APP Arti APP Article
DIVIDED LOYALTIES
AN UPDATE ON THE LAW RELATING TO LIMITED LIABILITY PARTNERSHIPS FOLLOWING THE DECISION IN F&C ALTERNATIVE INVESTMENTS (HOLDINGS) LIMITED V FRANCOIS BARTHELEMY AND OTHERS [2011] EWHC 1731 (CH), [2011] ALL ER (D) 296 (JUL) Jeremy Callman, Ten Old Square and Molly Ahmed, Fox Williams LLP The global financial crisis of 2008 resulted in a number of surprising events: the collapse of Lehman Brothers, the forced rescue of the Royal Bank of Scotland by the UK Government and at long last judicial clarification of the law relating to what, if any, fiduciary duties are owed by members of limited liability partnerships. The 303 page judgment of Mr Justice Sales in F&C Alternative Investments (Holdings) Limited v Francois Barthelemy (1) Anthony Culligan (2) [2011] EWHC 1731 (Ch) is well worth a read; on the rash assumption that members may struggle to find a spare 24 hours, this article seeks to summarise key aspects of the decision. The facts
Jeremy Callman, Ten Old Square
Molly Ahmed, Fox Williams LLP
21 Issue 34 – May 2012
In 2004, Francois Barthelemy and Anthony Culligan (referred to in Mr Justice Sales’ judgment as the “Defendants”) approached F&C, one of the world’s largest and oldest asset management companies, with a proposal to set up a Fund of Hedge Funds (“FoHF”) business in which they would have shares as part owners of the business alongside a financial institution. That proposal was attractive to F&C, as it had a gap in its product range for a FoHF. And so, in December 2004, F&C Partners LLP (the “LLP”) was formed, and was governed by a members’ agreement dated 3 December 2004 (the “Agreement”). The members of the LLP were the Defendants and F&C Alternative Investments (Holdings)
Limited (“Holdings”), a wholly owned subsidiary of F&C PLC. Each of the Defendants had a 20 per cent interest in the LLP’s profits and capital and each held 20 per cent of the members’ voting rights. The remaining 60 per cent interest in profits and capitals was held by Holdings, who had a corresponding 60 per cent share of the voting rights. Pursuant to the Agreement, the Defendants were entitled to exercise Put Options requiring Holdings to buy out their interests at a favourable price should Holdings breach the Agreement. In 2008 and 2009, the global equity and bond markets suffered huge losses as a result of the credit crunch and the LLP, along with the great majority of hedge funds, sustained severe losses. As Mr Justice Sales observed a major part of the dispute stemmed from the different view of the Defendants and F&C about how the LLP should react to the LLP’s deteriorating performance. In order to exert pressure on the Defendants to conform to F&C’s strategy, F&C threatened to cut off the Defendants’ income to which they were guaranteed under the Agreement. That and other breaches of the Agreement led the Defendants to serve Put Option Notices. The Defendants also contended that F&C PLC and Holdings had conducted the affairs of the LLP in a manner which was unfairly prejudicial to them. Three sets of proceedings were brought: (i) a claim by Holdings for a declaration that the exercise of the Put Options was invalid; (ii) an unfair prejudice