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29-03-2021

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The “cross-over” between company law and the law governing limited liability partnerships is not straightforward, so the clarification of even limited aspects of it is to be welcomed. It comes in the form of the judgment of Michael Green J in Secretary of State for Business, Energy And Industrial Strategy v Geoghegan & Ors [2021] EWHC 672 (Ch).

The judge described the issue before him in the first paragraph of his judgment:

"A Limited Liability Partnership (LLP) is a separate legal entity that combines some features of a company and some of a traditional partnership. Most importantly, as its name suggests, it provides the protection of limited liability to the partners, who are called members. LLPs are incorporated pursuant to the Limited Liability Partnership Act 2000 (LLP Act) which is very short but allows for regulations to be made to apply elements of company and insolvency law to LLPs. Pursuant to that power, the Limited Liability Partnership Regulations 2001 (the Regulations) apply various aspects of the Companies Act 2006, the Company Directors Disqualification Act 1986 (CDDA) and the Insolvency Act 1986. The applications before me concern the extent to which the CDDA applies to LLPs and in particular whether a member of the LLP has to be concerned in its management for the CDDA to apply."

The issue arose as a result of an application by two defendants in disqualification proceedings to strike out, alternatively for summary judgment in, disqualification proceedings brought against them by the the Secretary of State for Business, Energy and Industrial Strategy following the collapse of Bell Pottinger which had conducted its business through an LLP and a company. The defendant applicants were members of the LLP. They contended that they should not be susceptible to the proceedings as they had not been members of the management board of the LLP.

The judge held as follows:

(1) All members of an LLP were potentially liable to face disqualification proceedings;

(2) There was no qualification to the jurisdiction over all members under s. 6 CDDA that the member had to be on the management board or at a level equivalent to a director in a company;

(3) The conduct that could be relied on was anything that was done in the capacity of a member of the LLP;

(4) The test for unfitness was the same as in relation to companies, namely whether such conduct made them unfit to be concerned in the management of a company or an LLP;

(5) There was no line drawn in the legislation, and no justification for implying such a line, as to the relevant conduct that could be relied on by the Secretary of State.

Accordingly he dismissed both the strike out and summary judgment applications. He also said, however, "'The Applicants’ actual roles and responsibilities will have to be explored at the trial because that is [the] crucial context for considering whether they have shown themselves to be unfit.”

 

Robert Paterson
Partner

 

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