As this publication went to press, private fund lawyers in the UK were awaiting Chancellor George Osborne’s Budget speech of 16 March. Of interest was any update on the introduction of new legislation governing limited partnerships.
The government’s consultation on proposed changes to rules governing limited partnerships was first announced in the chancellor’s summer Budget in July 2015. It closed in October.
Streamlining of existing legislation, most significantly the 1907 Limited Partnerships Act, has been long-awaited and is widely supported by the industry. The British Private Equity and Venture Capital Association (BVCA) has spearheaded the push for reform and submitted a detailed response to the consultation. Since then it has been in ongoing discussions with the Treasury.
The Treasury’s goal for the regulatory clean-up, which would be enacted through a legislative reform order that does not require a parliamentary vote, is to facilitate the formation of onshore funds in the UK. It will create a new private funds regime that aims to eliminate the “uncertainties and inconveniences” that dog the current process and to make the UK more competitive with other jurisdictions.
Crucially, there have been few objections or questions regarding the items on the “White List” that spells out activities permitted by LPs that would not jeopardise limited liability status. These include participating in decisions regarding investments and changes to the partnership agreement.
But issues with the proposed changes remain. Key among those raised with the Treasury by a BVCA working group, which included a wide range of funds lawyers, was the government’s proposed eligibility criteria for funds to be included in the new regime, and the 12-month time limit to apply.
“We’ve asked for flexibility on certification and when a fund is allowed to opt in,” says Simon Witney, chairman of the BVCA’s legal committee and a private equity lawyer at King & Wood Mallesons. “We were concerned that the proposed procedure was a bit onerous and it would be better if there was a more straightforward process at Companies House. Most members of the BVCA would like to be in the new regime and most would fulfil the criteria, ie their funds will be collective investment schemes.”
The legislative changes also address the lack of any existing mechanism to remove expired limited partnerships from the Companies House register. However, the BVCA working group is concerned that with the current language, should a mistake be made striking off a fund from the register, LPs could be exposed to limited liability risk while it is being reinstated. It has asked that this be addressed in the final version of the rules.
Discussions about the detail are overshadowed by a larger concern. The BVCA working group has continued to advocate for English limited partnerships to have the option to elect for legal personality.
“If you want to have legal personality in the UK you have to go to Scotland. If you want a fund without, you use English law. We think this is unnecessary and arcane. It would be preferable to have a tick box where you state what you want,” says Witney.
But such a change would require new primary legislation and is unlikely to be implemented in this round of reform.