Recent UK case on the duties of designated LLP members

Re A&C Restoration LLP: Manolete Partners plc v Riches [2020] EWHC 1404 (Ch)

(Judgment in this case was given in May 2020 but the transcript has only recently become available)

Riches was a designated member of A&C Restoration LLP until he retired under the terms of a retirement deed. At that time a new member was appointed. The deed included a waiver of any claim by the LLP for sums owed by Riches as a result of drawings by him which exceeded profits.

The court noted that the LLP was insolvent at the time the deed was entered into. It held that designated members of an LLP, such as Riches, owed the same duties as company directors owed to limited companies (McTear v Eade [2019] EWHC 1673 (Ch)), and that these duties included a duty to take into account the interests of creditors at a time when the firm was insolvent. It concluded that it was a breach of duty, objectively viewed, to cause the LLP to agree to a waiver which released a debt, since this could not be in the interests of the creditors. Riches was therefore estopped from relying on the clause, and remained liable for the debt. He was not able to ask the court to grant relief for any breach of duty pursuant to s1157 of the Companies Act 2006 (applied to LLPs by the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009), because that section was dependent on him having acted honestly and reasonably, and the court considered that it could not be a reasonable decision to waive one’s own liabilities in the context of insolvency.

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