Limited Liability PartnershipsImplications for Professional Indemnity Underwriters

The Limited Liability Partnership Act 2000

Limited Liability Partnership Regulations 2001

Limited Liability PartnershipsImplications 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 PartnershipsImplications 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 PartnershipsImplications for Professional Indemnity Underwriters

Features:-

A Separate Entity

Limited Liability of Members

No Joint and Several Liability

Limited Liability PartnershipsImplications for Professional Indemnity Underwriters

Comparison with Ordinary Partnerships:-

Unlimited Liability

Joint and Several Liability of Partners

Duration of Exposure

Limited Liability PartnershipsImplications for Professional Indemnity Underwriters

Formation of a Limited Liability Partnership:-

Registration

Agreement - a public document ?

Accounts- Audited if turnover over £1.2M

Regulations Apply

Limited Liability PartnershipsImplications 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 PartnershipsImplications for Professional Indemnity Underwriters

Relationship Between Members

Relationship with Clients

Relationship with Third Parties

Limited Liability PartnershipsImplications 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 PartnershipsImplications 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 PartnershipsImplications 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 PartnershipsImplications for Professional Indemnity Underwriters

Insurance:-

No Special Rules

Likely Professional Bodies will Require

Claims Made and Solvency Requirements

Limited Liability PartnershipsImplications for Professional Indemnity Underwriters

Transfer to Limited Liability Status

Old Partnership Run Off

Conflict Between Generations

Limited Liability PartnershipsImplications for Professional Indemnity Underwriters

Reaction of Regulators

Law Society Incorporated Practice Rules

Minimum levels of PI ?

Limited Liability PartnershipsImplications 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 PartnershipsImplications 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 PartnershipsImplications 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 PartnershipsImplications for Professional Indemnity Underwriters

Members at the Time

Former Members

Two Year Claw Back

Other Capital Untouched

Limited Liability PartnershipsImplications for Professional Indemnity Underwriters

“However a past member shall only be liable if theobligation arising from the agreement survives his ceasing to be a member”

Former Members:-

Limited Liability PartnershipsImplications for Professional Indemnity Underwriters

New S. 214a to Insolvency Act:-

Property withdrawn in two years before winding up

Claw Back:-

Limited Liability PartnershipsImplications for Professional Indemnity Underwriters

Unknowns:-

Will the Courts FrustrateLLP Status by Personal Duty of Care?

Will Regulators Insist on Present Levels of P.I.?

Will we see Minimum Capital Requirements?

Limited Liability PartnershipsImplications 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 PartnershipsImplications 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 PartnershipsImplications 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 PartnershipsImplications for Professional Indemnity Underwriters

Client Countermeasures?

Personal Guarantees

Inspection of P.I cover

Covenant to Maintain Cover

Solvency Bond

Limited Liability PartnershipsImplications for Professional Indemnity Underwriters

Crystal Ball Stuff:-

If Solicitors can now enjoy Limited Liability and have higherrights of audience why be a Barrister?

Limited Liability PartnershipsImplications for Professional Indemnity Underwriters

Crystal Ball Stuff:-

“provide your two man cowboy building outfit with a uniquely flexible and light framed means of screwing the public”

(Lord Phillips)

Limited Liability PartnershipsImplications for Professional Indemnity Underwriters

Conclusions:-

Government had to bend to GlobalInfluence of Accountancy Firms

Big Clients are the losers

Welcome dose of Reality Therapy for the Judges