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How can Partnerships and LLPs make Time-Critical, Strategic and Commercial Decisions in a Crisis whilst Minimising Dispute Risks?

Often, emergency decisions need to be made in Professional Services firms to ensure the long-term survival of the business. This has become a daily reality for some firms during this global health and financial crisis, where decisions like pruning the partner ranks and reducing or deferring partner drawings, distributions and promotions or even corporate restructuring may need to be taken. But the aftermath of a quick decision without appreciating the potential legal risks could cost just as much money and time as the firm may have been hoping to save by making the decision in the first place. It is therefore even more important in a crisis to understand the potential pitfalls in decision-making in relation to Partnerships and LLPs and mitigate the risks as far as possible from the outset.

In this Zoominar, chaired by Zulon Begum, you can hear the leading partnership and LLP silk John Machell QC and expert partnership and LLP adviser to Professional Services firms, Sarah Chilton discuss some of the issues that arise for firms decision-making in a COVID-19 world, including:

1. Whether a firm is subject to any fetters when exercising a contractual discretion to exit a partner on a no-fault basis. Getting this right is vital as failure to do so may make the firm management’s decision void, potentially resulting in the partner continuing to accrue profit share rights. What if there are no relevant powers provided for in the Partnership or LLP Agreement? And is it really necessary to document the reasons for every decision made at the height of a crisis and if so, how?

2. Which risks should a firm consider before taking a decision in response to COVID-19 which may affect some partners more disproportionately than others? And how might a firm insure themselves against sex, age, disability or other discrimination and whistleblowing claims from disgruntled partners affected by their decision-making?

3. What if your Partnership or LLP Agreement requires you to hold physical meetings to pass a resolution?

4. How can firms ensure that they implement a compliant partner appraisal and decision-making process in the middle of a lockdown that has disrupted the normal way many partners were required to work? What information should be obtained, shared and recorded and do firms have less onerous obligations if there is no express contractual process?

5. Which procedural and substantive rights should a firm implement when exiting a partner to insulate it against common challenges?

6. Which issues should firms in distress bear in mind when making material changes and key strategic decisions around mergers, appointing insolvency practitioners or agreeing pre-pack, and what might be the consequences of getting it wrong?

If you would like to discuss any of the issues raised in this podcast further, or for guidance on your specific rights, responsibilities and potential liabilities, please contact Partners Zulon Begum and Sarah Chilton.