PETER JOHN TRIBE v ELBORNE MITCHELL LLP

Statutory accounts and partners’ accounts serve different purposes. Statutory accounts record the LLP’s factual financial position at the reporting date, applying applicable accounting principles and taking account of relevant adjusting post-balance-sheet events. Partners’ accounts determine the position between partners and may involve a discretionary assessment of distributable profits. The figure for distributable profits may therefore be the same as, or greater or less than, the profit shown in the statutory accounts. Commercial considerations may justify a different provision in the partners’ accounts, having regard to information available when the distribution decision is made.

Peter Tribe, a retired equity partner of Elborne Mitchell LLP, claimed further sums following his retirement. The remaining issue concerned whether the profits figure used in the partners’ accounts for the year ended 30 April 2016 should include a provision against a fixed-share partner’s debt of approximately £128,554.

The LLP had made full provision for the debt in its statutory accounts and then used the same reduced figure when determining distributable profits and preparing the partners’ accounts. The central issue was whether the accounting treatment required for the statutory accounts necessarily governed the partners’ accounts.

1. Statutory accounts. The debt had to be assessed for impairment as at 30 April 2016, taking account of post-balance-sheet events only insofar as they evidenced the position at that date. There was objective evidence of impairment, but the evidence did not justify a 100% provision. On a broad-brush assessment, a 50% provision was appropriate.
2. Different purpose of partners’ accounts. The Members’ Agreement contemplated that distributable profits could be the same as, or more or less than, the profits shown in the statutory accounts. Statutory accounts record the LLP’s factual financial position. Partners’ accounts address the position between the partners and incorporate the discretionary process for determining distributable profits.
3. Relevant date and commercial judgment. The assessment for distributable profits was made when the partners resolved the issue on 31 October 2016, and was reflected when the partners’ accounts were approved on 18 April 2018. By then, the possibility that the debt would be recovered through the debtor’s fee income had substantially disappeared. The remaining possibility of recovery from his own resources was slight. The commercial decision to determine distributable profits on the basis of a full provision could not therefore be criticised.
4. Disposition. The answer to the directed question was yes. The LLP had been wrong to make full provision in the statutory accounts, but the partners’ accounts were not thereby defective. The claimant’s remaining claim failed.