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Mr. Stephen O'Brien : I do not dispute what the hon. Gentleman says about accountants suing each other, but to put it in perspective, much of what is happening is probably driven by the insurance cover that those partnerships have, whereby they are required to pursue their interests. The insurers drive them to that. Part of the point of the Bill is that limited liability partnerships will, to some degree, obviate the need for that depth of insurance and the expense of it, which is ultimately passed on to clients and consumers.
Mr. Cousins: That raises more issues than it tidies up. It may be true that insurance is one of the drivers behind large accountancy firms suing each other over responsibility for the disappearance of what, it must be recognised, are hugely significant sums of money. The loss of that money has damaged thousands of individuals, voluntary organisations--in the case of BCCI, a large number of voluntary organisations--and enterprises. We are not talking about something that is of no significance; it is of profound significance.
The hon. Gentleman says that partnership firms are suing each other because of the insurance driver, and that such legal actions would not otherwise take place. That worries me. What are we doing in this legislation, offering an alternative source of cover to insurance cover that can now be purchased perfectly properly, and which is the basis of those legal actions? What will this legislation cause to be hidden that would otherwise be exposed?
Mr. Fabricant: I am following the hon. Gentleman's argument with considerable interest, but surely there is nothing in the Bill that prevents any client of an organisation that is perceived not to have acted properly from suing the limited liability partnership?
Mr. Cousins: I have already referred to the great difficulty there. The pressure for the legislation began in the accountancy partnerships, and although I entirely accept that far more than accountancy partnerships may seek to take advantage of it, in the accountancy world we come up against the great problems that my hon. Friend the Member for Great Grimsby and I have mentioned--the Caparo judgment and its rather unfortunate inheritance.
Against the background of the Caparo judgment, any legal action against an accountancy partnership faces the difficulty of having to overcome the consequences of that legal decision. That point does not apply to other kinds of partnership that might seek to take account of the legislation. I fully acknowledge that. However, the House knows that the driving influence in the introduction of the legislation came from those accountancy firms. That is a relevant point.
Mr. Cousins: I do not want to take up too much time. I know that there is a custom whereby people who want to talk at length always say that they do not want to detain the House, but on this occasion I really do not want to detain the House, so I shall be careful about taking interventions.
The hon. Member for Lichfield (Mr. Fabricant) drew attention to the fact that there are legal jurisdictions close to Britain--the one that is always mentioned is Jersey--in which limited liability has already been carried into law. The Conservative Government's motive for wanting legislation in this form was the fear that people would relocate to such regimes to take advantage of limited liability.
All that has been overtaken by other events, in particular concerns about offshore legal and tax regimes, which provide unfair competitive advantage. That is a difficult and complex issue, into which I do not wish to stray this afternoon, but all will recognise that the Government have offered leadership to Europe in striking a deal on the withholding tax only a fortnight ago, and setting up a regime based on the exchange of information, which is a real, genuine and significant breakthrough in tackling such offshore regimes. Therefore, it might again be wise to see how all that develops before we advance as an argument for this legislation the fact that there may be competitive, more attractive jurisdictions elsewhere in which people might seek to locate. That is an argument for a little caution and delay.
All the new clauses concern disclosure and the importance of making information available, which will allow outsiders to form proper judgments about the good conduct and good management of any regime which has the advantage of limited liability.
New clauses 2 and 8 advance the principle of openness in the specific context of financial information. The creation of limited liability partnership regimes gives rise to a potential tax problem. The Government acknowledge that in their correct intention to remove both the possibility of improper tax avoidance and the use of a variety of legal vehicles to take advantage of tax planning possibilities and thus improperly avoid taxation. I expected an intervention at that point, but no one wishes to intervene, so I shall move on.
We are considering an important point. It would be extremely helpful if my hon. Friend the Minister could clarify the Government's discussions about the tax regime that accompanies the Bill, and the way in which that regime will work. The House would then be well informed.
New clause 7 attempts to deal with one of the issues that features in the Government's agenda for company law reform. Sadly, we shall not legislate on that agenda until after the next general election. Again, there is a question of timing. I know that my hon. Friend the Minister intends the full force of current company legislation to be exercised over limited liability partnerships. We cannot speculate on any future changes--the House is not the right forum or platform for indulging in such speculation--but we are all considering the matter, and it would be helpful if my hon. Friend could tell us that the Government intended to reflect future changes in company law in the liabilities for disclosure affecting limited liability partnerships.
As my hon. Friend the Member for Great Grimsby rightly said, new clause 4 attempts to deal with what goes on in other jurisdictional regimes. My hon. Friend rightly mentioned the work of the Securities and Exchange Commission in the United States, and its attempts to provide for a proper relationship between general accountancy work and the specific work of audit. It ensures that those two functions are not confused, and that no market abuse occurs when people use their economic power in one context to achieve economic advantages by sweeping up all the audit work. The Securities and Exchange Commission properly tries to deal with fair competition and market abuse.
There is no point in Opposition Members saying that the Securities and Exchange Commission will not affect us here; it has already affected us. We are considering global partnerships that engage in economic activities all over the world, which are caught by the actions of the Securities and Exchange Commission. It is fair to ask how we will tackle those issues. It would be unfortunate to be led down a road of competing jurisdictional regimes with barriers between them, and all sorts of intergovernmental disputes over the propriety of one action by a regulator in one country when compared with the different framework of rules in another country. We must try to avoid that.
5.45 pm
The Government have referred a general bundle of issues to the Office of Fair Trading. It has been asked to consider the way in which professional partnerships work,
and the way in which demonstrable problems will be tackled. It would not be proper for my hon. Friend the Minister to direct the OFT's work; it would be wrong, and I do not ask him to do that. However, it would be proper for him at least to direct the OFT's attention to the matter so that it could perhaps ascertain methods of avoiding the possibility of conflict between jurisdictions, and of attempting to introduce in our regimes governing market abuse and fair competition some of the benefits that the Securities and Exchange Commission brings to regimes in the United States.I have mentioned important underlying issues, which all give grounds for caution; they are reflected in the new clauses. I accept that Back-Bench amendments are not always framed well. However, I have outlined the purpose of new clauses 2, 8, 7 and 4. I hope that I have explained the reasons for them, and that my hon. Friend the Minister will be able to assist us in dealing with them.
Mr. Burnett: I declare at the outset that I am a solicitor and that I no longer practise. I used to specialise in taxation and, to some extent, partnership matters.
Any trade or profession can become a limited liability partnership provided that at least two persons--that includes companies--come together to form one. As has been said, the usual rules for joint and several liability are not applicable to limited liability partnerships. Nevertheless, it is worth putting it on record that an individual member of an LLP is liable in tort for his or her actions, if they are negligent or held to be negligent. The firm and all its assets are fully liable.
Disclosure should be at the heart of the Bill. I refer the House to my words on 23 May 2000 on Second Reading. I said:
- Finally, a fundamental principle of the Bill should be that the price for the limitation of liability is full disclosure of the financial affairs of a business and that such information should be readily available to the public.--[Official Report, 23 May 2000; Vol. 350, c. 907.]
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