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In this partnership action, Mr Meredith instructed Bell Lax.
Shakespeare Putsman LLP sought an injunction to restrain Bell Lax’s client presenting a winding-up petition against the applicant.
Mr Meredith was a full equity partner of his previous firm, Shakespeares. The merger between Shakespeares and Putsman was not without its difficulties and had been rejected by members of Shakespeares on several occasions.
Mr Meredith told the court that the doubting partners of Shakespeares were persuaded into acquiescence with the merger upon the strength of assurances given by Putsman LLP. Mr Meredith said he had been told that the newly acquired Shakespeares partners in the new LLP would be safe from removal for a minimum of two years, albeit the LLP agreement provided for six months notice. Therefore, Mr Meredith understood that he was safe, if the assurance was met, for two years and six months.
The removal provisions were subsequently triggered against Bell Lax’s client within this period, with the effect that from 22 August 2007 Mr Meredith would have ceased to be a partner. Mr Meredith considered this unfair. He considered that his only remedy was for Shakespeare Putsman either purchase his interest in the business for a fair value or for the firm to be wound up.
Under section 122E of the Insolvency Act 1986, as amended by the Limited Liability Partnership Regulations 2001, as a member Mr Meredith was entitled to petition to the court to wind up Shakespeare Putsman on just and equitable grounds. Bell Lax argued that the assurances given prior to the LLP Agreement gave rise to equitable considerations which made it wrong for Shakespeare Putsman to trigger the retirement provisions.
The judge refused to analyse the assurances during the application and proceeded on the basis that Mr Meredith had an arguable case that they have been breached.
However, the court pointed out that nonetheless, the retirement notice had been given and on 22 August 2007 Mr Meredith would cease to be a member of the LLP. It was noted that although any application would occur while Mr Meredith was a member, the petition would not be heard prior to that date; Mr Meredith would have ceased to be a member by the time of any winding up.
If the winding-up petition proceeded, there would have been a surplus of which members would have been entitled a share.
The court found that the terms of the LLP provided that only current members would be entitled to a share; Mr Meredith would no longer be such at the time of winding up. The court came to this conclusion despite the fact that the LLP referred on several occasions to ‘the commencement of the winding up’ in the provisions relating to this. Bell Lax argued that as such, commencement occurred when an application to wind up was made, a time at which Mr Meredith would still be a member.
The court ruled that if Mr Meredith’s application was allowed in the last week of his employment, it would be an abuse of process. Mr Meredith would be a creditor and not a member at winding up and would therefore not benefit from any pay out from the surplus. Mr Meredith would have no conceivable interest in a winding up.
The case ultimately acted to reassert the notion that a winding up petition should ordinarily only be used where there is an undisputed indebtedness and failure to pay. Although this has been described as a rule of practice and not as a law, this case once again implies that this position is so well established that exceptional circumstances are needed to justify a departure from this rule.
