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LLPs – Designated Members Duties Clarified6th July 2020 Corporate
The High Court has, in the recent case of Re A&C Restoration LLP provided some helpful guidance on the duties of designated members to LLPs and their creditors, in particular where they are insolvent.
The case involved a designated member of an insolvent LLP who was retiring using his powers to waive the LLP’s right to repayment of substantial overdrawings he had made in his deed of retirement. Following his exit the LLP went into insolvent liquidation, and an assignee of the liquidators claim decided to challenge the waiver.
Having considered the matter, the Court determined that that designated members of LLP owe the same duties to the LLP as a director does to a company. This encompasses duties under the Companies Act 2005, common law and equity. Of course these include the duty to take into account the interests of creditors where the company/LLP is insolvent.
In this context, and given the insolvency of the LLP at the time the designated member’s deed of retirement was entered into, the Court determined that the designated member had breached his fiduciary duties to the LLP on entering into it. He was, as a result, prevented from relying on it. In addition, even if the waiver had still been treated as being binding on the LLP it would have a damages claim against the designated member for the waived debt.
There is plenty of case law on the duties of directors, but as we approach the 20th anniversary of LLPs being legislated for there is very little on the duties of members. This case provides useful guidance for LLP members, creditors and liquidators.
JMW Solicitors LLP frequently advises on issues relating to LLPs from drafting LLP Agreements and advising new member on the terms of the agreement and their duties to advising on partnership disputes. If you need any assistance in relation these or other legal issues please contact please contact us on 0345 241 5305.
This note is for general guidance only and should not be used for any other purpose. It does not constitute, and should not be relied upon as legal advice. It relates to the position in England only.
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This note is correct as of 29 June 2020.