The
Committee consisted of the following
Members:
Chairman:
Mrs.
Joan Humble
Buck,
Ms Karen
(Regent's Park and Kensington, North)
(Lab)
Burt,
Lorely
(Solihull)
(LD)
Clifton-Brown,
Mr. Geoffrey
(Cotswold)
(Con)
Field,
Mr. Frank
(Birkenhead)
(Lab)
Gummer,
Mr. John
(Suffolk, Coastal)
(Con)
Hamilton,
Mr. Fabian
(Leeds, North-East)
(Lab)
Heppell,
Mr. John
(Nottingham, East)
(Lab)
Ingram,
Mr. Adam
(East Kilbride, Strathaven and
Lesmahagow) (Lab)
Kilfoyle,
Mr. Peter
(Liverpool, Walton)
(Lab)
Lucas,
Ian
(Parliamentary Under-Secretary of State for Business, Innovation
and
Skills)Mackinlay,
Andrew
(Thurrock)
(Lab)
Rifkind,
Sir Malcolm
(Kensington and Chelsea)
(Con)
Shepherd,
Mr. Richard
(Aldridge-Brownhills)
(Con)
Smith,
Mr. Andrew
(Oxford, East)
(Lab)
Thurso,
John
(Caithness, Sutherland and Easter Ross)
(LD)
Wright,
Jeremy
(Rugby and Kenilworth)
(Con)
Jyoti Chandola, Committee
Clerk
attended the
Committee
Fourth
Delegated Legislation
Committee
Tuesday 23
June
2009
[Mrs.
Joan Humble in the
Chair]
Draft
Limited Liability Partnerships (Application of Companies Act 2006)
Regulations
2009
4.30
pm
The
Parliamentary Under-Secretary of State for Business, Innovation and
Skills (Ian Lucas): I beg to move,
That the
Committee has considered the draft Limited Liability Partnerships
(Application of Companies Act 2006) Regulations
2009.
It
is a great pleasure to be here before you for the first time,
Mrs. Humble. We are debating the draft Limited
Liability Partnerships (Application of Companies Act 2006) Regulations
2009. Limited liability partnerships were created by the Limited
Liability Partnerships Act 2000. Accountancy and law firms were the
main early users of the LLP form. Now it is being used by businesses of
all sizes and in all sectors.
The 2000 Act
is fairly short. It sets out the basic structure of the LLP and
contains a power to apply to LLPs appropriate provisions of company
law. The Limited Liability Partnerships Regulations 2001 applied major
parts of the Companies Act 1985, with appropriate modifications, to
LLPs. They also applied parts of financial services and insolvency law.
As the 1985 Act has been superseded by the Companies Act 2006, we need
to update the regulations that apply company law provisions to LLPs. We
debated the Limited Liability Partnerships (Accounts and Audit)
(Application of Companies Act 2006) Regulations last year. Those
applied to LLPs new rules on accounts and audit corresponding to those
under the 2006 Act, taking effect for financial years beginning on or
after 1 October
2008.
The
regulations that we are debating today complete that work by applying
to LLPs the other relevant provisions of the 2006 Act, with
modifications as necessary. They apply to the whole of the United
Kingdom. The draft regulations before us are much longer than the 2001
regulations. That is because the earlier regulations simply listed the
section numbers of provisions in the 1985 and 2006 Companies Acts that
were to be applied, with a list of modifications to the text. In the
draft regulations, we have instead written out the provisions so that
the regulations can be read as a stand-alone document without looking
at the Companies Acts. Stakeholders expressed an overwhelming
preference for that
approach.
Much
of the update simply applies to LLPs the provisions of the 2006 Act
that correspond to the provisions of the 1985 Act that applied to LLPs.
As explained in the explanatory memorandum, some of the new provisions
of the 2006 Act are applied to LLPs, while others are not. Broadly, the
principle we have followed in deciding whether to apply a new
provision
to LLPs is to include rules that regulate dealings with third parties,
in particular the filing and transparency requirements, but not rules
that would relate to the internal workings of
LLPs.
There
is one significant change that is not directly related to changes in
company law: there is a new right for a member of an LLP, if they are
the sole remaining member, to apply to have the LLP dissolved. In
summary, the regulations will keep the law on LLPs up to date and
consistent with current company law.
4.34
pm
Mr.
Geoffrey Clifton-Brown (Cotswold) (Con): May I apologise
to you, Mrs. Humble, and the Minister for being
late, as I went to the wrong room? I thank the Minister for that clear
explanation, which was helpful. We regard the issue as not contentious,
and the regulations as good consolidating legislation that codifies and
simplifies. We commend the Government for the action they are taking in
this statutory
instrument.
To
put the entire issue in context, the explanatory memorandum helpfully
states that in 2002, there were 1,936 LLPs, whereas in March 2008,
there were 29,756a huge growth. This is obviously a popular
vehicle, and we know from various databases that it is now used
extensively by the largest accountancy firms, estate agents
firms, law firms and property development firms. LLPs are a popular way
of doing business, and we need to be careful to ensure that any changes
that we make allow the UK to remain as competitive as
possible.
The
Government had three options: to do nothing, to amend the current
regulations by applying parts of the 2006 Act to LLPs orthe
chosen optionto introduce a stand-alone set of new regulations
for LLPs. I think the Government have chosen the right option. Indeed,
the regulatory impact assessment shows they are doing the right thing.
The cost per annum of doing nothing would have been £3.2 million
to £6.9 million. The cost of the amendment option would have
been £0.2 million to £0.4 million, while the benefit
would have been £3.2 million to £6.9
milliona considerable benefit for very little cost. The benefit
of the stand-alone option is £3.8 million to £7.5
million, with costs of £0.2 million to £0.4 million. In
regulatory impact cost terms, therefore, the Government have chosen the
right option.
I want now to
make a few points and to ask the Minister a few questions, although, as
I said, the provisions are largely uncontentious. Section 423 of the
2006 Act, which relates to the duty to circulate copies of annual
accounts and reports, replaces section 238 of the 1985 Act. Subsection
(1) provides that a company must send out copies of its annual accounts
and report, as defined in section 471, including any relevant
auditors report, to specified persons. Subsection (2) restricts
the general obligation on companies to send out copies of accounts and
reports. In future, the obligation will be to send accounts and reports
only to persons for whom the company has a current address. That is to
avoid companies having to send copies of the annual accounts and
reports to addresses from which correspondence has previously been
returned, marked not known at this address, or the
electronic equivalent. General provisions about how to supply copies to
joint holders are set out in part 6 of schedule
5.
In
response to the consultation, the Government stated that the
application of section 423 of the 2006 Act does not need to be modified
in the way suggested by the respondents. What informed that decision,
and do the regulations adequately deal with the concerns of the
respondents on this matter? That is dealt with in question 7, on page
10 of the Governments
response.
The
Government are not including overseas LLPs under the proposals. Given
that there was a mixed response on the issue in the consultation, will
the Minister detail the steps that are being taken to keep the
situation under review? That is dealt with on page 18 of the
consultation response and page 37 of the regulations. That was one of
the few areas where the responses to the consultation were
divided.
The Minister
will probably say that it is difficult to establish what kind of legal
entity a foreign LLP is, but if it has a presence in the UK, it must
presumably be registered in some way or other. When it is registered,
it would presumably be possible to inquire what sort of legal entity
the LLP is.
The Minister
may also say that the concept of an LLP does not exist in some
countries, but the de facto position of such organisations is that they
are LLPs. Consumers and others who deal with those with a foreign base
in this country will want to make sure that they are not ripped off
because the organisation has limited liability, which may be made of
straw and which may not exist by the time they have ordered their goods
over the internet. We therefore need some clarity on the
issue.
Generally,
the proposals in the consultation that took place before the release of
the regulations received complete to strong support from the
consultees. As of 31 March 2009, 37,856 LLPs were registered in the UK.
However, only 25 groups responded to the consultation, and only 11 of
those were LLPsa very small percentage of the total in the UK.
Does the Minister think that a wider consultation would have yielded
similar levels of support and that the consultation was satisfactory in
that regard, given the continually growing numbers of LLPs that are
registering
themselves?
Although
I ask that question, I find it refreshing that the Government have
conducted a consultation, albeit with very low levels of replies, and
taken some notice of the replies. Despite that small number, the
organisations that replied were of high quality and should have been
able to produce responses that encompassed what the rest of the
industry thought. Perhaps that is what the Minister will say; I am
giving him an answer, am I
not?
The
calculations for the impact assessment have been made by taking the
figures for benefits for companies affected by the 2006 company law
reform and scaling those downdividing the total number of LLPs
in the UK by the total number of private companies and multiplying by
the benefits of the 2006 reform. Does the Minister believe that that is
an adequate way of doing an impact assessment? Where does he think the
benefits will realistically be? Given the range that I have outlined to
the Committee, does he think they will be at the upper or lower end of
the scale? It is quite a wide range. I think, from my memory of when I
gave those figures to the Committee, it is a difference of almost 100
per cent.
The Government said at page 52
of the November 2007 consultation document that they would do extra
work on the matter. Will the Minister update us on whether he has done
extra work, and what the results
were?
4.41
pm
John
Thurso (Caithness, Sutherland and Easter Ross) (LD): It is
a pleasure to appear in Committee under your chairmanship,
Mrs. Humble. I am grateful to the Minister for
his wide-ranging explanation of the measure. It was so wide-ranging
that any questions I might have put have been pretty well covered, and
if they were not covered by the Minister they were covered by the
questions of the hon. Member for Cotswold.
The concept of the limited
liability partnership has proved a tremendous success. It is a welcome
addition to the corporate armoury. The fact that it has grown from its
origins with accounting firms and lawyers to be used by a much wider
range of occupations has shown that it fulfils a useful purpose. It is
wholly welcome.
I echo the
comments that were made about the quality of the document. A document
in which everything can be found is extremely useful, given the number
of times when, to look something up for someone, it can be necessary to
go from the statutory instrument to the Act, then to the previous Act
and back. Providing such a comprehensive document is a very helpful
service by the
Government.
Coming
from the far north of Scotland, I naturally went immediately to the
paragraphs on Scots law, and was delighted to see that they have all
been respected. My Scottish legal friends will therefore be perfectly
happy. As has already been said, the measure is helpful and
uncontroversial, and I welcome
it.
4.43
pm
Ian
Lucas: I am grateful to the hon. Gentlemen for their kind
words. I entirely agree with the hon. Member for Caithness, Sutherland
and Easter Ross about consolidation of legislation. It is extremely
refreshing to have documentation put in one place. A great frustration
to me in working on legislation in my years in Parliament has been the
number of cross-references involved. I am sure that my officials are
listening closely. Whenever we can draw legislation together, I want
that to happen.
As to the
question that the hon. Member for Cotswold raised about section 423 of
the Companies Act 2006, in my initial observations I said that several
matters had been dealt with in a previous statutory instrument, and the
point in question is one of those. For that reason I do not today have
the specific information that he required, but I undertake to write to
him on the
issue.
Clearly,
there is no real clarity or uniform identity for overseas limited
liability partnerships, but an LLP is by definition a vehicle with
limited liability, and any individual needs to be conscious of that
fact when dealing with any organisation from outside the UK. However, I
can assure the hon. Gentleman that any overseas business that qualifies
as an LLP company and has a place of business in the UK must register
at Companies House. So there is a form of regulation that applies to
LLPs from abroad.
Mr.
Clifton-Brown: It will be very clear that an organisation
that a consumer or an individual is dealing with is a company, because
it will have to have the name company or
incorporated. But they may not be aware, if it is an
LLP, that it is suchit could just say ABC
Partnership. It would not necessarily be known that it was a
limited partnership. I am concerned that people might be ripped off by
organisations from abroad that have a presence in this country but are
made of strawthey have no proper financial backing. It is a
possible lacuna, and I am concerned about
that.
Ian
Lucas: I understand the hon. Gentlemans concern,
but whether an organisation is a partnership or an LLP, the danger is
there if it consists of men of strawin both sets of
circumstances. At present, I am not clear whether a statement of the
legal identity of the organisation needs to be stated on, for example,
its notepaper. But I will certainly look into that matter, because it
might be useful. I will write to the hon. Gentleman on that particular
point.
I was asked
whether the consultation was wide enough. I think that if there is a
relatively low number of responses when a consultation takes place,
sometimes that is quite good. If one is proposing something that
creates greater satisfaction in a business community, one tends to hear
about it. So the relatively
low number of responses may indicate the consensual nature of the
proposals, which is reflected in the Committee today.
Certainly,
the observations that came back were taken on board. A number of them
were from group organisations rather than individual LLPs. We have
acted on the suggestions, which is why we have the widely supported
proposal today. I think the consultation was wide enough, although if
there are any further observations, I am keen to hear
them.
Regarding
the impact assessment, the analysis of the costs and benefits of the
2006 Act applied to LLPs were based on the impact assessment for that
Act. We have adapted the figures, as there are much fewer LLPs than
companies. We have tried to go through the information that we have and
made the assessment on the basis of the best information that we had
related to LLPs. Clearly, we will get more information, as we hope that
LLPs will continue to grow in number. They have been successful
entities, and we have been very pleased with the success of the
legislation, and the way that the business community has grasped them
with both hands. With those observations, I commend the regulations to
the
Committee.
Question
put and agreed
to.
4.49
pm
Committee
rose.