Liquidator successfully opposes summary judgment

The liquidator of the partnership (LLP) brought misfeasance proceedings against a former designated member of the LLP, who had exited the business with a significant termination payment. At the time of his exit, adjudication proceedings were outstanding against the LLP. The adjudicator had made a provisional award requiring the LLP to pay £220,000 into an escrow account.

The LLP entered liquidation some years later and the adjudication was concluded the following year, with an award against the LLP of £926,000 plus costs of £1.5million.  

The liquidator alleged that the former member had not made a proper provision for the contingent adjudication liability when agreeing his exit payment. The former member sought summary judgment to dismiss the claim.

The Court declined to order summary judgment. Where an LLP is close to cessation and a designated member seeks to exit with a pay-out before cessation and before the contingent liability has crystallised, the Court is required to undertake a reasonable enquiry into the finances of the LLP. The test is whether a suitable account or provision was made for the estimated liabilities, and therefore this was not a suitable case of summary judgment.

This is an interesting case in relation to the approach to contingent liabilities provision for them. A reasonable enquiry should be undertaken, and a director or member seeking to exit a business where a significant contingent liability is outstanding should take care to seek external advice (whether legal or expert) about the proper provision to be made.

In the matter of Finnan Developments (Raynes Park) LLP 


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