Managing conflicts of interest when you’re an officer of a GP federation
As GP federations have become more established, we are receiving an increasing number of enquiries about the role of the federation’s officers.
Most GP federations are organised as limited companies, with shares owned by the member practices. The role of the federation is generally to secure and manage healthcare contracts for their area, which will typically be delivered by some or all of the member practices.
Like any other limited company, a federation and its activity will be overseen by a board of directors. These officers will be governed by certain statutory and fiduciary responsibilities, which will guide how they need to act in relation to the federation and its member practices.
Where it gets complicated is that the directors of a GP federation are typically also partners in a member practice, as well as shareholders in the GP federation. Each officer, therefore, needs to fulfil a number of roles at any one time, each of which carries its own legal and contractual obligations, and sometimes these may conflict.
Another consideration is tax. With income from the different roles being taxed in different ways, it is important to be able to demonstrate that money flows are based on the needs and obligations of the role, not as a way to avoid tax.
Responsibilities of a Director
Company Directors are the agents appointed to act on a company’s behalf, and have statutory responsibilities to act in the best interests of the company as a whole. The statutory responsibilities of a director are set out in the Companies Act 2006, and it is important that all directors are familiar with these. Some of the key points are to remember that a director must act within the powers delegated to them, must do so with reasonable skill and diligence and must avoid conflicts of interest. The bar is not set especially high, but directors should be aware that failure to meet these obligations can result in a variety of sanctions against them personally. Other responsibilities of the directors may be set out in the company’s Articles or in an agreement between the shareholders. Directors of a limited company are employees and are paid through the payroll, and if a GP federation is trading the directors will need to commit some time to it in order to fulfil their responsibilities.
Responsibilities of a Shareholder
The shareholders are the owners of the GP federation and will usually have committed some of their own capital to the business. Shareholders should provide strategic control over the company and guidance to the directors. The shareholders act through General Meetings, and have a small number of statutory powers such as removing directors and changing the name of the company. Any other powers retained by the shareholders are normally set out either in the Articles of the company or in a shareholders agreement. These documents are particularly important where the shareholders and directors are not identical. Since the ‘real’ shareholders of a GP federation are normally all the partners in the underlying practices (rather than the ‘nominee’ shareholder on the share register), it is rare for a GP federation to have identical ‘real’ shareholders and directors. It is important that all the partners understand their role as shareholders, and have a mechanism in place for the nominee shareholder to vote on their behalf. This mechanism is usually set out in a ‘deed of trust’ between the partners in a practice, or within their partnership agreement. Shareholders are not ‘paid’ for any work they do, but they may receive income through dividends on the share(s) they hold.
Responsibilities of a Partner
The responsibilities of partners are as set out in their partnership agreement and the Partnership Act 1890. These can generally be summarised as acting in good faith towards each other and in the overall best interests of the partnership. This means that a partner who is also a director of a GP federation must act in the best interests of BOTH the partnership and the GP federation. Partners are self employed for all income earned through the partnership.
There can be times when these obligations do not align, which opens the door for conflicts of interest to arise.
Conflicts of Interest
Take the example of a GP federation director who is also a partner in a member practice. If a contract is won by the federation to provide a joint service it may be in the interest of the partner’s practice for them to deliver the service, as they would be paid for doing so. However, another member practice may be better equipped to deliver the service or be able to do so more cost effectively. Who should get the work?
Alternatively, a director may find that it is more tax advantageous to be paid as a partner in the member practice, or indeed as a shareholder taking dividends. How should they account for their time spent meeting their obligations as a company director?
Putting steps in place to protect yourself
For any officer, being able to clearly demonstrate how a decision was reached and why you behaved in a particular way is key to managing potential conflicts of interest.
There are steps you can take to do this, including:
- Shareholders’ agreement – this should specify which decisions are to be retained by the shareholders, the terms under which dividends are to be paid, and the mechanisms by which shareholders reach agreement
- Company Articles – these should be checked to ensure they are consistent with the shareholders agreement, as well as any NHS Regulatory requirements
- Directors’ service agreement – each director should have a service agreement describing their role, responsibilities and remuneration
- Partnership agreement/deed of trust – in addition to setting out the ‘normal’ responsibilities in a GP partnership, these documents should explain the role of the nominee shareholder and contemplate the potential conflicts of a GP federation director.
- Minutes – Minutes should be kept of practice partnership meetings, company shareholder general meetings, and GP federation board meetings
Due to the nature of a GP federation, conflicts of interests are almost inevitable. Your best protection will be to understand what each role entails including its statutory and contractual obligations.
Then, by formally documenting each role and process, you will be able to better justify why things happened as they did. You’ll have a way to explain your actions and the context when a conflict arises.
For more information about GP federations, partnership agreements and any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
News
Pensions protection scheme deadline approaches
The start of a new fiscal year is fast approaching and with it comes an important deadline for any GP nearing retirement.
If you’ve built up a healthy pension pot, then Individual Protection 2014 (IP2014) is a scheme that could help you reduce, or avoid, a tax liability on your savings. But with an April 5 2017 deadline, time is running out to apply.
What is IP2014?
The lifetime pension allowance was reduced from £1.5 million to £1.25 million in April 2014, then lowered again in April 2016 to £1 million. Any pension savings above this level are taxed at a significantly increased rate.
Since reducing the lifetime limit could be seen as unfair to those who had already accrued large pension pots, IP2014 was introduced to enable such people to safeguard their pension savings and effectively ‘lock-in’ the higher lifetime savings allowance. However, IP2014 is not an automatic right and must be applied for. We understand that significant numbers of GPs who may benefit from IP2014 protection have not applied. The deadline for applying is 5 April 2017.
Are you affected?
If the total value of your pension benefits exceeded £1.25m as at 5th April 2014 you are potentially able to secure Individual Protection 2014. The calculation to perform is:
(NHS Pension x 20) + Lump Sum + Private Pension Fund Value
The problem is that this calculation requires information on valuations from the NHS Pensions Agency and the demands on their time are currently significant. Fortunately the required information should also be available online, but you would be well advised to check soon if you have not already done so as the tax savings can be significant.
Our recommendations
At DR Solicitors, we believe in always seeking expert advice from specialist advisers. We do not advise on tax or pensions, but we do stay current with all the various regulatory and commercial issues which may affect our clients.
If you are concerned about IP2014 or any other aspect of your pension planning you should always seek the advice of a specialist IFA or accountant who understands the intricacies of the NHS Pension Scheme. We are always happy to make introductions to our extensive network of primary care advisers including specialist accountants, surveyors, banks, IFAs and consultants.
For more information, please contact Nils Christiansen on 01483 511555 or email n.christiansen@drsolicitors.com
News
Partnership disputes – the early warning signs
Partnership disputes can be expensive, time consuming and destructive; not to mention unpleasant for all parties involved.
If you find yourself having to deal with a partnership dispute, the best protection for any practice is to have a valid partnership deed in place.
To help you spot the early warning signs of a potential dispute, we have pulled together a list of some of the most common causes of partnership disputes:
- Underperformance: Partnerships are based on the principles of trust and fairness. Negative feelings can start to creep in, if there is a perception that one partner is underperforming. For example, if they are perceived as not pulling their weight, have a lack of attention to practice management responsibilities, or exhibit poor time keeping and organisational skills.
- Money: Financial concerns are one of the most frequent causes of disputes. They can range from arguments over alleged financial impropriety, to non-property owning partners paying for building costs, the sharing of outside earnings, or the profit share to workload ratio.
- Unacceptable behaviour: Disputes can arise when a partner is considered by others to be behaving in an unacceptable way. Examples of this include: bullying, harassment, discrimination, inappropriate use of computer systems (sometimes even during consultations) and self-prescribing.
- Clinical concerns: Every clinician has a professional obligation to report any clinical concerns they may have. By themselves, these issues won’t necessarily lead to a partnership dispute. However, problems can arise when clinical issues are covered up, reveal a lack of insight, or if they put a partner’s GMC registration at risk.
- Personality clash: Personality clashes can fester for years. Such disputes are usually best dealt with through mediation and the LMC can often help in such circumstances. However, successful mediation requires that the partners in conflict demonstrate insight and work on changing their behaviour, which can sometimes be difficult.
- Sickness absence: When a partner is frequently off sick, or takes a long period of sickness absence, this can contribute towards a feeling that they are not ‘pulling their weight’. A locum can be used to backfill but they will not be sharing any of the management workload, which means extra pressure is felt by the remaining partners.
- Generational differences: Generational interests are sometimes not aligned. For example, a partner nearing retirement may be keen to preserve capital and minimise unnecessary change, whilst a younger partner may be keen to invest in new premises or different working patterns. Disputes of this nature can lead to issues with 24 hour retirement planning, or even age discrimination claims.
- Surgery Premises: Incoming partners are showing less interest in buying into surgery premises than they did in the past. They are also often unwilling to sign up to a long lease. This can cause problems for other partners, who may be keen to move on or retire and are unable to divest themselves of the property interest.
Why your partnership deed is important
A well drafted partnership deed can help minimise the disruption caused by a dispute or avoid the dispute altogether. It will seek to anticipate many of the issues mentioned above and provide an agreed framework for resolving them.
For example, it can state grounds for expelling a partner; document the terms of absences from the practice; ensure that all partners have the right to 24 hour retirement; and specify a dispute resolution process. Importantly, it can also prevent a partnership from being dissolved in the event of a dispute, as this can put the GMS/PMS contract – and therefore the practice – at risk.
Our recommendations
If you are unlucky enough to find yourself in dispute with your partners, then make sure you seek professional legal advice at an early stage. It is important that you know where you stand legally, so you can avoid doing anything which may compromise your position. Fortunately, most partnership disputes will be settled without the need for litigation. In the meantime, please ensure you have a valid and up to date Partnership Agreement.
For more expert advice, download our free guide: ‘Top 10 tips for dealing with partnership disputes‘.
For more information about Partnership Agreements or disputes, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com