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Covid-19: A must read for LLP members!

7th May 2020

Covid-19: A must read for LLP members!

Why limited liability partners should reassess their risks

Context

At the end of March, Alok Sharma, Secretary of State for Business, Energy and Industrial Strategy, announced lifted liability for company directors in respect of wrongful trading for a three-month period. 

What you need to know

The legislation to give effect to the announcement has not yet been passed, so very little is known as to exactly what the terms will be and, importantly in the context of this article, whether the wrongful trading liabilities for members of LLPs will also be lifted.

Even if such liabilities are waived, it seems unlikely that LLPs will be able to take the benefit of this but since the protection is due to come to an end on 31 May, they should take stock of their options at this stage.

It is important to note that the wrongful trading provisions of the Insolvency Act also affect members of LLPs and indeed, it can affect them to a greater extent than directors of companies.

The problem for LLPs, caused by wrongful trading, is that members can be forced to pay back any money they received from the LLP (including that received by way of salary or loan repayments) for a period of up to two years before liquidation.

Because of the way in which solvency is defined, many LLPs are likely to have become technically insolvent during the lockdown so the only issue for a subsequent liquidator is when they should have concluded that liquidation was inevitable.  In these uncertain times, they are likely to have some trouble in arguing that it was still reasonable to rely on pre-lockdown trading forecasts in deciding to continue to trade.  Accordingly, unless the law is changed to release them from such liability they should take steps to protect their position.   

What you need to do

Quite simply, if you are a member of a LLP you should review your finances urgently to avoid getting caught out by the wrongful trading legislation provisions in the Insolvency Act.

Get in touch with our registered Insolvency Practitioner, David Ellis, on 07515 999503 or email david.ellis@higgsandsons.co.uk who is waiting to help.

If you have any other general queries or concerns that you feel we can assist with, please email supportingyou@higgsandsons.co.uk and somebody will get back to you as a matter of urgency.

 

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