My Lords, I thank the Minister for introducing this order. As he has outlined, this instrument would enable a limited partnership which is an investment firm to be designated as a private fund limited partnership. It also amends some of the provisions of the Limited Partnerships Act 1907 as they apply to PFLPs and to partners in PFLPs. This change has been in the pipeline for over a decade, since the Law Commission and the Scottish Law Commission published proposals in 2003. In 2008,
the then Labour Government published a consultation on limited partnerships. However, in response to the stakeholder responses, the decision was taken that it was not possible to continue with those reforms.
We will not be opposing this order. However, I wish to put a number of questions to the Minister, and perhaps the most sensible place to start is with the Labour Government’s objections. The consultation response in 2009 stated that concerns were raised about particular issues in Scotland, as well as how the order was drafted. I appreciate that the order has undergone revision since then, but have stakeholders raised objections on the instrument in front of us today? Furthermore, has the draft been altered to reflect the concerns raised by funds with client interests in Scotland?
One of the changes made following the latest consultation was the removal of the strike-off procedure. The original proposal would have removed dissolved PFLPs from the partnership register. However, concerns were raised that limited partners would lose their limited liability status. We therefore now have a two-tier system for limited partnerships and PFLPs. What consideration was given to delaying introduction of this instrument until all the cracks surrounding the strike-off procedure are ironed out? The explanatory document promises that the Government will look into further steps that could be taken in relation to this issue “in due course”. Can the Minister say what further steps are being taken and when we can expect to be informed about them? There have been strong concerns raised about the burden that this two-tier system will create.
The Government’s stated aim is to,
“reduce the administrative and financial burdens that impact these funds under the current limited partnership structure”.
However, as the BLP law firm identifies, there is a chance that the reduction in the compliance and administrative burden under the new PFLP regime may be short-lived and may well be replaced by other initiatives to increase accountability for limited partnerships more generally. What measures are included in the instrument to ensure that the Government’s stated aim is achieved?
The introduction of a white list brings with it much- needed clarity on the activities of a limited partner, but there is real concern around whether the Government have achieved the right balance in the role of limited partners in the new PFLPs. The proposed changes allow a limited partner to take part in the committee and to vote on proposals by the general partner, while at the same time maintaining limited liability status. Do not the Government consider that this is an inappropriate power for a limited partner? I would certainly be interested to hear what criteria the Government have used to determine the content of the white list. Getting the balance right is vital, so do they intend to conduct a review of the white list and, if so, to what timescale?
Page 8 of the explanatory document—which I found very helpful as someone coming new to this issue—makes a forceful defence for the reforms, stating that:
“Without such changes to current legislation, the UK risks becoming a less attractive domicile for funds when compared to other jurisdictions”.
That is a strong claim, but I could not see any evidence in the document to support that contention, so I would be grateful if the Minister would address that issue. I would certainly be keen to hear his explanation of the role that PFLPs will be playing in making this a more “attractive domicile”.
Finally, I have two minor technical points. First, the impact assessment states on page 2 that 600 private equity and venture capital fund managers will be affected by this change. However, it states on page 8 that as many as 1,030 could be affected. Which of these figures is correct and what percentage of the current limited partnership landscape does that represent? Secondly, what discussions have the Government had with Companies House, which will be responsible for processing applications by firms wishing to become PFLPs, about the changes being made? Has it requested additional resources to deal with the increased administration costs of these charges? I look forward to the Minister’s response.