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Lord Goodhart: My Lords, I am grateful to the noble Lord for giving way. Could not that result be achieved by reinserting the one short subsection that appears in Clause 6 of the previous draft?
Lord McIntosh of Haringey: My Lords, we could certainly consider that matter. As regards the drafting of the Bill and the fact that in my opening speech I referred to a number of government amendments, as it is known, and as I said, we have carried out intensive consultation and taken the views of the Trade and Industry Committee in another place. We published in July a draft Bill and regulations. We thought that the right thing to do, even though our thinking had moved on to a certain extent, was to bring before your Lordships the draft Bill on which consultation had taken place so that people were not looking for differences between the July 1999 version and anything which might subsequently come to mind. That means that we have had further thoughts to which I have referred. It also means that we are open to discussion about other matters which noble Lords may wish to raise.
Baroness Buscombe: My Lords, I thank the Minister for giving way. Perhaps I did not make myself clear. I was referring to understanding what the Bill meant. So much of the material is not on the face of the Bill but in the regulations. To understand them one has to refer to the Companies Act and the Insolvency Act. So understanding the Bill has become rather complex.
Lord McIntosh of Haringey: My Lords, I cannot accept that criticism for two reasons. The first, simple reason is that the Delegated Powers and Deregulation Committee has accepted that the balance between secondary and primary legislation is appropriate. That has always been a matter of prime importance in this House. Basically, if it does not like it, the Government will not get away with it. The second reason is that the regulations are intended to do something rather different from most regulations. They apply, where appropriate and with appropriate modification, the Companies Act and the Insolvency Act to this new business entitity. It is right that they should refer to that legislation. It is right that the provisions should be subject to regulation because the Companies Act and the Insolvency Act are themselves subject to change. If we were to bring all these matters onto the face of the Bill, in the context of the review of company law which is taking place and of the insolvency Bill, which is to
come before Parliament this Session, we would risk enacting legislation which would have to be amended very rapidly. That is not a good idea.
Lord Phillips of Sudbury: My Lords, does not the Minister agree that the Title of this Bill is Limited Liability Partnerships. It does not contain a definition of limited liability, which misses the heart of the matter.
Lord McIntosh of Haringey: My Lords, I do not agree. Limited liability is defined by analogy with the limited liability available to directors and shareholders of a company.
Lord Phillips of Sudbury: My Lords, but where is that in the Bill?
Lord McIntosh of Haringey: My Lords, the noble Lord is a brave and solitary voice on these matters. I respect and admire him for it. Clause 1(3) of the Bill states,
- "with such liability on the part of its members to contribute to its assets in the event of its being wound up as is provided for by virtue of this Act".
Lord Phillips of Sudbury: My Lords, once again I am grateful to the Minister for giving way. The noble Lord said,
- "by virtue of this Act".
Lord McIntosh of Haringey: My Lords, that is because the subsidiary legislation is the adaptation of company and insolvency legislation to this new business entity. That is why it is in the form of regulation.
I was asked by other noble Lords whether the changes in regulations would be subject to consultation. As it is known, we had very full consultation on the regulations which were finally published in July. We shall be consulting on any changes to that legislation and, as always, they will be subject to parliamentary approval. There is no attempt to sneak anything past Parliament or the business community. That is the last accusation that can be made to this Government.
The noble Baroness, Lady Buscombe, suggested, as did some of the consultees, that we should require an agreement between members before registration or provide a default agreement. We are sympathetic to the idea of a safety net by way of short provisions such as Section 24 of the Partnership Act 1890. With the representatives of those who have been consulted, we have been looking at how that can be achieved through
secondary legislation. The power in Clause 14 would be wide enough. That would deal with all the areas that the noble Baroness mentioned such as share capital, profits, access to the books and so on.She said that Clause 4 does not deal with the retirement of members. Indeed not. It is important that members should not be able to walk out on a partnership which they suspect may be in difficulties. They may be part of those difficulties. It would not be an attractive proposition if they were able to walk out without the agreement of other members.
The noble Baroness was concerned that Clause 6 should not mean that members are treated as employees. She is quite right. It is our intention to make sure that members should not be regarded as employees because they are members. We shall look to see whether it is necessary to amend the Bill in that way. Broadly, the noble Baroness approved of the provisions in Clause 10 as regards tax neutrality. I am grateful for that.
As regards Clause 8, the noble Baroness was afraid of the role of the designated member. That is very specific and similar to the role of the company secretary. It includes a number of the powers placed on a company secretary under the 1985 Act such as the signing and filing of the annual return, the approval and signing of the annual accounts and filing them with Companies House besides other accountancy and audit functions. It is desirable to keep the concept of a designated member for those purposes so that the authorities know who to approach. There are also provisions in the Companies Act 1985 concerning what happens if there is a breach of obligations.
Both the noble Baroness and the noble Lord, Lord Goodhart, referred to Section 214A of the Insolvency Act. The noble Baroness thought that it was onerous and should be removed, but the noble Lord, Lord Goodhart, believed that it should be on the face of the Bill. I do not know that I can reconcile those two positions. There has been a great deal of controversy about the claw back provision if members leave within two years of the winding up or if they siphon off funds within that time. Again, we shall consider the results of the consultation. We are certainly not going to be able to satisfy both the noble Lord and the noble Baroness--probably neither of them.
Disagreement was expressed by the noble Baroness, Lady Buscombe, about disclosure of the remuneration of the members. However, the noble Lord, Lord Sharman, and other noble Lords expressed their welcome for that. I shall take the consensus of the House that our provisions are appropriate. The noble Baroness also asked for provision for merger accounting to be made in the regulations. However, the Government and the consultees felt that the Bill adequately achieves that purpose.
I was interested to hear the views of the noble Lord, Lord Sharman, on joint and several liability. However, as he knows, the view of the Law Commission was against a fundamental review of joint and several liability, mainly on the basis that if any change were
made it would be bound to benefit the potential wrongdoer rather than the punters--as I always call them. For that reason, we turned against such a solution.My noble friend Lord Haskel queried the issue of the liability of members. A member of an LLP who is a professional will owe a duty of care to his clients. If he gives bad advice to his clients he will be potentially liable for the whole extent of his assets. I believe that there is some confusion about the degree of protection that exists even for directors of limited companies. Any limited company that requires working capital of any size has to go to the bank for finance. The bank will not provide loans, overdraft facilities or any service of that kind without personal guarantees from the directors who are seeking it. I know this from personal experience because on many occasions I have had my house in hock to the bank--potentially in hock: I have never actually lost it--simply as a director of a limited company. I do not believe that members of limited liability partnerships will be any better off.
Perhaps I may summarise my response to the noble Lord, Lord Lucas, by saying that we would of course be delighted to meet him to address his concerns. I tried to address a number of them--as I understood them--earlier today in a letter. However, we shall certainly wish to talk to the noble Lord about the important issues he has raised on the applicability of this entity to venture capital and to property. Those are the other uses of the LLP structure which is being created by the Bill. I believe that I have dealt as best I can with the issues of primary and secondary legislation, with consultation on the revised regulations, and with the reasons why so much of the Bill must be implemented by regulation.
As I said earlier, the noble Lord, Lord Phillips, was a brave and lone voice and I respect him for that. However, I shall be interested to see in what way he intends to express his point of view by amendment to the Bill. I suspect that if he really wanted to pursue the matter, he should have put down an amendment that the Bill be given its Second Reading in six months' time. I think that the noble Lord has such a fundamental objection that there is little I can do to reassure him. However, I can say--from a personal point of view--that when I first saw the Bill and read the arguments for it, my immediate reaction was to say that this is an enormous privilege. It is the punters--the potential creditors; that is, the suppliers and customers--who must be protected. All my questions to officials on the meaning of the Bill were directed to that end rather than in thinking that the professions and their members were likely to suffer in any way from the provisions of the Bill.
My noble friend Lord Goldsmith also raised the wider issue of joint and several liability. I believe that I have already explained why the Government will not pursue that more general point. However, I very much agree with him that we shall need the vigilance of the courts in order to ensure that the public know with whom they are dealing. I very much welcome the support given by my noble friend to financial disclosure, not only of remuneration, but much more
importantly, the publication of the accounts of the LLP. That is a fundamental issue. I agree with my noble friend and all noble Lords who spoke on this matter that nothing in the Bill must be interpreted as being tolerant of reduced professional obligations by any of the professions who choose to take up this new entity.Many noble Lords have pointed out--as have I ad nauseam--that the Bill provides an enormous privilege and it must be used responsibly. The Bill has been drafted to ensure that it can only be used responsibly and not for tax avoidance purposes or to avoid transparency in business relationships. However, if there is any way that noble Lords can show us that the measure has been framed wrongly for that purpose, then we shall be sympathetic to appropriate amendments at later stages.
The Government's intentions in putting the Bill forward are entirely transparent. I believe that we have achieved the right balance, but we shall be happy to listen to the kind of informed comment and criticism that we have heard today as the Bill proceeds through the House. I commend the Bill to your Lordships.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
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