Limited Liability Partnerships Implications for Professional Indemnity Underwriters The Limited Liability Partnership Act 2000 Limited Liability Partnership Regulations 2001
Limited Liability Partnerships Implications for Professional Indemnity Underwriters “S. 1 (4) The members of a limited liability partnership have such liability to contribute to its assets in the event of its being wound up as provided for by virtue of this Act”
Limited Liability Partnerships Implications for Professional Indemnity Underwriters “S. 1 (5) Accordingly, except as otherwise provided by this Act or by any other enactment, the law relating to Partnerships does not apply to a limited liability partnership”
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Features: A Separate Entity Limited Liability of Members No Joint and Several Liability
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Comparison with Ordinary Partnerships: Unlimited Liability Joint and Several Liability of Partners Duration of Exposure
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Formation of a Limited Liability Partnership: Registration Agreement - a public document ? Accounts- Audited if turnover £ 1. 2 M Regulations Apply
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Formation of a Limited Liability Partnership: “Two or more Persons carrying on business … subscribed their names to an Incorporation document” “… delivered to the Registrar either the incorporation document or a copy …”
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Relationship Between Members Relationship with Clients Relationship with Third Parties
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Limited Liability and Client Protection: “The Governments view is that a member who negligently performs his duties on behalf of the firm will be personally liable to persons who suffer harm as a result”
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Limited Liability and Client Protection: Personal Liability of a Member. Fairline Shipping Corporation v Adamson 1974 Punjab National Bank v De Boinville 1995
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Limited Liability and Client Protection: No minimum guarnteed capital required Creditor protection is in the form of Disclosure But the “Agreement” to contribute does not appear to be a public document Could be a “notional” contribution
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Insurance: No Special Rules Likely Professional Bodies will Require Claims Made and Solvency Requirements
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Transfer to Limited Liability Status Old Partnership Run Off Conflict Between Generations
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Reaction of Regulators Law Society Incorporated Practice Rules Minimum levels of PI ?
Limited Liability Partnerships Implications for Professional Indemnity Underwriters What’s the Real Difference? Model 1. Mega Claim hits Ordinary Partnership Unlimited Liability Joint & Several Liability Judgment Against Firm and Partners
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Model 2. Mega Claim Hits LLP Unlimited Liability of LLP Limited Liability of Members to Contribute No Joint & Several But Individual Liability ? Judgment against LLP not Members
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Contribution of Members on Insolvency: “When a limited liability partnership is wound up every present and past member of the limited liability partnership who has agreed with the other members or with the limited liability partnership that he will, in circumstances which have arisen, be liable to contribute to the assets of the limited liability partnership in the event that the limited liability partnership goes into liquidation is liable, to the extent that he has so agreed, to contribute to its assets to any amount sufficient for payment of its debts and liabilities, and the expenses of the winding up, and for the adjustment of the rights of the contributors among themselves”
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Members at the Time Former Members Two Year Claw Back Other Capital Untouched
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Former Members: “However a past member shall only be liable if the obligation arising from the agreement survives his ceasing to be a member”
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Claw Back: New S. 214 a to Insolvency Act: Property withdrawn in two years before winding up
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Unknowns: Will the Courts Frustrate LLP Status by Personal Duty of Care? Will Regulators Insist on Present Levels of P. I. ? Will we see Minimum Capital Requirements?
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Insurance Needs: Less Likely to buy high Excess layers when market is hard Less Likely to buy run off on a Cessation. More likely to transfer business not liabilities on Merger.
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Big Unknown - what will happen to Personal Duties of Care Will the Courts Defeat LLP status. Will Professions have to provide “lifeboats” and Compensation Schemes.
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Good Times Ahead for Professionals? (Well at least they will sleep better!) LLP’s will be forced on professions as otherwise will not be able to recruit new partners. Professionals may cease to be easy deep pocket targets
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Client Countermeasures? Personal Guarantees Inspection of P. I cover Covenant to Maintain Cover Solvency Bond
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Crystal Ball Stuff: If Solicitors can now enjoy Limited Liability and have higher rights of audience why be a Barrister?
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Crystal Ball Stuff: “provide building flexible screwing (Lord your two man cowboy outfit with a uniquely and light framed means of the public” Phillips)
Limited Liability Partnerships Implications for Professional Indemnity Underwriters Conclusions: Government had to bend to Global Influence of Accountancy Firms Big Clients are the losers Welcome dose of Reality Therapy for the Judges
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