The Regulation of Partnerships and Closely-Held Corporations: Joint Conference of the Partnership, LLP and LLC Law Forum and the Nottingham Law School Centre for Business and Insolvency Law (CBIL)

Nottingham Trent University, 10 January 2019
 
On Thursday 10 January 2019, the Partnership, LLP and LLC Law Forum and Nottingham Law School’s Centre for Business and Insolvency Law will be holding a joint one day conference exploring developments and areas of debate in the law and practice relating to partnerships and closely-held corporations. We look forward to welcoming you to NTU to discuss highly topical issues around partnership law and insolvency law, such as the UK government’s August 2018 proposals in relation to corporate governance and insolvency (including potentially revolutionary restructuring laws) and the BEIS consultations on whether further regulation of partnerships is needed to counter their use in money laundering and other criminal activities.  By popular demand the conference will also address the complex and often unsatisfactory area of partnership insolvencies.



Venue: Newton Building, City Campus, Nottingham Trent University
Time: 9:30 am - 4.00 pm

Call for Papers
Proposals for papers are invited relating to any aspect of the law relating to partnerships and closely-held corporations, including (but not limited to)
·        regulation
·        formation
·        management
·        financing
·        taxation
·        insolvency
                                                                       
Guidance for Submissions
·        Submissions should be emailed to Elspeth Berry - elspeth.berry@ntu.ac.uk
·        The following information must be contained within your submission email: Your name, the proposed title and an abstract of no more than 200 words.
·        You are not required to submit a paper with your presentation.
·        Submissions must be received by 5pm on Wednesday 31 October 2018
 
Format for Presentations and Papers
·        Presentations should be approximately 20 minutes in length.
·        You are very welcome to use PowerPoint slides if you wish, but there is no requirement to do so.
·        Please note that only PowerPoint presentations can be accommodated. For technical reasons, we regret that alternative software (such as Prezi) cannot be used.
 
Attending the Conference
·        All those interested in the issues are very welcome to attend the conference, whether or not they are giving a presentation.
·        To register for the conference please visit our online store at https://www.ntu.ac.uk/about-us/events/upcoming-events after 31 October.
·        There is a conference fee of £20 payable via the 'online store' (regardless of whether or not you are giving a presentation).
·        There will be lunch provided, as well as tea/coffee and refreshments at registration and during the morning and afternoon breaks. If you have any special dietary requirements please notify us.
·        If you have any special requirements to enable you to participate more comfortably, please let us know and we will do our very best to meet them.

New book on Scottish partnership law

Stephen Chan, A Practical Guide to Partnership Law in Scotland (W Green 2018), has just been published by Sweet & Maxwell. We hope to provide a review in due course.

Proposals to reform NZ partnership law

The New Zealand government is proposing to reform New Zealand's law of general partnership law, which was originally based on the UK's Partnership Act 1890. In the government's own words "The Bill's purpose is to re-enact the Partnership Act 1908 to make it more accessible, readable, and easier to understand. It is not intended to make policy changes." 

Further details at http://www.pco.govt.nz/assets/Uploads/legislative-documents/plb/exposure-draft-Partnership-Law-Bill.html.

Recent UK partnership/LLP cases

Gregory Wild v Malcolm Wild, Jean Wild and Abigail Wild [2018] EWHC 2197 (Ch)
The claimant and the first defendant were brothers who had been partners in a dairy farm, and associated retail milk business.  The partnership had been established in 1978 by their late father (who had inherited the farm from his parents) and the first defendant, and was dissolved in 2016. The claimant alleged that the farm was partnership property.  The defendants disputed this but argued that the claimant’s milk round, which he continued after the dissolution, was a partnership asset even though the first defendant had stopped supplying him with milk from the partnership herd.

Section 20(1) of the Partnership Act 1890 provides that  ‘property and rights and interests in property originally brought into the partnerships stock….are called in this Act partnership property, and the question therefore arose whether the father had brought the farm into the partnership stock.  The court held that the key issue was whether the partners had agreed or consented to the property becoming partnership property. However, although the relevant agreement or consent could be inferred or arise by implication, no more agreement should be inferred by the court than was absolutely necessary to give business efficacy to what had happened (Miles v Clarke [1953] 1 WLR 587 at 540).  The fact that a particular item of property was used by a partnership for the purposes of its business did not necessarily give rise to an inference that the partners had agreed that the item was to be a partnership asset, and the implication of such a term was not normally necessary to give business efficacy to the partnership. This was particularly so in the case of land used by a farming partnership (Ham v Bell and others [2016] EWHC 1791). Nor was it determinative that the item had been included in the partnership accounts.

The court concluded that it would have been surprising had the father made the farm an asset of a partnership which he had just formed with his 16 year old son when the farmhouse was his home, the first defendant was not his only child, and the partnership was created for tax purposes. It was therefore not open to the court to infer an agreement or imply a term that the farm was brought into the partnership stock. However, the claimant’s milk round was a partnership asset despite the fact that the first defendant had ceased to supply the claimant with partnership milk, because the claimant continued to use a milk float which was a partnership asset, and the goodwill in the customers of the milk round was a partnership asset.



Milne, Liquidator of Premier Housewares (Scotland) LLP) v Rashid [2018] CSOH 23
The liquidator of an LLP sought an order against the respondent, who was a member of the LLP, under s214A of the Insolvency Act 1986 (IA 1986). In the event of an insolvency, the LLP Regulations 2001 create an additional sanction for LLP members which is not applicable to companies, the so-called ‘clawback’ under s214A IA 1986.  This provides that in a winding up of an LLP the court can order an LLP member to make a contribution to the LLP’s assets if, within two years before the commencement of the winding up, that member withdrew LLP property (described in Milne as ‘limb 1’), and it is proved to the court’s satisfaction that he knew or had reasonable grounds for believing that the LLP was at the time of the withdrawal unable to pay its debts within the meaning of s123 IA 1986 or would become so unable after that withdrawal (‘limb 2’). Section 214A further provides that the court may not make an order unless the member knew or ought to have concluded that after the withdrawal there was no reasonable prospect of the LLP avoiding insolvent liquidation, taking into account his actual knowledge, skill and experience and that reasonably to be expected of a person carrying out the same functions as him (‘limb 3’). In Milne, the court was concerned with the Scottish version of s214A but the minor differences between that version and the English version were not at issue.  

It was undisputed that limb 1 of the test was met, and the court also held that limb 2 was met because s123 deemed an LLP to be unable to pay its debts in certain circumstances, including it being unable to pay its debts as they fell due, which did not mean that a business which was currently paying its debts as they fell due could not be deemed to be unable to pay its debts since it was concerned not only with debts presently due, but also those due from time to time in the reasonably near future; and its assets being less than its prospective and contingent liabilities, although it was not conclusive that liabilities exceeded assets at a particular point in time but whether the LLP could reasonably be expected to meet its prospective and contingent liabilities. Although the respondent in Milne did not know, nor ought he to have concluded, that the LLP was unable to pay its debts as they fell due, he knew or ought to have concluded that the LLP could not reasonably be expected to meet its liabilities and therefore had reasonable grounds to believe that the LLP was unable to pay its debts.  However, the fact that limb 2 was met did not did not mean that limb 3 was also met, and the court concluded that it was not. There was a reasonable prospect of the LLP avoiding insolvent liquidation and so the respondent could not have known, nor ought he to have concluded, that there was no such prospect. A s214A contribution order should therefore not be made against him.


Cheema v Jones and others [2017] EWCA Civ 1706
Cheema and Jones were doctors who had practised in partnership together and had subsequently invited three more partners to join them. Negotiations on the terms of the new partnership continued after the three new partners had started work. When the relationship between Cheema and Jones broke down, Jones sought to prevent Cheema from practising as a doctor at the practice. Cheema claimed that the partnership of five partners had never been formed and was granted an interim injunction to restrain Jones from preventing him exercising his rights under the original partnership agreement.  Jones then purported to give notice dissolving the partnership at will between the five partners.

The Court of Appeal held that a new partnership at will between the five partners had come into existence when the three new partners had joined the original two, and that this had been validly dissolved by the giving of notice. Since the discussions about the new partnership were focussed on a new agreement and there was no reference to the old agreement as a fall-back position, it was to be inferred that Jones and Cheema intended to abandon the old agreement and enter into a new contractual relationship which would supersede the old partnership.  The fact that no new agreement was signed did not affect that inference. Although dicta in Austen v Boys suggested that if a new partner was taken into a partnership without specifying the terms on which he became a partner, the original partnership agreement would govern the new relationship, that dicta concerned the different situation of a new partner being admitted in the absence of any intention by either the existing or the new partners to enter into a new agreement. Here,` there was no evidence that the new partners intended to be bound by the original agreement, or even that they had all seen it.

New short article on insolvent partnerships and LLPs

Elspeth Berry, 'Square pegs and round holes: why company insolvency law is a bad fit for partnerships and LLPs' (2018) 31(3) Insolvency Intelligence 88

A much longer version will appear in a forthcoming issue of the Nottingham Insolvency and Business Law e-Journal, which will also contain articles based on the papers given at the Inaugural Conference of the Forum.

Two new casenotes on partnership law

The Edinburgh Law Review has recently published two articles on partnership law:

James Bailey and Blair Munro, 'Partnerships, Joint Ventures and Duties of Disclosure: The University Court of the University of St Andrews v Headon Holdings Limited' (2018) 22(2) Edin LR 282
(free access to the full text at https://www.euppublishing.com/toc/elr/22/2)

Joseph S Liptrap, 'Mobile Dating Applications and Partnership Law: Worbey v Campbell' (2018) 22(2) Edin LR 274

New name for the Forum!

The name of the Forum has now been changed to The Partnership, LLP and LLC Law Forum.

It is hope that this change (removing the word 'Academic') will make it clear that Forum is intended to be as inclusive as possible, and in particular that practitioner involvement in the Forum is welcomed, including contributions to the website, and papers at any future conference. Please do spread the word to our practitioner colleagues!

Thank you to those who proposed and supported this change at the round table discussion at the Inaugural Conference.

Book review: Elspeth Berry, Partnership and LLP Law (2nd edn)

Partnership and LLP Law, Berry (2nd edn, Wildy, Simmonds and Hill Publishing), pp.248, ISBN: 9780854900602

This book provides a clear and concise introduction to the law relating to each of the three types of partnership contained in UK law (namely general partnership, limited partnership and LLP), providing helpful comparative explanation along the way. It highlights the peculiar nature of the LLP, which is discussed in an equal level of detail as the other two forms of partnership, thereby marking a break with traditional texts in the area that, whilst acknowledging the existence of LLPs, tend to focus on general partnerships, governed by the Partnership Act 1890, and limited partnerships formed under the Limited Partnerships Act 1907.

The new edition covers includes coverage of recent cases such as: Campbell v Campbell [2017] EWHC 182 (Ch); Flanagan v Liontrust Investment Partners [2015] EWHC 2172; Clyde and Co LLP v Bates and Van Winkelhof [2014] UKSC 32; Inversiones Frieira SL v Colyzeo Investors II LLP [2011] EWHC 1762 (Ch) and Lie v Mohile [2015] EWHC 200 (Ch). It also includes the new Legislative Reform (Private Fund Limited Partnerships) Order 2017 (SI 2017/514), which provided for another niche partnership variant.

The chapters are sensibly ordered so as to broadly track the life cycle of a partnership from formation, through management and disputes, to dissolution. It includes chapters on separate legal personality, property ownership, management and decision making in partnerships, finance and insolvency. The book can also be applauded for venturing into the (difficult) tax treatment of these business forms. The appendix contains a sample partnership/LLP agreement, with the inclusion of the LLP sample agreement further distinguishing the text from others.

The book, which states the law as at 31 December 2017, will no doubt serve as an invaluable text for those looking for an introduction into partnership and LLP law, or for others who seek to refresh and update their existing knowledge.  

New journal article: Limited partnership law and private equity: an instance of legislative capture?

Elspeth Berry, ‘Limited partnership law and private equity: an instance of legislative capture?’ (2018) Journal of Corporate Law Studies, forthcoming in hard copy.

A limited number of free e-copies are available at https://www.tandfonline.com/eprint/3N5vFFjxbgF2Jwnvz5dg/full

Abstract

The number of limited partnerships in the UK has grown rapidly since the 1980s, largely due to the use of the limited partnership vehicle by private equity. The political and economic influence of private equity has enabled it to exert considerable influence on the UK government amounting to legislative capture, and this in turn has driven reforms to limited partnership law, predominantly deregulation, for the sole benefit of private equity. This distortion of the partnership legislation disadvantages other users or potential users of the limited partnership vehicle, since the private equity-inspired reforms do not apply them, and other reforms which would be of benefit to them have been ignored. Furthermore, reduced regulation is in some respects harmful to private equity itself, and the overall result is harm to the wider economy.

New consultation on proposals for reforms to Scottish limited partnerships

The Department for Business, Energy and Industrial Strategy (BEIS) has finally followed up its 2017 call for evidence of the misuse of Scottish partnerships for money laundering and other criminal activities by launching a consultation on what changes to the law are required: https://www.gov.uk/government/consultations/limited-partnerships-reform-of-limited-partnership-law

It has been described as a 'crackdown' in the media (eg by the BBC - see https://www.bbc.co.uk/news/uk-scotland-scotland-business-43935839) but it remains to be seen which reforms eventually make it into law and whether sufficient resources are made available to enforce them - concerns which have been immediately noted by the Scottish Herald which first broke the story and which has continued to investigate and campaign for reforms (http://www.heraldscotland.com/news/homenews/16192718.Staff_shortages__threaten__crackdown_on_shell_firms/?ref=erec).

 

 

Resources

Biographies

Links

Inaugural Conference of the Partnership, LLP and LLC Law Academic Forum

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