Any member of an LLP – Limited Liability Partnership – should be aware that they can face disqualification where improper conduct has occurred in the running of a business, regardless of what duties they perform.
This was the case in Re Pottinger Private Limited  EWHC 672 (Ch), (also known as Secretary of State for Business, Energy and Industrial Strategy v Geoghegan), where the High Court confirmed that any member of an LLP is potentially liable to disqualification proceedings under the Company Directors Disqualification Act 1986 (CDDA 1986). The distinction between designated members (those who perform certain duties for the legal administration of an LLP that would, in a company, be performed by a secretary or directors) and members of an LLP was deemed irrelevant under s.6
An interesting discussion point in the case related to the intention of Parliament when drafting the CDDA 1986 in relation to LLPs. The court determined that the meaning of "conduct of a director" must have the same meaning when applied to members of an LLP. The only capacity that Parliament had available to it was as a member of an LLP, as the LLP Act 2000 only defines a member, and there is no requirement to have a management board or any particular structure in an LLP.
What is an LLP?
A limited liability partnership is a separate legal entity that combines some features of a company and a partnership. LLPs are governed by the Limited Liability Partnership Act 2000 and the Limited Liability Partnership Regulations 2001 and also apply various aspects of the Companies Act 2006, the Company Directors Disqualification Act 1986 and the Insolvency Act 1986 to LLPs. Members of an LLP are, in effect, its partners; and LLPs often have a management board, comprising some of the members, known as designated members.
PR agency, Bell Pottinger, collapsed in 2017. Its business was carried out through an LLP called Bell Pottinger LLP. The Secretary of State had issued disqualification proceedings against three members of the LLP. Two of those members applied to the Court to have those proceedings struck out. The LLP had around 40 members, with designated members on a management board, of which the two applicants were not involved. The applicants argued that their non-membership of the management board meant they were not involved in, nor responsible for, the management and control of business affairs. Accordingly, they argued they could not be disqualified under s.6 of the CDDA 1986, which uses the phrase "member of an LLP", citing that the legislation applied to designated members only.
The application was dismissed by the High Court, with the following points noted:
- All members of an LLP are potentially liable to face disqualification proceedings;
- There is nothing in section 6 of the CDDA 1986 that specifies that the member must be on the management board or at a level equivalent to a director in a company for the legislation to apply;
- The conduct that can be relied on is anything that is done in the capacity of a member of the LLP (i.e. the Secretary of State can bring proceedings under the CDDA 1986 in relation to serious misconduct);
- The test for unfitness is the same as for companies – the "jury question" – whether such conduct makes them unfit to be concerned in the management of a company or an LLP;
- The trial judge will determine if the alleged misconduct is proven and whether such misconduct makes the applicants unfit to be concerned in the management of a company or LLP.
Based on the case's outcome, the application of the CDDA seems to be wider for an LLP than for a company, where only directors can be disqualified. For an LLP, the court found that any member can potentially be subject to disqualification, not just members on a management board or designated members.
This outcome is important to consider for anyone who is currently or considering becoming, a member of an LLP. Don't assume that liability will be avoided for improper conduct, even if responsibility for the LLP's day-to-day affairs has been delegated to a different group within the membership. This case shows that the intention of Parliament and the scope of the legislation is indeed much wider than previously considered.
Members of an LLP must remember they owe general fiduciary duties to the LLP, as a separate legal entity, such as a duty to act in good faith, to act in the best interest of the LLP and to exercise reasonable care, skill and diligence, regardless of their position in its management structure.