Wider lessons of the failure to strike out disqualification proceedings by members of Bell Pottinger LLP
The judgement in an application by two former Members of Bell Pottinger LLP to have disqualification proceedings struck out was handed down on the 23 March. The application was dismissed.
The judgement
Mr Justice Green found that all members of a Limited Liability Partnership (LLP) are potentially liable to face disqualification proceedings, irrespective of whether they held a management position in an LLP or not; or whether they held a role comparable to a company director or not.
To be caught in the searchlight of a disqualification investigation you simply have to be a member and the actions being investigated are in that capacity.
No such thing as a ‘junior member’
The test for whether a member is then disqualified is again, simply, whether the conduct at issue makes the individual unfit to manage a company or an LLP. The judgement cites dishonesty, but clearly a breach of a duty that either causes or contributes to the LLP’s failure could suffice. For example, not acting in good faith or ignoring the duties established by an LLP Deed.
The judgement makes it very clear that the considerable benefits of joining an LLP have a price in order to achieve a fair balance. So a member is always accountable under the Company Director Disqualification Act not just for their role but for their individual conduct. The concept of a ‘junior partner’ in an LLP is at best an administrative and financial conceit between members, not in the eyes of the law.
Relevance to Special Administration Regimes
Relevance goes beyond LLPs and into Special Administration Regimes, for example the Technical & Further Education Act 2017 as the board and officers of Further Education colleges fall into the disqualification regime. A governor, principal or finance officer at an FE College whose breach of duty causes or contributes to a failure should reasonably expect to at least be considered for disqualification.
Relevance for Charities
There is also relevance to the Charity sector (the majority of charities being conducted through companies) and the recently dismissed proceedings against Ms Camila Batmanghelidjh of Kids Company.
The question referenced is whether individuals may be de facto directors or not (she wasn’t). Broadly, a de facto director can be subject to disqualification as they have the role but not the title of a director. For the not-for-profit sector the question to address is whether senior management who think they are not de facto directors act on an ‘equal footing’ with the Boards they report to and so become directors. If they are, then they may want to act as though they are caught under the disqualification investigation regime.
If you would like to discuss anything you have read, please contact Matthew Tait.