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Session 2008 - 09
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Public Bill Committee Debates

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 As the 1985 Act has been superseded by the Companies Act 2006, we need to update the regulations that apply company law provisions to LLPs.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 29,756—a 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 or—the chosen option—to 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 million—a 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 auditor’s 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 Government’s 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 LLPs—a 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 down—dividing 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 such—it 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 straw—they have no proper financial backing. It is a possible lacuna, and I am concerned about that.
Ian Lucas: I understand the hon. Gentleman’s concern, but whether an organisation is a partnership or an LLP, the danger is there if it consists of men of straw—in 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.

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