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6.37 pm
Dr. Howells: With the leave of the House, I shall respond to the debate.
We have had a good and valuable debate. I am pleased that the Bill has aroused so much interest, after an inauspicious start when the hon. Member for Torridge and West Devon (Mr. Burnett) seemed to be on his way out of the Chamber. I was glad that he did a U-turn and came back in. The debates in Committee should be interesting, and I shall try to deal with some of the many questions that have been raised this evening.
First, however, I want to thank the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). His criticisms were constructive and he made some kind remarks about the way in which the Government have taken the Bill forward.
The hon. Member for Bognor Regis and Littlehampton asked about the imposition of fines and the power to imprison people for offences. The treatment applied to llps in that regard will be the same as that which applies to companies. The offences in the Companies Act 1985 were agreed to be appropriate for corporate entities such as companies. The Government intend only to apply the same offences and penalties to llps.
There is no reason why a member of an llp should suffer a lesser penalty than the director of a company for the same offence. I hope that that answer goes some way to satisfying some of the criticisms raised by my hon. Friend the Member for Great Grimsby (Mr. Mitchell), to which I shall turn in more detail in a moment.
The hon. Member for Bognor Regis and Littlehampton also said that the Law Society wanted the Administration of Justice Act 1960 to be amended to enable solicitors to become llps. Departmental officials have been discussing the matter with the Law Society and the Lord Chancellor's Department, but the hon. Gentleman will know that the legislation governing solicitors is very complex. Further consideration is being given to the necessary changes and to how they could be given legislative effect.
The hon. Member for Bognor Regis and Littlehampton asked about default provisions, which will be set out in regulation, as clause 5(1)(b) makes clear. I see no strong reason to put the regulations on the face of the Bill. They will apply in default, where there is no agreement, or where an agreement is inadequate. It is not usual for default provisions to appear in primary legislation.
My hon. Friend the Member for Great Grimsby made some vehement criticisms. I very much welcome his contribution, which was infused with the crusading spirit that he deployed on behalf of the victims of a number of prominent and disgraceful scams in which, I am afraid, accountancy firms played a shoddy and collusive role. In a sense, he asked a question: why should businesses have to organise themselves as a company to gain limited liability, provided that appropriate safeguards are in place to protect clients and third parties? I wonder what harm there is in that choice if the safeguards are there.
Creation of limited liability partnerships will allow our businesses to compete internationally with those already organised as llps overseas. That is an important issue. It is no good having companies if they cannot compete with similar companies overseas. We shall lose jobs, services and expertise in the long run. That point must be made, as it is a very important one for businesses that operate globally.
Many firms wish to maintain a partnership ethos, with every member having a stake in the business and a role in management as well as operating in good faith towards fellow members. It is difficult, particularly for a large firm, to sustain such an ethos in a company structure. Several hon. Members have made that point and it is important.
My hon. Friend asked with great energy whether the Bill was not just a sop to the accountancy profession. Indeed, much sniping has suggested that the Bill is a concession to the profession. That is not the case. As I have said, there is no reason why businesses should have to organise themselves as a company to obtain limited liability, provided that appropriate safeguards are in place to protect clients and third parties. The Bill, along with the intended regulations, will achieve an appropriate level of protection.
In addition, the llp will not be restricted to accountants nor even to professionals. We took the decision some time ago that the llp will be available to any firm of two or more people. We expect that it will prove attractive to start-up businesses that may or may not be comprised of professionals. Although the internal organisation of the llp
will be for its members to agree--that agreement will remain confidential to them--the intention is to make regulations that will apply appropriately modified provisions from company law. Clauses 14 and 15 provide powers to do that. That means that members and/or the llp itself can be pursued, for example, for wrongful or fraudulent trading--a point that was at the heart of my hon. Friend's criticisms. The llp can also be investigated and members can be disqualified from being a member of an llp and from being a director of a company. Specific provision will be made to ensure that members cannot siphon off funds in the event of insolvency. Regulations will also require llps to file financial information equivalent to that required of a company.My hon. Friend's underlying criticism related to the regulation of professionals. I want to be clear; it is not the Bill's function to regulate professional activity. Where regulation for a particular activity is thought necessary, the activity--not the entity through which it operates--will be regulated. Regulation will be achieved through a mixture of statutory and non-statutory regulation. That means that it does not matter whether a professional chooses to operate as a partnership, a company, a sole trader or, in future, as an llp. If the activity is regulated, it will continue to be regulated regardless of what status the professional chooses for his business.
That does not mean that I am unsympathetic to my hon. Friend's arguments about the regulation of professions. I am glad that the Office of Fair Trading has decided, at long last, to take a good look at the way in which some professions operate. However, that is not what the Bill is about.
My hon. Friend raised the question of company law review and auditor liability. The consultation document published by the company law review steering group in March invited comments on a number of issues relating to the audit and the auditor. In particular, the document expressed the view that there was a need both to extend the range of the auditor's duty of care and to ensure that that extension is not abused. It was suggested that that should be done by introducing effective constraints on the circumstances in which claims can be made. I see no need at this time to take any more of the House's time on the issue of auditor liability, but it is under discussion by the company law review steering group, which has yet to reach any conclusions.
My hon. Friend and the hon. Member for Torridge and West Devon asked about the disclosure of members' earnings. Regulations will require that the earnings of the highest paid members will have to be disclosed, and total earnings will also be disclosed, as will the total number of members. It will therefore be possible for someone to work out the average earnings.
My hon. Friend asked whether it would not be wise to require some form of capital maintenance or a guarantee from members to ensure financial provision in the event of difficulties. We have considered carefully the concerns expressed about the lack of minimum capital requirements, which would be similar to those made of companies, or the lack of some kind of financial guarantee from members in the event of failure. In practice, private companies are able to hold capital worth as little as £1 and public companies are required to hold at least £50,000. However, as my hon. Friend pointed out, those sums seem
irrelevant when creditors may be owed tens of millions of pounds or, as in the case of the Bank of Credit and Commerce International, billions of pounds.A minimum capital requirement does not necessarily translate into the availability of funds in the event of insolvency. Even so, some have argued that there is a public interest in protecting less well informed consumers--who do not expect to become a creditor when purchasing goods or services from an llp--to a greater degree than the level to which they are protected when they deal with partnerships or companies. However, as I am sure my hon. Friend will acknowledge, the difficulty is devising a regime that, while allowing for a reasonable level of funding to protect creditors, is not so burdensome as to prevent firms from setting up in business or to discourage them from trading through difficulties.
The hon. Member for Torridge and West Devon asked about the overseas members of partnerships. Some firms--for example, a professional firm with branches in the United States--may have members who operate overseas. For a partnership, if the partner in London is negligent, the partner in America is jointly and severally liable to the full extent of his assets. In an llp, the American partner would not run such a risk even if it were possible for a claim to be made successfully against the London partner.
Mr. Burnett: Will the Minister give way?
Dr. Howells: I may give way in a moment, but I would like to move on.
The hon. Gentleman asked about accounting requirements. Traditionally, in United Kingdom legislation, the quid pro quo for limited liability is seen to be financial disclosure. It is right that those dealing with a business that has limited liability should be able to discover basic information about its financial status. I agree with him entirely on that. Our intention is thus to require equivalent financial disclosure as between an llp and a company. Using the power in clause 15, it is intended to make regulations applying to llps under the accounts and audit provisions of the Companies Act 1985, but with appropriate modifications. They will achieve financial disclosure equivalent to that required of a company.
The hon. Gentleman asked about the ability to have salaried partners in an llp.
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