TUESDAY 1 DECEMBER 1998

MR G WARD

  100. Can you be more specific about the ways it impacts?
  (Mr Ward) It comes from the way in which the words are written in 214. It says where a partner "knew or had reasonable grounds for believing" the LLP was insolvent which is actually a more stringent test than the partner "knew or ought reasonably to have concluded" that the LLP had no reasonable prospect of avoiding insolvent liquidation. Those words in section 214 were introduced relatively recently in the lifetime of company legislation in order to encourage the directors of companies to have the confidence to trade out of difficulties, to re-arrange their affairs to trade out of difficulties rather than throwing in the towel at the first sign of trouble.

  101. Forgive me, perhaps I am not being sufficiently intelligent in discerning the difference. When we say that a partner knew or had reasonable grounds for believing that the LLP was insolvent, that must mean that he was pretty clear that it was insolvent, whereas you are suggesting that knew or concluded had no reasonable prospect of avoiding insolvent liquidation means that he will be able to take into account the prospect of future trading much more through that wording.
  (Mr Ward) Yes, I am.

  102. You are.
  (Mr Ward) I am.

  103. Is that the view of counsel?
  (Mr Ward) That is the view of our council, yes.

  104. It is.
  (Mr Ward) Yes.

  105. The question of stamp duty. We have had a number of people asking us to support the concept of a continuation of full tax breaks. We have to pay stamp duty on so many things when we have commercial transactions and the like. Why should LLPs be exempt?
  (Mr Ward) There are two main reasons that we are asking for exemption: one is that we believe it would be a disincentive to becoming an LLP. The second is that stamp duty concessions are available when a new company is put on the top of an existing company in order to transfer the business from one company to another. Given the general wish to have equivalence between company legislation and LLP legislation, we think it right that should be carried through into LLPs. It is really the continuance of existing exemption rather than something which is special and new.

  106. Is your enthusiasm for the free-for-all LLP a result of recognition that the regulatory regime proposed would be unattractive to the profession and that the Institute of Chartered Accountants in England and Wales and possibly Jersey, or indeed any other body, would not meet the standards proposed? Would a tougher regime be a price worth paying for LLP status?
  (Mr Ward) We would distinguish between the regulation of an activity and the regulation of the corporate vehicle through which the activity is carried on. We believe that it is appropriate to regulate activities or at least to make a clear decision as to whether or not those activities should be regulated and that decision has been made in relation to auditing and in relation to financial services. We also have regulations, professional ethical rules, which apply to the way in which our members carry out their business in terms of honest dealing with clients and with members of the public for example.

  107. In May 1997 you stated "this Institute ... believes that it would meet the criteria proposed in paragraph 3.22 of the consultation paper". Have the proposed rules got much tougher?
  (Mr Ward) We actually believe that now the way in which the regulations have been drawn up is tighter. We believe that the way the regulations are drawn up would cause great difficulties as far as mixed disciplinary partnerships were concerned. We also believe that it would introduce an additional burden of cost as far as clients of the accountants were concerned and chartered accountants were concerned, to introduce new rafts of regulations say for taxation or management consultancy. We are then led into whether it is actually right in terms of having a competitive economy for chartered accountants who wished to offer taxation advice through LLPs to be subject to one form of regulation and for other people who want to offer tax advice not to be subject to regulation at all. That is what brings us back to saying that we think regulation and the decision of whether or not to have it should be applied to the activity rather than to the corporate form in which a group of people carry out their business.

  108. In your submission you see an LLP as likely to be attractive to small businesses.
  (Mr Ward) Yes.

  109. You also specifically say you are not convinced that the characteristics of LLPs are so special as to deny small and medium-sized LLPs the exemptions available to their counterparts as companies.
  (Mr Ward) Yes; indeed.

  110. Could you expand on that a little? Why are you concerned to see that transferred across? How important do you believe it is?
  (Mr Ward) The exemptions for small and medium-sized businesses were given in order to reduce the amount of regulatory burden on enterprise in the country. We think that reduction of regulatory burden should apply to those who choose to follow enterprise through LLPs as well as those who choose to follow enterprise through limited companies.

  111. How significant do you think that the decision on this would be in terms of small businesses actually accessing an LLP?
  (Mr Ward) It could make the difference, is what has been fed back to us from conversations that we have had with members. You have probably had representations from constituents about the amount of red tape which can affect those who want to set up a small business. In a sense, who is to tell what is that additional piece of red tape which breaks the camel's back when it comes to setting up. We believe that there should be as much encouragement as possible for small business and as much reduction of unnecessary rules and regulations as possible for small business.

  Chairman: Thank you very much, Mr Ward. Sometimes when we have the one witness session conciseness is possible. The shortness of time we have taken with you is no disrespect to your organisation but you have covered all the areas we were concerned with. Thank you very much for coming this morning.