In a recent English High Court case, the validity of the registration of a limited partnership (LP) was challenged on the grounds that it had been procured by fraud. The court rejected this, holding that section 8C(4) of the Limited Partnerships Act 1907 meant that the Registrar’s certificate of registration was conclusive.
The case was brought by two Middle Eastern banks. They alleged that the defendant, a man who styled himself as a “prince”, set up English LPs with the banks as general partners, and that the defendant falsely claimed to have authority from the banks to do so.
The LP applications on the face of it met the statutory requirements for registration so the Registrar duly issued certificates of registration. The defendant allegedly used the certificates as an instrument of fraud.
The court granted certain remedies to the banks but refused to order Companies House to delete all references to the LPs from the register.
The court referred to the relatively new section 8C(4) of the Limited Partnerships Act 1907. This came into effect on 1 October 2009 and applies to applications for registration received on or after that date. It provides that the certificate issued by the Registrar is conclusive evidence that a limited partnership came into existence on the date of registration.
The court gave full force and effect to this provision, holding that it was unaffected by the fact that the registrations may have been procured by fraud and forgery. It rejected the banks’ argument based on the principle “fraud unravels all”.
Companies House is no doubt very relieved at this decision. It had argued that the world of commerce depends on faith in the register and any decision which suggests registration might subsequently be declared to be a nullity might undermine such faith.
That still left the question about what to do with the register. Although Companies House has various powers to amend the register of companies, there are no equivalent provisions for LPs. It had already put an annotation on the register of LPs referring to a previous court order which had declared the application for registration to be false and fraudulent. The judge refused to direct Companies House to do anything further.
For LPs registered before 1 October 2009, their certificates of registration do not provide conclusive evidence as to whether and when the LP came into existence. If the LP in this case had been registered before that date, the judge was clear that he would have had jurisdiction under common law to have ordered the removal of the LPs from the register.
The “conclusive evidence” provision in section 8C(4) was intended to address some of the uncertainties that arise because of the particular nature of LPs. An advantage of all LPs is that their limited partners have limited liability for the debts and obligations of the LP provided they stay out of management. A key advantage of a Scottish limited partnership (as opposed to an English LP) is that it is has separate legal personality.
This makes it important that the parties concerned know for definite when the LP came into existence. The consequences of not having LP status could be serious – particularly if the relationship was found to be one of general partnership where all partners have unlimited liability for the debts and obligations of the partnership.
A limited partnership relationship may well have started on a different date to the date of registration of the LP. For example, where there is an agreement between the partners setting out what the LP does and how it will be run, it is usually dated on a date that is different to the actual date of registration. This led to concerns as to the legal status of the LP in the period between the date of the agreement and the date of registration.
Section 8C(4) is therefore a particularly useful provision for those setting up LPs who do not want to have any uncertainty about whether and when the LP came into existence.
On May 27, 2015