister explain why section 257 of the Companies Act 1985 has been omitted from the LLP rules? That section gives the Secretary of State the power to alter the accounting requirements for companies, so it seems odd that the same provision does not apply to LLPs. Will the Minister explain why not?
With regard to the profit and loss format set out in the Companies Act 1985, it has been commented that references to taxation should be omitted from the LLP regime because the taxation of LLPs is a matter for the personal liability of its members rather than the LLP itself. The Government's response was that taxation was included to allow for when an LLP prepares consolidated accounts and has subsidiaries with tax liabilities. Can the Minister confirm that in no circumstances will the LLP be required to include in its accounts the tax liabilities of its members, even where those tax liabilities relate to the member's income from the LLP?
The consultation document published in December stated on disclosure of members' earnings that a definition of remuneration would be included at the end of paragraph 56(a). Will the Minister confirm that that has been done and tell us on which page in the regulations that paragraph has been printed?
During debate on the Limited Liability Partnerships Bill, I raised the issue of annuities paid by a partnership on a gratuity basis to retired former partners, but only when profits permit it. Applying company law accounting principles to LLPs would require such annuities to be capitalised. The resultant liabilities could render many LLPs insolvent. How has that issue has been tackled?
I have some concerns about the fees regulations, because it is not simply a matter of a misprinted figure in the statutory instrument. The fees charged for LLPs are considerably higher than those for companies. For example, the fee for incorporation is £20, compared with an initial fee to register an LLP of £95. The fee for a company's annual return is £15, compared with £35 for an LLP, and a change of name is £10 for a company and £12 for an LLP. I understand the concept of economies of scale and the rules about a trading entity recovering its costs. However, the question of how accounting units are separated within Companies House is a matter of discretion. No specific guidelines say what an accounting unit is and what it is not. I see no reason why Companies House cannot regard annual filing and initial registration as one unit, so that the costs can be lumped together and reasonable fees can be charged to members of the public.
The rules that require Companies House to meet its costs and not burden the taxpayer do not allow it simply to burden the taxpayer in some other way, by charging fees that people have no option but to pay. Companies House is expected to control its costs and not simply pass them on to hapless members of the public or hapless businesses that wish to use a particular form of incorporation. Those businesses are hapless because they have no option but to pay the fees. More effort should be made to ensure that there is parity between the fees charged to companies and those charged to LLPs. If Companies House is determined to recover its costs, extra effort should be made to reduce the costs, rather than simply to pass the burden on to businesses. I hope that the Minister will provide satisfactory responses to that point and the queries that I raised on the main regulations.
|©Parliamentary copyright 2001||Prepared 13 March 2001|