Creditor
protection
45. We are none the less uneasy at the prospect
of introduction of this new vehicle destitute of either minimum
capital requirements or guarantees from members, and dependent
on the perceived likelihood — or hope — that there
will be some LLP assets available to creditors. As the Association
of British Insurers put it , a regime under which liability is
limited neither by shares nor by guarantee " would appear
to provide not for "limited liability entities" but
"no liabilities " entities....entities availing themselves
of a regime of the type proposed in the consultation document
are unlikely to command the confidence of their clients and other
interested parties."[69]
In 1997 the 100 Group, the British Bankers Association and others
raised similar doubts: not repeated in response to the 1998 consultation.
The extent to which informed professionals and corporate clients,
and potential creditors such as banks and landlords, will choose
to enter into commercial relationships with an LLP is of course
for them to determine. In the provision of some services, they
may not in reality have much choice, if for example the majority
of accountants were to take up that status. The appropriateness
of the capital base of a firm for particular tasks is primarily
a matter for a client to determine, not the law.[70]
There is however a public interest in protecting the less well-informed
consumer of the services or goods offered by an LLP who does not
expect to become a creditor when purchasing goods or services.
There is therefore much to be said for making levels of creditor
protection in relation to an LLP better, rather than merely no
worse, than those in partnerships or companies.
Voluntary
minimum funding
46. The "guaranteed solvency margin" proposed
in 1997 no doubt raised many difficulties, not least in determining
the appropriate level. Set too low, and it is evidently worthless:
too high, and it would unduly discourage less prosperous partnerships
from taking on LLP status.[71]
The best solution may be a permissive regime for an LLP to declare
either a guaranteed minimum capitalisation or a process of guarantee
within the membership agreement, which can be published as part
of its incorporation process. In that way, a client, customer
or creditor can at least make an informed choice. We recommend
consideration of the introduction of a voluntary scheme of minimum
funding in the event of insolvency, to be disclosed as part of
the incorporation process in the first instance and thereafter
in the annual returns to be made.
60 1997, 3.2(d) Back
61 Ibid,
3.17(c) Back
62 1998,
VI, 15 Back
63 1998,
1, 3.6 - 3.8: see Q15 for longer exposition of this view Back
64 1998,
14 Back
65 KPMG,
1.2 - 1.3 Back
66 Qq114
- 116 Back
67 Qq222,
223, 227 Back
68 Cmnd
8171, 1981, 7.6 Back
69 Ev,p
93 &Q224ff Back
70 See
eg Qq 223,227,232 Back
71 Qq
145-152 Back
