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Alex J.
Alex J., Solicitor
Category: Law
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Experience:  Solicitors 2 years plus PQE
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We are an LLP and one member retired to join a company with

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We are an LLP and one member retired to join a company with whom we work with. Over the next few months after he had announced this, and joined the other co, we had protracted negotiations with him as to any goodwill offer, as the terms of the LLP clearly stated he was only due a net distribution up to date of retirement. We eventually agreed on goodwill terms and drew up a goodwill agreement which all signed. However this was based (although not stated in the agreement) on the retiree continuing to work at his newco on the prime area of the LLP's business, being a residential property Fund, to raise cash in to that Fund. This he has not done. The LLP therefore feel that the basis of understanding of why the goodwill was offered has changed, and so do not want to proceed with that goodwill offer. Is the LLP legally bound to carry out the payments tabled in the goodwill agreement? Or as it is simply goodwill, can this be withdrawn?
Submitted: 2 years ago.
Category: Law
Expert:  Alex J. replied 2 years ago.
Hi,

Thank you for your question and welcome.

My name is ***** ***** I will assist you.

What is the form of this goodwill agreement? Is it signed as a deed?

Does it says his continued working on the LLP projects is a condition of the agreement? Do you have a redacted copy of the agreement?

Kind regards

AJ
Customer: replied 2 years ago.

Please see the attached agreement redacted agreement. Please confirm receipt. The main co was an LLP, but we also had several LTD co.s which carried out other areas of business which he resigned from at the same time and the agreement tried to encompass goodwill on behalf of all the companies.


 


Does not state that continued working on LLP projects a condition of the agreement.


 


Thanks



Charles

Attachment: 2014-07-08_095639_signed_gr_settlement_agreement_redacted.pdf

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

I will review the attachment and write a response.

Please do not be concerned if you do not hear from me until later this evening.

Kind regards

AJ
Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

I have read this and while it refers to "goodwill" there is probably some contractual relationship here. He is retiring in return for the various payments outlined.

There are various details of payments highlighted - which is the relevant one? Is that he has to continue to work raising funds for the development of one of the LLP's sites?

Kind regards

AJ
Customer: replied 2 years ago.

He announced he wanted to leave all the companies (retired is just the legal wording re an LLP?) and then post that we had protracted negotiations and agreed a goodwill payment based on the terms outlined in this agreement from each of the companies. All the payments are relevant. He left to work full time for a partner company who are tasked with raising cash funds into a residential property Fund, which in turn employs the LLP as Property Advisor. All terms in the agreement are pure goodwill. That goodwill in effect no longer exists due to his having lied about his role at the partner co, as he is not working in the role he declared which would have benefited the companies.

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

Goodwill as a concept does not exist under English Law.

What you need to show is that this document is:
a) A contractual relation;
b) Has an obligation on the LLP to pay a sum of money for the exiting partners retirement;
c) In return for that payment the exiting partner has to comply with certain conditions;
d) For not complying with those conditions the partner is in breach and accordingly the LLP can recover its losses for that breach.

Have you paid the LLP member a lump sum for his capital in the LLP?

Kind regards

AJ
Customer: replied 2 years ago.

If goodwill does not exist under English law than can this agreement not be discarded and the standard terms in LLP etc agreements apply? He had no capital in the LLP at date of retirement - there were some ongoing pieces of business, which if they crystallised post his leaving the goodwill payment gave him a 'slice' of.


 


The agreement should have been worded to say that he had to perform X and Y to qualify (which had been verbally agreed) but unfortunately does not as it was simply drawn up internally and not by a lawyer..

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

If you look past the goodwill element of it, you can see a retirement agreement. He has obligations on him and in return the LLP will pay him and both parties release one another from other claims.

On the basis that there is an obligation on him and there is an obligation on the LLP to pay a sum for his retirement, what do you want to achieve? Claw back all monies paid?

Kind regards

AJ
Customer: replied 2 years ago.

We would like to achieve ideally a fall back to the existing LLP shareholder agreement which states a distribution based on his leaving date which means no payment due. In effect we want to make sure no more monies due to him. No claw back. Draw a line under it all and move on.


 


Thanks



C

Expert:  Alex J. replied 2 years ago.
Hi

Thank you.

Ok - If we assume for a moment that this agreement is not a contract at all because it is as you say "a goodwill" agreement and it could be argued that it lacks consideration.

What evidence do you have that the member formally resigned or was voted out? Because you would have to address this if you were trying to say that the goodwill agreement is unenforceable and therefore you should follows the position in the LLP agreement?

The other thing to consider is, if you want to take the view that you pay him nothing, he is almost certainty going to dispute this. Therefore if it ends up in court you might end up spending good money after bad arguing over this.

My view is therefore you should try and negotiate a reduced payment on the basis that he has breached this goodwill agreement and avoid running up legal costs.

I look forward to hearing from you.

Kind regards

AJ
Customer: replied 2 years ago.

He formally resigned of his own free will and that is evidenced in a letter of resignation from him. Are you saying that as a goodwill agreement it should have stated the consideration in return for that goodwill, and as it does not that there's an argument that it is unenforceable? As he has, in our view, breached the goodwill agreement then the best way forward may be to offer him a full and final settlement of a much reduced payment? If offering that should it be titled "without prejudice" or how worded? To note we do not believe he would be in a financial position to pursue this legally, or have the backbone, so to speak, to do so.


Thanks

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

OK - so that is a start he has resigned and been removed from the LLP - what is the LLP agreement position on retirement of members?

If you are going to try and claw back the monies owed or paid on the basis of his breach of your agreement then you need to:
1. Decide what position you are going to take - is the goodwill agreement a binding contract or are you going to try and argue it is not due to lack of consideration?
2. If you decide it is a valid agreement you need to first highlight his breaches of that contract and what losses it has caused the LLP;
3. Then in a separate letter send a "Without Prejudice" letter make an offer to settle at a reduced amount

If this individual wont bring a claim then I would strongly recommend getting a solicitor to send your claim to him - having a letter from a solicitor on headed paper is going to give it added gravitas that you have been advised and you know what the LLP's rights are.

I look forward to hearing from you.

Kind regards

AJ
Customer: replied 2 years ago.

I think we would argue it's not binding due to lack of consideration. If we were to proceed as you propose, what would you charge to draft the letter to send to him? Sorry to continue asking questions! I will rate you well!

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

No problem - I am happy to discuss this and answer any questions until you are satisfied.

SO what you will allege is that the payment is not binding because there is no consideration on his part, there is nothing that obligates him to do anything under this agreement as the payment is a "goodwill" payment. If you really wanted to stretch it then you could try and argue that this means it is a discretionary payment as well. The only concern I have with this argument is the fact that the goodwill agreement refers to this member releasing the LLP from all claims - this could be argued as consideration.

I am very sorry but this is simply not a service I can offer through this site - we can only offer question and answer services. If you want someone affordable then contact the Law Society www.lawsociety.org.uk - the solicitor really does not need to be in London (as this is what will add to the cost). This wont be a complex matter and should not end in court. The document you have is so vague it is not worth having a dispute over, this will really just boil down to a commercial negotiation over which the LLP is unhappy that the member has not complied with the terms of his exit, whether it be under the LLP agreement or good will agreement.

Kind regards

AJ
Alex J., Solicitor
Category: Law
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Experience: Solicitors 2 years plus PQE
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